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Rhode Island Legal Blog

Monday, October 17, 2016

Oral Contracts & The Statute of Frauds - Is the Agreement Binding?

There is a widespread misconception that verbal contracts are unenforceable.  Nevertheless, a contract made orally with another party, without embodying the particular terms in a signed writing, can still be valid and binding. Even so, any disagreement concerning the deal may pose multiple problems for both parties.  In order for the court to give a verbal contract legal effect, the terms of the deal will have to be demonstrated. This could involve pricey litigation and an extensive discovery process.  Therefore, it is advisable to have an attorney draft any contractual agreement.

Moreover, according to the Statute of Frauds, there are certain contracts that must be in writing in order to be legally binding.  This may include contracts for the sale of land or real estate, surety agreements, in which one person guarantees to take over another's contractual obligations, and service agreements that take over one year to complete.  Other agreements that must be written to be legally binding may include agreements “made in the consideration of marriage,” or those made for the sale of goods valued at $500 or more. If the requirements for contractual validity are not met, either party runs the risk of the other party rescinding the contract by declaring it void.

The Statute of Frauds not only aims to prevent deception or fraud; it requires precise terms to be set in writing for a contract to be valid. The Statute of Frauds typically requires the document to include a description of the “subject matter” of the agreement, the main stipulations to the deal, and the signatures of the parties.  Nevertheless, these requirements may vary with the sale of goods under the Uniform Commercial Code, where a signature by the “party to be charged” may be sufficient.  For a sale of goods, the terms typically should include the price and quantity of the goods. 

Sometimes, if the contract is unenforceable under the Statute of Frauds, it may be saved if one party suffered by relying on the contract and if the injured party can prove this reliance in court.  Likewise, an exception may exist if “specially manufactured goods” were provided under the contract or one party “partially performed” what was required by the agreement.  The outcome may also vary if two merchants were the contracting parties.  Seek advice from a licensed business law and contract attorney to evaluate agreements and determine whether they are legally enforceable. 


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