Contracts may be oral or in writing. The general rule is that any contract, whether oral or in writing, is enforceable, so long as it contains a quid pro quo and is legal. However, certain contracts must be in writing to be enforceable. However, it would be more correct to say, as the Statute of Frauds provides, that to be enforceable, it “or some note or memorandum thereof” must be in writing “and subscribed by the party to be charged or by the party’s agent.” Civil Code §1624 (a).
“A Note or Memorandum Thereof.”
In other words, the entire agreement need not be in writing and signed “by the party to be charged.” It is sufficient if a document providing the essential terms of the agreement is in writing. That document may be one or more writings, and may consist of one or more telegrams, escrow instructions, letters, emails, a check, a diary, or a handwritten or other note. It is sufficient if the writing reasonably identifies the subject matter of the contract, indicates that an agreement has been made between the parties and states with reasonable certainty the essential terms of the contract.
“The Party to be Charged”
It is also not necessary that the “memorandum thereof” be signed by both parties. It need only be signed by the party “to be charged,” that is, the party against whom the contract is to be enforced. For instance, if a seller and a buyer enter into a contract for the sale of real property, and the seller refused to comply with the terms of the contract, the buyer could sue the seller if the seller signed the contract, even if the buyer did not sign it.
In fact, in some cases, neither party needs to sign the contract or “memorandum thereof.” As the Statute Frauds specifies, the contract or memorandum thereof must be signed by the party to be charged “or by the party’s agent.” Thus, for example, if a rental agreement is signed by the owner’s rental agent, it is deemed signed by the owner, and thus, the lessee may enforce it against the lessor/owner.
Contracts which must be in writing to be enforceable.
The Statute of Frauds provides that the following contracts or a “memorandum thereof” must be signed by the party to be charged in order to be enforceable:
- A contract which by its terms cannot be performed “within a year from the making thereof.”
So long as it is possible that the contract might be fully performable within one year, it is enforceable even if it is not in writing. That is so, even though it is highly likely that it will take many years for the contract to be fully performed. For example, an agreement by a 40-year-old person in good health that he will leave his estate to someone if at that someone cares for him for the rest of his life, is enforceable, even if not in writing. That is because, however likely it is that the individual to be cared for will live for 30 or 40 or more years, it is possible he might die within one year, and in that instance, the contract would have been performed within one year.
It is important to note that the contract must be capable of being performed within one year “from the making thereof,” in other words, within one year of the day the contract is entered into. Thus, if a landlord and tenant enter into a one-year lease on December 24, 2020, and the lease is to begin on January 1, 2021, the contract cannot be performed within one year “of the making thereof.”
Some oral contracts call for the Plaintiff to perform services for more than a year, but also specify that either party may terminate the contract at will. In that instance, at least under California law, the election to terminate takes the contract out of the Statute of Frauds, because it is possible that one of the parties will, within one year of the making of the contract, choose to terminate it.
The same is true of a contract that calls for an option to extend, for instance an employer’s option to extend a one-year oral employment agreement for successive one-year periods. Under California law, such an agreement need not be in writing in order to be enforceable, because the employer may not exercise his option to extend the contract.
An exception to the general rule is a contract which one of the parties has fully performed. In that instance, the contract is no longer covered by the Statue Frauds, and the party who has fully performed may hold the other party to his obligations under the agreement, regardless of the fact that the agreement is oral.
- “A special promise to answer for the debt, default, or miscarriage of another.”
A classic example would be a guarantee by which one guaranteed another’s obligation, for instance a promise to pay another’s medical or hospital bills, or to pay for legal services provided to another.
- An Agreement for the purchase or sale of real property, or for the lease of real property for longer than one year.
If the contract or a “memorandum thereof” is signed not by the party, but by the party’s agent, the authority of the agent must also be in writing and subscribed by “the party to be charged.”
- An agreement authorizing an agent or broker to purchase or sell real property, or to lease real property for more than one year.
Such an agreement must be in writing to be enforceable if the agent or broker performs the services for a commission or other compensation.
- An “agreement that by its terms is not to be performed during the lifetime of the promisor.”
Thus, if a promissor agrees that, in return for services provided to him by the promissee until the promissor dies, the promissor will cause his heir to sell a piece of real property and transfer the proceeds to the promisee, the contract can be performed only after the promisor’s death. Hence, it is unenforceable unless it or a memorandum thereof is in writing and signed by the promisor.
- An Agreement by a Purchaser of Real Property to pay the Indebtedness Secured by a Mortgage or Deed of Trust on the Property he is Purchasing.
However, any such agreement will be enforceable even if not in writing and signed by the purchaser if “assumption of the indebtedness by the purchaser is specifically provided for in the conveyance of the property.” In other words, if the deed given to the purchaser specifically provides for the purchaser to pay the indebtedness, then that obligation is enforceable.
- An agreement to lend money or grant credit in an amount greater than $100,000 which is not primarily for personal, family or household purposes.
Any such agreement made by a person engaged in the business of lending or arranging for the lending of money or extending credit, must be in writing to be enforceable. For purposes of the Statute of Frauds, a contract to lend money secured solely by residential property consisting of one to four dwelling units is deemed to be for personal, family or household purposes.
- A contract for the sale of personal property worth more than $5,000.
However, if the personal property is “goods” within the meaning of California’s Commercial Code, to be enforceable a contract for the sale of such “goods” must be in writing if the purchase prices exceeds $500.
- An agreement between prospective spouses made in contemplation of marriage. All such agreements are governed by the Uniform Premarital Agreement Act, Family Code sections 1600 et. seq. They become effective upon marriage, so long as they are “in writing and signed by both parties.” Amendments and revocations of premarital agreements made after marriage must also be in writing and signed by both parties to be enforceable.
All contracts other than those listed above are enforceable even if completely oral. Of course, best practices dictate that all agreements of any consequence be in writing and signed by both parties. A written contract will reduce or eliminate any misunderstanding as to what the terms of the contract are, and this can help avoid future litigation.
The Law Office of William J. Tucker is familiar with contract issues and provides free initial phone consultations to those who have questions concerning contracts they have entered into or are considering entering into.