The Statute of Frauds in California is a section of the state civil code that details when a contract must be in writing, as well as what a written agreement must include. This statute requires most contracts to be in writing to be valid, with only a few exceptions. Here is what you need to know to determine if a verbal contract is enforceable in California.
Sometimes a breach of contract cannot be enforced because no written agreement exists. However, there are situations in which a verbal contract or a written agreement not meeting standard requirements can be enforced to an extent.
The primary ways that the California statute of frauds affect the average citizen is in real estate and the sale of goods. Here are some other types of contracts that must be in writing to be valid.
The sale of goods more than $500 in total must have a written agreement. The few exceptions to this are cases in which the order is for customized goods that have already been produced, and in similar situations in which there is clearly a contract completed in whole or in part.
Example 1: John agrees to buy 6 $100 items from James. James stocks inventory accordingly. John backs out of the sale. James cannot enforce the sale because there is no written contract. He will now have to find other buyers for the product.
Example 2: Now, assume that the items mentioned in Example 1 were customized. James has already produced the custom items, which cannot be sold to another customer. John backs out of the sale. James may still be able to enforce the contract if he can show there was reasonable evidence John was going to purchase the customized items. These contracts can often be enforced to at least cover the seller’s cost of materials and production of the customized goods.
Most real estate transactions must be in writing. The most common real estate written contracts are leases longer than one year, sale of interest in or deed of real property, and mortgage agreements. These contracts have other requirements based on applicable industry regulations. For an agent to legally enter into a written agreement with a homebuyer, they must produce written authority granting them the ability to enter into contracts on behalf of the seller.
There must also be a written agreement if the agent wants to be compensated or receive a commission. However, one case heard by the California Supreme Court found that an agent’s finder’s fee could be enforced without a written contract because sufficient evidence existed that work had been performed to give the recommendation. This is a controversial decision that can have big implications for some real estate contract law cases.
Example: A homebuyer enters into a contract with the seller’s agent. The agent’s written authority expired the day before the contract was signed. This contract cannot be enforced. The homebuyer is not obligated to buy the home for the contract price, nor is the seller required to sell the home at that price.
While the Statute of Frauds does apply to businesses, most of the situations in which a written agreement doesn’t exist are between individuals, solo-entrepreneurs, freelancers, and gig workers. Here are the six most common types of contracts you might encounter under Statute of Frauds.
Contracts for surety bonds: Surety contracts must be in writing. These contracts are issued by insurance companies guaranteeing to a governmental agency that the named person or business will adhere to the terms outlined in the bond. They are needed to obtain certain licenses or to meet other regulatory requirements.
According to Statute of Frauds in California, “in writing” refers to a contract document that is signed by all parties. An email or other electronic trail of communication is not sufficient to establish a written contract under statute of frauds in California. However, pursuant to federal statute, 15 U.S.C. § 7001, an email will satisfy the writing requirement in many cases if the transaction relates to interstate commerce.
Some verbal contracts can be enforced even though statute of frauds in California seems to apply.
Promissory estoppel: Promissory estoppel is a legal mechanism in which one party faces detriment due to the other party failing to fulfill the contractual obligations. Even if the agreement is verbal, promissory estoppel allows the injured party to enforce the contract if they can prove that they justifiably relied on the other party.
An affirmative defense is the best way to defend against a statute of frauds breach of contract suit in California. An affirmative defense is one in which your attorney will present evidence that there is no civil liability without denying the actions described by the plaintiff. Not having a written contract is the most common affirmative defense to breach of contract lawsuits in California.
At Stone & Sallus, we represent all businesses, big and small. If you are in need of legal assistance due to allegations of breach of contract, contact us today for a consultation. We will get the facts of your case and determine if statue of frauds applies to your case or if the verbal contract constitutes an exception. Either way, at the end of your consultation you’ll know where you stand. Contact us today to schedule.
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