Business Law Statute of Frauds and Parol Evidence

Business Law, Sixth Edition
© 2019 BVT Publishing. All rights reserved.
S-1
Chapter 18:
Written
Form

S-2
Learning Objectives
• Understand the statute of frauds.
• Identify contracts within the statute of frauds.
• Explain the writing required by statue of frauds.
• Discern the writing required for code contracts.
• Recognize common law exceptions to the
writing requirement.
• Recognize code exceptions to the writing
requirement.
• Discuss the parol evidence rule.

S-3
18.0 In the News
Two Recent Indiana Contract Cases
Discuss Parol Evidence Issues
http://bvtlab.com/V877h
These decisions by the Indiana Court of Appeals
analyzed the effects of the parol evidence rule in
interpreting the intent of contracting parties, and whether
exceptions to the rule were appropriate given the precise
language of the written agreements.
• Discuss the concept of parol evidence.
• Should parol evidence be allowed in these cases?
Explain.

S-4
18.1a Introduction to the
Statute of Frauds
Legal doctrine designed to prevent fraud by
excluding legal actions on certain important
contracts unless there is written evidence
• Statute of frauds involves three questions:
– Is the contract at issue within the statute?
– If the contract is within the statute, is there written
evidence of the contract that satisfies the statute?
– Does an exception to the statute make the oral
agreement legally enforceable?

S-5
18.1b Contracts within the
Statute of Frauds
• Agreements in contemplation of marriage
• Special promise of a surety to pay the debt of
another (guaranty contract)
• Agreements for the sale of land
• Agreements that cannot be performed within
one year from the date of making
• Under the Code, contracts for the sale of goods
with a price of $500 or more
• Contracts for the sale of certain personal
property other than goods

S-6
18.1c Contracts Involving Marriage
Common law provides that any
contract in consideration of marriage
must be in writing to be enforceable.
• Prenuptial agreement must be in writing to
be enforceable.
• A purely oral cohabitation agreement
would be enforceable.

S-7
18.1d Guaranty Contracts
Guarantor agrees to pay a debt if the
debtor fails to pay (concept of surety).
• Requires only that the guarantor’s promise
be in writing
• Statute protects only persons who assume a
secondary liability.
• An exception to the rule that a promise to be
secondarily liable must be in writing exists
where the main purpose of the promise is to
benefit the guarantor.

S-8
18.1e Contracts Involving
Interests in Land
A written form is required for a contract
creating or transferring any interest in land
• Applicable to:
– Sale of an entire interest
– Life estates
– Mortgages
– Easements
– Leases for a period in excess of one year

S-9
18.1f Contracts That Cannot Be
Performed Within One Year
• The period is measured from the
time an oral contract is made to the
time when the promised
performance is to be completed.
• This rule is one of possibility and not
probability.

S-10
18.1f Critical Thinking (Slide 1 of 2)
Case: Velez v. Sanchez
The district court dismisses Velez’s breach of
oral contract claim because full performance
of the contract, including full payment of
Velez’s college education, was not possible
within a year and thus violated the New York
Statute of Frauds.

S-11
18.1f Critical Thinking (Slide 2 of 2)
• The court appears to conclude that neither
completion of high school nor completion of
college could “by the terms of the oral
agreement” be concluded within one year.
Do you agree?
• Should the statute of frauds requirement
not apply to contracts involving individuals
who are in very poor bargaining positions,
as was Velez? Why?

S-12
18.1g Contracts for the Sale of Goods
Uniform Commercial Code stipulates that
a contract for the sale of goods for the
price of $500 or more must be in writing.
• Must be signed by defendant
• Will not be enforced beyond the quantity of
goods mentioned in the writing

S-13
18.1h Contracts for the Sale of Personal
Property Other than Goods (Slide 1 of 2)
Contract for the sale of securities, such as
stocks and bonds
• Signed with stated quantity at a defined price
• Delivery has been accepted or payment has
been made
• Within a reasonable time, a confirmation in
writing of the sale or purchase has been sent
and received, and the party receiving it has
failed to object to it within ten days after receipt.
• Admission in court

S-14
18.1h Contracts for the Sale of Personal
Property Other than Goods (Slide 2 of 2)
A writing is required if the amount
involved exceeds $5,000.
• Royalty rights
• Patent rights
• Rights under a bilateral contract

S-15
18.1i Writing Required by the
Statue of Frauds
• Signature of the party sought to be charged
• A formally drafted contract is not required
• Note or memorandum that provides written
evidence of the agreement
– Names of the parties,
– Description of the subject matter
– Price
– General terms of the agreement

S-16
18.1j Writing Required for Code
Contracts
• Writing sufficient to indicate that a
contract for the sale of certain goods
has been made between the parties
• Must contain a quantity term
• The party against whom the contract is
being enforced must sign

S-17
18.2a Introduction to
Common Law Exceptions
• Statute of frauds does not allow
rescission.
• Serves only as a defense to a suit for
breach of an executory contract
• Two exceptions are applicable to all
types of contracts:
– Part performance
– Promissory estoppel

S-18
18.3 Code Exceptions to the
Writing Requirement
• Confirmation between merchants
• Specially manufactured good
• Judicial admissions
• Part performance

S-19
18.3a Written Confirmation
Between Merchants
Arises from the business practice of
negotiating contracts orally
• Satisfy the statute of frauds by sending a
written confirmation to other merchant.
• Enforceable contract unless merchant
receiving the writing objects within the
ten-day period

S-20
18.3a Critical Thinking
Case: Central Illinois Light Company
An invoice that was never sent and was
prepared during a time of negotiation was not
sufficient to indicate that a contract had been
made between the parties.
• Was there a contract is this case? Why?
• Why should oral contracts, if confirmed in the
manner provided by section 2-201(2),
be valid?

S-21
18.3b Specially Manufactured Goods
Code explicitly excludes transactions that
involve goods to be specially manufactured.
• Three requirements:
– The goods are to be specially manufactured for
the particular buyer and are not suitable for sale
to others.
– The seller has made a substantial beginning to
manufacture or commitments to obtain the goods.
– The circumstances reasonably indicate that the
goods are for the buyer.

S-22
18.4a Theory Parol Evidence Rule
Oral, written, or other evidence that is not
in the written document.
• Statements, promises, guarantees, and
representations made by the parties prior to
signing a written contract may not be
considered if the written contract represents
the entire agreement of the parties.
• Prevents the introduction of prior or
contemporaneous oral or written statements.

S-23
18.4b Critical Thinking
Case: Cagin
Plaintiff believed extrinsic evidence should be
used to interpret a written contract, but the court
ruled such evidence was properly excluded
because agreement contained an integration
clause stating that the written agreement was
the entire agreement.
• What is the significance of the agreement in the
case being “handcrafted”?
• What evidence might be submitted to indicate that
the agreement was not the final expression?

S-24
18.4b Exceptions
• Oral evidence to establish modifications
agreed on subsequent to the execution of
the written contract is acceptable.
• Oral statements may be used to support an
allegation of fraud.
• Errors in drafting or reducing the contract to
writing
• Clarify the terms of an ambiguous contract
and fill gaps where there is an omission.
• Partial integration rule

S-25
18.4c Parol Evidence Rule
and the Code
Code’s provision that a written contract
may be explained or supplemented by:
• Prior course of dealing between
buyer and seller
• Usage of trade
• Course of performance
- The Code also allows the partial
integration rule.

Business Law Statute of Frauds and Parol Evidence

Recommended

Recommended

More Related Content

What's hot

What's hot (20)

Similar to Business Law Statute of Frauds and Parol Evidence

Similar to Business Law Statute of Frauds and Parol Evidence (20)

More from Tara Kissel, M.Ed

More from Tara Kissel, M.Ed (20)

Recently uploaded

Recently uploaded (20)

Business Law Statute of Frauds and Parol Evidence