CHAPTER 14

1. CHAPTER 14 STATUTE OF FRAUDS AND EQUITIBLE EXCEPTIONS © 2010 Pearson Education, Inc., publishing as Prentice-Hall

2. Statute of Frauds State statute that requires certain types of contracts to be in writing. Intended to ensure that the terms of important contracts are not forgotten, misunderstood, or fabricated.

3. Contracts that Must Be in Writing Contracts involving interests in land Contracts that by their own terms cannot possibly be performed within one year Collateral contracts where a person promises to answer for the debt of another Promises made in consideration of marriage

4. Contracts that Must Be in Writing(continued) Contracts for the sale of goods for more than $500 Real estate agents’ contracts Agents’ contracts where the underlying contract must be in writing Promises to write a will

5. Contracts that Must Be in Writing(continued) Contracts to pay debts barred by the statute of limitations or discharged in bankruptcy Contracts to pay compensation for services rendered in negotiating the purchase of a business Finders fee contracts

6. Contracts Not in Compliance with Statute of Frauds Unenforceable if executory. Contract voluntarily executed by parties will not be rescinded.

7. Contracts Involving Interests in Land Any contract that transfers an ownership interest in real property must be in writing under the Statute of Frauds to be enforceable.

8. Contracts Involving Interests in Land(continued) Real Property Land Buildings Trees, Plants, Crops Soil Minerals Timber Other things that are permanently affixed to the land Fixtures Personal property that is permanently affixed to the real property e.g., built-in cabinets in a house

9. Contracts Involving Interests in Land(continued) Other contracts that transfer an ownership interest in land must be in writing under the Statute of Frauds. E.g., Mortgages Leases Life Estates Easements

10. Contracts Involving Interests in Land(continued) Part Performance Exception Court may order an oral contract to be specifically performed if it has been partially performed and performance is necessary to avoid injustice. Applies if purchaser paid part of price and took possession or made improvements to land, so that parties cannot be returned to status quo.

11. One-Year Rule Executory contract that cannot by its own terms be performed within one year of its formation must be in writing. E.g., six month employment contract. Contract may be oral if performance of contract is possible within the one-year period. E.g., lifetime employment contract.

12. Collateral Promises (Guaranty Contracts) One person agrees to answer for the debts or duties of another person. Guaranty Contract – contract between the guarantor and the original creditor. Must be in writing unless main purpose is to provide pecuniary benefit to guarantor. E.g., company promises to pay debts of supplier, to keep supplier in business so that it can obtain supplies for its own operations.

13. Original and Guaranty Contracts Contract No. 1 Debtor Creditor Original Contract Guarantor agrees to pay the debt if the debtor fails to pay the creditor. Contract No. 2 Guarantor Guaranty Contract

14. Contracts for the Sale of Goods Section 2-201 of the Uniform CommercialCode (UCC) is the basic Statute of Frauds provision for sales contracts. Contracts for the sale of goods priced at $500 or moremust be in writing to be enforceable. If modification brings sales price above $500, modification must be in writing.

15. Contracts for the Lease of Goods • Section 2A-201 of the Uniform CommercialCode (UCC) is the basic Statute of Frauds provision for contracts for the leasing of goods. • Contracts for lease payments of $1,000 or moremust be in writing to be enforceable. • If modification brings lease payment to $1,000 or more, modification must be in writing.

16. Agents’ Contracts Equal Dignity Rule Agents’ contracts to sell real property must be in writing to be enforceable.

17. Promises in Consideration of Marriage Prenuptial agreements must be in writing to be enforceable.

18. Sufficiency of the Writing Formalityof the Writing Required Signature Integration of Several Writings

19. Formality of the Writing A written contract does not have to be drafted by a lawyer or formally typed to be legally binding. Generally, law only requires a writing containing the essential terms of the parties’ agreement. E.g., handwritten agreement on scrap paper may satisfy writing requirement.

20. Required Signature Statute of Frauds and the UCC require the written contract, whatever its form, to be signed by the party against whom enforcement is sought. Anywhere on the writing. Stamp or mark (X) suffices if party intended to sign. Signature of person who is enforcing the contract is not necessary.

21. Integration of Several Writings Entire writing does not have to appear in one document to be an enforceable contract. Incorporation by reference Implied integration E.g., several documents stapled together as contract.

22. Interpreting Contract Words and Terms If the parties have not defined the words and terms of a contract, the courts apply the following standards of interpretation: Ordinary words are given their usual meaning according to the dictionary. Technical words are given their technical meaning unless a different meaning is clearly intended.

23. Interpreting Contract Words and Terms(continued) Specific terms presumed to qualify general terms. Trade usage incorporated in contract unless otherwise stated. Where a preprinted form contract is used: Typed words prevail over preprinted words. Handwritten words prevail over both preprinted and typed words. Ambiguity resolved against drafter of contract.

24. Parol Evidence Rule Parol Evidence – Any oral or written words outside the four corners of the written contract. Parol Evidence Rule applied under common law and UCC.

25. Parol Evidence Rule(continued) If a written contract is a complete and final statement of the parties’ agreement, any prior or contemporaneous oral or written statements that alter, contradict, or are in addition to the terms of the written contract are inadmissible in court.

26. Parol Evidence Rule(continued) Merger, or Integration Clause A clause in a contract that stipulates that it is a complete integration and the exclusive expression of the parties’ agreement. Parol evidence may not be introduced to explain, alter, contradict, or add to the terms of the contract.

27. Exceptions to Parol Evidence Rule Parol evidence may be admitted in court if it: Shows that a contract is void or voidable. e.g., evidence that the contract was induced by fraud, misrepresentation, duress, undue influence, or mistake. Explains ambiguous language.

28. Exceptions to Parol Evidence Rule(continued) Concerns a prior course of dealing or course of performance between the parties or a usage of trade. Fills in the gaps in the contract. Corrects an obvious clerical or typographical error.

29. Promissory Estoppel Equitable doctrine that permits enforcement of oral contracts that should have been in writing. Where this doctrine applies, the promisor is estopped (prevented) from raising the Statute of Frauds as a defense to the enforcement of the oral contract.

30. Promissory Estoppel(continued) Oral promise is enforceable against promisor if: The promise induces action or forbearance of action by another. The reliance on the oral promise was foreseeable. Injustice can be avoided only by enforcing the oral promise.