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11. Will the mother's statute-of-frauds defense likely be successful?
In financial straits and needing $4,000 immediately, a nephew asked his uncle for a $4,000 loan. The uncle said that he would lend the money to the nephew only if the nephew's mother would «guarantee» the loan. At the nephew's suggestion, the uncle then telephoned the nephew's mother, told her about the loan, and asked if she would guarantee it. She replied, «Yes. Lend my son the $4,000, and I'll repay it if he doesn't.» The uncle then lent $4,000 to the nephew, and the nephew orally agreed to repay that amount in six weeks. The next day, the nephew's mother wrote to him and concluded her letter with the words, «Son, I was happy to do you a favor by promising your uncle I would repay your six-week $4,000 loan if you don't. /s/ Mother.» Neither the nephew nor his mother repaid the loan when it came due, and the uncle sued the mother for breach of contract. In that action, the mother raised the statute of frauds as her only defense.
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If an oral contract falls within one of the designated categories under the SOF, this will generally be a defense to enforcement. At least five types of contracts must be in a writing, including contracts: (i) for the sale of an interest in land; (ii) for the sale of goods (now governed by the UCC); (iii) in consideration of marriage; (iv) that will not be performed within one year from the contract's formation; and (v) those regarding suretyship.
As to contracts of suretyship, this scenario arises when someone makes a promise to be responsible for or guarantee the debt another person owes to a creditor. In that situation, the debtor's obligation must be in writing. However, there are exceptions, including when: (i) the promise to answer for the debt is made to the debtor; (ii) the promisor is the PRIMARY obligor, as opposed to being secondarily liable; and (iii) the promisor's main goal in guaranteeing the debt of another was to benefit himself or gain some pecuniary benefit. Rest. 2d § 552-55.
Normally, the SOF is satisfied by any writing signed by the party to be charged. This may be a formal contract, or something less formal, such as a letter. However, the writing must be a «memorandum» that includes: (i) the identity of the contracting parties; (ii) a description of the subject matter of the contract; and (iii) the terms and conditions of the agreement.
B is correct. It is true that the SOF requires that promises to pay for the debt of another be made in writing. However, the writing does not need to be contemporaneous with the making of the promise or addressed to the promisee. In this case, the mother's letter to her son, the nephew, in which she stated, «Son, I was happy to do you a favor by promising your uncle I would repay your six-week $4,000 loan if you don't. /s/ Mother» satisfies the requirement of the SOF. It is signed, it contains the identity of both parties, a description of the subject matter, and the terms.
A is incorrect. This answer reaches the correct answer with the wrong reasoning. The mother's SOF defense will not prevail, but not because of the amount of the loan, which is irrelevant to the suretyship provision of the SOF. The specific amount may be relevant in other circumstances involving the sale of goods, but not in this case. As explained above, the letter written by the mother to her son, the nephew, is sufficient to satisfy the SOF.
C is incorrect. Even though the mother's promise to the uncle was oral, she subsequently sent a writing to the nephew (her son) that satisfied the requirements under the SOF, which will render the contract enforceable.
D is incorrect. Similarly, even though the nephew's promise to the uncle was oral, the mother's subsequent letter to her son satisfied the SOF, which does require a writing in cases involving promises to answer for the debt of another.