Managers often are surprised to learn that deals don’t need to be written down to be legally binding.
As a matter of contract law, all that’s needed is an offer, acceptance, and consideration – legalese for a benefit gained by each side. For many deals, this means that a handshake is sufficient to “bind” the parties.
Of course, if you wind up in court, it’s much easier to prove that a contract existed if it’s written down. But other kinds of evidence, such as witnesses to the deal, will often suffice.
However, an arcane rule of U.S. law known as the statute of frauds makes this general approach inapplicable to certain kinds of deals.
The statute of frauds requires that contracts for the sale of land, contracts in which another party acts as the guarantor of another’s debt, contracts that cannot be performed within a year, and certain rarer kinds of contracts must be in writing to be legally enforceable.
These broad categories will tell you when you might be brushing up against the statute of frauds and should put your deal in writing.
Related Article: The Pitfalls of Faulty Contracts
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