One of the most common legal questions that businesses ask is “Does a contract have to be in writing?” It’s an understandable question. A business may make several agreements on a daily basis, pledging to do something in exchange for receiving something in return. Some may be minor; some are certainly more important.
Whether a contract must be in writing depends on its subject matter. Some contracts, by law, do need to be in writing. Under a legal principal inappropriately named the Statute of Frauds, some contracts will be unenforceable unless they were put to writing and signed by the party accountable for the performing the promises therein. In Texas, contracts subject to the Statute of Frauds include:
(1) a promise by an executor or administrator to answer out of his own estate for any debt or damage due from his testator or intestate;
(2) a promise by one person to answer for the debt, default, or miscarriage of another person;
(3) an agreement made on consideration of marriage or on consideration of nonmarital conjugal cohabitation;
(4) a contract for the sale of real estate;
(5) a lease of real estate for a term longer than one year;
(6) an agreement which is not to be performed within one year from the date of making the agreement;
(7) a promise or agreement to pay a commission for the sale or purchase of:
(A) an oil or gas mining lease;
(B) an oil or gas royalty;
(C) minerals; or
(D) a mineral interest; and
(8) an agreement, promise, contract, or warranty of cure relating to medical care or results thereof made by a physician or health care provider.
There is another type of contract not mentioned in the statute that also must be in writing. Most written contracts contain clauses that require that they cannot be modified orally. That means that if two or more parties have an existing contract and wish to tweak the any aspect of their relationship that touches upon the subject matter of the original contract, they likely must do so in a written and signed agreement.
This list encompasses only a sliver of the multitude of types of contracts that a person may form. That means that most types of contracts are not subject to the Statute of Frauds, and may be oral.
But that is only a partial answer to the above question. While most contracts need not be in writing, a contract of any importance should be in writing. There are at least two reasons for this.
First, an oral contract is vulnerable to bad memories and bad intentions. A person challenging an oral agreement may claim that one never existed, or contest the substance of key terms. Without a written document, the dispute will pit one party’s word against another’s. It may help if you have witnesses or other evidence of the agreement’s terms. But even if your evidence is strong, you may have to endure a long ride before you can present it at a trial. One of the goals of having a written contract is to avoid litigation. A well-drafted contract will contain terms that are complete and clear, avoid any legal hurtles to enforceability, and predict and plan for future contingencies that could effect the relationship of the parties. If a dispute arises, the parties can look to the terms of the contract for an answer. The meaning of a contract is interpreted under an objective standard, so the written words will supersede what any party claims the contract means. The outcome of a dispute can be better predicted, and thus a written contract deters litigation. The party who should lose has far less opportunity to convolute the dispute with fabricated tales of prior conversations. The written contract also serves as a concrete piece of evidence that can be relied upon to end a lawsuit in a summary proceeding, rather than waiting months or years for trial.
The second reason that a contract of any importance should be in writing is that even a simple contract will likely need to contain too many terms to effectively communicate orally. What are each of the parties required to do, and at what time? Under what conditions does the contract terminate? When and in what form must payment be made? Can the agreement be modified orally? Who shoulders liability, and who needs to buy insurance? If there’s a dispute, where must the lawsuit be filed and what state’s laws will govern? The number of possible terms is limitless. Parties entering into oral agreements often subconsciously fill the gaps with assumptions regarding how the relationship will work. Unfortunately, the assumptions may not be shared by the other party and will not be binding if a dispute ensues.
In conclusion, businesses should make a habit of memorializing their business agreements with written contracts. It may be tempting to avoid the legal expense of drafting a contract, but spending that small amount up front may be far less expensive than the alternative.
This article has been prepared for general information purposes only. The information in this article is not legal advice. Legal advice is dependent upon the specific circumstances of each situation. If you have questions regarding this article or any other legal issue, please contact the Law Office of Carter H. Thompson, PLLC., at (512) 782-9930, or by email at thompson@carterthompsonlaw.com.