Foster Swift Construction Law News (Republished in Foster Swift Commercial Litigation E-News)
In a victory for a Foster Swift client, the Michigan Court of Appeals upheld application of the Statute of Frauds to oral contracts that can not be performed within one year. In J & J Plumbing and Heating v Tate, J & J sued Foster Swift clients Tate and VanBeelen for an alleged breach of an oral contract to purchase its plumbing business for $400,000. The alleged contract included a provision that the defendants would pay off a $60,000 truck loan at the rate of $300 per week. Recognizing that “an agreement that, by its terms, is not to be performed within 1 year” is void under the Michigan Statute of Frauds, Foster Swift’s Scott Storey immediately moved for dismissal of the lawsuit. The trial court judge agreed, and dismissed the case.
J & J then appealed to the Michigan Court of Appeals, arguing that truck loan could have been paid off early or otherwise performed within one year. However, the Court of Appeals rejected J & J’s argument, agreeing with Storey’s position that the alleged agreement by its terms provided for the loan to be paid over 200 weeks, or nearly four years.
The Statute of Frauds, intended to prevent fraud or the opportunity for fraud by requiring that certain agreements be in writing, is not limited to contracts in excess of one year. The Statute of Frauds also requires other contracts to be in writing, including contracts to pay commissions for real estate sales, promises to pay the debt of a third party, bank loans, certain mortgages, and a variety of other agreements. Failure to document and sign agreements covered by the Statute of Frauds renders the agreements unenforceable. Storey noted Michigan courts have demonstrated a tendency to give broad application to the Statute of Frauds and that failure to document agreements in writing could later lead to such agreements being declared unenforceable.
Mr. Storey and the other members of Foster Swift’s Commercial Litigation Practice Group regularly advise clients on the formation of contracts to avoid the extreme consequences of violating the Statute of Frauds.