Does it Always Have to be in Writing? – New York’s Statute of Frauds

Creditors do not want to hear it, but the answer to the question of when a debtor can defeat a claim for collection of monies due based upon a defense of no written agreement is – “it depends”, the dreaded, sometimes unhelpful response that attorneys give. So what are the parameters of “depends”? On a general level the answer to the question is a function of what kind of transaction is at issue. Sales of goods are governed by a special set of rules, whereas brokerage claims, employment contracts and real estate agreements are covered by other rules.

In New York, like most other states in the Union, sales of goods transactions are governed by the Uniform Commercial Code (“UCC”), which has its own specific section on when and under what conditions a writing is necessary to enforce a collection claim. The rule on when a writing is required, generally referred to as the Statute of Frauds (dating from the early days of English law) can be found in UCC Section 2-201 (1) which states that “Except as otherwise provided in this section a contract for the sale of goods for the price of $500 or more is not enforceable by way of action or defense unless there is some writing sufficient to indicate that a contract for sale has been made between the parties and signed by the party against whom enforcement is sought or by his authorized agent or broker.” This does not necessarily mean that a buyer and seller need to have signed a written agreement in order to satisfy the UCC’s Statute of Frauds requirement. Whenever possible, the drafters of the UCC wanted the statute to reflect practical business reality. Therefore, UCC Section 2-201 (2) provides that as between merchants, if within a reasonable time the seller sends a written confirmation of the order or the contract which is sufficient against the seller (i.e. that it is signed by the seller or clearly attributable to the seller) and the buyer has reason to know of the contents, then unless within ten (10) days after it is received, the Buyer objects, there is an enforceable agreement under UCC section 2-201. Section 2-201 (2) covers the typical situation where a buyer and seller reach an oral agreement on an order for goods and the seller thereafter sends a confirmatory memo or even an invoice. There are, however, other practical circumstances which create exceptions to the writing requirements. Suppose a seller sends goods which were ordered by a buyer and the buyer accepts the goods or even pays for the goods prior to acceptance? Then, no writing is required. UCC section 2-201 (3) (c) specifically covers that situation. Another situation is where goods are specially manufactured and it is clear that the goods are designated for the particular buyer and the seller has commenced manufacture – again, no specific writing required here. See UCC section 2-201 (3) (a).

Outside of the sale of goods area, New York’s general Statute of Frauds rules are set forth in Section 5-701 of the General Obligations Law (“GOL”). GOL section 5-701 a. 1. deals with the basic proposition that if an agreement cannot be performed within one year’s time or completed within a lifetime, it must be in writing. In the employment area, to the extent that the term of employment contemplates a period in excess of one year, the contract to be enforceable must be in writing. On the other hand, an offer of employment may have no specific term, often known as an at will agreement, terminable by either party at any time. These type of contracts can be performed in less than a year and do not have to be in writing.

There are specific types of contract or business relationships that must be in writing regardless of whether they can be performed in a year. One such type of contract is a guaranty of the payment obligation of another (GOL 5-701 a. 2.). Another is where negotiating services are provided such as loan or real estate brokerage services (GOL 5-701 a. 10.) Such services need to be in writing unless the person providing the service in the case of real estate is a licensed real estate broker or a licensed attorney.

Finally, in the area of the sale or leasing of real estate, New York’s Statute of Frauds is set forth in GOL section 5-703 which provides that all conveyances of real property and leases longer than one year in duration must be in writing.

All of which brings us back to depends and the unique factual circumstances which each particular case might present. Exceptions to the Statute of Frauds abound. One of them is the rule on partial performance, which we have seen partially codified in UCC section 2-201 where even if there is no written contract, a buyer who accepts goods or a manufacturer who specially makes goods for a buyer can enforce its agreement even without a writing. A full discussion of the rule on partial performance is beyond this post. Suffice it say, get it in writing is good advice to follow, but when it is not, all is not lost.