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Chapter 16 – Writing

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Powerpoint from textbook Business Law - the ethical, global, and e-commerce environment to accompany BA 330 course at the University of Alaska Fairbanks.

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Chapter 16 – Writing

  1. 1. Introduction to Contracts The Agreement: Offer The Agreement: Acceptance Consideration Reality of Consent© 2010 The McGraw-Hill Companies, Inc. All rights reserved.
  2. 2. Capacity to Contract Illegality Writing Rights of Third Parties Performance and Remedies© 2010 The McGraw-Hill Companies, Inc. All rights reserved.
  3. 3. WritingA verbal contract isn’t worth thepaper it’s written on. Samuel Goldwyn quoted in The GreatGoldwyn (Alva Johnson, 1937) © 2010 The McGraw-Hill Companies, Inc. All rights reserved.
  4. 4. 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
  5. 5. 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
  6. 6. 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
  7. 7. 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
  8. 8. 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
  9. 9. 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
  10. 10. The Collateral Contract16 - 10
  11. 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 See Wintersport Ltd. v. Millionaire.com, Inc.16 - 11
  12. 12. 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
  13. 13. 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
  14. 14. 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
  15. 15. 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
  16. 16. 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
  17. 17. 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
  18. 18. 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
  19. 19. 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
  20. 20. 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
  21. 21. 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
  22. 22. 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
  23. 23. 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
  24. 24. 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
  25. 25. 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
  26. 26. 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
  27. 27. 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
  28. 28. 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
  29. 29. 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
  30. 30. 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
  31. 31. Carrow v. ArnoldLaw 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
  32. 32. Parol Evidence Chart16 - 32
  33. 33. 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
  34. 34. 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
  35. 35. 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
  36. 36. 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
  37. 37. 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

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