Contracts Don’t Necessarily Have to Be in Writing

Contracts don’t necessarily have to be in writing – whether it is a simple contract or a complex one. When someone makes an offer for an exchange for value and the other side accepts the offer, each intending to “do the deal”, there is a contract – unless the subject matter comes under the “Statute of Frauds”.

The Statute of Frauds, Massachusetts General Laws Chapter 259, Section 1, provides that certain categories of agreements must be demonstrated by a written document signed by all parties to be an enforceable contract. Those categories are agreements concerning real estate, agreements for the sale of goods, a promise of marriage, an agreement to be responsible for another’s debts and an agreement that cannot be performed within a year.

An “exchange of value” simply means that each side is getting something which has value to them. This exchange of value is also called “consideration” and it does not have to be money. For example, if a property owner releases all bidders, based on the lowest roofing bid received, the property owner gave up something of value and the roofer must perform the work as bid. When the roofer agrees to do the work at a later date for a lower price if property owner agrees not sue the roofer, the promise to refrain from taking legal action constitutes “consideration”. A promise is not enforceable without consideration. This makes sense – you can’t force someone to make a gift.

The offer and acceptance must contain all the “material terms” to create an enforceable contract. Otherwise, a court would not know what to enforce. Material terms include things like: the promise(s) to be performed, the time of performance, price and payment terms.

Even when there is agreement on material terms, parties often disagree about what the each of them understood the deal to include, what they “intended.” The court will have to decide whether the disagreement covers a material term. For a contract to be enforceable, both sides must intend to be bound to at least the material terms of the agreement.

Intention is a state of mind, though, generally inferred from the parties’ actions, words and the circumstances around the deal. Where there is a written contract, the language of the contract will be used to infer the parties’ intentions and the court (or jury) will only look at other, “extrinsic” evidence (such as witness testimony) if the language of the contract is ambiguous.

Lawyers often find ambiguities in written contracts. The likelihood of ambiguity, though, increases dramatically when the contract is oral or a combination of conversations, emails and the like.

So…what does this all mean? When an agreement is not written down, it still can make an enforceable contract. Don’t walk away from a broken promise just because it is not in writing. However, written agreements are better for all parties for lots of reasons.

• Written agreements are more clear and more enforceable;
• Sometimes agreements are unenforceable without them;
• The process of writing down agreements helps the parties think the deal through – leading to fewer misunderstandings.

Lawyers can be helpful in writing down simple contracts as well as complex ones. Saving money here may work but when disagreements arise the savings look penny wise and pound foolish.