Do contracts have to be in writing to be enforceable? The answer depends on the type of contract. It’s true that oral agreements are binding contracts in many situations, and someone who breaches an oral promise can typically be sued for that breach. But some contracts are considered too significant to be enforceable without a written agreement.
The statute of frauds, as adopted by most states, is a law that provides that no lawsuit can be maintained on certain classes of contracts or agreements unless there’s a written note or memorandum signed either by the party to be charged or by his or her authorized agent.
Contracts That Must Be in Writing
Contracts that have to be in writing include:
- contracts for the sale of land, or for any interest in land
- contracts related to marriage, like a prenuptial agreement
- contracts that can’t be performed within one year, and
- contracts in which one party agrees to become a guarantor of another's debts.
So, for example, if you make an agreement to buy land, but the contract isn't in writing and the seller decides to sell the land to someone else, you will not win in a lawsuit against the seller. If you file a lawsuit, the seller's defense will likely be that the contract was in violation of the statute of frauds, and the seller will likely prevail. Or if you orally agree with a customer that you’ll perform a service worth $1,000 for the customer more than a year from the date of the agreement, you can’t enforce the deal. (To learn more about when the law says you don't have to honor a contract that you signed, read Contesting a Contract.)
Contracts for the Sale of Goods
The statute of frauds also covers the sale of goods. The portion of the Uniform Commercial Code (UCC)—a very large collection of legal rules regarding many important business, or “commercial,” activities—that applies to goods is located in § 2-201. The UCC has been adopted in every U.S. state to varying degrees.
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. So, if you place an oral order for goods in the amount of $1,000 and the seller fails to deliver the goods, you can’t prevail in a lawsuit against the seller because the contract wasn't in writing and it wasn’t signed by the seller. If you file a suit, the seller will raise the statute of frauds as a defense and you’ll lose.
The UCC also includes other statute of frauds provisions for various transactions involving personal property.
Avoiding a Defense of the Statute of Frauds
Here are few different ways you can potentially avoid a defense of statute of frauds:
Get the Contract In Writing
Of course, the best way to avoid the defense of the statute of frauds is to make sure that your contract is in writing and that it's signed by the other party to the agreement. That way, if the other party fails to perform on the agreement, you can file a suit and get compensation from that party.
Partial performance can sometimes invalidate a statute of frauds defense. Generally, if a buyer has taken partial possession and paid that part of the contract price attributable to real or personal property received, and if the parties can't easily be returned to their pre-contractual positions, a court may order that the remainder of the contract be performed according to the terms of the contract.
The Legal Doctrine of Equitable Estoppel
Finally, the legal doctrine of equitable estoppel can bar a party from using the statute of frauds as a defense if that party misrepresented some fact bearing upon the statute's satisfaction, thereby inducing the other party to rely on that fact to his or her loss. The fact misrepresented might be that the statute is inapplicable or already satisfied; more often it’s found in a promise to sign a sufficient written document at a future time.
This article is based on the model Uniform Commercial Code (UCC). But not all states have adopted all sections of the model UCC. Also, the model UCC leaves it to each individual state to determine the exact wording of certain sections. So, you should always check your own state’s commercial code—or talk to a contracts lawyer or business lawyer—to get information about the law in your state and for advice about your particular circumstances.