Importance of the One Year Rule

Under the Statute of Frauds contracts that cannot be completed within a year must be written down. The one year rule does not mean that a contract needs to be completed within the year. It only requires that it can be completed within a single year.

For instance, if Paul promises Erin that Paul will pay her $500 a year until her bakery goes out of business, the one year rule means that their contract does not have to be written down. Despite a promise that could last several years, it is possible that the bakery could close that week. Therefore, it would be possible to completely execute the contract within a single year. In contrast, the Statute of Frauds would require the contract to be written down in the event that Mike rented a bike from Ed for 13 months.

There are several circumstances where it may appear that the one year rule has been violated when it has in fact not come into effect. A contract that calls for a bathroom to be renovated would not be required to be written down under the Statute of Frauds because it could reasonably be completed within a year. Even if the renovation takes two years, the Statute of Frauds has not been violated.

The one year rule goes into effect once the contract is created. It is immaterial when the work was begun. The one year period begins the day the contract is formed. For instance, Rosemary enters into a contract to be the President of XYZ Company for one year beginning May 3, 2010. She and the company agree to the contract on April 6, 2010. Unless this agreement is written down, the Statute of Frauds invalidates the contract as soon as April 6, 2011 arrives. The one year rule began counting on April 6, 2010, not on May 3, 2010.

NEXT: What You Didn't Know About Contract Management