My last column discussed the elements required to have an enforceable contract-offer, acceptance and consideration. A frequent question I hear is whether a contract needs to be in writing to be enforceable. It may surprise you to hear that the answer is usually not, that, with a few exceptions, oral contracts are just as valid as written contracts. Nevertheless, oral contracts are more difficult to enforce, because each party can have a different recollection of the agreed-upon terms. As such, it is usually preferable to have a written, rather than oral, contract.Validity Except in certain circumstances (which are discussed below), oral contracts are just as effective as if the deal had been written and signed by the parties. If all of the elements of a contract exist-offer, acceptance and consideration and the terms of the deal are definite enough to be enforced, then an oral contract is valid and legally binding.
If there is a dispute about an oral contract, the person who believes that the terms of the deal are being violated has the burden of proving what the terms of the contract were. This can be proven by testimony of the parties about the terms and about the conduct of the parties after the deal was struck. The problem with oral contracts is that, although they are, theoretically, enforceable, the devil is in the details. If there is a dispute over the deal, it can become a case of "he said, she said" with each party having a different recollection of the terms of the deal.
Exceptions There are certain contracts which fall under a rule called The Statute of Frauds and must be in writing to be enforceable. The purpose of this rule is to prevent fraudulent claims that oral contracts exist. The contracts which must be reduced to writing to be enforceable include the following:
1. A contract for the sale of land;
2. A contract for the sale of goods having a price of $500 or greater;
3. A contract to guarantee someone else's debt; and
4. A promise of the executor of an estate of a dead person to pay the deceased's debts out of his own pocket.
In order to be enforceable, the written contract must include the identity of the parties to the contract, the subject matter of the contract and clear enough terms to make the contract enforceable.
The writing must also contain the signature, initials or letterhead of the parties. It is not necessary that all required terms be contained in one single document. Instead, the writing requirement can be satisfied by a single written document or multiple documents which contain the essential terms of the deal.
Tim Rayne is partner in the Kennett Square law office of MacElree Harvey, Ltd., where he practices primarily personal injury and divorce law. He can be reached at 610-444-3180 or firstname.lastname@example.org.