Did you know there are some contracts that must be in writing or they’re not enforceable? Every state in the U.S. has some form of what is known as the Statute of Frauds, which says that while most verbal contracts are enforceable, certain contracts are not.
The Statue of Frauds prevents people from defrauding one another by claiming they’re entitled to benefits under nonexistent contracts. There are four types of contracts that must be written according to the Statute of Frauds, which business owners should be aware of:
1. Land Contracts
Contracts related to the sale of an interest in land must be in writing. This includes not just contracts to sell or buy land and contracts to sell or buy mineral rights in the land but also mortgage contracts and options to purchase real estate.
It’s important to note that many states have an exception to the written contract requirement for leases that are shorter than a year.
2. Sale of Goods in Excess of $500
Contracts on the sale of goods of $500 or more are required to be written. This falls under the Uniform Commercial Code (U.C.C.).
There are not many exceptions to this rule, such as contracts for sales involving goods that have already been accepted by a buyer, contracts for sales for which partial payment of goods has already been made, and contracts to manufacture specialty goods.
3. Contracts Lasting More than One Year
Contracts that cannot be performed within one year must be in writing. However, any contract with an indefinite duration does not need to be in writing. Regardless of how long it takes to perform the duties of the contract, if it has an indefinite duration, it does not fall under the Statue of Frauds.
4. Contracts to Be Responsible for Someone Else’s Debt
A suretyship is when a person promises a creditor that he or she will be responsible for another person’s debt. For this type of contract to be enforced, it must be in writing unless the person makes the promise to the debtor rather than the creditor. In this case, the Statute of Frauds would not apply. In addition, if the person takes primary responsibility to repay the debt, the Statute of Fraud does not apply.
What You Should Do
It is essential that you ensure all of your contracts are valid and enforceable or they might not fully protect you. The Statute of Frauds doesn’t require that written contracts use specific language or be complex. Just make sure your contracts include the names of the parties, the subject matter of the contract, and the basic conditions that the parties of the contract agree to.
Also, there are many exceptions to the Statue of Frauds. I covered a few in this article, but it’s always best to get the advice of an attorney before you draft or sign any contracts. This is particularly important since the Statue of Frauds varies from state to state, which makes it that much more complicated and confusing.
Remember, it’s always best to have your contracts in writing, but in some cases, it’s not just important, it’s the law!