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

1. Introduction to Contracts
The Agreement: Offer
The Agreement: Acceptance
Consideration
Reality of Consent
© 2010 The McGraw-Hill Companies, Inc. All rights reserved.

2. Capacity to Contract
Illegality
Writing
Rights of Third Parties
Performance and Remedies
© 2010 The McGraw-Hill Companies, Inc. All rights reserved.

3. Writing
A verbal contract isn’t worth the
paper it’s written on.
Samuel Goldwyn
quoted in The Great
Goldwyn
(Alva Johnson, 1937)
© 2010 The McGraw-Hill Companies, Inc. All rights reserved.

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 Rule
16 - 4

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. 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, England
16 - 6

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 estoppel
16 - 7

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 text
16 - 8

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, Mary
16 - 9

10. The Collateral Contract
16 - 10

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. 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

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 guaranty
16 - 13

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 White
16 - 14

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 apply
16 - 15

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 writing
16 - 16

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 year
16 - 17

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
option
16 - 18

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 refrigerator
16 - 19

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
consideration
16 - 20

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 being
16 - 21

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 goods
16 - 22

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 vehicle
16 - 23

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 Frauds
16 - 24

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 contract
16 - 25

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 means
16 - 26

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
contract
16 - 27

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 agreements
16 - 28

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 enforcement
16 - 29

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 contract
16 - 30

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 contract
16 - 31

32. Parol Evidence Chart
16 - 32

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. 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. 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

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 frauds
16 - 36

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