Contracts Required to be in Writing

Generally, the following types of contracts need to be executed in writing in order to be enforceable. Contracts in any of these categories entered into verbally are not automatically considered “void,” however. But they are considered “voidable” and may be either affirmed or rejected by either party at any time.

Real estate sales;

Agreements to pay someone else’s debts;

Contracts that take longer than one year to complete;

Real estate leases for longer than one year;

Contracts for over a certain amount of money (depending on the state);

Contracts that will last longer than the life of the party performing the contract; and

A transfer of property at the death of the party performing the contract.

The Statute of Frauds

An English law from 1677, the “Statute of Frauds,” provides the basis for current written contract requirements. The goal of written contract rules remains the same as ever-to avoid fraud by requiring written proof of the underlying agreement. This legal goal makes sense as a practical objective as well, since disputes over high-staked verbal agreements typically would lack an objective record of the contractual terms. While state laws generally dictate the enforcement of contracts, all states besides New York and South Carolina have adopted the Uniform Commercial Code (UCC) that includes the statute of frauds.

For example, California statute conforming to the UCC explicitly states that contracts for the sale of goods costing more than $500 are not enforceable “unless there is some writing sufficient to indicate that a contract for sale has been made between the parties and signed by the party against whom enforcement is sought or by his or her authorized agent or broker.”

Why It’s Always Best to Get it in Writing

Although other types of contracts may be oral, it is advisable to “get it in writing” to insure both parties understand their obligations. If court enforcement is required, a written contract shows the parties’ obligations and avoids a “he said, she said” dispute. It is easier to check with an attorney prior to signing to see whether a contract is valid than it is to enforce a poorly-drafted agreement after problems arise. While breach of contract lawsuits can be costly to your business, so can unenforceable agreements you thought were cemented by contract law.

What Are Entirety and Severability Provisions in Contracts?

Have you ever read a legal agreement or a contract and thought – what does this thing say? Or, why in the world is this paragraph in here? Sometimes lawyers place paragraphs or clauses into agreements that don’t make sense to business owners or managers but make perfect sense to attorneys. Some of the classic provisions that fall into this category are Entirety Provisions and Severability Provisions. I’ll go over both of them in this month’s newsletter.

Entire Agreement

The following clauses below are standard “Entire Agreement” provisions that lawyers regularly use in contracts if they want the contract to be indivisible, or that the contract represents the complete and final agreement, thereby protecting the contracting parties. In other words, the contract supersedes any prior agreements the contracting parties might have made with regard to the subject of the contract whether those negotiations or agreements were in writing, spoken over the phone, or in person.

“Indivisible” means that the entire agreement is taken as a whole or entire document and the breach of any of the parts of the agreement are material breaches and can allow the other party to terminate the contract. Here are some samples:

“This agreement is indivisible as to all of the performances to be rendered under it. Breach of any obligation to be performed by _________________ [party] constitutes a breach of the entire agreement and shall give __________________[other party] the right to terminate this agreement.”

Another Example is:

“It is expressly agreed that this contract constitutes a single transaction between the parties, and if the Buyer fails to pay for any shipment within __________________ days after delivery, the Seller will not be obligated to make any further deliveries and the contract is terminated.”

Another Example is:

“The parties hereto acknowledge that this Agreement contains the entire agreement between the parties

and that any prior discussions or written materials are wholly and completely superseded by this agreement.”

Severability of Agreement

Another clause that is regularly put into contracts is a “Severability” clause. This means that if a court finds that one or more of the provisions contained in the agreement are invalid or unlawful, the remaining parts of the contract will not be affected by that one provision being unlawful or illegal. Here are some examples:

“The performance to be rendered under this agreement is divided into 3 sections: Section A-Excavation and Fill; Section B- Road Construction; and Section C- Landscaping and Cleanup. Breach of any one section by a party shall not affect the rights or obligations of the parties as to the other sections.”

Here is Another Example:

“The obligations under this agreement are severable; the failure of the Buyer to accept delivery or pay for any individual shipment, or the failure or refusal of the Seller to deliver any individual shipment, shall not affect the rights and duties of the parties with respect to the other shipments of goods specified in this agreement.”

Conclusion:

As a business owner or manager, understanding the provisions in contracts is vital. Now you know a little bit more about some of the “standard terms” that are contained in most contracts and agreements. I hope this article has been helpful to you. Please let me know if you enjoyed it; until next time.

Utah Business Law – Monthly Newsletter is written by Michael Anderson, MBA, JD, Attorney and Counselor at Law. Mr. Michael Anderson is licensed to practice law in Utah. This newsletter is published as a service of The Ascent Law• 8833 South Redwood Road, Suite C • West Jordan, Utah 84088. This information is for general informational purposes only and does not constitute legal advice. For specific questions you should consult a qualified attorney.