Sometimes it’s easier to agree to something verbally, rather than put the agreement in writing. This is not usually a good business practice, however, because many problems can arise from verbal agreements. These problems include disputes over the terms of the contract, but also disputes over whether the contract itself is enforceable.
Some oral contracts are enforceable, but several types of contracts are enforceable only if they are in writing. This stems from a legal concept called the “Statute of Frauds,” which was developed in the 17th Century and is still followed today. The purpose of the Statute of Frauds is to prevent fraud in certain types of contracts
Under Michigan law, the following types of contracts (among others) generally must be in writing to be enforceable:
- real estate agreements, including purchase agreements, deeds, mortgages, and leases (unless the lease is for less than one year)
- contracts that cannot be performed within one year (e.g. a two-year employment contract)
- promises to pay the debt of another (e.g. a personal guarantee)
- marital contracts (e.g. prenuptial agreements)
- real estate commission agreements
- promises made by financial institutions (such as a promise to lend)
- misrepresentations regarding credit
- sales of goods worth more than $1000
- sales of personal property
How can you protect yourself or your business? First, it’s generally a good idea to make sure that all contracts are in writing and are signed by all parties to the contract. If the agreement is in writing, and signed by all parties, the parties usually cannot dispute later that something was left out of the agreement. Second, if you have an existing agreement that’s not in writing, you should contact an attorney to find out whether that agreement should be put into writing in order to make it enforceable.
This article was written by Melissa L. Demorest, Associate at Demorest Law Firm.
