A contract is an agreement between parties that creates certain legal responsibilities. When a contract is formed, parties agree to do or not to do certain things. Generally, a contract can be formed by an oral agreement or by a written document. An oral contract is a spoken or verbally created agreement that can result in legally binding consequences. Some contracts have a specific writing requirement.
In general, to create a written or oral contract, there are certain legal requirements In general, there are five required elements to create any contract:
- Legal: The contract must have a legal purpose. You cannot create a contract for an illegal purpose. For example, you cannot create a contract to hire a hitman to kill someone because murder is illegal.
- Mutual Agreement: There must be what is called a “meeting of the minds.” This means that the parties came to a mutual understanding. One party must make an offer to another party for acceptance. There is a mutual understanding when the other party accepts the offer.
- Consideration: A contract must have consideration to be valid. Consideration means that each party provides something of value in exchange for some type of benefit. Both parties must give consideration. Consideration can be anything with actual value. For example, consideration can be money, personal property, or doing manual labor.
- Legal Competency: The parties to a contract must have legal competency. This means that the person must understand that they are entering into a contract. For example, minors, the mentally incapacitated, and intoxicated individuals do not have legal competency.
- Purposeful: A contract will not be valid if it involves duress, mistake or fraud. Duress means that a person cannot be forced into entering a contract against their own will. Mistake means that a person cannot enter into a contract accidentally. Fraud means that a person cannot be tricked into forming a contract.
As a general rule, written contracts are easier to enforce. In fact, courts prefer that agreements be put into writing. With a written contract there is an actual document that shows what the parties agreed to. There are some agreements that must be put in writing in order to be valid and enforceable contracts.
An oral contract is only spoken. This means that there may be no witnesses to the agreement. Only the people or parties who made the oral agreement will know what was actually said. This can cause problems if the parties disagree about the contract at a later time.
The writing requirement under the statute of frauds is a rule that says that certain contracts must be put in writing. If the statute of frauds applies, there must be a written contract for the agreement to be enforceable. The purpose of the writing requirement under the statute of frauds is to prevent fraud. The statute of frauds ensures that certain types of important contracts are in written form. Written contracts are often more reliable. A written contract is a legal document and can be used as proof.
What Types of Contracts Must be in Writing?
The statute of frauds says that certain types of contracts must be in writing to be enforceable. In most states, the following types of contracts must be in writing
- Contracts to transfer or sell land;
- Contracts that relate to the subject of marriage;
- Contracts to sell goods that are worth $500 or more;
- Contracts that cannot be completed entirely during the one year after signing (based on the actual terms in the agreement);
- Contracts involving promises to pay off another person’s debt. These are sometimes called “surety contracts”; and
- Contracts where an estate executor states they will pay debts from their own personal funds.
Any of the above certain types of contracts must be in writing to be enforceable. These contracts should also include the following:
- All basic terms and conditions of the agreement;
- Identification of the people that are involved in the agreement; and
- A clear statement the subject of the agreement (for example: what goods and/or services are included).
Not all contracts need to be put in writing. Many agreements do not involve the statute of frauds. Agreements that do not involve the types of subjects listed above are contracts that do not need to be in writing. Many agreements can be created by oral contracts. Oral contracts are often legally binding. There may be specific separate oral contract requirements and validity rules.
Who Can Write a Contract?
Most people and parties are legally allowed to write and enter into a contract. There are three major exceptions to this general rule.
- Minors: Generally, minors cannot enter into a contract. Only people or parties who are older than the minimum legal age can form a contract. Usually, the minimum legal age is 18 years old. For example, a six year old cannot enter into a contract.
- Incompetence: The people or parties to a contract must be mentally competent. Competency, also sometimes called capacity, means that the person understands that they are making a contract and the consequences of doing so. For example, people diagnosed with certain severe mental disabilities may not be able to enter into a contract.
- Intoxicated: If a person or party is severely intoxicated they may not be able to form a contract. Intoxication means that the person is under the influence of drugs or alcohol. Usually, the person must be so intoxicated that they do not understand or remember their actions. For example, if a person is extremely drunk, they may not be able to enter into a contract.
Most people can legally write a contract. Even though there are not many rules about who can write a contract, drafting a contract can be complicated. Contract drafting and review requires planning and at least some understanding of contract law.The average person usually does not know contract law. Contract law can be extremely complex.
It is important to remember that even simple agreements may require very complicated writing. For this reason, it is highly recommended that you have an attorney write and/or review any contract before you sign it. You do not want to end up with legal obligations accidentally because a contract was written incorrectly.
It is also recommended that you put the contract in written form. Even if the statute of frauds does not apply, written contracts are generally easier to enforce than oral contracts. As discussed, the written contract will be proof of the agreement if there is ever a dispute in the future between the parties.
What Happens If the Parties Do Not Follow the Contract Writing Requirements?
If the statute of frauds writing requirement applies, the parties must put the contract in a written document. Failure to follow the writing requirement can result in extremely bad consequences for all parties involved.
If the agreement does not follow the contract writing requirements, it may not be enforceable in court. In many cases, the court will decide that a contract does not exist. This means a court cannot resolve any disputes. If there is a disagreement, the parties may not be able use the legal system to solve the problem. This could be very bad for you, especially if, for example, you are owed money, etc.
In some states, it may be an option to ask the court to enforce an oral contract even though it should have been in writing under the statute of frauds rules. A court will do this in only limited and specific situations. Situations when a court might enforce an oral contract that does not comply with the statute of frauds include:
- Performance: Partial or substantial performance means that a party has either performed part or significant portion of their responsibilities under the contract. If one of the parties has already partially or substantially performed, a court may enforce the contract against the other party. This is based on the idea of fairness.
- Detrimental Reliance: Detrimental reliance means that one of the parties relied on a promise made by another party and was harmed because of that reliance.
- Specially Manufactured Goods: A court may enforce a contract without a writing if it involves specially manufactured products or goods. The agreement must be for $500 or more, the goods must be custom made for a specific buyer, and the products cannot likely be sold to another buyer. For example, this might include the sale of a specially engraved piece of jewelry with the buyer’s first and last name on it.
Do I Need to Hire a Lawyer for Help with Contract Writing?
It is in your best interest to hire an experienced contract lawyer. A specialized attorney can advise you on contract writing requirements. A contract lawyer in your area can draft a contract for you and review any contract before you sign it.
Contract law and the statute of frauds can be complicated. A knowledgeable attorney can tell you what laws apply to your specific situation. If there is ever a dispute about the contract, a lawyer can also represent you in court.