Introduction to Contracts The Agreement: Offer The Agreement: Acceptance Consideration Reality of Consent © 2010 The McGraw-Hill Companies, Inc. All rights reserved.
Business Law: Chapter 16, The Ethical, Global, and E-Commerce Environment, 14th ed., by Mallor, Barnes, Bowers, Langvardt
Nov 14, 2014
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Introduction to ContractsThe Agreement: Offer
The Agreement: AcceptanceConsideration
Reality of Consent
© 2010 The McGraw-Hill Companies, Inc. All rights reserved.
Capacity to ContractIllegality
WritingRights of Third Parties
Performance and Remedies
© 2010 The McGraw-Hill Companies, Inc. All rights reserved.
A verbal contract isn’t worth the paper it’s written on.
Samuel Goldwynquoted in The Great
Goldwyn (Alva Johnson, 1937)
Writing
© 2010 The McGraw-Hill Companies, Inc. All rights reserved.
Learning Objectives
Significance of a writing in contract law
The Statute of FraudsContracts covered by the Statute
of Frauds and the requirementsThe UCC & the Statute of FraudsThe Parole Evidence Rule
16 - 4
In general, a writing is not required to create a legally enforceable contract
However, a writing is preferable to an oral contract for a number of reasons: more definite, signature provides authentication, and use as evidence
Sometimes, a writing is required…
Basics
16 - 5
In 17th Century England, the Statute of Frauds was enacted to prevent fraud by requiring written evidence before enforcing certain types of contracts
American states adopted similar statutes
The Statute of Frauds
16 - 6House of Lords, England
If a covered contract does not satisfy the requirements of the statute of frauds, the contract is unenforceable
A person injured by the unenforceable contract may pursue an action based on quasi-contract or promissory estoppel
Consequences
16 - 7
Collateral contracts Contracts for real estate Contracts for more than one year Contracts for sale of goods over $500 Executor’s promise Marriage as consideration See the list on page 413 of the text
Covered Contracts
16 - 8
Collateral contracts in which a person (guarantor) promises to perform an obligation of another person (principal debtor) to a third person (obligee)
Covered Contracts: Collateral Contracts
16 - 9
Example: Jason is a personal guarantor on a loan from City Bank to Jason’s sister, Mary
Under the main purpose or leading object rule, no writing is required where the guarantor makes a collateral promise for the main purpose of obtaining personal economic advantage
See Wintersport Ltd. v. Millionaire.com, Inc.
Exception to Collateral Contract Rule
16 - 10
Contracts for the transfer or sale of an interest in real estate Some states require a writing for leases
and certain easements on real property Exception: if vendor fully performed on
the contract or vendee reasonably relied on the contract to his/her detriment Then statute of frauds does not apply
Covered Contracts: Real Estate
16 - 11
Bilateral contracts that cannot be performed within a year from the date of their formation (one year rule) Is performance possible within year?
Probability of performance irrelevant Example: Jack signs contract to
consult with Company X for 13 months – this must be in writing
Covered Contracts: One Year Rule
16 - 12
UCC 2-201: contracts for the sale of goods for a price of $500 or more
Includes agreements to modify existing sales contracts if contract as modified is for a price of $500 or more [UCC section 2–209(3)]
Example: Pam buys a refrigerator for $501, thus a writing is required to be enforceable No writing required for <$500 refrigerator
Covered Contracts: $500+ in Goods
16 - 13
Though uncommon, the statute of frauds requires a writing to evidence (a) contracts in which an executor or administrator promises to be personally liable for debt of an estate, or (b) contracts in which marriage is the consideration
Other Covered Contracts
16 - 14
Most states require only a signed memorandum of the parties’ agreement stating the essential terms: (a) identity of parties, (b) subject matter
identified with reasonable certainty, and (c) signed by the party to be charged
Memorandum need not be made at the same time the contract comes into being
Satisfying the Statute of Frauds
16 - 15
UCC 2–201: writing must be sufficient to indicate a contract for sale has been made between the parties, but must indicate the quantity of goods to be sold A sales receipt may satisfy the requirement
Sufficient writing includes: (a) confirmatory memorandum between merchants, (b) part payment or part delivery, (c) admission in pleadings or court, and (d) specially manufactured goods
Satisfying the Statute of Frauds
16 - 16
The parol evidence rule provides that, when parties enter a written contract that they intend as a complete integration (final statement of agreement), a court will not permit the use of evidence of prior or contemporaneous statements to add to, alter, or contradict the terms of the written contract
The Parol Evidence Rule
16 - 17
More on Parol Evidence
UCC 2-202 includes parol evidence rule Admissible parol evidence:
Additional terms in partially integrated contracts
Explaining ambiguities Circumstances invalidating contract Existence of condition Subsequent agreements
16 - 18
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