Must a contract be in writing to be enforceable? The answer depends on the type of contract. It is true that oral agreements are binding contracts in many situations, and someone who breaches an oral promise can be sued for that breach. However, some contracts are considered too significant to be enforceable without an agreement on paper.
As adopted by most states, the Statute of Frauds is a law that provides that no lawsuit can be maintained on certain classes of contracts or agreements unless there is a written note or memorandum signed by the party to be charged or by his or her authorized agent. That means that under the statute, certain kinds of contracts have to be in writing in order to be enforceable in a court of law. The writing also has to be signed by the person who is held responsible for the contract or by that person's agent (most likely, their lawyer).
What Types of Contracts Must Be in Writing
Contracts that must be in writing include: (i) contracts for the sale of land, or for any interest in land; (ii) contracts related to marriage, such as a prenuptial agreement; (iii) contracts that cannot be performed within one year; and (iv) contracts in which one party agrees to become a guarantor of another's debts.
Contracts for the sale of goods are also covered by the Statute of Frauds. The portion of the original English statute that applies to goods is currently embodied in Uniform Commercial Code (UCC) § 2-201, which has been adopted in every U.S. state except Louisiana.
Section 2-201 provides that a contract for the sale of goods for the price of $500 or more is not enforceable through a lawsuit unless there is some writing to prove that a contract for sale has been made between the parties and signed by the party against whom enforcement is sought or by his or her authorized agent.
The UCC also includes other Statute of Frauds provisions for various transactions involving personal property.
So, what does this mean for a person running a small business? It means that:
- If you place an oral order for goods in the amount of $1,000 and the seller fails to deliver the goods, you cannot sue the seller because the contract was not in writing and it was not signed by the seller.
- If you make a contract to purchase land, and the contract is not in writing and the seller decides to sell the land to someone else, you will not win in a lawsuit against the seller. Although you can file the lawsuit, the seller's defense that the contract was in violation of the Statute of Frauds will likely prevail.
- If you orally agree with a customer that you will perform a service worth $1,000 for the customer more than a year from the date of the agreement, you cannot enforce the agreement against the customer. The lawsuit will be barred by the Statute of Frauds.
Avoiding Application of the Statute of Frauds
The best way to avoid the defense of the Statute of Frauds is to make sure that your contracts are in writing and that they are signed by the other party to the contract. That way, if the other party fails to perform on the agreement, you can obtain compensation from that party.
Partial performance of a contract removes the transaction from the operation of the Statute of Frauds. So, if you order goods worth more than $500 without a written contract, and you pay half of that sum at the time of the order, and the seller fails to deliver the goods, the Statute of Frauds no longer applies and will not prevent you from seeking relief by filing a lawsuit against the other party to the contract. The partial performance is thought to 'prove' the existence of the agreement.
Finally, the legal doctrine of equitable estoppel can bar a party from setting up the Statute of Frauds as a defense if that party has misrepresented some fact bearing upon the statute's satisfaction, thereby inducing the other party to rely on that fact to his loss. The fact misrepresented may be that the statute is inapplicable or already satisfied; more often it is found in a promise to sign a sufficient written document at a future time.
Questions for Your Attorney
- Do contracts for the sale of land have to be in writing to be enforceable?
- Do contracts that cannot be performed within a year have to be in writing to be enforceable?
- How can I avoid the application of the Statute of Frauds, and are there exceptions to its requirements?