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Understanding the Statute of Frauds in California: Protecting Small Businesses

Rokita Law

As a small business owner in California, you are likely to enter into many contracts with suppliers, vendors, partners, and clients. These contracts range from simple purchase orders to complex agreements that involve multiple parties and long-term commitments. If you regularly engage in informal contracts or “handshake deals,” it is crucial to understand that the law mandates specific contracts to be in writing for enforceability. Understanding your legal obligations and rights under the Statute of Frauds is essential for protecting your business interests and preventing costly legal disputes.

What is the Statute of Frauds in California?

The Statute of Frauds is a crucial legal principle that aims to ensure the enforceability of certain types of contracts. It requires specific agreements to be in writing and signed by all parties involved to be legally binding. The primary objective of this law is to prevent fraudulent activities and ensure that all parties involved have complete awareness of their rights and obligations under the contract. In California, Section 1624 of the California Civil Code, enshrines the Statute of Frauds, which outlines the contracts that require a written form to be enforceable in court.

Contracts that Violate the Statute of Frauds

In accordance with California law, various categories of contracts require written documentation to establish their legal enforceability.
These encompass agreements pertaining to:

  1. The sale or transfer of real property
  2. Agreements that exceed a one-year performance period
  3. Contracts for the sale of goods over $500
  4. Agreements to guarantee the debt of another person
  5. Agreements to create or transfer any interest in real estate
  6. Contracts for the sale of securities

If a contract falls into any of these categories and is not in writing, it may be unenforceable in court. If one party fails to fulfill their obligations under the contract, the other party has no legal recourse. They cannot seek damages or compensation.

In accordance with the laws of California, specifically Cal. Civ. Code. § 1624, The law considers certain types of contracts void unless the party to be held accountable signs them in written form, or there exists a “note or memorandum thereof.”

  1. Contracts that cannot be fulfilled within one year.
  2. Promises to assume someone else’s debt.
  3. Agreements for property leases exceeding one year or for the sale of real estate, which require the signing of the written agreement by the party to be bound.
  4. Agreements granting an agent or broker the authority to engage in real estate transactions exceeding one year.
  5. Agreements that cannot be fulfilled during the lifetime of the person making the promise.
  6. Agreements by real estate buyers to establish indebtedness through mortgage payments.
  7. Agreements to lend an amount exceeding $100,000 made by individuals or entities engaged in lending as a business.

Additionally, according to CA Commercial Code § 2202, the terms in the final written agreement prevail. They cannot be contradicted by any prior agreements. These agreements can be either written or oral.

The Statute of Frauds and Its Application to Commercial Transactions

When it comes to commercial contracts between merchants, the Courts have relaxed requirements due to the frequent business transactions among professionals. For more details, refer to our article on Commercial Transactions. Under California Commercial Code § 2201(1), a contract for the sale of goods valued at $500 or more is required to have a written indication, signed by the party being sued, in order to be enforced. However, if the charged party is a merchant and receives a written confirmation of the contract within a reasonable time frame and does not provide a written objection within 10 days, the contract becomes enforceable as per California Commercial Code § 2201(2).

In order for a contract to be legally binding and enforceable under the Statute of Frauds, it must meet the following requirements:

  • It should be in written form.
  • It must clearly identify the subject matter of the contract.
  • The parties must include the essential terms of the agreement, such as quantity and price for contracts involving goods.
  • Both parties must sign the contract, unless it pertains to the sale of goods. In such cases, the Uniform Commercial Code requires only the party being sued to sign.

Breach of Contract in California: What You Need to Know

In the State of California, one party breaches a contract when they neglect to fulfill their obligations under a legally binding agreement. These breaches can occur in different ways, including:

  • Significant breach: This pertains to a scenario where one party neglects to satisfy a vital component of the contract.
  • Inconsequential breach: This arises when one party fails to comply with a minor element of the agreement.
  • Anticipated breach: This transpires when one party expresses their incapacity to meet their contractual obligations prior to the agreed-upon deadline.
  • Substantive breach: This occurs when one party fails to fulfill their obligations by the deadline stipulated in the contract.

If a breach of contract occurs, the non-breaching party can potentially claim damages, which may encompass seeking compensation for any financial losses they have incurred due to the breach.

Why Every Small Business Needs a Lawyer in Los Angeles

Navigating the complex legal landscape of contracts and business law can be challenging. This is especially true for small business owners who lack a legal background. Working with an experienced lawyer who specializes in small business law in Los Angeles can help you avoid costly legal disputes. They can also ensure that your contracts comply with the Statute of Frauds. Additionally, an attorney can provide guidance on other legal issues that may arise, including employment law, intellectual property law, and tax law.

Understanding the Statute of Frauds and its implications is crucial for protecting your legal rights and ensuring contract enforceability. For small business owners in Los Angeles, working with an experienced lawyer is key to success. They can provide guidance, representation, and assistance with various legal matters.

Rokita Law-Trusted Business Lawyers in Los Angeles

Amanda Rokita’s expertise, knowledge, and experience in business litigation instill confidence that Rokita Law is handling your legal matters with the utmost care. Our committed team of experienced professionals provides the best possible service, ensuring that your case is in good hands. As an experienced litigator, Amanda has a dynamic approach to representing clients and handling her cases.

If you’re looking for help to navigate through any legal disputes involving your business or property, call upon the trusted name of Rokita Law today! Our team will be more than willing to assist you every step of the way. Don’t take on tough business litigation alone – involve the help of an attorney who knows how to get results. Involved in a business dispute? Call Rokita Law! Schedule a consultation today to see how our team can help you navigate the complex world of business litigation.

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