New York Law Review

Tag: One-Year Rule

  • Zupan v. Transamerica Insurance Group, 45 N.Y.2d 900 (1978): Statute of Frauds and Contracts Not Performable Within One Year

    Zupan v. Transamerica Insurance Group, 45 N.Y.2d 900 (1978)

    A contract that, by its terms, cannot be performed within one year from its making falls within the Statute of Frauds and must be evidenced by a writing to be enforceable.

    Summary

    Zupan sued Transamerica Insurance Group alleging breach of an oral contract where Transamerica would pay Zupan $5,000 annually for every year it used an advertisement Zupan designed. Zupan had already been paid $42,500 for the design. The court held that because the alleged oral agreement was not evidenced by any writing, it was void under the Statute of Frauds, as the contract’s terms made it impossible to be performed within one year. The court reversed the lower court’s decision, granting summary judgment to Transamerica.

    Facts

    Plaintiff Zupan designed an advertisement for Defendant Transamerica Insurance Group. Zupan was paid $42,500 for this design work. Zupan claimed there was an oral agreement that Transamerica would pay Zupan $5,000 per year for every year the advertisement was used. This alleged agreement was not documented in writing.

    Procedural History

    The lower court ruled in favor of Zupan. Transamerica appealed. The New York Court of Appeals reversed the lower court’s decision and granted summary judgment in favor of Transamerica.

    Issue(s)

    Whether the alleged oral contract between Zupan and Transamerica is unenforceable under the Statute of Frauds because, by its terms, it is not to be performed within one year from the making thereof.

    Holding

    No, because the oral agreement stipulates payments for each year the advertisement is used, and there’s no way Transamerica could unilaterally terminate the agreement within one year, the contract falls within the Statute of Frauds and is unenforceable without a written agreement.

    Court’s Reasoning

    The court reasoned that the oral agreement was void under the Statute of Frauds (General Obligations Law, § 5-701, subd a, par 1) because the agreement’s terms precluded performance within one year. The court distinguished this case from contracts that are theoretically possible to perform within a year, even if highly improbable, stating, “This contract is not one which by its terms can be performed within a year. If it were, it would be without the statute even if, as a practical matter, it were well nigh impossible of performance within a year.”

    The court also distinguished this case from contracts involving alternative performances, where one option could be completed within a year, and from contracts terminable at will by the defendant within a year without breaching the contract. The court emphasized that Transamerica’s obligation to pay Zupan arose each year the advertisement was used, and there was no mechanism for Transamerica to unilaterally terminate the agreement within a year without breaching it. As the court noted, “Defendant has allegedly promised plaintiff, as a part of the consideration for designing the advertisement, that defendant will pay plaintiff an additional fee for every year in which the advertisement is used…In fact, it would appear that there is no way in which defendant could unilaterally terminate the contract. Thus, the contract cannot by its own terms be performed within a year, and is within the Statute of Frauds.”

  • Freedman v. Chemical Constr. Corp., 43 N.Y.2d 260 (1977): Enforceability of Oral Contracts Under the Statute of Frauds

    Freedman v. Chemical Constr. Corp., 43 N.Y.2d 260 (1977)

    An oral agreement is not barred by the Statute of Frauds if it is capable of being performed within one year, even if the agreement contemplates performance beyond one year, due to the existence of a contingency that could terminate the agreement within one year.

    Summary

    Freedman involved an oral agreement where the plaintiff was to install coin-operated laundry machines in the defendant’s buildings. The agreement would terminate if the defendant sold the buildings. The defendant argued the contract was unenforceable under the Statute of Frauds because its duration was four years, and therefore could not be performed within one year. The New York Court of Appeals held that the possibility of the building’s sale within one year brought the agreement outside the Statute of Frauds, making it enforceable. The court emphasized that the mere possibility of performance within one year is sufficient to remove a contract from the statute’s bar.

    Facts

    The plaintiff, Freedman, and the defendant, Chemical Construction Corporation, entered into an oral agreement.
    Freedman was to install and maintain coin-operated laundry machines in buildings owned by Chemical Construction.
    The agreement was to last for four years.
    A provision existed that the agreement would terminate if Chemical Construction sold the buildings.
    Chemical Construction subsequently sought to avoid the agreement, arguing it was unenforceable under the Statute of Frauds because it was not in writing and could not be performed within one year.

    Procedural History

    The lower court ruled in favor of Freedman, finding the oral agreement enforceable.
    The Appellate Division affirmed the lower court’s decision.
    Chemical Construction appealed to the New York Court of Appeals.

    Issue(s)

    Whether an oral agreement for a term longer than one year is barred by the Statute of Frauds if a contingency exists that could result in the agreement’s termination within one year.

    Holding

    Yes, because the existence of a contingency, like the sale of the buildings, that could terminate the agreement within one year makes the contract capable of being performed within a year, and therefore not barred by the Statute of Frauds.

    Court’s Reasoning

    The Court of Appeals relied on the established rule that an oral agreement is not barred by the Statute of Frauds if it is capable of being performed within one year.
    The court cited North Shore Bottling Co. v. Schmidt & Sons, stating, “[t]he existence of one of two contingencies performable within a year is sufficient to take the case out of the statute”.
    The court reasoned that the possibility of the building’s sale within one year made the agreement capable of being performed within one year, regardless of the stated four-year term.
    The court distinguished the case from situations where the agreement’s performance is impossible within one year, focusing on the presence of a contingency that allows for early termination.
    The court dismissed the argument that the definite four-year term distinguished the case from North Shore Bottling Co., emphasizing that the critical factor was the possibility of performance within one year due to the contingency.