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Tuesday, September 26, 2006

Recent Statute of Frauds Case from Delaware

Based on the statute of frauds, a Delaware court recently granted an employer's motion for summary judgment and dismissed a doctor/employee's claim for breach of an oral employment contract.

Dr. Aurigemma sued his employer, a rehabilitation center, for violation of an alleged oral agreement pursuant to which the doctor alleged he was to serve as medical director for the employer. The doctor alleged that he entered into an oral agreement on September 4, 2003, whereby he agreed to serve as medical director for one year beginning October 1, 2003.  The employer denied any such agreement and contended that, even by the doctor’s own contention, the contract was not enforceable because the statute of frauds required that it be in writing.

The court held for the employer.  The statute of frauds requires that a contract be in writing when it is not capable of being performed in one year. In this case, the doctor’s alleged oral agreement was for exactly one year of employment – but he allegedly entered into the agreement roughly a month before the commencement of his service as medical director under that agreement. The court held:

The general rule regarding the Statute of Frauds can be stated as follows: "An oral contract for a year's services to begin more than one day after the contract is entered into is invalid under that provision of the statute of frauds making invalid an oral contract not to be performed within a year." The time within which such a contract is to be performed is reckoned from the making of the contract, not from the time the performance is to begin." Although this rule of law has never been explicitly expounded in Delaware, it appears to be the widely accepted construction of this particular provision of the Statute of Frauds.

(footnotes omitted).  Thus, the alleged oral agreement came within the statute of frauds, necessitating that it be reduced to writing.

The court further held that no exception to the statute of frauds applied. The doctor argued that he partially performed the alleged contract to serve as medical director by assuming the duties of acting medical director on September 4, 2003. In response, the employer argued that the partial performance exception is limited to real estate and financial transactions and does not apply to service or employment contracts.  Moreover, the employer argued, even though Dr. Aurigemma began to perform as interim medical director, this was not a partial performance of permanent medical director position duties. The court held:

Delaware law is clear that the part performance doctrine does not apply to oral contracts not to be performed within one-year. "It is ... uncontroverted that partial performance of services under an oral contract not to be performed within a year does not remove the contract from the operation of the Statute of Frauds so as to affect the portion of the services not performed." This view has been expressed as the majority view and is supported by case law in many jurisdictions.  The purpose of the Statute of Frauds is to prevent frauds that may occur if oral contracts were permitted in certain areas of the law. The Indiana Supreme Court recently penned an excellent recitation of the purpose of the Statute of Frauds in considering an argument identical to that offered here by Dr. Aurigemma. In Coca-Cola Co.v. Babyback International, Inc., that court said:

This purpose would be undermined if a party's conduct could form the basis for establishing and enforcing a claimed oral agreement not to be performed within one year simply because the same party's conduct arguably provided the only explanation for the agreement. Such an approach would invite persons to concoct and seek enforcement of fictitious contracts on grounds that the existence of an agreement would provide the only possible explanation for such persons' conduct. In contrast to real estate contracts, where evidence of part performance is relatively clear, definite, and substantial, the nature of evidentiary facts potentially asserted to show part performance of an agreement not performable within one year would be vague, subjective, imprecise, and susceptible to fraudulent application.

Aurigemma v. New Castle Care LLC,2006 WL 2441978 (Del.Super. Aug. 22, 2006).

 [Meredith R. Miller]

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