Chapter 16 – Writing
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Chapter 16 – Writing

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  • Contracts covered by the Statute of Frauds: 1. Collateral contracts in which a person promises to perform the obligation of another person. 2. Contracts for the sale of an interest in real estate. 3. Bilateral contracts that cannot be performed within a year from the date of their formation. 4. Contracts for the sale of goods for a price of $500 or more. 5. Contracts in which an executor or administrator promises to be personally liable for the debt of an estate. 6. Contracts in which marriage is the consideration.
  • Contracts covered by the Statute of Frauds: 1. Collateral contracts in which a person promises to perform the obligation of another person. 2. Contracts for the sale of an interest in real estate. 3. Bilateral contracts that cannot be performed within a year from the date of their formation. 4. Contracts for the sale of goods for a price of $500 or more. 5. Contracts in which an executor or administrator promises to be personally liable for the debt of an estate. 6. Contracts in which marriage is the consideration.
  • The hyperlink is to the opinion on the Findlaw.com website.
  • Odd procedural history: Dynegy appealed trial court's judgment to Houston's 1st Court of Appeals, but 1st Court Chief Justice Sherry Radack requested the case transferred in Dec. 2009 to Texas Supreme Court Chief Justice Wallace Jefferson. Radack noted in letter requesting transfer that the justice originally assigned to the case had resigned and eight other justices on the 1st Court "are disqualified or have recused pursuant to Texas Rule of Civil Procedure 18(b).“ Specifically, Yates is the husband of Houston's 14th Court of Appeals Justice Leslie Brock Yates and a factor in the disqualification or recusal of eight 1st Court justices from the appeal. On Jan. 14, 2010, Supreme Court transferred Dynegy to the 4th Court of Appeals.
  • Interestingly, at November 2003 trial, Olis was convicted. Dynegy’s board had determined that he had not acted in good faith and Dynegy was not obligated to indemnify him or release the escrowed money.
  • See flowchart on page 445 of the text.
  • The hyperlink is to the court’s opinion in pdf.
  • Parol evidence literally means written or spoken statements not contained in the written contract The hyperlink is to the court’s opinion in pdf.
  • False. Oral contracts are enforceable unless they are the types of contracts that fall within the scope of the statute of frauds. False. Contracts must be in writing to be enforceable if the contract concerns a sale of goods over $500. False. This is a collateral contract and, according to the statute of frauds, it must be in writing to be enforceable. Jill need not pay Jack’s debt.
  • True. This is an example of a situation in which the main purpose or leading object rule applies: no writing is required where the guarantor makes a collateral promise for the main purpose of obtaining personal economic advantage. Since Joey took out the loan to repay Chandler, Chandler made the collateral promise for personal economic advantage. Even though the contract was oral, Chandler must repay the loan for Joey. True. The Supremacy Clause of the U.S. Constitution applies, thus federal law prevails.
  • The correct answer is (b). The correct answer is (a).
  • The correct answer is (b). This is a similar situation to the famed Rosenfeld v. Basquiat case (Rosenfeld v. Basquiat, 78 F.3d 84 (2d Cir. 1996)).
  • Opportunity for discussion about logic and fairness of the Statute of Frauds and/or the parol evidence rule.

Chapter 16 – Writing Chapter 16 – Writing Presentation Transcript

  • C H A P T E R 16 WritingA verbal contract isn’tworth the paper it’swritten on.Samuel Goldwynquoted in The GreatGoldwyn by Alva Johnson,1937 16-1
  • Learning Objectives• List contracts that must be written to satisfy the Statute of Frauds• Identify exceptions to the Statute of Frauds• Compare UCC with the Statute of Frauds under common law• Describe the Parole Evidence Rule 16-2
  • Basics• In general, a writing is not required to create a legally enforceable contract• However, a writing is preferable to an oral contract for several reasons: more definite, use as evidence, and signature provides authentication• Sometimes, a writing is required 16-3
  • The Statute of Frauds• 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 House of Lords, England 16-4
  • Consequences• 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 16-5
  • Covered Contracts• 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 435 of the text 16-6
  • Covered Contracts: Collateral Contracts• Collateral contracts are those in which a person (guarantor) promises to perform an obligation of another person (principal debtor) to a third person (obligee) xample: Jason is a personal guarantor on a loan from City Bank to Jason’s sister, Mary 16-7
  • The Collateral Contract 16-8
  • Dynegy, Inc. v. Yates• Facts & Procedural History: – 2002: Dynegy board passed resolution authorizing payment of attorneys fees and expenses to certain officers and directors, including Olis, if Olis signed statement that he acted in good faith and in corporations best interests, "with no reasonable cause to believe his conduct was unlawful." – 06/03: federal grand jury returned an indictment against Olis, who hired Yates to defend him • Olis signed written fee agreement with Yates with no mention of Dynegy 16-9
  • Dynegy, Inc. v. Yates• Facts & Procedural History: – 08/03: Dynegy gave letter to Yates stating that Dynegy would pay Yates directly for legal fees billed through 8/17/03 and made two payments, but refused to pay Yates final invoice – Yates sued Dynegy in 2005 alleging breach of contract and fraudulent inducement – Dynegy argued it never had an oral or written agreement with Yates to pay Olis bill – Jury found for Yates and Dynergy appealed 16-10
  • Dynegy, Inc. v. Yates• Legal Reasoning: – Dynegy promised to pay for legal services that Yates was to provide Olis because Olis was an officer of Dynegy • Olis was under investigation for actions taken in connection with his work for Dynegy that provided substantial benefits to Dynegy – Dynegy’s promise was a primary obligation and not a promise to pay the debt of another, thus statute of frauds is inapplicable – Breach of contract claim affirmed in favor of Yates 16-11
  • Exception to Collateral Contract Rule• 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 16-12
  • Covered Contracts: Real Estate• 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 16-13
  • Covered Contracts: One Year Rule• 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, so the contract must be in writing 16-14
  • Schaadt v. St. Jude Medical S.C., Inc. • Facts & Reasoning: – Schaadt fired by St. Jude before end of alleged one-year employment contract and filed suit – Question is whether parties can fully perform their obligations under contract within one year if those obligations are not excused • Schaadt’s obligations begin after St. Jude’s employment of Schaadt for one year 16-15
  • Schaadt v. St. Jude Medical S.C., Inc.• Reasoning and Holding: – Since obligations cannot be fulfilled within one year, Statute of Frauds requires a writing – St. Jude (party charged with breach) did not sign the contract, thus the contract is unenforceable at St. Jude’s option 16-16
  • Covered Contracts: $500+ in Goods • 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 16-17
  • Other Covered Contracts• 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 16-18
  • Satisfying the Statute of Frauds• 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 – The memorandum need not be made at the same time the contract comes into being 16-19
  • Satisfying the Statute of Frauds• 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 16-20
  • Green Garden Packaging Co., Inc. v. Schoen• Decision: – Summary judgment evidence conclusively established that alleged agreement that Green Garden seeks to enforce against Schoenmann was for a sale of goods over $500, so UCC § 2.201 applies to bar breach of contract claim unless exception applies – Mere provision of information and samples does not constitute partial performance and no other exception applies; affirmed 16-21
  • Cyberlaw• Electronic Signatures in Global and National Commerce Act (E-Sign) of 2000 provides that in interstate commerce transactions, an electronic signature has the same legal effect as a handwritten signature, and an electronic contract has the same legal effect as a traditionally- printed contract 16-22
  • The CISG and a Writing• The Convention on the International Sale of Goods does not require any contract to be written in order to be enforceable – A contract need not take any particular form, and can be proven by any means 16-23
  • The Parol Evidence Rule• 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 evidence of contemporaneous or prior statements to contradict, add to, or alter the terms of the written contract• Example: Hinkel v. Sataria Distribution & Packaging 16-24
  • 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 16-25
  • Parol Evidence Chart 16-26
  • Test Your Knowledge• True=A, False = B – All contracts must be in writing to be enforceable. – A contract for the sale of a carpet for $499 must be in writing to be enforceable. – Jill orally promised the President of First Bank to pay Jack’s debt to First Bank if Jack defaulted on the note. Jack defaulted and Jill must pay Jack’s debt. 16-27
  • Test Your Knowledge• True=A, False = B – Eric owes Sookie money, so Eric contracts with LoanCo for a short-term loan. Bill orally gave his personal guaranty to LoanCo that Eric would repay the loan. Eric defaulted and Bill must repay the loan for Eric. – If a state law conflicts with the federal E-Sign, the provisions of E-Sign prevail. 16-28
  • Test Your Knowledge• Multiple Choice – Parol evidence refers to: a) The evidence required to prove a case b) Written or spoken statements not contained in the written contract c) The lack of evidence – E-Sign states that: a) An electronic signature has the same legal effect as a handwritten signature. b) A contract in electronic form is not enforceable unless proven with a hard copy 16-29
  • Test Your Knowledge• Multiple Choice – Keisha agreed to sell Susan her Picasso painting. She wrote the name of the painting and $600 on a napkin. Both Keisha & Susan signed the napkin. Susan paid Keisha the money and Keisha: a) May refuse to hand over the painting since contract was on a napkin and is unenforceable b) Must give Susan the painting since the contract satisfies the statute of frauds 16-30
  • Thought Question• Do the Statute of Frauds and parol evidence rule – legal principles from the 1600s – still make sense in today’s commercial world? 16-31