Wed, February 3rd, 2010
Statute of Frauds and Business or Employment Contracts
In this post, I’m going to focus on what I believe is the most strict interpretation of the statute of frauds. That is, the situation where California courts are least likely to hold that a contract or agreement must be in writing to be enforceable. California Civil Code section 1624 requires that any contract that “by its terms is not to be performed within a year from the making thereof” is not enforceable unless the contract “or some note or memorandum thereof, is in writing and subscribed by the party to be charged or by his agent.”
The case of White Lighting Company v. Wolfson, a 1968 case, reflects the reasoning of many other cases which have, for the most part, held that contracts which could have possibly been performed within one year are not subject to the statute of frauds. Much of the legal reasoning behind the “one-year” exception has evolved from employment contract cases, as in Wolfson, however, the same analysis would apply to most business contracts and real estate contracts.
The Wolfson court stated: “To fall within the words of the provision, therefore, the agreement must be one of which it can truly be said at the very moment it is made, ‘This agreement is not to be performed within one year’; in general, the cases indicate that there must not be the slightest possibility that it can be fully performed within one year.” The court went on to reason that when the employee’s employment relationship with the employer was terminated, the employee had completely performed, and the employer’s performance consisted of nothing more than compensating the employee. Interestingly, the oral agreement which the employee was attempting to enforce here, stated that he would receive a bonus for company profits over a certain amount in one year. The argument could be made, and was made, that by its terms it could not have been “performed” within one year, literally. The court, however, focused on the at-will nature of the relationship–since it could be terminated by either party within one year, it does not fall within the statute of frauds.
I’m not sure I agree with the reasoning. Nevertheless, the lesson holds true regardless of how the courts interpret the “one-year” exception–get the terms in writing ahead of time and avoid litigation over the validity of the agreement.
Posted by Nick Yonano at 05:57
Labels: real estate
