Sunday, August 7, 2011

Contracts/Sales: The Statute of Frauds

Throughout my time tutoring the bar exam, there have been some commonalities in regards to areas within the larger subjects that tend to cause students the most amount of difficulty. These are the areas that I intend to focus on within the notes that I write on this blog, and one of those areas is the statute of frauds.

Statute of Frauds:

It should be noted, initially, that many contracts need not be in writing. Only certain contracts require a writing, and if a contract falls within that category, and there is no writing, then the statute of frauds provides for an affirmative defense to the enforcement of that contract. It should not be overlooked that the defendant has to raise this affirmative defense, otherwise it is waived. That said, the types of contracts that must be in writing are as follows:

(1): An agreement that by its terms cannot be performed within a year from the date of formation.

(2): A promise to answer for the debt of another.

(3): An agreement made in consideration of marriage.

(4): The sale or transfer of an interest in land.

(5): An agreement authorizing or employing an agent or broker to act as a representative in a real estate transaction.

(6): An agreement which, by its terms, is not to be performed within one's lifetime (for example, wills, and testamentary trusts).

(7): Any contract for the sale of goods if the price is $500, or more. Note here, some important exceptions under the Uniform Commercial Code ("UCC"). If the seller has tendered the goods, and the buyer has accepted them, or if the buyer has paid for the goods, and the seller has accepted payment, then neither party can rely on the statute of frauds to avoid the contract even if the agreement was oral, and the price is greater than $500. In addition, if the goods were made at the order of the buyer, and not suitable for ordinary resale, the buyer's oral promise to pay for them is enforceable, once the seller has made a substantial start in manufacturing those goods. Finally, if the contract is between merchants (a person who deals in goods of the kind or otherwise holds himself out by occupation as having knowledge or skill peculiar to the practices or goods involved in the transaction), then a written confirmation sent by one party and received by the other who knows or has reason to know of its contents and does not object within 10 days will bind the party who failed to object regardless of whether the original contract between the parties was in writing.

**Part Performance: The basis behind the statute of frauds is that certain contracts require evidence of a writing before they can be enforced. If other evidence is available which makes it likely that in fact a contract was formed, even though there is no writing to prove the contract, then that evidence can act as a substitute for the signed writing. You'll always want to consider the part performance doctrine when analyzing a statute of frauds issue. For example, if two parties enter into a real estate contract, (#4 above, generally requires a writing), and fail to memorialize their agreement in writing, but part of the purchase price was paid from the purchaser to the seller, and the purchaser moved into the property and began to make improvements on the property, then it's possible that these facts (payment made, and improvements made) might suffice as proof that a contract was, in fact, formed. As such, the statute of frauds would not be a valid defense to avoid the contract.

1 comment:

  1. Hello again, Sean. Can you go over the different warranties (i.e. merchantability, fitness for a specific purpose, etc.), including in what circumstances they can be negated?