General contract law states that contracts that have to be in writing must

The Statute of Frauds

            The reason for the Statute of Frauds is that some contracts are considered so important and/or so vulnerable to fraud that the law considers it safest to ensure that there are writings to memorialize and prove their existence.

While each state has codified its own version of the Statute of Frauds to cover various types of contracts, every state requires the following five contracts to be signed and in writing:

·         Contracts for the sale of real property

·         Contracts in consideration of marriage

·         Contracts that cannot be performed within one year,

·         Contracts for suretyship, i.e., to guarantee the debt of another

Real Property Contracts

Consideration of Marriage

            The Statute of Frauds applies when “marriage” or the “promise to marry” is the consideration that is offered by one party to an agreement. For example, if a man asks a woman to marry him and, to entice her to agree, he offers to convey property to her, this agreement would be covered by the Statute of Frauds.

            The most common type of contract in consideration of marriage is the pre-nuptial agreement. A pre-nuptial agreement is signed by a couple before marriage and may agree to terms covering property division upon divorce, inheritance agreements upon death and alimony or spousal support upon separation. Virtually all pre-nuptial agreements contemplate the marriage of the parties and list each party’s agreement to marry as consideration for the other to agree to its terms. As such, these agreements are covered by the Statute of Frauds.

Contracts that Cannot be Completed Within a Year

            If parties enter into a contract for a performance that cannot be completed within one year, the Statute of Frauds requires that it be in writing. Note that the performance doesn’t have to take a year. It merely means that the contract cannot be completed within a year of the date of the agreement. So, for example, an agreement to work a 3-hour job on a date that is 13 months in the future is covered by the Statute of Frauds. Likewise, a 2-year employment contract is, by definition, covered by the statute if frauds.

(Parenthetically, the multi-year employment contract we previously discussed is covered by the Statute of Frauds even though the employee also could die within a year because, if he does die within a year, while the multi-year employment contract is obviously excused and rendered moot, it is not completed.)

Surety Contracts

A surety is a guarantor of the debt of another. This occurs when a third party agrees to pay the obligations of another if the obligations are not paid by the debtor. The promise could be conditional or unconditional. The classic example here is a co-signor on a loan. This is common when someone with inadequate credit or income seeks a loan. Banks will sometimes allow the loan if someone with a stronger credit profile co-signs, thereby agreeing to pay back the loan if the borrower defaults. These agreements are covered by the Statute of Frauds.[9]

Debt of a Decedent

            This category is similar to the surety category. Here, someone promises to pay the debt of a decedent from his own funds, again, either conditionally or unconditionally. This is commonly done by an executor or administrator of an estate. The executor may seek to employ attorneys, accountants, financial advisors, obtain bonds or even distribute some estate assets before he has gained control of the estate (which can take months in a probate proceeding). To induce a bank or service professional to provide money or services against future payment by the estate, the administrator may have to guarantee the outlay by promising to pay it from his own funds if, for whatever reason, he is unable to gain access to the estate’s funds. This agreement is covered by the Statute of Frauds

Sale of Goods For $500 or More

While the Statute of Frauds does vary slightly from state to state and while determining how to satisfy the statute is a more complex discussion taken up in another presentation, it is important to remember that all agreements that fit into any of these categories should be in writing. Failing to ensure this could render the agreement unenforceable.

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!

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