11.2 Contracts that must be Written under the Statute of Frauds

Five different areas of the Statute of Frauds appear in this section. For each statute, the general requirements are set forth, followed by exceptions to the general requirements.

Contracts Affecting an Interest in Land

Almost all contracts involving an interest in land are subject to the Statute of Frauds. For purposes of this statute, “land” is interpreted broadly to include such things as the actual land (e.g. ground and soil) and things attached to that land, such as trees or buildings. “Contracts that involve an interest in land” is also a broad description, which includes the sale, mortgage or lease of real property (including homes and buildings). This interest can also include profits from the land, the creation of easements on the land, and the establishment of other interests through restrictive covenants and agreements concerning the permissive use of the land.

While there are some exceptions to the writing requirement, such as a contract to sell crops grown on land, and short-term leases (usually for a term of one year or less), it is wise to put land-related contracts in writing when you are unsure if your land contract falls within the Statute of Frauds.

Exceptions to the Requirement to Place Contracts Affecting an Interest in Land in Writing

The past performance doctrine is one exception to the Statute of Frauds requirement for interest in land. While an oral contract to sell land is not normally binding, if the buyer has taken possession and made improvements on the property, courts will usually say the case is out of the statute, and the party claiming an oral contract can attempt to prove the existence of the oral contract.

Suppose that Seller agrees to sell a tract of land to Buyer for $100,000. There is no written agreement, but Buyer pays the purchase price to Seller and takes possession of the land. Buyer begins the process of making improvements to the land including erecting a fence. The actions of the seller, accepting the money, and the buyer, taking possession and making improvements, provide the confidence that this is not a fraudulent transaction. Courts can enforce this oral agreement using the exception of past performance.

The One-Year Rule

An agreement that cannot be performed within one year from its making must be evidenced by some writing to be enforceable. Memories of an oral contract can fade over time, and so under this one-year rule requiring a written contract, a documentation of the agreement will be available in the case of a later dispute between the contracting parties, or their representatives. The critical time frame is how long it will take to complete the contract from the time the contract is made until performance is complete. Consider the following examples. Which of these must be written? Which can be oral?

1. Today, Bob agrees to work for Alice for a period of 13 months.
2. Today, Bob agrees to work for Alice for a period of 7 months. His employment will begin 6 months from now, and continue for 7 months thereafter until complete.
3. Today, Bob agrees to work for Alice for a period of 11 months.

Example 3 can be oral since this contract will certainly take less than one year. Example 1 must be written since this contract will certainly last more than one year. Example 2 must also be written. Even though the period of employment itself is only seven months, since that period does not begin until six months from now, the total length of the contract is 13 months. So, a written contract would be required to enforce the contract in Example 2.

Exceptions to the One-Year Rule

The one-year rule has been universally interpreted to mean a contract that is impossible to be fully performed within one year. Under the possibility test, if there is even the slightest chance of carrying out the agreement completely within a year, an oral contract is enforceable. For example, an oral agreement to pay a sum of money on a date 13 months from today is enforceable since it is possible that the payment could be made earlier, even tomorrow. Even for contracts where it would be unlikely to complete performance within a year, as long as it is possible to do so, the exception still applies. For example, a contract to construct a very large residential complex that would normally take around two years to complete would not need to be written under this Statute because, technically, if enough construction workers were employed, the complex could possibly be completed within a year. Unless there is a fixed term longer than a year, some courts have even found that a contract which involves the performance of a person can be oral because any person may die within the year, and therefore their contract would not fall within the statute.

Contracts in Consideration of Marriage

An agreement that relies on the promise to marry as consideration for some other promise must be written under the Statute of Frauds. For instance, if Carter proposes marriage to Max, and Max agrees to marry Carter as long as Carter also gives Max a car, this agreement must be written. Mutual promises to marry, however are not within the rule. For instance, if Carter proposes marriage to Max, and Max agrees to marry Carter, there is no promise that is part of the marriage proposal. Therefore, this marriage proposal agreement need not be written.

In addition, the Statute of Frauds governs such promises where marriage is the consideration regardless of who makes the promise. Suppose Carter’s father had said to Carter, “If you marry Max and settle down, I will give you $1 million.” The father’s promise to Carter is not enforceable unless written.

A common application of this area of the Statute of Frauds is used for prenuptial agreements. These are agreements that some people use prior to entering a marriage so that they can establish ownership rights in their own property and limit the ownership rights of the future spouse. Such agreements would be effective once the marriage takes place and could stipulate how assets will be treated upon divorce or death. This Statute of Frauds would also apply to postnuptial agreements where the consideration would be agreeing to continue with the marriage.

There are no specific exceptions for these types of agreements, but they are limited in application to people who use marriage as consideration and then get married. People who cohabitate are not covered by this area of the Statute of Frauds, although other areas might apply in those situations. It is also important that when a prenuptial agreement is used, the voluntariness of the agreement is clear so that any future court reviewing the agreement would not be concerned about enforcing it. If the agreement is unclear, or appears involuntary at the time it is used, a court might decline to enforce it and instead make equitable adjustments of property of the marriage to avoid an injustice.

Promises to Pay the Debt of Another

A promise to pay the debt of another person if that person does not pay their own debt must be written under the Statute of Frauds. Such promises can be called a collateral promise or a secondary promise because the promise is ancillary to some other promise. For example, Alex wants to take out a loan for their first car. Alex has not yet established credit, and so due to their poor credit history, the lender asks for a guarantor who will agree to make the payments if Alex fails to pay. Alex asks their mother to guarantee the debt. The mother’s agreement with the lender is the secondary promise, and must be written in order for the lender to enforce it if Alex defaults in the future. In this scenario, the mother is a surety or guarantor (the terms are essentially synonymous); someone who promises to perform upon the default of another.

This agreement distills down to the following: B agrees to pay C if A does not. B is making an agreement with C that is collateral—on the side—to the promise A is making to C.

This rule only applies to a collateral promise. For example if Alex’s mother agrees to make half of the payments on Alex’s car loan, this would not be a collateral but instead be a primary promise. Thus, under this rule, the Statute of Frauds would not require that the promise be reduced to writing. In other words, where A and B both agree to pay C this is a direct promise, not a collateral promise.

Moreover, under this rule the debt paid for someone else need not be money, but can be any contractual duty. For example, if Alex agrees to work off some car payments at the dealership car wash, Alex’s mother can promise to show up and wash cars if Alex fails to do so. This, too, would be a secondary or collateral promise, and therefore it must be written to be enforceable.

Exception to Promises to Pay the Debt of Another

The main purpose doctrine is a major exception to the surety provision of the Statute of Frauds. Under this doctrine, the reason for agreeing to act as a surety is considered when determining if a written agreement is required. If the main purpose of this agreement was to secure an economic advantage for the surety, then the agreement is not bound by the Statute of Frauds writing requirement. Suppose, in the previous example, that Alex’s mother is really the one who wants the car, but doesn’t want to buy one herself. Instead she agrees to act as surety, knowing all along that she will be the one using the car to get back and forth to work and run daily errands. In such a situation, the agreement to pay Alex’s debt, even when the agreement was oral, would be binding on Alex’s mom since her main purpose in making this agreement was her own transportation needs, and not Alex’s.

Normally, the main purpose rule comes into play when the surety desires a financial advantage to herself that cannot occur unless she provides some security. For example, the board chairman of a small company, who also owns all the voting stock, might guarantee a printer that if his company defaulted in paying the bill for desperately needed catalogs, he would personally pay the bill. If his main purpose in giving the guarantee was to get the catalogues printed in order to stave off bankruptcy, and thus to preserve his own interest in the company, he would be bound by an oral agreement. 

Agreements of Executor or Administrator

The promise by an executor or administrator of an estate to answer personally for the debt or other duty of the deceased is analogous to the surety provision—it must be evidenced by some writing if it is to be enforced. For an agreement to be covered by the statute, there must have been an obligation before the decedent’s death. Thus, if the executor arranges for a funeral and guarantees payment should the estate fail to pay the fee, an oral contract is binding, because there was no preexisting obligation. If, however, the decedent has made his own arrangements and signed a note obligating his estate to pay, the executor’s promise to guarantee payment would be binding only if written. The main purpose exception to the surety provision applies to this section of the Statute of Frauds as well.

Video on the Writing Requirement

The Uniform Commercial Code

Contracts for the sale of goods in the amount of $500 or greater must be evidenced by some writing to be enforceable. Section 2-201 of the UCC states:

[A] contract for the sale of goods for the price of $500 or more is not enforceable by way of action or defense unless there is some writing sufficient to indicate that a contract for sale has been made between the parties and signed by the party against whom enforcement is sought or by his authorized agent or broker. A writing is not insufficient because it omits or incorrectly states a term agreed upon but the contract is not enforceable under this paragraph beyond the quantity of goods shown in such writing.

Thus, to satisfy the requirement of the UCC, a contract for goods worth $500 or more must have the quantity of goods as well as the signature of the party against whom enforcement is sought. For example, if a buyer contracts with a seller to purchase 10,000 widgets for $1,000, the written contract for sale must include the quantity of widgets – 10,000 – and at least one signature. If the buyer wants to enforce the contract as against the seller, the buyer needs the seller’s signature. Similarly, if the seller seeks to sue buyer for breach of contract, the seller needs the buyer’s signature on the contract.

This UCC Code section has no impact on sales of goods below $500 so oral agreements for the sale of goods valued at less than $500 are fully enforceable without exception.

Exceptions under the UCC

There are four exceptions to the UCC’s Statute of Frauds requirement that are relevant here.

The Ten-Day-Reply Doctrine

The UCC holds merchants to a higher standard of conduct than non-merchants. The ten-day-reply doctrine provides that in a contract between two merchants, if an oral agreement is reached and one party sends the other a written statement confirming it, the other party has ten days to object in writing or the agreement is enforceable. 

“Specially Manufactured Goods”

This UCC provides an exception for a seller that has manufactured goods to the buyer’s specifications or who has made “either a substantial beginning of their manufacture or commitments for their procurement.” Assuming that the goods are unsuitable for sale to others, if the buyer repudiates the oral agreement, the seller will be able to seek remedies even if the agreement for the specially manufactured goods was oral.

The “Admission” Exception

This exception arises when the party against whom enforcement is sought admits in testimony or legal papers that a contract was in fact made.  That said, the admission will not permit enforcement of all claimed terms of the contract; enforcement is limited to the quantity of goods admitted.

The “Payment or Delivery and Acceptance” Exception

Similar to the past performance exception for the sale of interest in land, the UCC provides that an oral contract for goods in excess of $500 will be upheld if payment has already been made and accepted, or if the goods have been received and accepted. 

Other Writing Requirements

In addition to these requirements, the UCC provides that agreements for the sale of securities (e.g., most stocks and bonds) usually need to be evidenced by a writing, and agreements for property not included in the sales or securities articles of the UCC that exceed $5,000 in value need to be so evidenced.  Included here would be intangible property such as rights to royalties and to mortgage payments, and other rights created by contract. And in many states, other statutes require a writing for several different kinds of contracts. These include agreements to pay commissions to real estate brokers, to make a will, to pay debts already discharged in bankruptcy, to arbitrate rather than litigate, to make loans, and to make installment contracts.

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