People enter into contracts and agreements daily. Some occur over the phone, others take place in a conference room, and some even transpire through discussions while standing in line at a coffee shop. What is important, though, is realizing when these agreements need to be put in writing and signed.

The Statute of Frauds

Most states, including North Carolina, have one or more laws that require certain agreements to be in writing and signed by any individual or entity against whom the agreement will be enforced. Because, historically, the primary purpose of such statutes was to prevent fraud resulting from the "selective memories" of the parties involved, the statutes are commonly called "Statutes of Frauds." The subject matter of an agreement determines whether a Statute of Frauds requires that the agreement be in writing and be signed in order for it to be enforceable.

What Types of Agreements Need to be in Writing?

It is commonly known that in most, if not all, states, including North Carolina, a Statute of Frauds requires that all contracts or agreements to sell or convey land, or any interest in or concerning land, including easements, options to purchase, rights of first refusal, and certain leases, must be in writing and signed by any party against whom enforcement is sought. However, more than just contracts and agreements involving real property must be in writing and signed in order to be enforceable. For example, the following types of agreements must be written in order to be enforceable:

• Generally, contracts for the sale of goods for the price of $500 or more, except: (1) when the goods are specially manufactured goods; (2) when payment or delivery of the goods has been made and accepted; or (3) if the party against whom enforcement is sought admits in court that a contract was made;

• An agreement that, by its terms, cannot be performed within one year;

• An agreement to pay the debt of another, sometimes called a "guaranty";

• An agreement by a debtor to pay a debt which has been discharged by bankruptcy; and,

• Commercial loan commitments by a bank, savings and loan association, or credit union for a loan in excess of $50,000.

Content of the Writing

A written agreement does not need to be formal; an agreement handwritten on the back of an envelope may be sufficient. Nevertheless, the handwritten agreement still must contain all of the terms and conditions necessary to make the particular agreement enforceable.

For example, a contract for the sale of land must contain a legally sufficient description of the land. If this description is insufficient, the contract, even if in writing and signed, will be held void for uncertainty and indefiniteness. While describing land may sound easy, the description must be specific and clear enough so that it is not ambiguous. A person’s written agreement to sell "my lot on Sunset Street" might be sufficient, but it would be ambiguous if the person owned two lots on Sunset Street. Over the years, the North Carolina courts have had to address scores of agreements where there was a question as to the adequacy of the description of the subject land. Some agreements survived. Some did not.

The necessity of accuracy and precision in stating the details of an agreement is not limited to real estate contracts. All contracts and agreements of any significance to a business should include clear and unambiguous terms. Exactly what is each party agreeing to do? When must the parties perform? If the buyer needed the widgets from the seller no later than Tuesday, but the written agreement doesn’t say that, and the seller doesn’t get around to delivering the widgets until Thursday, the buyer may be required to pay for the now-worthless widgets even though the seller knew the buyer needed them by Tuesday.

Valid Signatures

Written agreements also must be signed by the proper parties in order for the agreement to be binding. While this may seem simplistic and obvious, issues frequently arise when business entities are parties to an agreement. Obviously, the entity cannot sign the agreement since it is merely a legal fiction that the entity is a "person." For example, if a limited liability company is a party to an agreement, a properly authorized agent must sign the agreement on its behalf, usually in a form such as the following:

ABC, LLC
By: John Doe, Member
or
John Doe, Member
For: ABC, LLC

In the above example, the question now is whether John Doe was authorized to sign the agreement on behalf of ABC, LLC. A limited liability company generally is managed by one or more managers (who may or may not be members) who often are the only persons authorized to sign agreements binding the company. "Members" of a limited liability company are roughly the equivalent of shareholders of a corporation. Like shareholders, members may be part owners of the limited liability company, but they generally have no authority to execute agreements binding the company. In some cases, however, the Operating Agreement of the limited liability company may authorize, or even require, members to sign agreements in certain circumstances. Furthermore, a person can be authorized to execute some agreements for an entity, but not others. For example, the "customer service representative" of your supplier who has executed hundreds of sales contracts for the supplier may not have the authority to execute an agreement to buy back some of the supplies.

Care must be taken to determine who is authorized to execute the particular type of agreement on behalf of the entity. If the agreement is a significant one, it is not uncommon to ask for, and receive, a written resolution from the board of directors of a corporation or from the members of a limited liability company stating who is authorized to sign the agreement at issue.

Once you know the correct individuals who need to sign an agreement, whether on behalf of themselves, a corporation, partnership, or limited liability company, a simple signature will suffice to meet the Statute of Frauds requirements.

Conclusion

The next time you find yourself seconds away from telling someone that you will "shake on it" without putting the terms of your agreement in writing, remember that certain types of agreements, and not just agreements regarding land, are required to be in writing to be enforceable. Even if an oral agreement may be enforceable, what are its terms? The person with whom you dealt might just have a "selective memory." Taking the precaution of reducing any agreement to a writing containing clear and specific terms and requiring a properly authorized person to sign it can save you money and time down the road.

© 2009, Ward and Smith, P.A.

Ward and Smith, P.A. provides a multi-specialty approach to the representation of technology companies and their officers, directors, employees, and investors.

This article is not intended to give, and should not be relied upon for, legal advice in any particular circumstance or fact situation. No action should be taken in reliance upon the information contained in this article without obtaining the advice of an attorney.