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What exceptions exist to the requirement that a contract be in writing to be enforceable?
Jurisdictions recognize a number of exceptions to the requirement that certain contracts be in writing to be enforceable. Common exceptions to the writing requirement are as follows:
Admission Under Oath – If a party admits under oath (such as in a deposition or in a court proceeding), the contract may then be deemed enforceable.
Part Performance – A court may deem an oral contract enforceable if the parties (or one party) has partly performed the contract. This principle generally applies to oral agreements to sell or transfer real property (land).
- Example: If the buyer has paid part of the purchase price and taken possession of the land, the court may hold the oral agreement enforceable. This would generally entail a court order to complete the contract performance by signing a deed legally transferring the property.
Promissory Estoppel – The equitable doctrine of promissory estoppel applies in situations where one party relies to her detriment on another party’s promise. It arises in a situation where a party believes that her exchange of promises with the other party is a legally enforceable contract. That party puts herself in a position where she would suffer a loss if the other party does not perform.
- Example: Tom promises Jane that he will sell her land to build a house. Jane, relying on the promise, hires individuals to begin grading the land and laying a foundation for the house. Later, Tom refuses to transfer a deed to Jane and claims that the contract is not enforceable because it was not in writing. Jane has spent significant money and time under the belief that the contract was enforceable. As such, a court will probably hold the contract to be enforceable under the doctrine of promissory estoppel.
Rules Involving Goods – The UCC provides several exceptions to the rule that contracts for the sale of goods for $500 or more be in writing. For example:
- Specialty Goods – If a manufacturer agrees to manufacture specialty goods for a client, once the manufacturer begins production of the goods, the contract may be enforceable without a written agreement.
- Partial or Complete Performance – If goods have been accepted and payment for the goods has been made, the parties cannot later claim that the contract was unenforceable and demand return of the money or property. This may also be true for partial payment or delivery of a portion or installment of the goods.
- Contract Between Merchants – An oral contract between merchants is enforceable when one party delivers goods and the other party either delivers goods or sends written notice confirming the terms of the agreement and the other party does not object to that notice within 10 days.
The justification for the above exceptions to the statute of frauds is that each situation provides an additional level of proof regarding the existence of a contract. It reduces the need for a writing to prove that the contract exists and its terms.
Discussion: Why do you think each of these exemptions from the statute of frauds exists? What standard do you think should apply to determining what is “part performance”? How far should an individual go in relying on a promisor before it exempts the agreement from the statute of frauds? Why do you think these special provisions exist for sales of goods between merchants?
Practice Question: Chris is a professional musician and celebrity. He walks into Grey’s jewelry store and request that Grey make him a custom necklace. Grey agrees, but they do not execute a contract. The necklace is very ornate and will cost about $150,000. It will contain the musician’s initials and symbol. When Grey finishes the necklace, Chris decides that he does not want it. What are Grey’s options?
- Generally, a contract for the sale of goods of $500 or more must be in writing to be enforceable (i.e., the Statute of Frauds). An exception exists for unique or custome-made goods. This aspect of the good can serve a substitute for a writing, once the good is under production. In this situation, Chris will likely be bound in contract to purchase the jewelry, as it was custom-made, Grey undertook production, and it adequately identified Chris as the purchaser.