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Business Contracts & The Statute of Frauds

Statute of FraudsIn contract law, the Statute of Frauds is a requirement that certain types of contracts be put into writing in order to be legally valid and enforceable. The statute has been around for many years, and first came about in old English law. The law stated that specific kinds of contractual agreements would not be considered legally valid if they were not written down, with the signatures of both parties. As the name of the law suggests, the intent of the statute is to prevent fraudulent enforcement of contracts that are not memorialized in writing. As always, if you are considering entering into a contact, then we recommend you speak to a New Mexico Contract Drafting and Review Lawyer.

Outside of the business context, the statute of frauds mandates that the contracts in the following areas be written and signed in order to be legally enforceable:

  • Prenuptial contracts;
  • Agreements to pay a creditor for someone’s else’s debt, like when you serve as executor of someone’s will;
  • Real estate sale contracts, or contracts that relate to an interest in real property; and
  • Contracts that will not be fulfilled until over one year after the date the contract is executed.

In the business context, there is also a list of contractual agreements that must be put in writing and signed by both parties. In general, the majority of the various types of contracts found in the business realm will fall into at least one of these categories, and thus are covered by the statute of frauds:

  • Agreements for sale of land or transfer of interest in real estate;
  • A contract that will not be performed upon until at least one year after it is executed; and
  • Contract for the sale of goods for $500 or more.

Why These Contracts Must be in Writing

Generally, the need to write down an agreement stems from the fact that a simple “promise” isn’t going to hold up in court. However, a valid written contract with both parties’ signatures certainly will. Historically, before the age of rampant fraud, two parties could make an agreement and assume it would be honored. But now, with so many businesses in the market place, you could be entering into a contract with a person in a different state and who you have no assurance that you are dealing with an honest person. Rather than taking the chance that you will lose out on time, money, or the other’s party’s performance if the other party turns out to be dishonest, make sure each and every contract you enter into in the business context in memorialized in writing, and signed by both you and the other party. If you fail to do this, you might later discover that the oral agreement you made is not enforceable because it falls under your state’s statute of frauds, and you are therefore out of luck.