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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.
Citation preview
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
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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
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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
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Example: Jason is a personal guarantor on a loan from City Bank to Jason’s sister, Mary
The Collateral Contract
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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
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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 due
16 - 12
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 White
16 - 14
Wintersport Ltd. v. Millionaire.com Inc.
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
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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
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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
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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 - 18
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
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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
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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
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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
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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 Frauds
16 - 24
Cyberlaw
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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
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 means
The CISG & a Writing
16 - 26
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 - 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 agreements
16 - 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 enforcement
16 - 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 contract
16 - 30
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 contract
16 - 31
Parol Evidence Chart
16 - 32
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.
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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 - 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 frauds
16 - 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?
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