Do All Construction Contracts Have to Be in Writing?
Construction contracts do not have to be in writing. However, all states in the U.S. have a business law, generally known as a statute of frauds, that requires certain types of contracts to be in writing to be a legally enforceable agreement.
The statute comes from the common law. As the name suggests, it prevents fraudulent claims, especially in the case of large contracts involving significant subject matter. If agreements listed in the statute of frauds are not in writing, they are not enforceable contracts.
Contract law sometimes treats construction contracts as falling within the terms of a state's statute of frauds. If that's the case, then such contracts must satisfy the writing requirement.
The Statute of Frauds
Oral contracts can be valid contracts under certain circumstances. However, the statute of frauds requires specific contracts to be in writing to be enforceable. The types of contracts that must be in writing are:
- Contracts in consideration of marriage (including prenuptial agreements)
- Contracts for more than one year
- Real estate contracts (the sale of land, etc.)
- Sale of goods that are $500 or more (which may be covered under the Uniform Commercial Code)
- Surety (an agreement to pay someone's debts which often involves a promisor and a guarantor)
There is an exception to the statute of frauds known as “part performance." Partial performance means that an unwritten mortgage is enforceable when it is a “purchase money mortgage." This occurs when money is provided to the borrower to purchase real estate that will have a mortgage.
Although state laws governing contracts vary, most states have laws that align with the statute of frauds.
The statute of frauds does not expressly cover contracts that are about construction. However, there are certain situations in which a construction contract falls within the categories listed in the statute of frauds. For example, in Florida, the following types of contracts that might involve construction projects must be in writing:
- Credit agreements, such as construction loan financing agreements
- Contracts that cannot be performed within one year, such as major construction projects
- Contracts for the sale of goods over $500, like contracts involving expensive construction materials
- Contracts for the sale of real property, such as contracts involving the sale of improved real estate
In addition, written contracts for construction work frequently include:
- A clause requiring that any modification of the original written agreement must also be in writing
- A clause stating that the written contract constitutes the entire agreement of the parties
Courts, including the U.S. Supreme Court, generally uphold and enforce these clauses. This is done to defeat an owner or contractor's claims that there was a separate oral agreement that changed the terms of the written agreement and can aid you in seeking redress through promissory estoppel.
Why It's a Good Idea To Have Construction Contracts in Writing
It's always a good idea to put a construction contract in writing, even if it does not fall under one of the categories that require it to be in writing. In fact, it's a good idea to put any agreement between two parties in writing. There are several reasons why, including:
- A written agreement means the terms of the agreement are clear. Each side can refer to the written document if there is doubt or disagreement about the essential terms.
- A written contract can be easily reviewed by an attorney, who can point out ambiguity or problem areas in the contract.
- If there is a breach of contract, a written contract provides the court with a clear picture of each party's obligations.
Are Electronic Contracts Valid?
Electronic documents and signatures have become increasingly prevalent in many areas of business, including the construction industry. This move towards digitization is aided by laws such as the Electronic Signatures in Global and National Commerce Act (E-SIGN Act). The E-Sign Act allows the use of electronic records, as long as the consumer has consented, to satisfy any law requiring that information be in writing.
Separately, some states may have their own requirements for electronic contracts and signatures, particularly for employment contracts.
Getting Legal Help
Dealing with any contract can be tricky, especially when the statute of frauds is involved. If you have questions or concerns about potential legal issues regarding the terms of the construction contract you are considering, you should meet with an experienced business and commercial attorney in your area. An attorney who is well-versed in construction contracts can provide legal advice on oral agreements and any requirements of the statute of frauds.
For more information related to contracts, you can visit FindLaw's section on Business Contracts and Forms.
You Don’t Have To Solve This on Your Own – Get a Lawyer’s Help
Meeting with a lawyer can help you understand your options and how to best protect your rights. Visit our attorney directory to find a lawyer near you who can help.