Business Law II – Week 1 Lecture 1

Statute of Frauds

Business Law II builds upon the foundation established in Business Law I to provide a more detailed and focused view of legal topics relevant to the field of business. In that vein, we will start this course with a more in-depth examination of additional contract principles with this lecture covering the Statue of Frauds.

Although most oral contracts are fully enforceable (as long as they can be proven), the Statute of Frauds requires that some contracts be in writing in order for that contract to be enforceable. The purpose of these statutes is to provide reliable evidence of these contracts. To satisfy the Statute of Frauds generally, there must be a writing signed by the party against whom enforcement is sought. However, this statute only applies in six specific scenarios:

· Contracts involving Interests in Land: Contracts for the sale of land (and objects fixed to land) and for transfers of various interests in land, e.g., a mortgage or an easement, must be in writing.

· The One-Year Rule: A contract that cannot, by its own terms be performed within one year from the date it was formed must be writing to be enforceable. It is important to note that as long as performance is possible (however unlikely that performance actually being completed in a year is) that the contract does not need to be in writing. For example if John promises Sue that he will buy her a car if she graduates college, it doesn’t matter that it takes many people four years to graduate college. The contract will be enforceable even without a writing as it isn’t a promise for Sue to do something for longer than a year.

· Collateral Promises

o Primary v. Secondary Obligations: Promises made by one person to pay the debts or discharge the duties of another if the latter fails to perform must be in writing to be enforceable. The key point is that the obligation is secondary.

o An Exception—The “Main Purpose” Rule: If the main purpose of the guarantor in accepting secondary liability is to secure a benefit for himself or herself, the contract need not be in writing to be enforceable.

· Promises Made in Consideration of Marriage: A unilateral promise to pay money or give property is consideration of a promise to marry must be in writing to be enforceable. This includes to prenuptial other similar contracts.

· Contracts for the Sale of Goods: The Uniform Commercial Code requires a writing for sale of goods worth $500 or more.

However, there are some exceptions to the Statute of Frauds. The first of these exceptions is partial performance. This applies to contracts relating to transfers of land. For this exception to apply, the buyer must have paid part of the price, taken possession of the property, and made permanent improvements to the property such that it is difficult for the parties to be taken to the pre-contract status. The second exceptions relates to admissions. Some statutes will enforce a contract even considering the Statute of Frauds if a person admits that there is a contract. Promissory estoppel may also apply. This doctrine allows for a party to recover under an oral contract where that party suffered an injury due to reasonable reliance on the assurances of the other party.

The last issue to discuss is what writing is sufficient to move beyond the Statute of Frauds. The Statue of Frauds requires a writing signed by the party against whom enforcement is sought. The writing can be almost anything e.g., an invoice or e-mail. The UCC only requires the writing state a quantity term to satisfy the Statue of Frauds for the Sale of Goods. The other categories will generally require the writing to list the parties, the subject matter, the consideration, and other essential terms.