It is always a good idea to commit an agreement to writing, both to avoid disputes and enhance prospects for effective enforcement. But in certain instances, getting a deal memorialized in writing with signatures is more than just smart, it is essential.
“Illinois law provides for a number of situations when the enforceability of an agreement may turn on whether it is reduced to a signed writing,” says Michael A. Weinberg, a partner with the business litigation firm Novack and Macey LLP.
“Contracting parties who have a high level of mutual trust often believe that oral promises will be sufficient, but such confidence can prove fatal if the relationship breaks down, or a good faith dispute arises.”
“Sales of interests in real estate, certain sale of goods contracts, long-term employment contracts and agreements relating to extensions of credit are just some of the spheres of commerce where ‘written contract’ requirements are imposed.”
Smart Business spoke with Weinberg about various types of agreements that need to be in writing.
What contracts must be in written form?
The most familiar collection of laws mandating that certain types of agreements be in writing are those collectively referred to as the statute of frauds.
For example, contracts for the sale of real estate or interests therein are unenforceable if not written and signed by the parties to be bound, as are contracts that cannot be performed within the span of one year. Contracts for the sale of goods in excess of $500 will not be enforceable unless they are in writing and signed by the parties against whom enforcement is sought or their agents.
It should be noted that the various statute of frauds enactments do not say that oral contracts falling within their scope are per se void, but rather that they are voidable and may be unenforceable if contested.
There is no strictly mandated form that writings must take in order to satisfy the statute of frauds. As long as a court can glean the essential terms of the deal, the writing will likely pass muster.
Are the statute of frauds requirements iron clad?
Notwithstanding the seemingly uncompromising language of the statute of frauds acts, there are exceptions to those requirements that will allow an oral contract to be enforced even if the agreement in question falls within a category that normally must be reduced to writing.
Thus, for example, partial performance of certain types of oral contracts can make them enforceable even if the statute of frauds suggests otherwise, as can a long course of commercial dealing.
Must agreements with commercial lenders be in writing?
The Illinois Credit Agreements Act requires that a ‘credit agreement’ — a commitment by a creditor in a commercial context to lend money, extend credit, or delay or forbear repayment — be in writing and signed by the creditor and the borrower.
This has proven to be a trap for many unwary businesses. A borrower may be orally told that a loan has been approved, an extension to repay authorized or a technical default waived, but none of those oral promises are enforceable.
When else might a signed writing be required?
Without attempting to address all such instances, one situation that bears noting relates to amendments to written agreements.
Even where there is no statute prohibiting oral changes to the contract in question, the contract itself may have a provision that expressly requires that amendments be in writing and signed by all parties. The best way to protect yourself is to get everything in writing. ●
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