Which contracts must be in writing?
Contracts are formal agreements made between multiple parties in which something of value is transferred. A contract is legally valid if it contains all of the necessary terms and conditions and it is agree upon by all appropriate parties.
A contract can either be written or verbal, and while both can be legally-binding, some contracts are required to be written in a designated format to be enforceable.
This article will discuss the differences between written and verbal contracts and help to highlight the contracts that must be in writing.
What is the difference between a written and a verbal contract?
The difference between a written contract and a verbal one is as simple as it sounds – the former is recorded in writing, and the latter exists as a spoken agreement. What many people don’t realize is that an oral contract can be just as legally valid as a written one, in the right circumstances.
There are many cases of verbal contracts holding up in court because many people today do business via verbal agreements. However, the majority of contracts in a formal context and involving anything of significant value are now written up in a formal way. There are many reasons why this is the preferred method of creating agreements, some of which we’ll discuss.
Why it’s a good idea to have contracts in writing
There are a few very beneficial reasons to have contracts in writing, this is particularly the case when involving important business or objects or services of significant value.
Here are some additional reasons:
- Other people involved in an agreement may attempt to deceive you.
- The terms of your agreement may be misinterpreted by one or more parties.
- Some types of contracts are legally required to be in writing (the statute of frauds covers these laws).
- Others in the agreement may simply forget what they agreed upon.
- A party in an agreement may go out of business or leave the country.
What a properly-written, signed contract gives you is security. In the unfortunate case that a dispute arises about the contract, for whatever reason, having a legally-binding contract in place means that it’s a lot easier handle or manage any kind of disagreement between parties.
In court, verbal agreements may be impossible to enforce in many cases, or at least cost you huge amounts in legal fees when you could have just made a written contract to being with.
Which contracts should be in writing?
The law isn’t always concrete when it comes to contracts. Some verbal contracts are perfectly acceptable as legally-binding agreements, but others are usually required to be in writing.
Here are some examples of common contract types that are typically drawn up in writing:
- Paying off another person’s debt.
- An agreement that outlasts the lifespan of someone involved.
- Selling of real estate, and leasing of real estate for more than a year.
- Agreements involving an amount of money over a certain limit (the amount varies by state).
- Agreements that will take over a year.
How to create a written contract
Creating a written contract is not as daunting as it may seem. First and foremost, it’s always best to consult a legal professional who understands contract law. They understand legally-binding written agreements far better than anyone. It’s also a good idea to take a look at existing contracts similar to the one you are proposing to get an overall idea on contents and the way the contract should look.
There are now a number of digital services, like PandaDoc, that allow you to view templates of different kinds of contracts, which can be very helpful when trying to create something from scratch.
Once you’ve got your contract written, you should also make sure it’s signed by each relevant party. A signature acts as a legally-recognized symbol of acceptance of the terms of the contract and can be added either by hand or electronically. Physical signatures are the traditional method of signing, but electronic signatures are becoming increasingly popular with organizations and individuals alike.
eSignatures can be added using a variety of different software, including Microsoft Word. However, the built-in electronic signature feature of Word is itself becoming outdated in many ways. A more practical option is to use specialized electronic signature software, such as PandaDoc.
Services like these allow one-click signing and higher levels of security via eSignature encryption. Some, like PandaDoc, also offer a range of additional features to make contract creation, sending, and tracking more efficient, helping users save time and money throughout their entire contract management process.
Always ensure your contracts are legally valid
A number of classifications of agreements are legally required to be recorded in writing, such as real estate transactions. This isn’t to say that verbal contracts can’t be legally binding, but why take the risk if you don’t have to?
The safest and most reliable way to ensure that all parties will be held accountable is to write your contract, get proper legal advice, and make sure everyone involved signs.