In some cases, oral agreements are binding and enforceable. In the United States, however, there are numerous instances when oral contracts are not acceptable. This is because of the statute of frauds, which is a component of contract law that requires certain agreements to be in writing.
The statute of frauds can serve a number of purposes. It was designed primarily to offer protection against fraudulent acts. Requiring that contracts be in writing can also help to ensure that all parties are aware of all of the terms of their agreements. Furthermore, requiring contracts to be in writing can help courts to make a decision when there are disputes about breach of certain contractual terms.
The types of agreements that are subject to this statute can vary. There are some that are common, however. These include marriage contracts, the transfer of land, and contracts involving the sale of goods which are governed by the Uniform Commercial Code (UCC).
The statute of frauds requires more than just written contracts. It also dictates elements which must be included in those contracts. Generally, all of the parties to the agreement must be named. This can include both primary parties, such as buyers and sellers, and secondary parties, such as financiers and distributors.
A contract which adheres to the statute of frauds must outline the purpose of the written agreement. It should clearly outline the terms that the contracting parties are agreeing upon. The statute of frauds also requires that all parties to an agreement must have signed that agreement.
Consider, for example, that there is an agreement between a buyer and seller for a piece of land. In this example, the buyer signs the contract, but the seller does not. The seller cannot generally take action against the buyer if he does not purchase the property, although the buyer's signature displays his initial agreement to the transaction. An exception to this requirement is when contract involves the sale of goods that are governed by the UCC. The UCC says that only the party who is contesting the contract needs to have signed the agreement.
It should be understood that the statute of frauds does not act to void contracts. Instead, the statute outlines situations under which a contract can be voidable. The difference is that a contested agreement is not automatically unenforceable because some aspect of the statute of frauds was not followed. There are instances when contracts that are voidable according to the statute of frauds can be enforced.
This can happen when partial performance has occurred. This means that one or more of the parties has already taken certain actions that acknowledge that an agreement existed. Contracts that do not meet the standards of the statute of frauds can also be enforced when there are goods that have been specially manufactured. Such a situation could arise if a restaurant orders a tailor to customize uniforms with the restaurant's logo and then tries to back out of the deal. Allowing the restaurant to be released from the agreement due to the statute of frauds is generally viewed as being grossly unfair to the tailor.