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.
See flowchart on page 422 of the text.
MSRP – manufacturer’s suggested retail price
Jones filed suit, moved for summary judgment, and trial court denied his motion; Jones appealed
Parol evidence literally means written or spoken statements not contained in the written contract
Hyperlink is to the case opinion on the Findlaw.com website. Prior to Arnold and Mitchell’s negotiations, Carrow had negotiated with The Nature Conservancy for sale of the farm. Arnold and Mitchell’s representations that Carrow could continue to live on the farm were material to Carrow. Testimony indicated that Arnold and Porter may not have actually wanted to develop the land, but “merely” desired to boost the market value and obtain a better offer from The Nature Conservancy.
Court opinion: “ Carrow alleges that the agreement was procured through fraud and misrepresentation. His allegation of fraud, however, consists entirely of the claim that Arnold made oral representations and promises before the execution of the written agreement and that such representations and promises have not been honored. Arnold contends that the agreement is an integrated agreement and the parol evidence rule bars consideration of earlier representations or promises that he allegedly made.” “ When a written contract is intended to be the final expression of the parties’ agreement, the parol evidence rule bars the introduction of evidence of prior or contemporaneous oral understandings that vary the written terms of the agreement.” “ Thus, to apply the parol evidence rule, the court first must decide whether the parties’ written contract was intended to be the final expression of their agreement, and second whether the alleged oral representations would contradict the written terms of the agreement.”
Court opinion: “ Parol evidence rule bars the admission of oral promises and representations that are inconsistent with its written terms, unless an exception to the rule applies in this case…. alleged oral representations Arnold made to Carrow during their negotiations, if admitted for purposes of construing their contract, would be inconsistent with the written terms of their final Agreement.” “ I find the challenged language unambiguous.” “ Carrow argues that parol evidence should be admitted because Arnold fraudulently induced Carrow to enter the Agreement. Courts have long recognized that where fraud or misrepresentation is alleged, evidence of oral promises or representations which are made prior to the written agreement will be admitted.” “ Carrow knew that there were provisions in the proposed Agreement that he did not like because they seemed inconsistent with the alleged oral promises. …All of the statements Carrow characterizes as fraudulent are either promises or statements of future intent. The problem with allowing a party to use promises and statements of intention to invoke the fraud exception to the parol evidence rule is that the very point of the rule is to exclude such things.” “ The parties have entered a binding contract, represented by a written instrument, for the sale of Carrow’s farm to Arnold.”
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.
Learning Objectives Significance of a writing in contract law The Statute of Frauds Contracts covered by the Statute of Frauds and the requirements The UCC & the Statute of Frauds The Parole Evidence Rule16 - 4
Basics 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…16 - 5
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, England16 - 6
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 estoppel16 - 7
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 413 of the text16 - 8
Covered Contracts: Collateral Contracts Collateral contracts 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, Mary16 - 9
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 See Wintersport Ltd. v. Millionaire.com, Inc.16 - 11
Wintersport Ltd. v. Millionaire.com Inc. Facts & Procedural History: Wintersport Ltd. printed one issue of magazine for Millionaire.com They negotiated to print another issue, but order and price cut due to magazine’s financial trouble Concerned over creditworthiness, Leiter (Wintersport) told Strong (Millionaire.com) that Wintersport would only extend credit to Millionaire.com if the firm paid a $10,000 down payment and a stockholder (White) gave a personal guaranty on the balance due16 - 12
Wintersport Ltd. v. Millionaire.com Inc. Facts & Procedural History: White (Millionaire.com) gave Leiter personal guaranty via the phone and sent a $10,000 check Millionaire.com failed to pay balance and Wintersport sued Millionaire.com Trial court entered judgment for Wintersport against Millionaire.com and White, but White appealed, arguing that the action should have been dismissed because the statute of frauds prevented the enforcement of his oral guaranty16 - 13
Wintersport Ltd. v. Millionaire.com Inc. Issue and Legal Reasoning: Does the statute of frauds prevent enforcement of White’s oral guaranty? An original promise – outside statute of frauds – occurs when the promisor receives a direct benefit from the promise Wintersport did not show that White’s benefit was anything more than an indirect incident of share ownership Reversed and dismissed in favor of White16 - 14
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 apply16 - 15
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 – this must be in writing16 - 16
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 year16 - 17
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 option16 - 18
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 refrigerator16 - 19
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 consideration16 - 20
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 Memorandum need not be made at the same time the contract comes into being16 - 21
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 goods16 - 22
Jones v. The Baran Company Facts: Jones ordered a specially manufactured automobile from dealership (Baran) with $50,000 down-payment and signed form Parties did not agree to actual price Jones argued dealership agreed to “MSRP” 18+ months later, vehicle delivered and Baran demanded market value and Jones refused Baran returned deposit, then sold vehicle16 - 23
Jones v. The Baran Company Reasoning on Appeal: Baran argued oral agreement violated Statute of Frauds, but uncontroverted evidence showed oral contract had been formed, with the price term being MSRP Baran admitted a contract was made for one specially manufactured good, thus the oral agreement was enforceable under the UCC § 2– 201(3)(b) exception to the Statute of Frauds16 - 24
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 contract16 - 25
The CISG & a Writing The Convention on the International Sale of Goods does not require that a contract be in writing to be enforceable A contract need not take any particular form, and can be proven by any means16 - 26
The Parol Evidence Rule 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 contract16 - 27
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 agreements16 - 28
Carrow v. Arnold Facts & Procedural History: Arnold and Mitchell negotiated to purchase a farm owned by Carrow, orally representing that Carrow could continue to live on the farm After executing the contract, Arnold and Mitchell began plans for development Carrow discovered the plans and told Arnold he wanted out of the deal, but Arnold refused Carrow filed suit to rescind the contract and Arnold counterclaimed for enforcement16 - 29
Carrow v. Arnold Issue: Is the agreement enforceable or unenforceable due to fraud and misrepresentation? Law Applied to Facts : When a written contract is the final statement of the parties’ agreement (a complete integration), the parol evidence rule prohibits the parties from introducing extrinsic evidence of the agreement Here, agreement is a final, integrated contract16 - 30
Carrow v. ArnoldLaw Applied to Facts and Holding: Parol evidence rule bars admission of oral promises and representations that are inconsistent with its written terms, unless an exception to the rule applies in this case Carrow knew that provisions in proposed Agreement seemed inconsistent with alleged oral promises Contract neither ambiguous nor fraudulent, thus the parties have entered a binding contract16 - 31
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 - 33
Test Your Knowledge True=A, False = B Joey owes Chandler money, so Joey contracts with LoanCo for a short-term loan. Chandler orally gave his personal guaranty to LoanCo that Joey would repay the loan. Joey defaulted and Chandler must repay the loan for Joey. If a state law conflicts with the federal E-Sign, the provisions of E-Sign prevail.16 - 34
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 copy16 - 35
Test Your Knowledge Multiple Choice Mamie agreed to sell Susan her Picasso painting. She wrote the name of the painting and $600 on a napkin. Both Mamie & Susan signed the napkin. Susan paid Mamie the money and Mamie: (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 frauds16 - 36
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 - 37