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Statute of Frauds: One Year Contracts

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  • 2:07 Certain Oral Contracts
  • 3:16 Contracts Exceeding One Year
  • 5:02 Measuring One Year
  • 6:13 Lifetime Contracts
  • 7:13 Exception to One-Year Rule
  • 8:12 Lesson Summary
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Lesson Transcript
Instructor: Ashley Dugger

Ashley is an attorney. She has taught and written various introductory law courses.

A statute of frauds is a law that only applies to particular types of oral contracts. In general, a statute of frauds requires that certain types of oral contracts be written and signed. This lesson explores one type of contract that is covered by a statute of frauds: contracts that can't be performed within one year.

Statute of Frauds

A statute of frauds is a state law that only applies to certain oral contracts. Different states have different statutes of frauds. For the most part, all statutes of frauds set two requirements for certain types of oral contracts. If a contract doesn't meet these requirements, it won't be enforceable.

The first requirement involves a written memorandum of the contract. This means that a contract that falls within a statute of frauds is unenforceable unless there's something in writing that proves the contract. Note, though, that the memorandum doesn't have to be a formal, written contract. Instead, the memorandum can be anything in writing that proves that there was a contract. It can be an order form, an invoice, or even a cocktail napkin with notes of the agreement.

The memorandum must set out the material terms of the contract. Material terms are significant and important details, such as the parties involved and the amount to be paid.

The second requirement involves signatures. The memorandum must be signed by at least one party. Most of the time, it's not necessary for both parties to sign the memorandum. In order to satisfy this statute of frauds requirement, the agreement must be signed by the party that disputes the contract. This means that if any party in the agreement doesn't sign the written memorandum, that contract can't be enforced against him or her. For example, if I'm seeking to enforce an oral contract that I made with Bill, then Bill must have signed the written memorandum.

Certain Oral Contracts

It's important to remember that a statute of frauds doesn't apply to most types of contracts. Most contracts can be valid and enforceable even though they were made through an oral agreement. It's necessary, then, to know what types of contracts fall within a statute of frauds. Jurisdictions vary, but there are typically six categories covered by this type of statute:

  1. Promises that involve marriage as consideration
  2. Contracts that can't be performed within one year
  3. Contracts that involve the sale or transfer of land
  4. Contracts that involve promises by executors to pay estate debts
  5. Contracts that involve a promise to act as a guarantor or surety
  6. Contracts that involve the sale of goods worth more than $500

Let's take a closer look at contracts that can't be performed within one year.

Contracts Exceeding One Year

Business law involves many types of contracts. Many business contracts involve performance that will take place over an extended period of time. Performance means to fulfill the terms of the contract.

A statute of frauds will cover business contracts that can't be performed, or completed, within one year. It's important to think theoretically. Sometimes it's not likely for a contract to be performed within one year, but theoretically, it could be possible. If it's at all possible for the contract to be performed within one year, then the contract won't fall within a statute of frauds.

It's essential to determine the terms of the contract. This statute of frauds category will only apply if the contract's own terms prohibit performance within one year.

For example, let's say I hire Bill, who is a magician, to perform at my nightclub every weekend for the next two years. By its own terms, this oral contract isn't performable within one year and therefore, this contract will fall within a statute of frauds.

Now let's say I hire Bill to build a replica of Manhattan on my ranch. It seems impossible that Bill could complete this project within one year. However, if he hired large crews to work around the clock, it may be feasible. A statute of frauds won't cover this oral contract.

Measuring One Year

When determining whether or not a statute of frauds applies, we look at the date the oral contract was made. The one-year time period is measured from that date.

For example, let's say that I made an oral contract with Bill. Bill and I met and made our contract on January 1, 2013. Bill is a magician, and I hired him to perform at my son's tenth birthday party. My son's party will be on May 1, 2015. Bill forgets and books another appointment for that date. This would theoretically fall under statute of frauds, but if I seek to enforce this oral contract against Bill, it won't be enforceable unless it's evidenced in a written memorandum and signed by Bill.

This is because nearly two and a half years will elapse between the making of the oral contract and the performance. According to the contract's own terms, it can't be performed within one year of the making of the contract.

Lifetime Contracts

Sometimes contracts last for a person's lifetime. These contracts seem as though they would fall within a statute of frauds, but let's take a closer look.

Remember that if there's any possibility that the oral contract can be performed within one year, the contract won't fall within a statute of frauds. For example, let's say that Bill orally agrees to clean my house once a week for the rest of his lifetime. In exchange, I let Bill live in my spare room.

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