Why Written Contracts Are Essential (Even for Low-Priced Deals)

A contract is a legally enforceable agreement between two or more parties. While not all contracts must be in writing to be enforceable, putting the terms in writing is almost always the best practice. A written contract serves as evidence of the agreement and may be required to enforce it.

Evidence of the Agreement

A written contract provides a clear record of an agreement’s terms. It helps prevent misunderstandings and disputes because it serves as a reference point if a party does not fulfill an obligation. If a dispute arises and leads to litigation, a well-drafted contract helps the parties to enforce their rights because it provides clear evidence of the parties' intentions and obligations.

Consider this example: a marketing consultant agreed to redesign a client’s website for $5,000. The consultant completes the work, but the client claims the agreement was only for a “homepage refresh.” Without a written contract, it becomes a he-said-she-said dispute, which can make collecting payment difficult if not impossible.

Requirement for Enforceability

Under the statute of frauds, some contracts must be in writing to be enforceable. For example, in California, California Civil Code § 1624 and California Commercial Code § 2201 require certain contracts to be in a signed writing and include specific terms. These contracts include those:

1. that cannot be performed within a year

2. to pay someone’s debt

3. for a lease longer than a year

4. for the sale of real estate

5. that establish an agent or broker’s authority to purchase, sell, or lease real estate for a period longer than a year

6. that contain a promise that cannot be performed during the promisor’s lifetime

7. for the purchaser of real estate to become indebted through a mortgage

8. for a lender whose business is making loans of more than $100,000

9. for the sale of goods priced at $500 or more.

So, for some contracts, having a written contract is not only beneficial but also required to enforce the contract.

Conclusion

Verbal “handshake” agreements may be a common way to do business. But without a written contract, proving and enforcing the terms of the agreement may be impossible.

The text above is intended for informational purposes only and is not legal advice. For advice tailored to your situation, please consult with an attorney.