When A Contract Falls Within The Statute Of Frauds But Is Not In Writing, The Contract Is

Practical Applications of the Statute of Frauds

Susan F. Israel, Esq.

Introduction to the Statute of Frauds

Concerned that oral promises had become susceptible to fraud and perjury, the English Parliament in 1677 enacted a new law, the Act for the Prevention of Fraud and Perjuries. Although it contained twenty-five sections, only two of those are relevant to contracts. These two sections delineated six special circumstances when an oral promise would have to be recorded in a writing in order to be enforceable:

A promise by an executor or administrator to pay estate debts out of his own funds;
A promise to undertake the debt or obligation of another person;
A contract made in consideration of marriage;
A contract for the sale of real property;
A contract that cannot be performed in one year; and
A contract for the sale of goods with a price of ten pounds sterling or more.

Today, every state in the U.S. has adopted some form of the Statute. Many states have added categories to the above, including some life insurance policies, last wills and testaments, and contracts that authorize an agent to sell real property for a commission. The Uniform Commercial Code has superseded the Statute with respect to the sale of goods, which today covers contracts with a price of five hundred dollars or more.

The Statute is a complete defense when invoked by a defendant in a breach of contract action. If a contract is "within the Statute" (meaning it falls within one of the above categories) and it has not been recorded in a writing, it is not enforceable and the defendant will not be liable in the event of a breach.

Following are some practical applications of the Statute:

Promise by Executor or Administrator

George dies, leaving a Last Will and Testament that appoints Michael as Executor of his estate. Michael begins diligently to administer George's estate and learns that George's house is subject to a mortgage of thirty-three thousand dollars held by First County Bank. The monthly payments are nine hundred fifty-three dollars. Michael learns, too, that George's estate does not have sufficient liquid assets to make the monthly mortgage payments. Not wanting to risk losing the house to foreclosure, Michael calls First County Bank and explains the situation. He offers to pay the mortgage out of his own funds until he is able to sell the house. First County is happy to accept Michael's offer, but knows that Michael's oral promise to pay is not enforceable because it is within the Statute of Frauds. The bank sends Michael some forms that memorialize their agreement and Michael signs the forms. They now have an enforceable contract. If Michael fails to pay, he will have breached the contract and First County Bank can sue him.

Suppose instead that the bank employee who answered Michael's telephone call did not know about the Statute. Suppose the bank employee just told Michael to send the payments in by mail and they would be properly credited. After paying for several months, Michael stopped paying, and First County Bank sued Michael as Executor of George's estate for breach of the oral promise. Michael would be able to go to court and assert the Statute of Frauds as a defense. He would walk away without liability and First County Bank would be out of luck because Michael's oral promise to pay George's estate debts out of his own funds was not enforceable under the Statute.

Promise to Pay for the Debt of Another

Lisa, age 17, has been accepted to the college of her dreams, University of Michigan at Ann Arbor. Lisa has been offered some scholarships and grants, but not enough to cover tuition and room and board. She applies for school loans through the university's financial aid office. Because Lisa is not eighteen yet, Loans R Us, the lender, demands that someone co-sign Lisa's federal and private loans.

Lisa asks her favorite Uncle Ritchie if he would be willing to co-sign her loans. He is happy to, even though he knows that if Lisa defaults, he will be liable to pay back her loans. By signing the loan documents, he has bound himself to pay for Lisa's debt, even though she is primarily liable to Loans R Us. Without Uncle Ritchie's signature on the loan documents, Loans R Us would not be able to enforce Lisa's debt against him.

Contract Made in Consideration of Marriage

Vicky and Albert have been dating for a long time, but because Vicky was previously unhappily married and has a difficult adolescent son, she is reluctant to tie the knot again. After a lovely candlelight dinner one night, however, Albert tells Vicky that if she promises to marry him, he will provide for full support of her son, Edward, including private college, until Edward's twenty-first birthday.

Vicky caves in and the couple marries. Albert, true to his word, pays for all of Edward's support, including weekly psychological counseling. By the time Edward is eighteen, he has straightened out and is accepted to Harvard College. Albert, however, balks at the hefty price tag for tuition and room and board, and tells Vicky that Edward should go to County Community College instead. Infuriated, Vicky sues Albert for breach of his promise to her, and Albert raises the Statute of Frauds defense. The court agrees with him, since Vicky and Albert never signed a record of their agreement, and Albert's oral promise was within the Statute. If they had signed such an agreement, Vicky would have won.

Contract for the Sale of Land

Fred and Wilma have no children, but they do own Pebblerock, the family farm, which has been in the family for over five generations. They would like to sell the property, but would prefer to keep it in the family. After considering many nieces and nephews and a few cousins, Fred and Wilma decide that Billy and Betty would be best suited to take over the farm. They invite Billy and Betty over for coffee and pie, and offer to sell them Pebblerock for $750,000. Billy and Betty are overjoyed and gratefully accept the offer. Fred and Wilma and Billy and Betty all shake hands, and agree to transfer title on Thanksgiving Day of this year.

Fred and Wilma find themselves a neat little apartment in a senior community and start packing up their stuff. Billy and Betty, meanwhile, do absolutely nothing. When Thanksgiving Day rolls around, Fred and Wilma call up Billy and Betty to come over for dinner and transfer title to Pebblerock. Billy and Betty decline the invitation, saying they've changed their minds about being farmers.

In a lawsuit for breach of contract, Billy and Betty plead the Statute of Frauds as a defense. The oral agreement to transfer real property is within the Statute and should have been in writing to be enforceable.

Suppose, instead, that Fred scribbled an agreement on a pad: "Fred and Wilma agree to sell, and Billy and Betty agree to purchase, the farm known as Pebblerock, for the sum of $750,000, title to close on or about Thanksgiving Day of this year." Everybody signed it. This would be an enforceable contract under the Statute.

Contract that Cannot be Performed in One Year

James is an author, famous for his lengthy works of historical fiction. When James begins work on a new novel, he hires a bunch of college students as part-time researchers and fact checkers. He pays them generously, and the jobs are coveted in the small college town where James lives and works.

James has just thought of a new idea for a novel about the Italian Renaissance; he posts an advertisement for researchers and fact-checkers at the local college. Dan replies to James' ad and comes to meet the author for an interview. James is impressed with Dan's eagerness, and offers him the position: fifteen dollars per hour for about ten hours a week. James tells Dan he expects to need his services for two years. Dan accepts on the spot, and James gives Dan his first research assignment. Dan hurries off to the library.

This oral contract, by its terms, is not possible to complete in less than one year. It is, therefore, within the Statute of Frauds and is not enforceable without a written record. If James decides to abandon his book after eight months, or Dan drops out of school and moves away, there would be a breach of the agreement. However, without a written record, neither party can enforce it.

Suppose, instead, that James tells Dan: "I expect this assignment to last anywhere from eight months to fifteen months." Although it is possible the job may last more than one year, it is also possible to complete in less than one year. This would not fall within the Statute. The oral agreement would be enforceable.

Contract for Sale of Goods with Price of Five Hundred Dollars or More

Thelma owns a boutique shop where she sells ladies' accessory items, such as hats, scarves, belts and jewelry. Louise owns a leather factory, where she makes unique hand-crafted belts and handbags of fine leather. Thelma has been buying from Louise's factory for many years. As merchants, they are familiar with the requirements of the UCC. Since they have a course of dealing, they often make agreements over the phone. Usually, Louise calls Thelma to let her know about a new product; Thelma says OK, and they have an oral contract.

However, they also know that if the price of the goods ordered is five hundred dollars or more, their agreement must be in writing to be enforceable. Although they trust each other, Thelma follows up with a purchase order and Louise sends a confirmation: 30 hand-braided belts in assorted colors and sizes, $18.75 each; payment 60 days. If either party breaches, she will have recourse to seek damages, and their agreement will have satisfied the Statute of Frauds

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