Contracts

Statute of Frauds

While it may come as a surprise to the lay person, it is possible to have a perfectly valid oral contract. Reducing a contract to writing is not a prerequisite to its enforceability. The exception to that general rule is found within the Statute of Frauds.

The Statute of Frauds is a collective term describing the various statutory provisions which render unenforceable certain types of contracts unless they are evidenced by a writing. The Statute of Frauds does not mean that oral agreements within the scope of the Statute cannot be made and performed or that they are illegal. It merely means that enforcement may be unavailable if one of the parties refuses to fulfill their obligations.

California's Statute of Frauds, found at Cal.Civ.Code §1624, provides that certain contracts "are invalid, unless the same, or some note or memorandum thereof, is in writing and subscribed by the party to be charged." Note that under this language the contract itself need not be in writing. Strictly speaking there only need be some written evidence of it which is signed by the party to be charged. I.e., the memorandum is not the contract, but merely evidence of its terms; the oral agreement is the contract.

"A contract is said to be 'within the statute' if its provisions are such that its operation and enforceability depend upon compliance with the requirements of the statute; it is said to be 'not within the statute' if its operation and enforceability do not depend on such compliance.  According to this usage, a contract may be 'within the statute' even though it is completely in writing and duly signed and delivered, so that the requirements of the statute are fully satisfied." (Corbin on Contracts § 276)

Most contracts students can handle a Statute of Frauds issue if it is identified but few can handle it if it is overlooked. Therefore you must be thoroughly familiar with the types of contracts that are within the Statute of Frauds. A partial list of contracts that are within the Statute of Frauds includes promises to answer for the debt or duty of another, contracts not to be performed within one year from the making thereof, contracts to sell any interest in real property, contracts not to be performed within the lifetime of the promisor and the provisions of UCC 2-201 (contracts for the sale of goods for the price of $500 or more).

The Statute of Frauds and the Parol Evidence Rule are often confused. Their purposes and scope are different. The object of the Statute of Frauds is to prevent perjured testimony in proof of purported contracts of important types and the statute applies only to those enumerated types. The parol evidence rule applies to any type of contract, and its purpose is to make sure that the parties' final understanding, deliberately expressed in writing shall not be changed.

Contracts Not to Be Performed Within One Year

An agreement that by its terms is not to be performed within a year from the making thereof comes within the statute.   The important words are "by its terms"; i.e., only those contracts which expressly preclude performance within a year are unenforceable.  If it is merely unlikely that it will be so performed, or the period of performance is indefinite, the statute does not apply.  An oral agreement which, according to the intention of the parties, as shown by the terms of the contract, might be fully performed within a year from the time it was made, is not within the statute, although the time of  its performance is uncertain, and might probably extend, and be expected by the parties to extend, and does in fact extend, beyond the year. "The question is not what that probable, or expected, or actual performance of the contract was, but whether the contract, according to the reasonable interpretation of its terms, required that it should not be performed within the year. "  (Warner v. Texas & Pacific R. Co., 164 U.S. 418, 17 S.Ct. 147, 41 L.Ed. 495 (1896)

How Much of a Memo?

What kind of "writing" will be sufficient to satisfy the Statute of Frauds? The Statute does not require the memo to be in a single document. It may be pieced together out of separate writings connected with one another. Signed and unsigned writings may be read together, provided that they clearly refer to the same subject matter or transaction. (Crabtree v. Elizabeth Arden Sales Corp. 305 N.Y. 48, 110 N.E.2d 551 (1953).) Oral testimony is admitted to show the connection between the documents and to establish the acquiescence, of the party to be charged, to the contents of the  unsigned document. (Beckwith v. Talbot, 95 U.S. 289, 24 L.Ed. 496.) You may also be surprised to learn that the memorandum need not presently exist. Even if it has been lost or destroyed the Statute of Frauds writing requirement is satisfied so long as it once existed.

At a minimum the memorandum must state with reasonable certainty: (a) the identity of both contracting parties; (b) the subject matter of the contract so that it can be identified either from the writing or if the writing is not clear by the aid of extrinsic evidence; (c) the essential terms and conditions of all the promises constituting the contract and by whom and to whom the promises are made. (Rest.2d §131)

The UCC's writing requirement is even more liberal than that of the common law. The essential elements of a memorandum required by UCC 2-201 are 1) a writing, 2) signed by the party to be charged, which 3) recites a quantity term. It makes no difference that the writing omits or incorrectly states a term agreed upon. Hence, it is not necessary that the writing state all the terms of the contract or that it state any of them accurately.

Signature Requirement

"Signature" merely means any authentication which identifies the party to be charged.    Even a letterhead or an "X" will do, provided it is placed on the wriiting with the intent to authenticate it. (Merrill Lynch, Pierce, Fenner & Smith, Inc. v. Cole 457 A.2d 656, 663 (Conn.,1983).)

Getting Around the Writing Requirement

Even in the absence of a sufficient memorandum of the existence of an oral contract, such a contract can be enforced where one of the parties admits the existence of a valid oral contract, where the oral promise has been partially performed, or under principles of estoppel.
For plain English explanations of contract law, The Essential Contract Law Casebook
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