Commercial Law (Mgmt 348)

1. Commercial Law (Mgmt 348) Professor Charles H. Smith The Statute of Frauds-Writing Requirement (Chapter 15) Spring 2009

2. “Putting It In Writing” • Always a good idea – this chapter deals with two issues that pertain to doing just that • Statute of frauds (Civil Code § 1624) – requires certain contracts to be in writing. • Parol evidence rule (C.C.P. § 1856) – written contract is final statement of parties’ agreement.

3. Introduction to the Statute of Frauds • Actually not a statute but an old common law rule though California and other states have codified it. • Statute of frauds requires certain contracts to be in writing; examples include agreement that cannot be performed within a year, promise to answer for debt of another, and real estate contract. • Statute of frauds simply reflects policy decision that some contracts need to be in writing.

4. Statute of Frauds – Contract Cannot be Performed Within One Year • This means that, by its terms, it is impossible to perform the contract within a year (Civil Code § 1624(a)(1)). • Therefore, contract not covered by statute of frauds if performance within a year is merely improbable or not desired. • Case study – Sawyer v. Mills (pages 305-06).

5. Statute of Frauds – Promise to Pay Another’s Debt • “Promise to answer for the debt of another” (Civil Code § 1624(a)(2)). • Examples include • Co-signing loan. • Personal guarantee for company obligation. • Case study – Case Problem 15-10 (pages 319-20).

6. Statute of Frauds – Transactions Involving Real Estate • Civil Code § 1624(a)(3) provides these situations • Lease for more than one year. • Sale of real estate; can be any interest, not just 100%. • Case study – Case Problem 15-6 (pages 318-19).

7. Exceptions to Application of Statute of Frauds • Part performance; case study – School-Link Technologies, Inc. v. Applied Resources, Inc. (pages 309-10). • Admission – must occur in court proceedings; e.g., during deposition or trial testimony, or in papers filed with court. • Promissory estoppel – detrimental reliance on oral contract; however, must be reasonable; case study – Case Problem 15-4 (page 318).

8. What is a “Writing” for Purposes of Statute of Frauds? • Evidence Code § 240 provides broad definition of “writing.” • Civil Code § 1624(a) requires the writing to be “subscribed [signed] by the party to be charged” – how to “subscribe” (or sign) electronic contract?

9. Introduction to the Parol Evidence Rule • Old common law rule – writing intended as final expression of parties’ agreement cannot be contradicted by evidence of prior agreement or contemporaneous oral agreement; therefore, writing should correctly and fully reflect parties’ agreement. • Policy is to uphold written contract that is intended to be final statement of parties’ agreement; this intent can be shown by testimony or “integration” clause. • Many exceptions to parol evidence rule which will be described in subsequent slides.

10. Parol Evidence Rule – Case Studies • Yocca v. Pittsburgh Steelers Sports, Inc. (pages 313-15). • Case Problem 15-8 (page 319).

11. Exception - Course of Dealing or Usage of Trade • Words often have special meaning different from ordinary meaning in certain industries or settings; thus, evidence can be admitted to provide definitions/context. • Example – “baker’s dozen” means 13, not 12; general phrase like “time is of the essence” may have specific meaning given history of parties’ history. • Student examples.

12. Exception – Validity of Contract in Dispute • Is mutual assent being questioned? • Can include situations where someone alleges the contract is voidable such as duress or undue influence. • Also can include situations where someone alleges the contract is void due to an illegal purpose.

13. Exception – Ambiguity • Parol evidence rule exception about “ambiguity” of contract terms can be very wide-ranging since “[t]he test of admissibility of extrinsic evidence to explain the meaning of a written instrument is not whether it appears to the court to be plain and unambiguous on its face, but whether the offered evidence is relevant to prove a meaning to which the language of the instrument is reasonably susceptible . . . A rule that would limit the determination of the meaning of a written instrument to its four-corners merely because it seems to the court to be clear and unambiguous, would either deny the relevance of the intention of the parties or presuppose a degree of verbal precision and stability our language has not attained” (Pacific Gas & Electric Co. v. G.W. Thomas Drayage, 69 Cal.2d 33, 38 (1968)). • Caveat – do not depend on being able to testify as to any “ambiguities.”

14. Cutting Edge Legal Issue • Case study – “Prenuptial Agreements and Advice of Counsel” (pages 312-13). • Discuss with small groups – where do you stand (and why)?