When is a contract required to be in writing?
Some valid contracts are required to be in writing to be enforceable by a court of law. The requirement that a contract be in writing is generally dependent upon the subject matter of the agreement. A statute requiring that a contract be in writing is known as a “statute of frauds”. These statutes are designed to prevent fraud in the formation of contracts. Most statutes do not require that the entire contract be in a formal writing; rather, there must be sufficient writing (in any form) to demonstrate the core aspects of the agreement.
The following types of contract are generally required to be in writing in all jurisdictions:
• Sale of an Interest in Land – Contracts concerning the transfer of an interest in land must be in writing to be enforceable. An “interest in land” includes contracts for mortgages, mining rights, easements, etc.
⁃ Example: I agree to sell you an easement to cross my land. Our contract must be in writing to be enforceable.
⁃ Note: A construction agreement is not a transfer of an interest in land.
• Collateral Promise to Pay Another’s Debt – Debt surety or guarantee agreements are required to be in writing to be enforcement. These instruments document when one person promises to repay the debt of another. This includes situations where business owners guarantee the debts of their business.
⁃ Example: You approach your rich uncle and ask that he loan you money to buy a car. I am your friend and I promise to repay the loan if you are unable to do so. If you default, your uncle may not be able to recover against me because our agreement is not in writing. That is, your uncle and I do not have an enforceable contract.
• Cannot Be Performed within One Year – A contract must be in writing to be enforceable if the duties under the contract cannot possibly be performed within one year after its making. The ability to carry out the contract must be impossible to a certainty.
⁃ Example: You and I enter into an oral contract for services that lasts for twenty months. This is not enforceable, as any service contract or a lease of longer than one year are generally not enforceable.
• Sale of Goods of $500 or More – Sales of goods fall under the provisions of the UCC. The UCC requires that any contract for the sale of goods for $500 or more must be in writing to be enforceable. Modifications to any such agreement must also be in writing.
⁃ Example: I verbally agree to sell you a piece of equipment for $750. If I back out of our agreement, you may not be able to enforce our agreement through the courts because the agreement is not in writing.
States may establish other contracts that are required to be in writing to be enforced in that jurisdiction. For example, most states require insurance policies to be written.
• Discussion: Why do you think that certain contracts are required to be in writing to be enforceable while others are not? Can you think of any other types of contract that you believe should be in writing to be enforceable? What is your reasoning?
• Practice Question: Todd enters into a verbal agreement with Ashley to provide lawn serves at her rental property for the next two years. After performing his obligations for one month, he realizes that it is a very difficult property to service and he drastically underbid the job. What are his options?
What type of writing is required to satisfy the “statute of frauds”?
To meet the requirements of the statute of frauds, there must be a sufficient writing to demonstrate that a contract exists. The writing can be typed, handwritten, or electronic. The agreement must generally be signed by the party against whom it is being enforced. A signature may be a mark, seal, stamp, electronic signature, or a handwritten agreement. Between merchants, a confirmation regarding the contract by one merchant that is not objected to by the other merchant will be sufficient, even though it is not signed by the other merchant.
• Discussion: Why do you think that the definition of a writing is construed so broadly? Is this broad interpretation justified or does it unduly detriment a party? Why?
• Practice Question: Frank agrees to sell Amy his collector-edition, signed baseball card. Frank writes on the back of the a napkin, “I agree to sell Amy my Mickey Mantle rookie card for $2000.” Will this be a sufficient writing to satisfy the statute of frauds?
What exceptions exist to the requirement that a contract be in writing to be enforceable?
Jurisdictions recognize a number of exceptions to the requirement that certain contracts be in writing to be enforceable. Common exceptions to the writing requirement are as follows:
• Admission Under Oath – If a party admits under oath (such as in a deposition or in a court proceeding), the contract may then be deemed enforceable.
• Part Performance – A court may deem an oral contract enforceable if the parties (or one party) has partly performed the contract. This principle generally applies to oral agreements to sell or transfer real property (land).
⁃ Example: If the buyer has paid part of the purchase price and taken possession of the land, the court may hold the oral agreement enforceable. This would generally entail a court order to complete the contract performance by signing a deed legally transferring the property.
• Promissory Estoppel – The equitable doctrine of promissory estoppel applies in situations where one party relies to her detriment on another party’s promise. It arises in a situation where a party believes that her exchange of promises with the other party is a legally enforceable contract. That party puts herself in a position where she would suffer a loss if the other party does not perform.
⁃ Example: Tom promises Jane that he will sell her land to build a house. Jane, relying on the promise, hires individuals to begin grading the land and laying a foundation for the house. Later, Tom refuses to transfer a deed to Jane and claims that the contract is not enforceable because it was not in writing. Jane has spent significant money and time under the belief that the contract was enforceable. As such, a court will probably hold the contract to be enforceable under the doctrine of promissory estoppel.
• Rules Involving Goods – The UCC provides several exceptions to the rule that contracts for the sale of goods for $500 or more be in writing. For example:
⁃ Specialty Goods – If a manufacturer agrees to manufacture specialty goods for a client, once the manufacturer begins production of the goods, the contract may be enforceable without a written agreement.
⁃ Partial or Complete Performance – If goods have been accepted and payment for the goods has been made, the parties cannot later claim that the contract was unenforceable and demand return of the money or property. This may also be true for partial payment or delivery of a portion or installment of the goods.
⁃ Contract Between Merchants – An oral contract between merchants is enforceable when one party delivers goods and the other party either delivers goods or sends written notice confirming the terms of the agreement and the other party does not object to that notice within 10 days.
The justification for the above exceptions to the statute of frauds is that each situation provides an additional level of proof regarding the existence of a contract. It reduces the need for a writing to prove that the contract exists and its terms.
• Discussion: Why do you think each of these exemptions from the statute of frauds exists? What standard do you think should apply to determining what is “part performance”? How far should an individual go in relying on a promisor before it exempts the agreement from the statute of frauds? Why do you think these special provisions exist for sales of goods between merchants?
• Practice Question: Chris is a professional musician and celebrity. He walks into Grey’s jewelry store and request that Grey make him a custom necklace. Grey agrees, but they do not execute a contract. The necklace is very ornate and will cost about $150,000. It will contain the musician’s initials and symbol. When Grey finishes the necklace, Chris decides that he does not want it. What are Grey’s options?