Basics

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 - 1
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
16
2
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
16 - 3
Covered Contracts
• Collateral contracts in which a
person (guarantor) promises to
perform an obligation of another
person (principal debtor) to a
third person (obligee)
–Example: Bob is a personal
guarantor on a loan from City Bank
to Bob’s brother, John
16 - 4
The Collateral Contract
16 - 5
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 - 6
Wintersport Ltd. v. Millionaire.com
Inc.
• Facts & Procedural History:
– Wintersport Ltd. printed one issue of
Millionaire.com’s magazine
– 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
16 - 7
down payment and a stockholder (White)
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
16 - 8
frauds prevented the enforcement of his oral
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 - 9
Covered Contracts
• 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
16 - 10
Covered Contracts
• 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
16 - 11
Covered Contracts
• 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
16 - 12
enforceable
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 - 13
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
16 - 14– Memorandum need not be made at
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
16 - 15
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 quasicontract or promissory estoppel
16 - 16
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,
16 - 17 and can be proven by
Cyberlaw
Electronic Signatures in
Global and
National Commerce Act (E-Sign) of 2000
The federal E-Sign 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 - 18
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
16 - 19
Watkins & Sons Pet Supplies v.
the lams Company
• Facts & Procedural History:
– Iams, a pet food manufacturer,
required distributors, including
Watkins, to sign yearly written
distributorship agreements
– Iams offered a 2% discount to
distributors who sold Iams products
exclusively
– Watkins alleged it became an
exclusive Iams distributor because it
16 - 20
Watkins & Sons Pet Supplies v.
the lams Company
• Facts & Procedural History:
– Contract of 1/31/93 stated that Iams
“may appoint any other distributor to
sell Products within the Territory” and
contained an “entireties” clause
– The contract expired by its terms and
Iams gave an exclusive distribution
contract to a competitor of Watkins
– Watkins sued and district court granted
summary judgment to Iams; Watkins
appealed
16 - 21
Watkins & Sons Pet Supplies v.
the lams Company
• Issue:
– Was Watkins’ reliance on alleged
representations of Iams reasonable?
• Law Applied to Facts :
– The four corners of the document
determine the terms of the agreement
– When a written contract is the final
statement of the parties’ agreement (a
complete integration), the parol evidence
rule prohibits the parties from introducing
16 - 22 extrinsic evidence of the agreement
Watkins & Sons Pet Supplies v.
the lams Company
• Holding:
– The integration
clause in the contract
makes Watkins’s
reliance on Iams’s
representations
unreasonable as a
matter of law
– Affirmed in favor of
16 - 23
Iams
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
16 - 24
Parol Evidence Chart
16 - 25