By: Richard E. Guttentag, Esq., Stearns, Roberts & Guttentag, L.L.C.
In Florida, there are laws that require certain contracts to be in writing in order to be enforceable. These laws are statutes of fraud. The purpose of the statutes of fraud is to eliminate the possibility of a change in terms claimed by the parties as time passes. Some contracts in the construction setting that are required to be in writing by the statutes of frauds include, by are not limited to: (i) a promise to pay or answer for the debt of another; (ii) a contract for the sale of real property; (iii) a contract to lease real property for longer than one year; (iv) a contract for the sale of goods for $500 or more; and (v) a contract that is not to be performed within one year from the making of the contract.
The case of Tydir v. Williams, 2012 WL 2203045 (Fla. 1st DCA 2012) dealt with an oral contract that could not be completed within one year from the making of the contract. In Tydir v. Williams, Tydir was the principal of General Mechanical Corporation (“GMC”), and Williams was the principal of M&R Fabricators (“M&R”). In the late 1990’s, GMC hired M&R to manage GMC’s Gainesville area projects and to perform work on some of those projects as a subcontractor. In 2005, Williams alleges that he and Tydir engaged in discussions that contemplated the two ultimately becoming equal partners in a new construction business. To acquire the start-up funds for the new company, Williams asserted that Tydir planned that a percentage of gross profits from any job run out of Williams’ Gainesville office would be set aside in an escrow account and would be matched by funds from Tydir. The amounts set aside would increase by ten percent increments over at least five years until the two had enough money for the new company to be financially stable.
However, in March 2009, Tydir terminated the business arrangement with Williams. Thereafter, Williams filed suit against Tydir and GMC alleging breach of “a valid oral agreement/contract by failing to pay Williams those sums earned, or use said sums to create and capitalize a business entity wherein [Williams was to] own a 50% interest.” Tydir denied the existence of the alleged oral profit-sharing agreement to create a new business entity and defended on the grounds that any such agreement violated the statute of frauds.
The trial court entered a judgment in favor of Williams finding that there was an oral agreement between GMC, Tydir and Williams, whereby Williams was to perform personal services for GMC, Williams fully performed the oral agreement, the agreement was to be performed within one year from the making thereof, and Tydir breached the agreement. Tydir appealed the final judgment.
Florida Statutes, Section 725.01, which is known as Florida’s Statute of Frauds, states in pertinent part:
“No action shall be brought . . . upon any agreement that is not to be performed within the space of 1 year from the making thereof . . . unless the agreement or promise upon which such action shall be brought, or some note or memorandum thereof shall be in writing and signed by the party to be charged therewith or by some other person by her or him thereunto lawfully authorized.”
The statute of frauds grew out of a purpose to intercept the frequency and success of actions based on nothing more than loose verbal statements or mere innuendos, and is designed to prevent persons from being harassed by claimed oral promises made in the course of negotiations not ending in written contracts. LynkUs Communications, Inc. v. WebMD Corp., 965 So.2d 1161 (Fla. 2nd DCA 2007.
The appellate court in the Tydir case explained that for the statute of frauds to make an agreement unenforceable, it must be apparent that it was the understanding of the parties that the agreement was not to be performed within a year from the time the agreement was made. The primary factor to be utilized in determining whether or not an oral contract is to be performed within the one year limitation of the statute is the intent of the parties.
In the Tydir case, Williams’ testimony confirmed that the agreement to fund the new company was oral. However, there was no evidence that the parties ever contemplated that the funding could be completed within one year. Conversely, Williams testified that he would forgo payment of his share of the profits forfive years , at the conclusion of which he and Tydir would have the money necessary to launch the anticipated partnership. Thus, the appellate court held that the alleged oral agreement between Williams and Tydir was to gather funds for at least five years before launching the new business, and therefore the agreement could not be completed within one year, and was barred by the statute of frauds. Accordingly, the appellate reversed the final judgment entered in favor of Williams on his breach of contract claim and directed that judgment be entered in favor of Tydir.
This case demonstrates that if a contract cannot be performed within one year from the time it is made, the contract must be in writing in order for it to be enforceable. Courts will analyze whether it was the understanding and intent of the parties that the agreement was not to be performed within a year from the time the agreement was made in determining whether or not an oral contract is to be performed within the one year limitation of the statute.
About the Author: Richard E. Guttentag is a partner with Stearns, Roberts & Guttentag, L.L.C., and is Board Certified in Construction Law by the Florida Bar. Mr. Guttentag exclusively in construction law including construction lien claims and defense, payment and performance bond claims and defense, bid protests, construction contract preparation and negotiation, and construction and design defect claims and defense. He can be reached for consultation at [email protected]