After Being Made

A contract which cannot be performed within a year from the time it is made will not be enforced by courts unless there is a signed writing or a signed memorandum of the agreement. The year is figured from the time the contract is made, not from the time performance is to begin.

This time provision does not apply to the agreement that can be executed within a year. This is true even if such agreements are not actually carried out within that time. The test is not whether the agreement is actually performed within a year but whether there is a possibility of performance within a year. For example, two persons shake hands and orally agree to be business partners. But they don’t say for how long. Because either partner may legally quit within a year, their agreement need not be in writing. On the other hand, their partnership could last indefinitely.

Because the agreement was for an indefinite time, either partner could withdraw at any time, “at will”, without liability to the other for breach of contract. Of course, it is always wise to prepare a contract to form a partnership very carefully and to put it in writing. That is because of the complexity of a partnership as well as the amount of money and potentially long time involved.

A Contract to Pay a Debt or Answer for the Legal Obligation to Another Person

One provision of the Statute of Frauds requires a writing for a promise to answer for the debt or default of another person.

Sometimes a third party is liable under an oral promise to pay another’s debt, but only if the payment serves the promisor’s own financial interest. Thus, a buyer of a house under construction wants to see it completed. He orally promises to pay a lumberyard for continuation of supplies when the general constructor falls behind in payments. The home buyer is legally bound, even though the constructor remains primarily liable.