Statute of Frauds — Contracts

Your client sells tractors. Bruno wants one on credit, and the dealer doubts he can pay. So Bruno's aunt, Delia, telephones and says, sell Bruno the tractor on credit, and if he does not pay you, I will. Your client delivers, and bills Bruno $9,000. Bruno makes two payments, then defaults. Delia signed nothing, and got nothing for herself. Can your client collect from her?

No. And that is the engine of this whole topic in one sentence. A real promise, made and relied on, that a court will not enforce, because it is not in writing. By the end of this episode you will know why a general contractor who says almost exactly those words is bound. Same sentence. Opposite result.

Here is the route. First, the one idea that fixes everything else, that the statute is a defense to enforcement and not a rule of formation. Then the three-step funnel. Which contracts are within the statute. What makes a writing good enough. And the exceptions that rescue an oral deal anyway. Then the friendlier rules for goods, and finally, electronic writings.

Start with the sentence that fixes everything else. The statute of frauds is a defense to enforcement, not a rule about whether a contract exists. An oral contract inside the statute is real and validly formed. The statute just hands the defendant a shield. We agreed, but nothing is signed, so you cannot make me perform.

Three things follow. If the defendant never raises it, the oral deal is enforceable. A party who has already performed cannot rip up the deal by pointing to the statute. And it never bars restitution.

So every problem here is three questions in the same order. One. Is this contract within the statute? If not, the oral deal is enforceable and you are done. Two. If it is, is there a sufficient signed writing? Three. If not, does an exception apply? Step three is where the points live.

Question one, then. The categories are old and short, and you memorize them cold, because this topic is starred. The exam hands you no statute here. There is a memory hook. My Legs. Marriage. Year, meaning the one-year rule. Land. Executor. Goods of $500 or more. And Suretyship.

If a contract is not on that list, the statute never applies, and a pure handshake deal is enforceable. Most wrong answers here come from someone who never checked the list.

Start with suretyship, because the exam works it hardest. A guaranty promise is a promise to answer for someone else's debt if that person does not pay. Lend my nephew the money, and if he does not repay you, I will. That is a secondary promise. The promisor pays only on default, so it needs a writing.

Contrast a primary promise. Ship the goods to my nephew and bill me. There the speaker makes the debt his own from the start, so the statute never touches it. Secondary needs a writing. Primary does not.

Now the escape hatch, and it is why Delia walks free but a contractor does not. The main-purpose rule, sometimes called leading object. A guaranty-style promise falls outside the statute if the promisor's main purpose was an economic benefit for himself.

A general contractor's lumber supplier threatens to stop delivering to a subcontractor, which would stall the contractor's own job. Keep shipping to the sub, the contractor says, and I will cover the bill. On its face, a guaranty of someone else's debt. But its leading object was its own project, so the oral promise is enforceable. Delia got nothing for herself. That is the whole difference.

Second category, and the exam loves it. The one-year rule. A contract that cannot be fully performed within one year of the moment it is made must be in writing. Two traps sit in that sentence. The clock runs from formation, not from the day performance starts. And the test is possibility, not likelihood.

Read that carefully. If there is any way the contract could be completed within a year without breaching it, the rule does not apply. However improbable.

So try one. An oral promise to employ Devi for the rest of her life, or an oral promise to employ her for two years. Which needs a writing? The two-year deal. Two years cannot be squeezed into one. A lifetime contract can end inside the year, because she could die, and that brings it to a complete end.

One more. An oral promise to pay a bonus in a single lump sum three years from now is inside the statute. There is no way to perform that within a year.

Land next. Any contract that transfers an interest in real property is within the statute. Sales, mortgages, easements, options to purchase, and in most states leases longer than one year. A lease for a year or less usually needs no writing.

Here is the trap. A homeowner orally hires a builder to put up a detached garage on her lot for $60,000. Land category, or not? Not. Building on land is a services contract, not a transfer of an interest in land. Though a long build can still be swept in by the one-year rule.

Two categories to recognize and move past. A promise made in consideration of marriage is within the statute. I will transfer the beach house to you if you marry my daughter. That is the engine behind prenuptial agreements. But a plain mutual promise to marry each other is not covered, because marriage there is not the price paid for some other promise. And an executor's promise to pay estate debts out of her own pocket must be in writing.

Question two. Is there a good-enough writing? It does not have to look like a contract. At common law a sufficient memorandum does three things. It identifies the subject matter and shows a contract was made. It states the essential terms with reasonable certainty. And it is signed by the party to be charged.

That last phrase is the single most tested idea in this whole area. The party to be charged is the party you are trying to hold to the deal. The defendant. Only that signature is required. A one-sided writing binds the signer, and not the other side.

So picture a buyer who sends a seller a detailed letter with the price, the street address and the closing date, and signs it. The seller signs nothing, then refuses to sell. Does the letter satisfy the statute? No. The buyer signed. The party to be charged is the seller.

Two generosities. A signature is any mark, initials, letterhead or symbol adopted with intent to authenticate. A typed name at the foot of an email counts, and so does company letterhead on a purchase order. And the memorandum can be pieced together from several related documents.

It need not even be made at the time of the deal. Here is a favorite. A letter that refuses to perform, but admits the deal, still satisfies the statute. Repudiation does not disqualify a writing. Its job is evidence, not promise.

Question three. No writing at all. Does an exception rescue the deal? These flip the intuitive answer, so run the whole checklist before you call an oral contract unenforceable.

First, part performance, and this one is for land. An oral land sale becomes enforceable, usually by specific performance, when the buyer's acts point unmistakably to a sale. Most courts want two of three. Paying the price, taking possession, making valuable improvements.

Marco pays half the price for a lakeside lot, moves onto it, and spends $30,000 on a boathouse and the driveway. Nothing signed, and most courts will still order the conveyance. Why? Because those acts are hard to explain except by a real sale. They are unequivocally referable to a contract.

Second, full performance. A contract fully performed on both sides is never defeated by the statute. Under the one-year provision, most courts hold that full performance by one party takes the contract out. Theo works a full oral two-year term. He is owed his pay.

Third, judicial admission. If the party being sued admits under oath, in a pleading or in testimony, that a contract was made, he cannot then hide behind the statute. A dealer who concedes the handshake at his deposition has forfeited the defense.

Fourth, promissory estoppel, under the Restatement (Second) of Contracts § 139. A promise that should be expected to induce reliance, and does induce substantial reliance, can be enforced when injustice can be avoided only by enforcement. Sanjay resigns, sells his condo at a loss, and moves his family across the country for a three-year job that is then withdrawn.

A court may enforce that promise. But the remedy is tailored to what fairness requires, and may fall short of the full contract. And fifth, the main-purpose rule, which you already have.

Now goods, and the rules get friendlier. A sale of goods lives under UCC § 2-201, which applies when the price is $500 or more. Exactly $500 counts. $499 does not. A hobbyist who orally buys a kiln for exactly $500 is inside the statute.

The writing requirement is far looser than the common law's. The memo need only indicate that a contract for sale was made, be signed by the party to be charged, and state a quantity. Get the price wrong, omit the delivery date, misstate the grade. None of that is fatal.

But quantity is the one term you cannot fudge. A memo silent on quantity fails, and the contract is enforceable only up to the quantity shown. A chain orally orders 1,000 drills, the signed confirmation carries a typo reading 100, and the chain can enforce 100.

Article 2 then gives four ways to enforce an oral goods deal with nothing signed. The first is the sleeper of the entire topic, because it binds a party who never signed a thing.

The merchants' confirmation rule. Both parties are merchants. One sends the other a written confirmation of their oral deal within a reasonable time, good enough to bind the sender. Then it binds the recipient too, unless the recipient sends a written objection within 10 days of receiving it.

Two produce wholesalers agree by phone on 500 cases of olive oil. The next morning the seller mails a signed confirmation stating the quantity. The buyer reads it, files it, says nothing for two weeks, and is bound on a deal it never signed.

Two guardrails, and the second is a favorite. The confirmation must itself bind the sender, signed and stating a quantity. And the rule runs only between merchants. So an antiques dealer mails a schoolteacher a signed confirmation of a $2,000 dining set, and she says nothing for three weeks. Bound, or not? Not bound. She is a consumer buyer, and silence does nothing to her.

The other three mirror instincts you already have. Specially manufactured goods. Custom-made for this buyer, unsuitable for resale to anyone else, and the seller has made a substantial beginning before notice of cancellation. Think 5,000 banners printed with a bank's logo.

Judicial admission again, but capped. Admit in court to a deal for 120 cases, and you owe 120, not the 200 the plaintiff claims.

And payment or acceptance. The contract is enforceable for any goods received and accepted by the buyer, or paid for and accepted by the seller. A cafe accepts and sells 100 pounds of a 300-pound coffee order. Those 100 are enforceable. The other 200 are not.

Last piece. A signed writing no longer means ink on paper. The Uniform Electronic Transactions Act, adopted in nearly every state, says a record or signature cannot be denied legal effect just because it is electronic. Writing requirement, electronic record. Signature requirement, electronic signature.

The federal E-Sign Act does the same in interstate commerce, and backstops any state that has not adopted the uniform act. And the definition of an electronic signature is broad. Any electronic sound, symbol or process adopted with intent to sign. A typed name at the foot of an email qualifies. So does clicking an I Agree button.

Two limits. It applies only where the parties agreed to transact electronically, an agreement inferred from context. And it carves out wills, codicils and testamentary trusts entirely.

A word on authorities. This episode named no cases, and that was deliberate. The exam gives you a fact pattern and asks what result the rule produces. It will not ask for case names. Your authorities here are UCC § 2-201, the Restatement (Second) of Contracts § 131 on what a memorandum must contain and § 139 on reliance, and two electronic-records statutes.

If you keep only three things, keep these. My Legs, because a contract outside that list needs no writing at all. The party to be charged, because only the defendant's signature counts. And quantity, because under § 2-201 it is the one term a memo cannot omit.

Now the traps, straight from the examiners' favorites. One. Unenforceable, not void. A contract that flunks the statute still exists, and it only matters if the defendant raises it. Never say the contract never formed. Two. The one-year rule turns on possibility, measured from formation, so lifetime and indefinite deals usually escape.

Three. Only the party to be charged must sign. Beware the question where the plaintiff signed and the defendant did not. Four. Under the UCC only quantity is essential. A wrong price still works, a memo silent on quantity fails, and enforcement is capped at the quantity shown.

Five. Merchant confirmations bind the silent recipient. Between merchants, failing to object in writing within 10 days makes an unsigned confirmation enforceable against you. Six. $500 means $500. A $500 goods contract is inside the statute. A $499 one is not.

Seven. Performance can moot the statute. Full performance, part performance of a land sale, or payment and acceptance of goods will each defeat the defense. And when the facts involve emails or click-throughs, electronic records fully count. That is the piece the exam is likeliest to hand you the law for.

Time for the quick check, and this one comes straight from the BARGO question bank. A corporation emails Dana a detailed, signed offer to buy her catering business for $80,000, spelling out the assets, the price and the closing date. Dana reads it but never signs or returns anything. A month later the corporation backs out, and Dana sues to enforce the sale.

The corporation raises the statute of frauds, pointing out that the only signature anywhere is its own. Does the statute bar Dana's suit? Option one. Yes, a memorandum must be signed by both contracting parties. Option two. Yes, Dana's failure to sign means no contract was ever formed. Option three. No, the writing is signed by the corporation, the party Dana seeks to charge. Pause here if you want a moment.

The answer is option three. The statute requires a memorandum signed only by the party to be charged, the party against whom enforcement is sought. Dana is suing the corporation, and the corporation signed the emailed offer. Her own missing signature is irrelevant. Flip the roles and the corporation could not enforce against her.

Option one misstates the rule. Mutual signatures are not required, and a one-sided writing binds its signer. Option two confuses enforceability with formation. The oral deal was validly formed, and the statute governs only whether it can be enforced. There are thirty-plus more questions on this topic alone, each option explained like that.

Five things to take away. One. The statute is a defense to enforcement, not a rule of formation, and it never bars restitution. Two. Run the funnel. Within the statute, then a signed writing, then the exceptions, always in that order, and My Legs is the list.

Three. The one-year rule is possibility measured from formation, so a lifetime deal escapes and a fixed two-year deal does not. Four. Only the party to be charged signs, and a signature is any mark adopted to authenticate, on paper or on a screen.

Five. For goods at $500 or more, the memo needs a signature and a quantity, and quantity caps enforcement. Between merchants, silence past 10 days binds you to a confirmation you never signed.

Which is why Delia owes nothing on a tractor she asked a dealer to hand over, while a contractor pays for lumber it never touched. Next time, Parol Evidence and Interpretation.

Practice this topic with more than 2,900 exam-style questions, free to start, at nextgenbargo.com. This episode is for education and exam preparation only, not legal advice, and we are not affiliated with or endorsed by the NCBE or any bar examining authority.