Contract Law and the Writing Requirement: Satisfying the Statute of Frauds




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Satisfying the Statute of Frauds

             The Statute of Frauds (and related UCC provision) requires certain classes of contracts to be in writing to be enforceable. In this presentation, we will discuss how to satisfy the Statute of Frauds’ writing requirement and discuss some alternative rules than can render these contracts enforceable even in the absence of written agreements.

 Satisfaction by Writing

To satisfy the Statute of Frauds, the agreement must be reduced to a writing and signed by the parties.[1] These two requirements create several questions including: What types of writings are sufficient to create a contract? What must the writing include? Who must sign the contract? What is a signature?

The Statute of Frauds can be satisfied by any signed writing that (1) reasonably identifies the subject matter of the contract, (2) is sufficient to indicate that a contract exists, and (3) states with reasonable certainty the material terms of the contract.[2] In the case of UCC agreements (contracts for the sale of goods for $500 or more), writing all material terms is not required. However, even the UCC requires, at a minimum, an acknowledgment of agreement by the parties and a specification of the quantity of goods that are to be exchanged.

A “writing” that satisfies the Statute if Frauds does not require a formal written contract. It can be a notation on a check, a receipt, a will, or even an informal letter. In addition, multiple writings can be combined to show that a single contract exists to satisfy the Statute of Frauds. The multiple writings must all relate to each other and all the other requirements of the Statute of Frauds must still be met. For example, if two parties begin negotiating for a building to be leased for 5 years and the property is identified in the first writing and the lease price in the second, while a third signed letter agrees to the lease, the combination of these writings can be used to show the essential terms of the contract and thus make it enforceable.[3]

The “signature” requirement can be satisfied with a symbol, identifying mark or even a thumbprint, if it can be reasonably interpreted as intended to be a signature. The signature can also be electronic, such as “signing” the bottom of an email by typing one’s name. They key is intent – Was the mark intended to be a signature or its equivalent? In fact, a contract satisfies the Statute of Frauds even if it’s signed by one party and not the other. However, if the agreement is signed by only one party, it can only be enforced against that party. It cannot be enforced against the other party. It’s therefore very important to ensure that your signed communications indicate that the contract is not complete until the other party also signs the agreement.

 

Satisfying the Statute of Frauds by Performance

            Even if a contract that should be in writing under the Statute of Frauds is not in writing, that does not eliminate the possibility of its enforceability. Performance can also satisfy the statute of frauds. The reason is that, while the Statute of Frauds is designed to avoid fraudulent enforcement of contracts that never took place, that the contract was carried out can also be powerful confirmation of the agreement.

            Services contracts are enforceable if they are fully performed. Assume that Joe agrees on December 1, 2018 to sing at Jane’s New Year’s Eve 2020 party, taking place on December 31, 2019, for $300. Because the contract is incapable of being performed within a year of December 1, 2018, the contract falls within the Statute of Frauds. Assume that, without a written agreement, December 31, 2019 comes and Joe performs at the party. Later, Jane claims there was never an agreement. Because the contract was fully performed, with Jane’s tacit consent, there is strong evidence that an agreement existed. Thus, if Joe can show that there was an oral agreement for him to play in exchange for $300, he can enforce the agreement despite the lack of writing.

            Performance can also allow a real estate transfer agreement to be enforceable without a written agreement. In this context, performance means payment PLUS either possession of the land by the purchaser or improvements made to the land by the purchaser. Again, the reason here is that it’s exceedingly unlikely that a purchaser would make payment, the seller would accept payment and the purchaser would be allowed to possess or improve the property unless there was a legitimate agreement to sell the land.[4]

            The UCC also allows performance (meaning delivery of the goods and acceptance of those goods by the purchaser) to substitute for writing, on the same theory as applies to the other cases. The agreement is enforceable to the extent of the goods delivered and accepted. So, for example, if, in response to an order of widgets at $5 per widget, the seller sends 1,000 widgets and those are accepted by the purchaser, the seller can enforce the agreement to sell 1,000 widgets for $5,000 (assuming the oral agreement can be proven). However, if the seller sends 1,000 widgets but later proves that the agreement was to send 2,000 widgets (and the 1,000 was just the first shipment), the contract is still only enforceable to the extent of the 1,000 already sold and accepted. In other words, performance renders an oral contract for the sale of goods enforceable, but only to the extent of the performance.

            Another UCC caveat to the Statute of Frauds applies to unique goods that cannot easily be re-sold. If, for example, a car dealership is asked by a customer for a car that is painted black and gold with a red stripe down the middle and to outfit the car with extra-wide tires, hot pink hubcaps and an orange leather interior, and the dealer actually does so, that is powerful evidence that the agreement existed. Why else would the dealer render his car unsellable? Therefore, if he can show that there was an oral agreement to sell the car, it will be enforceable even in the absence of writing in spite of the UCC Statute of Frauds.

            Moreover, if one party to an oral agreement can show that the other party fraudulently ensured that there would be no writing to secure an advantage (such as, for example, if an attorney told someone she was making a deal with that the writing was unnecessary to preserve for her the option of backing out of the agreement), a court can enforce the agreement even without writing as a matter of fairness.

            Finally, some states allow an oral agreement to be enforced if a party reasonably relied on the agreement to its detriment. (This is similar to the concept of promissory estoppel, which is an exception to the rule of consideration.) For example, if one makes an oral agreement to purchase a home and sells his current home in reliance, a court may enforce the oral agreement to avoid the injustice that would result from the party’s detrimental reliance on the oral agreement.

            Since the 17th century, certain categories of contracts are deemed so important and integral to a well-ordered society, that the law requires them to be written and signed. The Statute of Frauds seeks to provide reliable evidence for courts to determine each parties’ contractual obligations. However, as we have also seen, if there is other compelling evidence that the agreement occurred or if severe injustice would be caused by enforcement of the Statute of Frauds, there are exceptions to the rule.



Footnotes

[1] Restat. 2d of Contracts, at §§131-137

[2] Id. at §131

[3] Restat. 2d of Contracts § 132 (2nd 1981)

[4] Restat. 2d of Contracts §§ 129 (2nd 1981)