No written contract? No problem!
No written contract? No problem! Sometimes at least… Most Americans and many business people believe that in order to enforce a contract, it must have been in writing. They worry that when they have paid someone for a service, and the person never performed, that they have no legal recourse without a written contract. This may cause many people not to sue and to squirm away from their legal rights. The truth is that only certain types of contracts have to be in writing, and then there are many exceptions even to the deals that are required to be in writing. The Statute of Frauds (SOF) is the law in Pennsylvania that requires certain contracts to be in writing. A quick understanding of it will restore the confidence you need to exercise your legal rights in case someone refused to pay or honor a contract.
What is the Statute of Frauds?
The Statute of Frauds is a law adopted by the Pennsylvania legislature that requires certain types of contracts to be in writing.
What types of contracts are required to be in writing by the Statute of Frauds?
The most important of the contracts required to be in writing by the SOF are below:
Real estate and land deals
Virtually every form of real estate transaction must in writing in order for it to be enforced in court. This includes leases of more than three years, easements, fixtures, minerals and mortgages. Any type of real estate sale or changing of hands must be in writing. The exception to this rule occurs only if a party has performed two out of the following three things: paid for the land, in whole or in part; possession of the land has passed and/or there have been valuable improvements made to the land. If two those three occur then a court will enforce the transfer of land without a written contract.
Sale of goods over $500
Any sale of goods for over $500 must be in writing in order for the terms of the agreement to be enforced. Thus, any transfer of under $500 does NOT require a writing.
Promises to pay the debt of another
Any promise by one person to pay the debt of another in the case that he cannot pay must be in writing. This is to protect suretyships which are a common feature of insurance and business deals.
What if I did not get a written contract?
If you do not get a written contract, do not fret; you may still have legal recourse. First, there the exceptions to the rule, as stated above, and there are also other theories of recovery. For example, the legal theory of unjust enrichment may afford you relief in case you have no writing. Unjust enrichment comes into play when you do work for someone or confer a benefit upon them and they do not pay you for it. Even in the absence of a written contract a court may deem that it is only fair if you receive compensation for the work that you did. Thus, this legal theory can often get you a recovery even if you do not have a written contract.
Beware of the Statute of Frauds. It requires certain contracts, such as real estate transactions, goods over $500, and the promise to pay the debt of another, to be in writing. The SOF also has other, lesser-known requirements, which should be researched by any diligent businessperson. But even if you did not follow the SOF, you may still be able to recover under a theory of unjust enrichment. Having the paper is best, but not having it does not necessarily spell doom. Contact KM&A for a free consultation if you have any contract related questions.