Under California law, oral contracts (verbal agreements) are generally valid and enforceable. However, due to the uncertainty inherent in oral agreements, in some circumstances, a written record of the contract is required to make it legally binding.
California has statutory provisions, codified in Cal. Civ. Code. section 1624 and commonly referred to as the Statute of Frauds, that enumerate specific situations under which an oral contract is unenforceable. The Statute of Frauds is designed to reduce the likelihood of fraudulent conduct by requiring a written record of the terms agreed-upon by the parties to a contract.
California’s Statute of Frauds.
Under California’s law, the following transactions are invalid unless supported by a written agreement:
- An agreement that by its terms cannot be performed within a year from its making.
- A promise to answer for the debt, default, or miscarriage of another person.
- A lease lasting longer than one year, or a contract for the sale of real property.
- An agreement authorizing an agent to purchase or sell real estate, or to lease real estate for a longer period than one year.
- An agreement that is not to be performed during the lifetime of the promisor (the person promising to undertake some action).An agreement by a purchaser of real property to pay an indebtedness secured by a mortgage.
- An agreement to loan money or extend credit in an amount greater than one hundred thousand dollars ($100,000) made by a person engaged in the business of lending money or extending credit.
- An agreement for the sale of goods in excess of $500.00 in value.
- An agreement for the sale of personal property in excess of $5000.00 in value.
Requirements of the Statute of Frauds.
In order to comply with the requirements of the Statute of Frauds, a written agreement must:
- Be in writing.
- Identify the subject matter of the contract.
- State the material terms of the agreement (contracts for the sale of goods must state the quantity and price of goods to be sold).
- Be signed by both parties (under the Uniform Commercial Code, contracts for the sale of goods need only be signed by the party against whom enforcement of the contract is being sought).