Vail Daily column: Is your spoken word as good as written?
It has been said that oral contracts aren’t worth the paper they’re written on. But hold on a sec. In the main, oral agreements are as valid and enforceable as any other. But they can be harder to prove.
The virtue of a written agreement is it’s … ah … well, written. One can point and gesture, and say, “See, I told you so; it’s right there! In black and white even!”
Although it concerned, shall say we say, more delicate matters, former President Clinton once made a valid point. When being deposed in the Lewinsky imbroglio, he famously replied to his interrogator, “It depends what ‘is’ is.” Distilled to its essence, what the president was saying is that even the simplest words are subject to interpretation. Some might call this “spin.” Even written words are still just words and context and intention matter. Still … wasn’t it this same president who, in another very different context, once said, “Words mean things?”
Indeed they do.
And with the written word, what the word means is preserved. Its DNA is, if you will, set in legal amber. To get at the intent, all one has to do is to add a little lawyerly detergent to the helixed structure and line up the extracted nucleotides like a row of mahjong tiles.
Certain kinds of contacts, however, must be written. Not just because, most times, written is better, but because it is the law. A very old and moldy law, as it turns out.
CIRCUMSTANCES OF SIGNING
Traditionally, the statute of frauds requires a signed writing in the following circumstances:
• Contracts in consideration of marriage, including pre-nuptial agreements;
• Contracts that cannot be performed within one year (including leases for more than one year);
• Contracts for the transfer of an interest in land. This applies not only to a contract to sell land but also to any other contract in which land or an interest in it is disposed, such as the grant of a mortgage or an easement;
• Contracts by an executor of a will to pay a debt of the estate with his own money;
• Contracts for the sale of goods totaling $500 or more; and
• Contracts in which one party becomes a surety (acts as guarantor) for another party’s debt or other obligation.
Adopted from olde English law (the law was enacted by Parliament in 1677), every state has some type of statute of frauds. The law’s purpose is to prevent the possibility of a nonexistent agreement between two parties being “proved” by perjury or fraud. This objective is accomplished by prescribing that particular contracts not be enforced unless a written note or memorandum of agreement exists that is signed by the persons bound by the contract’s terms or their authorized representatives.
The statute of frauds is invoked by a defendant in a breach of contract action. If the defendant can establish that the contract he has failed to perform is legally unenforceable because it has not satisfied the requirement of the statute, then the defendant cannot be liable for its breach.
For example, suppose a plaintiff claims that a defendant agreed to pay her a commission for selling his building. If the defendant can demonstrate that no commission contract was signed, then the statute of frauds will prevent the plaintiff from recovering the commission.
Many states have expanded the application of the law to other categories of contracts than those to which it historically applied, such as a life insurance contract that is not to be performed within the lifetime of the person making the promise. It also applies to contracts to bequeath or devise property by will and (as the above example suggests) contracts that authorize an agent to sell real property for a commission.
Strict application of the statute of frauds can, however, produce an unjust result. A party, who in good faith reasonably believes a contract exists and therefore spends time and money to perform the contract, would be unable to force the other party to perform because the agreement was not in writing. Therefore, courts often employ the term “part performance” to determine whether a plaintiff’s conduct based on his/her belief that a contract exists justifies enforcement of the contract even though it has failed to comply with the statute of frauds. Part performance refers to acts performed by the plaintiff in reliance on the performance of the duties imposed on the defendant by the terms of the contract. The plaintiff’s actions must be substantial in order to demonstrate that he/she actually has relied on the terms of the contract and thereby defeat the presumption of unenforceability.
Even if a contract is unenforceable, a person can sometimes recover expenses incurred at the other party’s request even though they pertain to the unenforceable contract. The recovery of expenses is not affected because the law implies a promise by the defendant to pay for expenses incurred at his request, and liability is not based upon breach of contract.
As is other things legal, there are other tweaks and nuances upon which the space limits of this column do allow elaboration. Let’s just say, there can be certain exceptions to the statute and under the right circumstances, ways around strict application of the law.
In Colorado, the statute of frauds remains alive and well.
The lesson to take home here? Most agreements should be written. Other contracts “must” be written or else they run the risk of being pooh-poohed by the court when one wants to bring down the thunder of the law upon them.
Rohn K. Robbins is an attorney who practices in the Vail Valley with the law firm of Stevens, Littman, Biddison, Tharp & Weinberg LLC. His practice areas include business and commercial transactions, real estate and development, family law, custody, and divorce and civil litigation. Reach him at 970-926-4461 or at Robbins@SLBLaw.com.