Contract Law and the Writing Requirement: Agreements Subject to The Statute of Frauds




See Also:


The Statute of Frauds

                                                                                                        

In general, oral agreements are enforceable. While oral contacts are not usually advisable due to difficulties in proving their existence, they are binding if they can be proven. However, the Statute of Frauds, originally enacted in England in 1677 and now enacted in all 50 states (though specifics do vary), provides exceptions to this rule. Where applicable, the Statute of Frauds requires certain types of contracts to be in writing to be enforceable.[1]

            The reason for the Statute of Frauds is that some contracts are considered so important and/or so vulnerable to fraud that the law considers it safest to ensure that there are writings to memorialize and prove their existence.

While each state has codified its own version of the Statute of Frauds to cover various types of contracts, every state requires the following five contracts to be signed and in writing:

·         Contracts for the sale of real property

·         Contracts in consideration of marriage

·         Contracts that cannot be performed within one year,

·         Contracts for suretyship, i.e., to guarantee the debt of another

·         Agreements to pay the debts of a decedent from one’s own pocket.[2]

In addition, the Uniform Commercial Code, which applies to contracts for the sales of goods, requires that contracts for the sale of goods for $500 or more be in writing to be enforceable.[3]

      Some states add additional types of contracts that must be in writing. For example, some states require life insurance contracts to be in writing to be enforceable.[4] Trust agreements (which are also fundamentally contracts) also are required to be in writing in some states.[5]

 

Real Property Contracts

            Real Property contracts are covered by the Statute of Frauds, and these include any contract for the sale of interest in real estate for more than one year. Thus, lease agreements for more than one year, mortgage agreements (that give security interests in land) and contracts that assign easements (if valid for more than a year), are all covered by the Statute of Frauds, and must be in writing to be enforceable.[6] The writing in land sales contracts must include, at a minimum, the purchase price, the identity of the parties, and a description of the real estate being sold.[7]

 

Consideration of Marriage

            The Statute of Frauds applies when “marriage” or the “promise to marry” is the consideration that is offered by one party to an agreement. For example, if a man asks a woman to marry him and, to entice her to agree, he offers to convey property to her, this agreement would be covered by the Statute of Frauds.

            The most common type of contract in consideration of marriage is the pre-nuptial agreement. A pre-nuptial agreement is signed by a couple before marriage and may agree to terms covering property division upon divorce, inheritance agreements upon death and alimony or spousal support upon separation. Virtually all pre-nuptial agreements contemplate the marriage of the parties and list each party’s agreement to marry as consideration for the other to agree to its terms. As such, these agreements are covered by the Statute of Frauds.

 

Contracts that Cannot be Completed Within a Year

            If parties enter into a contract for a performance that cannot be completed within one year, the Statute of Frauds requires that it be in writing. Note that the performance doesn’t have to take a year. It merely means that the contract cannot be completed within a year of the date of the agreement. So, for example, an agreement to work a 3-hour job on a date that is 13 months in the future is covered by the Statute of Frauds. Likewise, a 2-year employment contract is, by definition, covered by the statute if frauds.

Contracts of an uncertain duration are not subject to the Statute of Frauds if it’s possible that they’ll be completed within a year. A construction project projected to take 24 months is, counterintuitively, NOT covered by the Statute of Frauds if, theoretically, given an infinite number of workers and infinite supplies, it could be done within a year. Similarly, a lifetime contract is not covered by the Statute of Frauds even though it’s very likely to last more than one year because, theoretically, the employee could die within one year.[8]

(Parenthetically, the multi-year employment contract we previously discussed is covered by the Statute of Frauds even though the employee also could die within a year because, if he does die within a year, while the multi-year employment contract is obviously excused and rendered moot, it is not completed.)

 

Surety Contracts

A surety is a guarantor of the debt of another. This occurs when a third party agrees to pay the obligations of another if the obligations are not paid by the debtor. The promise could be conditional or unconditional. The classic example here is a co-signor on a loan. This is common when someone with inadequate credit or income seeks a loan. Banks will sometimes allow the loan if someone with a stronger credit profile co-signs, thereby agreeing to pay back the loan if the borrower defaults. These agreements are covered by the Statute of Frauds.[9]

 

Debt of a Decedent

            This category is similar to the surety category. Here, someone promises to pay the debt of a decedent from his own funds, again, either conditionally or unconditionally. This is commonly done by an executor or administrator of an estate. The executor may seek to employ attorneys, accountants, financial advisors, obtain bonds or even distribute some estate assets before he has gained control of the estate (which can take months in a probate proceeding). To induce a bank or service professional to provide money or services against future payment by the estate, the administrator may have to guarantee the outlay by promising to pay it from his own funds if, for whatever reason, he is unable to gain access to the estate’s funds. This agreement is covered by the Statute of Frauds

 

Sale of Goods For $500 or More

            The previous cases were contracts for services or real estate, which are governed by the common law. The sale of goods, on the other hand, is governed by the Uniform Commercial Code (or “UCC”), which has been adopted throughout the country. Under the UCC, when there is an agreement to purchase goods for $500 or more, the agreement must be in writing. This provision, for obvious reasons, is known as the UCC Statute of Frauds. Contracts for the sale of goods for less than $500 can still be completed orally. A revised draft of the UCC changed this minimum amount to $5,000. However, as of late 2017, most states have chosen to retain the $500 amount.[10]

While the Statute of Frauds does vary slightly from state to state and while determining how to satisfy the statute is a more complex discussion taken up in another presentation, it is important to remember that all agreements that fit into any of these categories should be in writing. Failing to ensure this could render the agreement unenforceable.



Footnotes

[1] Restat. 2d of Contracts, § 110 cmt. C (2nd 1981)

[2] Restat. 2d of Contracts §§ Scope-110 (2nd 1981)

[3]  UCC § 2-201

[4] See, e.g., Cal. Comm. Code § 1624

[5] NY E.P.T.L. §7-1.17

[6] Restat. 2d of Contracts §§ 126-27 (2nd 1981)

[7] Greene v. McLeod, 156 N.H. 724, 942 A.2d 1254 (2008)

[8] Restat. 2d of Contracts at § 130

[9] Id. at § 112

[10] U.C.C. § 2-201