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Contracts

3. Contracts. Introduction to Contracts The Agreement: Offer The Agreement: Acceptance Consideration Reality of Consent. McGraw-Hill/Irwin Business Law, 13/e. © 2007 The McGraw-Hill Companies, Inc. All rights reserved. 3. Contracts. Capacity to Contract Illegality Writing

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Contracts

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  1. 3 Contracts Introduction to Contracts The Agreement: Offer The Agreement: Acceptance Consideration Reality of Consent McGraw-Hill/Irwin Business Law, 13/e © 2007 The McGraw-Hill Companies, Inc. All rights reserved.

  2. 3 Contracts Capacity to Contract Illegality Writing Rights of Third Parties Performance & Remedies McGraw-Hill/Irwin Business Law, 13/e © 2007 The McGraw-Hill Companies, Inc. All rights reserved.

  3. Writing 16 C H E A P T R “A verbal contract isn’t worth the paper it’s written on.” Samuel Goldwyn, quoted in The Great Goldwyn (Alva Johnson, 1937)

  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 - 5

  5. Basics • In general, a writing is not required to create a legally enforceable contract • Writing may be required by Statute of Frauds • Enacted in 17th century England to prevent fraud by requiring written evidence • American states adopted similar statutes • A contract is unenforceable if it does not satisfy the statute of frauds 16 - 6

  6. 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 House of Lords, England 16 - 7

  7. Collateral Contracts • Collateral contracts in which a guarantor promises to perform an obligation of a principal debtor to a third person (obligee) • Exception: under the main purpose or leading objectrule, no writing required if guarantor makes a collateral promise for main purpose of obtaining personal economic advantage • See Wintersport Ltd. v. Millionaire.com, Inc. 16 - 8

  8. Real Estate & Sale of Goods • A writing is required for 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 • UCC 2-201 requires a writing for contracts for the sale of goods for a price of $500 or more 16 - 9

  9. The One Year Rule • A writing is required for bilateral contracts that cannot be performed within a year from the date of their formation (one year rule) • Likelihood of full performance is irrelevant • Test: is performance possible within year? • Example: If Jack signs contract to consult with Company X on a 13 month project, the contract must be in writing to be enforceable 16 - 10

  10. Satisfying the Statute of Frauds • Most states require signed memorandum of parties’ agreement stating essential terms: • (a) identity of parties, (b) subject matter identified with reasonable certainty, and (c) signed by the party to be charged • Need not be made at time contract is made • Convention on International Sale of Goods does not require writing to enforce a contract 16 - 11

  11. The Parol Evidence Rule • Parol evidence rule provides that, when parties enter a written contract they intend as a complete integration(final statement of agreement), a court will not allow evidence of prior or contemporaneous statements to alter or contradict terms of written contract • Parol evidence is admissible to explain ambiguities or allegations of fraud 16 - 12

  12. 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 - 13

  13. 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. 16 - 14

  14. 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 16 - 15

  15. 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 - 16

  16. Thought Question • Does the Statute of Frauds – a legal principle from the 1600s – still make sense in today’s commercial world? 16 - 17

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