Proper Form

The fifth element of a contract is that it must be in the form required by law.  Do all contracts have to be in writing?  No – oral contracts can be just as valid and enforceable as written contracts.  How­ever, state statutes require that certain contracts must be in writing in order to be enforceable by a court.  These statutes are called statutes of fraud.  Statutes of fraud require that either the contract itself be in writing and signed by the parties or there must be a sufficient memorandum of the agreement signed by the party being sued for breach of contract.

The statute of frauds normally does not apply if it is possible under the terms of the agreement to perform the contract within one year.  If no time for performance is specified in the oral agreement and the performance will not necessarily take more than one year, the statute of frauds would not apply.

Smith claimed that he and Jones had made an oral contract 1) to start a business under the name of Acme Textile Mill, Inc., 2) to incorporate the business, and 3) to divide the stock equally.  The alleged contract was not performed.  Smith sued Jones for breach of contract.  Jones raised the defense of the statute of frauds, asserting that it was not specified that the contract should be performed within one year. Was this defense valid?  No.  The contract could have been performed within one year. A writing was therefore not required.  The statute does not apply if the contract contemplated performance within one year or if in fact it could be performed within one year.

Contracts involving the sale of land must be evidenced by a writing.  This would include deeds and mortgages, as well as the contract between the buyer and the seller setting forth the terms of the sale.  This statute applies only to the agreement between the owner and purchaser of the real property.  It does not apply to collateral agreements such as between a real estate agent and one of the parties to the sales contract regarding the real estate agent’s commission.

Another type of contract that must be in writing is the promise to answer for the debt of another person.  For example, an oral promise by the president of Acme Company to pay the debt owed by Acme to Tenth National Bank would not be enforceable.

A promise by the executor or administrator of an estate to use personal funds to pay a debt of the estate must be in writing.  An executor of a deceased person’s estate has a duty to pay the debts of the person from the person’s estate.  If the executor promises to pay a debt of the decedent from his personal funds, this must be in writing.  However, if the executor makes a contract on behalf of the estate, like hiring an attorney to represent the estate, this type of agreement could be enforceable even if it is not in writing.

A promise made in consideration of marriage must be in writing.  An example of this would be a prenuptial agreement.

If a contract provides for the sale of goods with a price of $500.00 or more, this type of contract must ordinarily be in writing.

The statute of frauds requires a writing to evidence the contracts which it states must be in writing.  This does not neces­sarily have to be a formal contract signed by both parties.  It can be a letter signed by only one party setting forth the terms of the oral agreement.  However, the writing, whether it be a letter or memorandum, must be signed by the person “to be charged.”  This means it must be signed by the person against whom you are seeking to enforce the contract.  The writing must contain all of the material terms of the contract so that a Court can determine what has been agreed to.  A letter from the seller of real estate to a potential buyer which did not adequately describe the property involved in the sale would not be enforceable.  The description of the land must be adequate in order to allow the Court to know exactly what land is being referred to.

In a telephone conversation, Smith agreed to buy Jack’s house.  All the details of the transaction were agreed to in the conversation.  The next day Jack wrote Smith a letter stating: ”This confirms the agreement we made last night that I should sell you my home.”  Later, Jack refused to go through with the transaction.  Smith sued Jack.  Will Smith recover?  No. Because the subject matter of the contract was the sale of an interest in land, the statute of frauds required that the contract be evidenced by a writing.  The letter written by Jack did not satisfy the statute of frauds, since such a letter must set forth all the material terms of the contract so that there is no need to resort to outside evidence to establish any of the terms of the contract.

The letter, memorandum, or other writing may consist of more than one writing if there is a sufficient link between them.  For example, two or three letters from a seller of land to the potential buyer describing the terms would satisfy the statute of frauds even if one of the letters alone would not be sufficient.  It is not necessary that the writing be made with the intent to create a writing to satisfy the statute of frauds.  A letter or memorandum signed by a seller of land to the potential buyer could satisfy the statute of frauds even if the seller did not intend for this letter to be used against him should he renege on his agreement.

In dealing with the statute of frauds, the first question is whether the contract is one that has to be in writing.  The second question is whether or not there is a sufficient writing that can be enforced.  With the parol evidence rule, there is already a written contract, and the question is whether evidence outside of the written contract is admissible in court.  If a contract is in dispute, often a question arises as to whether or not the writing evidencing the contract represents all that the parties agreed to.  The general rule is that spoken words (i.e., parol evidence) will not be allowed to modify or contradict the terms of the written contract that is complete on its face.  Exceptions to this rule are made in cases of fraud, accident, or mistake, or it can be shown that the writing is not the complete or true contract.