Chapter 8
STATUTE OF FRAUDS

I. INTRODUCTION

A. Nature of Statute of Frauds: Most contracts are valid despite the fact that they are only oral. A few types of contracts, however, are unenforceable unless they are in writing. Contracts that are unenforceable unless in writing are said to fall "within the Statute of Frauds." The Statute of Frauds is pretty much identical from state to state.

B. Five categories: There are five categories of contracts which, in almost every state, fall with the Statute of Frauds and must therefore be in writing:

1. Executor: A contract of an executor or administrator to answer for the duty of his decedent;

2. Suretyship: A contract to answer for the debt or duty of another.

3. Marriage: A contract made upon consideration of marriage.

4. Land contract: A contract for the sale of an interest in land.

5. One year: A contract that cannot be performed within one year from its making.

6. UCC: Additionally, under the UCC, contracts for the sale of goods must be in writing if they are for a price of $500 or more.

II. SURETYSHIP

A. General rule: A promise to pay the debt or duty of another is within the Statute of Frauds, and is therefore unenforceable unless in writing.

B. Main purpose rule: If the promisor's chief purpose in making his promise of suretyship is to further his own interest, his promise does not fall within the Statute of Frauds. This is called the "main purpose" rule.

Example: Contractor contracts to build a house for Owner. In order to obtain the necessary supplies, Contractor seeks to procure them on credit from Supplier. Supplier is unwilling to look solely to Contractor's credit. Owner, in order to get the house built, orally promises Supplier that if Contractor does not pay the bill, Owner will make good on it. Because Owner's main purpose in giving the guarantee is to further his own economic interest — getting the house built — his promise does not fall within the suretyship provision, and is therefore not required to meet the Statute of Frauds. So it is enforceable even though oral.

III. THE MARRIAGE PROVISION

A. Contract made upon consideration of marriage: A promise for which the consideration is marriage or a promise of marriage is within the Statute.

Example: Tycoon says to Starlet, his girlfriend, "If you will promise to marry me, I'll transfer to you title to my Malibu beach home even before our marriage." Starlet replies, "It's a deal." No document is signed. If Tycoon changes his mind, Starlet cannot sue to enforce either the promise of marriage or the promise to convey the beach house, since the consideration for both of these promises was her return promise to marry Tycoon. Conversely, if Starlet changes her mind, Tycoon cannot sue for breach either.

1. Exception for mutual promises to marry: But if an oral contract consists solely of mutual promises to marry (with no ancillary promises regarding property transfers), the contract is not within the Statute of Frauds, and is enforceable even though oral. That is, an ordinary oral engagement is an enforceable contract.

IV. THE LAND CONTRACT PROVISION

A. Generally: A promise to transfer or buy any interest in land is within the Statute. The Statute does not apply to the conveyance itself (which is governed by separate statutes everywhere) but rather to a contract providing for the subsequent conveyance of land.

Example: O, the owner of Blackacre, orally promises to convey it to A in return for A's payment of $100,000. If A fails to come up with the $100,000 by closing date, O cannot sue for breach. Conversely, if O refuses to make the conveyance even though A tenders the money, A cannot sue O for breach.

1. Interests in land: The Statute applies to promises to transfer not only a fee simple interest in land, but to transfer most other kinds of interests in land.

a. Leases: For instance, a lease is generally an "interest in land," so that a promise to make a lease will generally be unenforceable if not in writing.

i. One year or less: But most states have statutes making oral leases enforceable if their duration is one year or less.

b. Mortgages: A promise to give a mortgage on real property as security for a loan also usually comes within the Statute.

c. Contracts incidentally related to land: But contracts that relate only incidentally to land are not within the Statute. Thus a contract to build a building is not within the Statute, nor is a promise to lend money with which the borrower will buy land.

B. Part performance: Even if an oral contract for the transfer of an interest in land is not enforceable at the time it is made, subsequent acts by either party may make it enforceable.

1. Conveyance by vendor: First, if the vendor under an oral land contract makes the contracted-for conveyance, he may recover the contract price.

2. Vendee's part performance: Second, the vendee under an oral land contract may in reliance on the contract take actions which: (1) show that the oral contract was really made; and (2) also create a reliance interest on the part of the vendee in enforcement. Such a vendee may then obtain specific performance (a court order that the vendor must convey the land) even though the contract was originally unenforceable because oral.

a. Taking possession and making improvements: For instance, if the vendee pays some or all of the purchase price, moves onto the property, and then makes costly improvements on it, this combination of facts will probably induce the court to grant a decree of specific performance.

b. Payment not sufficient: Usually, the fact that the vendee has paid the vendor the purchase price under the oral agreement is not by itself sufficient to make the contract enforceable. (Instead, the vendee can simply recover the purchase price in a non-contract action for restitution.)

V. THE ONE-YEAR PROVISION

A. General rule: If a promise contained in a contract is incapable of being fully performed within one year after the making of the contract, the contract must be in writing.

1. Time runs from making: The one-year period is measured from the time of execution of the contract, not the time it will take the parties to perform. (Example: On July 1, 1990, Star promises Network that Star will appear on a one-hour show that will take place in September, 1991. This contract will be unenforceable if oral, because it cannot be performed within one year of the day it was made. The fact that actual performance will take only one hour is irrelevant.)

B. Impossibility: The one-year provision applies only if complete performance is impossible within one year after the making of the contract. The fact that performance within one year is highly unlikely is not enough.

1. Judge from time of contract's execution: The possibility of performing the contract within one year must be judged as of the time the contract is made, not by benefit of hindsight. (Example: O orally promises A that O will pay A $10,000 if and when A's husband dies. A's husband does not die until four years after the promise. The promise is nonetheless enforceable, because viewed as of the moment the promise was made, it was possible that it could be completed within one year — the fact that it ended up not being performed within one year is irrelevant.)

C. Impossibility or other excuse: It is only the possibility of "performance," not the possibility of "discharge," that takes a contract out of the one-year provision. Thus the fact that the contract might be discharged by impossibility, frustration, or some other excuse for non-performance will not take the contract out of the Statute.

1. Fulfillment of principal purpose: It will often be hard to tell whether a certain kind of possible termination is by performance or by discharge. The test is whether, if the termination in question occurs, the contract has fulfilled its principal purpose. If it has fulfilled this purpose, there has been performance; if it has not, there has not been performance. Using this rule gives these results:

a. Personal service contract for multiple years: A personal services contract for more than one year falls within the one-year rule (and is thus unenforceable unless in writing) even though the contract would terminate if the employee died. The reason is that when the employee dies, the contract has merely been "discharged", not performed.

b. Lifetime employment: A promise to employ someone for his lifetime is probably not within the one-year provision, since if the employee dies, the essential purpose of guaranteeing him a job forever has been satisfied. So an oral promise of a lifetime job is probably enforceable.

c. Non-compete: A promise by a seller of a business not to compete with the buyer for a period longer than a year is not within the one-year provision, since if the seller dies within a year, the buyer has received the equivalent of full performance (he knows the seller won't be competing with him).

D. Termination: Courts are split about whether the existence of a termination clause that permits termination in less than a year will remove a more-than-one-year contract from the one-year provision. (Example: Boss orally hires Worker to work for three years. Their oral agreement allows either party to cancel on 60 days notice. Courts are split on whether this contract is within the one-year agreement and must therefore be in writing. The Second Restatement seems to say that the giving of 60 days notice would be a form of "performance," so that this contract will be enforceable even though oral — Worker might give notice after one month on the job, in which case the contract would have been "performed" within three months of its making, less than one year.)

E. Full performance on one side: Most courts hold that full performance by one party removes the contract from the one-year provision. This is true even if it actually takes that party more than one year to perform.

F. Applies to all contracts: The rule that a contract incapable of performance within one year must satisfy the Statute, applies to all contracts (including those that just miss falling within some other Statute of Frauds provision). For instance, even though the special UCC sale-of-goods statute (discussed below) requires a writing only where goods are to be sold for more than $500, a contract to sell goods for $300, to be delivered 18 months after the contract is made, must be in writing.