The Statute of Frauds is a legal principle that requires certain types of contracts must be formed in writing and signed by the parties involved.
The purpose of the Statute of Frauds is to prevent fraudulent activities and misunderstandings, ensuring that both parties to the agreement have a clear understanding of their rights and obligations. It is based on the principle that a written contract provides a reliable record of the terms agreed upon and reduces disputes arising from reliance on oral agreements.
What Types of Contracts Have to Be in Writing?
While oral contracts can be enforceable, certain types of contracts must be formed in writing to comply with the Statute of Frauds.
These generally include:
Contracts for the Sale or Transfer of Land
For example, Alice agrees to sell her piece of land to Bob. This contract must be in writing because real estate transactions involve significant rights and obligations, often accompanied by a substantial amount of money. A written agreement helps avoid disputes about the terms of the sale and provides clear evidence of the buyer’s and seller’s intentions.
Contracts that Cannot be Performed Within One Year
Suppose Charles, a famous singer, agrees to perform at Emma’s music venue exclusively for the next two years. This agreement must be in writing because it cannot be fully performed within one year. The written contract can provide clear terms about payment, performance dates, and other obligations, reducing the possibility of future disputes.
Contracts for the Sale of Goods Over a Certain Value
For instance, if Daniel agrees to sell his car worth $2000 to Helen, this contract falls under the Uniform Commercial Code’s provision requiring a written agreement for goods sold over $500.
This requirement is in place to prevent fraud and misunderstandings in transactions involving significant sums.
Contracts to Pay Another Person’s Debt
Let’s say Ian agrees to pay the debts that Jenna owes to a third party. This contract must be in writing because it involves an undertaking to answer for the duty of another person. A written contract is necessary to confirm the exact terms of the agreement and to protect the interests of all parties involved.
Contracts in Consideration of Marriage
For example, if Karen and Leo decide to get married and they agree to sign a prenuptial agreement in which they decide how their property would be divided in case of divorce, this agreement must be in writing. Such contracts require clarity on the distribution of assets, alimony, etc., and protect the interests of both parties in the event of a dissolution of the marriage.
Contracts Related to the Estate of a Deceased Person
If Mark is appointed as the executor of Nancy’s will and is expected to distribute her assets as per her wishes upon her death, this agreement must be in writing. Such contracts ensure that the executor’s responsibilities and deceased’s wishes are clearly defined and legally enforceable, reducing the potential for disputes among heirs or beneficiaries.
What Must Be Included in a Written Contract?
A written contract you draft or enter into is legally binding if it includes essential elements like:
An Offer and Acceptance
The contract should clearly state the offer and the acceptance of that offer by the other party. For example, Adam, a homeowner, offers to sell his house to Beth for $300,000. Beth accepts the offer and agrees to purchase Adam’s house at the proposed price. The offer from Adam and acceptance by Beth forms a crucial part of their contract.
Consideration
This is what is being exchanged in the contract, such as money, goods, or services. Continuing with the previous example, the consideration in the contract is the house Adam is providing and the $300,000 that Beth is paying. Each party is giving something of value to the other, creating a binding contract.
Legal Purpose
The contract must be for a lawful purpose. It cannot enforce illegal activities. Consider a situation where Carla hires David to paint her house for $1,000. This contract has a legal purpose: David will paint Carla’s house, and Carla will pay David for his services. However, if Carla hired David to commit a crime, such as vandalizing a neighbor’s property, the contract would not be enforceable because its purpose is illegal.
Competent Parties
The individuals or entities involved must have the legal capacity to enter into a contract. In another example, Ellen, a mentally competent adult, enters into a contract with Frank, another mentally competent adult, to purchase Frank’s car. Both Ellen and Frank have the legal capacity to enter into a contract. However, if Frank were under the legal age to contract or mentally incapacitated, he might lack the capacity to enter the contract, potentially rendering it void.
Mutual Assent
Both parties must understand and agree to the terms of the contract. George agrees to sell his bicycle to Helen for $100. Both George and Helen understand the terms and willingly agree to them, which shows mutual assent. They have a meeting of the minds about what the contract involves.
Specific and Clear Terms
The contract should clearly state the obligations and expectations of all parties involved. For example, Irene contracts with John to build a fence around her yard. The contract stipulates that John will build a wooden fence that is six feet high and encloses the entire yard, and Irene will pay John $5,000 upon completion. These clear terms state what each party is obligated to do, making the contract enforceable.
Are There Any Exceptions to the Statute of Frauds?
Yes, there are exceptions to the Statute of Frauds. Some common statute of frauds exceptions include:
- Admission: If the party against whom enforcement of the contract is sought admits in court that a contract for sale was made, it can be an exception.
- Part Performance: If one party has partly fulfilled the obligations outlined in the oral contract, the court may enforce it.
- Specially manufactured goods: If a seller has made a substantial beginning to manufacture custom goods, an oral contract might be enforced.
- Promissory Estoppel: This is a legal principle that can make an otherwise unenforceable promise binding if one party has relied on this promise to their detriment.
What Happens When the Statute of Frauds Applies?
If a contract falls under the categories that the Statute of Frauds covers and it’s not in writing, it is generally unenforceable. This means that if one party does not fulfill its obligations, the other party might have a hard time enforcing the contract in court, even with the help of a business attorney. However, this does not necessarily mean that the contract is void. If both parties fulfill their obligations as agreed, the contract can be completed without any legal issues.
Do I Need an Attorney to Write a Contract?
While it is possible to draft a contract on your own, it can be advantageous to have a business attorney review or draft your contract. A qualified attorney can help ensure your contract is legally binding, complies with relevant laws, and protects your interests. They can also help you understand the specific requirements and exceptions of the Statute of Frauds in your jurisdiction.
LegalMatch can connect you with an experienced contract lawyer who can guide you through the process and ensure you understand every aspect of your contract. Start your search for an attorney with LegalMatch today.
