Which contracts must be in writing?
The following types of business contracts must usually be in writing to be legally enforceable:
- Contracts governing the purchase or transfer of land.
- Contracts relating to activities that will extend beyond one year.
- Contracts involving the sale of goods above $500.
These are the main examples that apply in most cases. Always check the statute of frauds (the laws governing the need for contracts to be in writing) in your locality.
Keep in mind that rules differ between states and countries, and specific exceptions sometimes apply.
Legislation also applies to some personal contracts, such as those made in consideration of marriage or relating to the payment of certain kinds of personal property debt, but these are not typically of concern in a business context.
Furthermore, it is important to note that writing requirements do not apply to all agreements, and oral contracts are often enforceable in court.
Understanding contract law
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.
Contract law is complex and differs between jurisdictions. As such, it is always recommended to seek legal help from a reputable law firm when entering into an agreement with named parties.
The requirement of a contract to be in writing is encapsulated in the concept of the “statute of frauds.” National and state laws typically govern the application of individual statutes.
For example, the United Kingdom has its own specific laws regarding the statute of frauds and contractual writing requirements. States like Texas and California each have their own rules, in addition to being covered by the Uniform Commercial Code (UCC).
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 agreement can be just as legally valid as a written one, and in the right circumstances comprises a fully enforceable contract.
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 with a high purchase price.
Here are some additional reasons:
- The names of the parties involved are clearly identified.
- Other people involved in an agreement may attempt to deceive you.
- The terms of the agreement may be misinterpreted by one or more parties, resulting in partial payments or unrealistic expectations.
- 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, valid 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 (debtor and creditor agreement).
- 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 content 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.
Ensure legal validity with a professional document solution
Certain agreements are legally required to be recorded in writing. This isn’t to say that verbal contracts can’t be legally binding, but they are significantly more difficult to prove. 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 use a professional template, seek proper legal advice, and ensure all involved parties sign.
A professional document management solution like PandaDoc provides all the functionality required to ensure legal validity, including pre-written templates, automated approval notifications for managers and legal experts, and secure online storage for approved documents.