When is a written contract required by law?

Certain transactions, particularly private sales, need a formal agreement or contract. Discover how to safeguard your transaction here.

What you’ll discover:

Which contracts or agreements must be in writing?
Is a formal agreement required for all land or house sales?
When is a written agreement required for the selling of goods or services?
Is a handshake agreement enforceable?

When you reach an agreement with a buyer, seller, client, contractor, vendor, or anybody, the question that everyone always has is whether the agreement must be in writing. A written contract is typically the safest option, although it is not always required by law. Yet, most states adopt a law known as the statute of frauds. This legislation varies vary by state, but most states require certain agreements to be in writing and signed before a court may enforce the provisions of the agreement. Of course, there are exceptions, as with everything legal. The answers to frequently asked questions might help you understand whether a formal contract is necessary by law.

Which contracts or agreements must be in writing?

In general, state laws require some contracts or agreements to be in writing in order to prevent both buyers and sellers from being taken advantage of or being defrauded. Most states require the following agreements and contracts to be in writing and signed:

The selling of land, a house, or a stake in land. This covers the selling of easements and land options.
Products or services costing more than $500.00 (this amount may vary from state to state).
Contracts that might last more than a year. If it is not feasible to fulfill the promised activity within one year of the contract’s signing. This is common in service contracts, building and renovation projects, big volume orders, and distribution agreements. This category may also include lease agreements.
Arrangements to assume the debt of another individual or firm. A formal agreement is usually required when one person promises to be responsible for ensuring sure another person’s obligation is paid.
Arrangements made by the executor or administrator of an estate to personally settle debts owing by the dead individual if the estate is insufficient to do so.

There may be additional occasions where a contract is necessary. Several states require loans or automobile transactions of a specific value to be in written and signed. Even for little transactions, a written contract is a smart idea. Keeping a detailed record of what was agreed upon simplifies and reduces the expense of settling conflicts.

Is a formal agreement required for all land or house sales?

In general, yes. Whether purchasing or selling land, a house, or other real estate, most states require landowners and homeowners to obey certain state and municipal rules. This sometimes entails utilizing a contract that complies with state or local regulatory standards and making specific disclosures. Before signing, both sellers and purchasers should consult with a lawyer. In addition, a deed or title to the property must normally be transferred and documented in connection with the sale.

When is a written agreement required for the selling of goods or services?

A formal agreement is usually required for products and services worth $500 or more. A formal agreement is also necessary if a contract may take a year or more to complete or is projected to endure longer than one year.

Most jurisdictions, including California, require a Bill of Sale or other written agreement when selling a car, even if the value is less than $500. There are often requirements to transfer the title and pay taxes or fees associated with the sale of automobiles registered in a state.

Signing an agreement (other than a credit card slip) while making a large purchase at a retail business, on the other hand, is uncommon. The agreement is often part of the purchase at a shop or online. Checking a box to accept the terms and conditions before completing a transaction, or even shopping on a website, is often sufficient evidence for a court that the buyer acknowledged the terms of the sale. Simply said, strolling into a retail business and making a large purchase does not need physically signing anything to be bound by the regulations of the company.

A written agreement may be required to protect both buyer and seller in private transactions or more elaborate agreements for products or services, or both.

Is a handshake agreement enforceable?

Although many verbal agreements are valid, whether you signed them or not, precise elements of a spoken or oral agreement are sometimes difficult to enforce. For example, if you sell a dining room table to someone for $1,000 divided over two installments, half paid on delivery and the other half due in 30 days, and the buyer fails to make the second payment, you may have difficulty enforcing the arrangement in court unless you have a signed, written agreement. The buyer may assert that the original payment was agreed upon. A court may not be able to do much without a written agreement unless there is strong proof to the contrary, such as a video showing the buyer plainly acknowledging the conditions of the deal.

But, if a person takes action based on a handshake bargain (and has a legitimate cause to do so), the other party may be obligated to either make good on the deal or recompense the other party for their time, losses, and expenditures. These scenarios may be tricky, and the individual who took action usually has to establish that they did so rationally or as advised by the other person.

Not all transactions must be in writing. Smaller, less expensive transactions or short-term services may not need the use of a written agreement at all. Depending on your level of comfort, a formal agreement may ensure that both buyer and seller are on the same page.

There are many technicalities that may be used to attempt to get out of an unwritten contract, but not shaking on a bargain is not one of them. Judges have considerable discretion in determining whether a contract is subject to the statute of frauds and whether an oral or verbal agreement may be enforced. A handshake may be considered proof, however it is not always reliable. After all, people shake hands to greet one another.