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Oral Promises and Contracts as Creditors Claims

If someone who owes you money dies then your legal recourse is generally to file a creditor's claim. A creditor's claim is a claim to an estate or trust that the person who died owes you money.


A creditor's claim can be made against a trust if the trustee elects to use the procedure allowing it which can be helpful in some cases, see Using the Creditors Claim Procedures for a Trust, or in a probate action they can always be made, read Making a Creditors Claim in California for more information.


This post is about oral contracts and how to assert and defend against creditor claims arising out of them.


A promise is not a contract but may become a contract. A classic example, especially in the probate field is the promise "When I die I will leave you my house." There is no denying that it is a promise, however, it is not a contract.


If, however, the promise were "Joe, if you paint my car and pay the registration on it until I die then I will leave you my car." That is also a promise, and legally it is considered an offer for a unilateral contract. A unilateral contract is a contract that only requires action be taken for it to be binding. Here, if Joe were to paint the car and pay the registration on it until the promisor died the contract would be complete.


Another type of contract is the bilateral contract, for example, if you were to say "Joe, if you promise to teach my niece to drive after I die you can have my car" that would be an offer for a bilateral contract - if Joe were to then say "I promise" a contract would exist.


Statute of Frauds


There are a number of cases where an oral contract may not be binding either before or after the death of a party. In California this is governed by the aplty named Statute of Frauds (California Civil Code §1624.)


Essentially the Statute of Frauds sets out a list of contract types that must be in writing. The following promise types need a writing in order to be enforceable as a contract are those:

  • to be performed during the lifetime of the promisor

  • to answer for someone else's debt

  • to make a loan exceeding the value of $100,000

  • to assume debt on real property purchased

  • related to the transfer of real property

  • relating to personal property valued above $5,000 (California Civil Code §1624.4)

As you can see the Statute of Frauds covers a large variety of different types of promises but it does not cover everything. Service contracts, if they can perform within one year are specifically exempted.


Even if a promise falls within the Statute of Frauds it may still be binding through the legal doctrines of equitable estoppel or promissory estoppel.


Equitable Estoppel


California courts have allowed claims of a party to whom a promise is made, even if it falls under the Statue of Frauds, where the promising party would be unjustly enriched or when an unconscionable injury would result to the person relying upon the promise and who materially changed their position.


Applications of Equitable Estoppel


Using the first example from above:


"Joe, if you paint my car and pay the registration on it until I die then I will leave you my car."


This is obviously a promise that is not intended to be performed within the lifetime of the promisor. But, if Joe paints the car and pays the registration on the car until the promisor dies, does Joe get the car?


The answer is likely to be yes. Equitable estoppel says that the promisor cannot use the Statute of Frauds - so the contract itself is likely to be valid. Joe doesn't just get the value of his paint job or the registration, he gets the car.


In the second example Joe agrees to the following:


"Joe, if you promise to teach my niece to drive after I die you can have my car"


Again this is contract that will not be performed during the lifetime of the promisor, it specifically takes place after death. Will Joe get the car?


The answer is likely to be no. Of course Joe can claim that he changed position. Perhaps Joe claims that he went out and immediately purchased a special car for teaching people to drive that has two steering wheels and that he has thereby changed his position. A court would look at that and say that his change in position was not reasonable and he would likely not get the car.


Conclusion


As can be seen there is a lot of room for fraud to occur. There are large gaps in what is covered by the Statute of Frauds, promises can be alleged, changes in position can be alleged, large sums of money can be at stake. If you have any questions about defending against such allegations or asserting your own creditor claim please do not hesitate to contact us.




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