This unit introduces the statute of frauds. It's a common misconception among non-lawyers that an agreement needs to be in writing in order to be legally enforceable. In fact, putting to one side practical questions of proof, most oral agreements are every bit as enforceable as a written contract.
However, for several specific kinds of contracts, the law requires the agreement to be memorialized in some kind of a writing though not necessarily a formal written contract, before it can be enforced. The law involved here is not common law case decisions, but rather statutory law, and although the statutes can differ in their details, all states have enacted some kind of statute for the prevention of frauds, which is typically shortened to the phrase statute of frauds. Section 110 of the Second Restatement of Contracts summarizes five kinds of contracts that most states' general statute of frauds include.
A, contracts by executors of estates to perform an obligation of the deceased. B, contracts to be responsible for the debt of another. So, for example, when a parent guarantees repayment of a loan made to a child. C, contracts made upon consideration of marriage.
D, contracts for the sale, or lease longer than a month, of an interest in land. And E, contracts that cannot be performed within one year from the making of the contract. That is, it must be impossible, not just unlikely, that the contract can be completed within one year.
And this last category is perhaps the trickiest of the five. So let me give you an example to show why. An agreement for lifetime employment.
Is that within the statute? No, because if the employee died within a year, that would complete the lifetime term in the contract. And as it is not impossible for anyone to die within the next 12 months, it is possible to complete the contract within a year. But a contract for employment with a 50-year term is within the statute. Because in that case, death does not complete the contract, it only terminates it.
In addition, the Uniform Commercial Code includes its own statute of frauds. The most recent version of UCC Section 2-201 requires that contracts for the sale of goods of $5,000 or more comply with the statute. But some jurisdictions continue to use the older version of Section 2-201, which had a lower threshold of only $500. If an agreement falls within one of these categories, the agreement is said to be within the statute. That is, it is a kind of contract covered by the statute.
If an agreement is within the statute, then to be enforceable, it has to meet one of two requirements. Either there must be some kind of writing, again, not necessarily a formal written contract, that shows there was a real transaction, and that writing must be signed by the party to be charged, that is, whichever party is the defendant. Or, there must be an exception that applies to the transaction. If there is a writing that meets the requirements, the statute is said to be satisfied.
Or, if there is an exception, it is said to take the transaction out of the statute. Note the mildly confusing terminology. If an agreement is within the statute, that means it's one of the kinds of agreements covered by the statute, and that also means that there must be some kind of writing to satisfy the statute.
Conversely, if an agreement is outside the statute, that means you don't have to worry about any writing. Lastly, if an agreement is within the statute, but an exception to the statute applies, That exception takes the agreement out of the statute. Again, meaning you don't have to worry about any kind of writing.
So let's assume we have an agreement that is within the statute. Now there must be some kind of writing that satisfies the statute. How do we tell whether a writing satisfies the statute? The answer depends on which statute of frauds applies.
A state general statute or the UCC. Section 131 of the Restatement Second. summarizes what most state general statutes require. A writing signed by the party to be charged that reasonably identifies the subject matter, is sufficient to indicate a contract has been made, and states with reasonable certainty the essential terms. The UCC statute of fraud, section 2-201, on its face seems similar.
It requires a writing signed by the party to be charged That is sufficient to indicate a contract for sale has been made. Most commentators, however, agree that the UCC statute of frauds is a little more forgiving than the state's general statute of frauds. For example, the UCC does not require that all essential terms be included in the writing or that the included terms be correct. As comment 1 to the section states, All that is required is that the writing afford a basis for believing that the offered oral evidence rests on a real transaction.