The deal is done. The agreement has been made and you and the other party are both satisfied. So why is a contract necessary? Can't you just shake hands and say you agree? Well, yes and no.
Technically, a contract is valid (enforceable by a court) if it contains all the essential contract elements (offer, acceptance, mutual agreement, legal purpose, consideration, and sound mind of both parties). So, if you both agree, you could just shake hands and walk away, knowing the contract could be enforced in court if necessary.
Statute of Frauds and Written Contracts
To prevent fraud in contracts, here are some specific types of contracts that must be in writing, according to the statute of frauds. The statute varies by state, so check your state's laws. Ihese types of contracts usually include:
- Contracts for the sale or transfer of an interest in land
- A contract that cannot be performed within one year of the making
- A contract for the sale of goods valued at $500 or more
- A contract of an executor or administrator to answer for a decedent's debt
- A contract to guarantee the debt or duty of another, and
- A contract made in consideration of marriage (a prenuptial agreement, for example)
As you can see, most types of business contracts fit into these categories. So most contracts need to be in writing.
Why a Contract Should be in Writing
Mostly, it's about promises. Promises don't hold up in court; valid contracts do. It's what I always say: "If it isn't in writing, it doesn't exist." Back in the good ole' days, you and another business person could sit down and agree on something and make a contract and expect that it would be honored, because everyone knew everyone else and the rest of the town would stop doing business with the person who reneged on a contract. Today, there are too many businesses, and you may be signing a contract with someone in a distant state who you don't know and have no way of knowing is honest. Why take a chance?
Remember, if you agree to a contract without having it in writing, you may find out later that the contract falls under your state's statute of frauds, which means it may not be enforceable. If you have questions, consult your attorney before agreeing to a verbal non-written contract.