CONTRACTS IN WRITING
ANSWERS TO PROBLEMS CHAPTER 15
Rafferty was the principal shareholder in Continental Corporation, and, as a result, he received the lion's share of
Continental's dividends. Continental Corporation was eager to close an important deal for iron ore products to use in its
business. A written contract was on the desk of Stage Corporation for the sale of the iron ore to Continental. Stage
Corporation, however, was cautious about signing the contract; and it did not sign until Rafferty called Stage Corporation
on the telephone and stated that if Continental Corporation did not pay for the ore, he would. Business reversals struck
Continental Corporation, and it failed. Stage Corporation sues Rafferty. What defense, if any, has Rafferty?
Main Purpose Doctrine
Rafferty has the defense that his oral
agreement to pay for the iron ore was a contract to guarantee the payment of the debt of another
which the statute of frauds requires to be in writing to be enforceable.
Rafferty's oral promise to
pay Continental Corporation's debt was collateral to the debt or liability of Continental
Rafferty's promise cannot be said to be an original promise or undertaking even
though he was the principal shareholder in Continental Corporation.
However, the main purpose
doctrine will be available to Stage Corporation and bind Rafferty to his oral promise.
Green was the owner of a large department store. On Wednesday, January 26, he talked to Smith and said, “I will hire you
as sales manager in my store for one year at a salary of $28,000; you are to begin work next Monday.” Smith accepted and
started work on Monday, January 31. At the end of three months, Green discharged Smith. On May 15, Smith brings an
action against Green to recover the unpaid portion of the $28,000 salary. Is Smith’s employment contract enforceable?
One Year Provision
Decision in favor of Green.
The oral contract of employment between
Green and Smith was entered into on Wednesday, January 26, but Smith was not required to begin
work until Monday, January 31, five days after the making of the contract.
The agreement was
thus not capable of performance within one year from the day on which it was made and is within
the statute of frauds.
The contract is, hence, not enforceable.
Where a contract of service is for the
term of a year beginning or which may begin on the day of the making of the contract, the statute
of frauds is inapplicable.
An oral contract for a year’s services, as here, to begin more than one day
after the contract is entered into is impossible of performance within one year from the date of
making and is therefore unenforceable under the statute of frauds.
Part performance of an oral
contract not performable within a year does not take a contract out of the statute of frauds.