Chapter 14: Statute of Frauds and Equitable Exceptions

Uniform Commercial Code

A comprehensive statutory scheme that includes laws that cover aspects of commercial transactions.

one year rule

A rule that states that an executory contract that cannot be performed by its own terms within one year of its formation must be in writing.

mortgage

An interest in real property given to a lender as security for the repayment of a loan.

Parol Evidence

any oral or written words outside the four corners of a written contract. parol means "word"

Both the​ ___________________ and the​ _______ permit several writings to be integrated to form a single written contract.

common law of contracts, UCC

Parol evidence may be admitted in court if it shows that a contract is​ ________ or​ _____________.

​void; voidable

The Statute of Frauds and the UCC require​ a(n) ________​ contract, whatever its​ form, to be signed​ ________________________________.

​written; by the party against whom enforcement is sought

n 1677, the English Parliament enacted a statute called

"An Act for the Prevention of Frauds and Perjuries." This act required that certain types of contracts had to be in writing and signed by the party against whom enforcement was sought.

Under the equitable doctrine of promissory estoppel, the oral promise is enforceable against the promisor if three conditions are met:

(1) The promise induces action or forbearance of action by another, (2) the reliance on the oral promise was foreseeable, and (3) injustice can be avoided only by enforcing the oral promise.

Other contracts that transfer an ownership interest in land that must be in writing under the Statute of Frauds.

- Mortgages - Leases - Life estates - Easements

Merger clause (integration clause)

A clause in a contract that stipulates that it is a complete integration and the exclusive expression of the parties' agreement.

complete integration

A concept that a written contract is a complete and final statement of the parties' agreement.

implied integration

A doctrine that permits the formation of a contract if several documents are somehow physically attached to each other (e.g., in an envelope). The contract that is created consists of the terms the separate documents.

Easements

A given or required right to make limited use of someone else's land without owning or leasing it.

guaranty contract

A promise in which one person agrees to answer for the debts or duties of another person. It is a contract between the guarantor and the original creditor. Rquired to be in writing under the statue of frauds.

Parol Evidence Rule

A rule that says 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 regarding a dispute over the contract. There are several exceptions to this rule.

equal dignity rule

A rule that says that real estate agents' contracts to sell the real property of another are covered by the Statute of Frauds and must be in writing to be enforceable.

Section 2A-201(1) of the Uniform Commercial Code (UCC)

A section of the Uniform Commercial Code (UCC) that states that lease contracts involving payments of $1,000 or more must be in writing. Revised Article 2A raises this amount to $20,000.

Section 2-201(1) of the Uniform Commercial Code (UCC)

A section of the Uniform Commercial Code (UCC) that states that sales contracts for the sale of goods costing $500 or more must be in writing. Revised Article 2 raises this amount to $5,000.

lease

A term that is used to indicate a contract for the lease of goods and a contract for the rental of real property.

part performance

An equitable doctrine that allows the court to order an oral contract for the sale of land or transfer of another interest in real property to be specifically performed if it has been partially performed and performance is necessary to avoid injustice.

Promissory Estoppel (equitable estoppel)

An equity doctrine that permits enforcement of oral contracts that should have been in writing. It is applied to avoid injustice; also known as equitable estoppel.

main purpose exception (leading object exception)

An exception to the Statute of Frauds that states that if the main purpose of a transaction and an oral collateral contract is to provide pecuniary benefit to the guarantor, the collateral contract does not have to be in writing to be enforced; also known as the leading object exception.

life estate

An interest in real property for a person's lifetime; upon that person's death, the interest will be transferred to another party.

Frederick, the owner of a store, hires Anna as the store manager for 6 months. Assume that after three months, Frederick and Anna agree to extend the contract for an additional 11 months. Can this contract be completed orally?

At the time of the extension, the contract would be for 14 months (the 3 left on the original contract plus 11 months added by the extension). The modification would have to be in writing because it exceeds the one-year rule.

Donna orally promises Harvey that she will buy his fishing boat for​ $1,000 if Harvey repaints it. For this promise to be enforceable under the doctrine of promissory​ estoppel, which must be​ true? A. ​Donna's promise must be in writing. B. Harvey repaints the boat in reliance on​ Donna's promise to buy it. C. The parties must get married to each other. D. Donna acts in reliance on​ Harvey's promise. E. The cost of painting the boat must be over​ $500.

B

Which of the following is a correct statement regarding standards of interpretation of contract terms and​ words? A. When a preprinted form contract is​ used, preprinted words in a contract prevail over typed words. B. Ordinary words are given their usual meaning according to the dictionary. C. If there is an ambiguity in a​ contract, the ambiguity will be resolved against the​ non-drafting party. D. General terms are presumed to qualify specific terms. E. If both parties are members of the same trade or​ profession, words will be given their ordinary meaning according to the dictionary.

B

Ethel is president and sole shareholder of Computer Corporation, Inc. Assume (1) that the corporation borrows $100,000 from CityBank for working capital and (2) that Ethel orally guarantees to repay the loan if the corporation fails to pay it. After the corporation fails, can CityBank force Ethel to repay the loan?

CityBank can enforce the oral guaranty contract against Ethel if the corporation does not meet its obligation because the main purpose of the loan was to benefit her as the sole shareholder of the corporation.

Which contracts usually need to be in writing?

Contracts involving interests in real property Contracts that by their own terms cannot possibly be performed within 1 year Collateral contracts in which a person promises to answer for the debt or duty of another Promises made in consideration of marriage Contracts for the sale of goods for $500 or more Contracts for the lease of goods with payments of $1,000 or more Real estate agents' contracts Agents' contracts where the underlying contract must be in writing Promises to write a will 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 Finder's fee contracts

True or False: Implied easements need to be in writing.

False, express easements do

True or False: Trade terms don't apply to contracts under the standard of interpretation.

False, it depends. If the two individuals signing the contract are both from that trade than the terms will apply unless stated otherwise in the contract. If either individual is not a part of the trade than they will not apply.

True or False: A written contract has to be drafted by a lawyer or formally typed to be legally binding

False, it does not. Generally, the law requires only a writing containing the essential terms of the parties' agreement. Thus, any writing—including letters, telegrams, invoices, sales receipts, checks, and handwritten agreements written on scraps of paper—can be an enforceable contract under this rule.

True or False: Promissory Estoppel is not another exception to the parol evidence rule

False, it is.

True or False: In a guaranty contract, the guarantor's liability is primary because they're the ones who will ultimately be held liable.

False, their liability is secondary because it does not arise unless the party primarily liable fails to perform.

True or False: If the original amount in a contract that falls under the rules of the UCC (such as a lease contract) is below the threshold to be in writing, but is later modified to an amount that exceeds the threshold, the entire contract must be written after the modification to make it enforceable.

False. In this instance, the only part of the contract that must be written to make it enforceable are the modifications made that make it exceed the threshold.

primary contract/ original contract

In a guarantee situation, the contract between the debtor and the creditor which the guarantor has guaranteed to pay. It does not have to be in writing (unless another provision of the Statute of Frauds requires it to be).

Credit card contracts often incorporate by express reference such documents as the master agreement between the issuer and cardholders, subsequent amendments to the agreement, and such. What is this an example of?

Incorporation by reference which is a form of integration.

Incorporation by Reference

Integration made by express reference in one document that refers to and incorporates another document within it.

Does a person have to sign a contract with their legal name?

It does not have to be a person's full legal name. The person's last name, first name, nickname, initials, seal, stamp, engraving, or other symbol or mark (e.g., an X) that indicates the person's intent can be binding as a signature. The signature may be affixed by an authorized agent.

What can be done if an oral contract that should have been in writing under the Statute of Frauds is already executed?

It is a complete contract, neither party can rescind the contract on the grounds of noncompliance with the Statute of Frauds

Wei, a recent college graduate, offers to purchase a new automobile on credit from a Mercedes-Benz automobile dealership. Because Wei does not have a credit history, the dealer will agree to sell the car to her only if there is a guarantor. Wei's father orally guaranteed Wei's contract. After Wei misses her first payment, she comes to her dad for help. Does he need to pay?

No, because he only agreed to the contract orally. In a guaranty contract the guarantor *must* sign a written contract for the contract to be enforceable. Wei's dad didn't, so he doesn't have to pay.

Case: In The Matter of Pilgrim's Pride Corporation

PPC had a contract with various growers for their chickens that was specified to be on a "flock to flock" basis in the contract. The contract also included a merger clause that voided all parol evidence and any future oral agreements. PPC told the growers it was in it "for the long haul" but cancelled their contracts with the growers shortly thereafter. Growers sued based on the oral promise made by PPC however the court ruled in PPC's favor because the contract addresses the same subject matter as the oral agreement (length of time) so the oral agreement is unenforceable.

agent's contracts

Real estate agents' contracts to sell real property for another party that are covered by the Statute of Frauds and must be in writing to be enforceable.

standards of interpretation

Rules applied by courts in defining ordinary words, technical words, specific terms, and other words used in contracts.

Sawyer v. Mills

Sawyer was promised a bonus over a million dollars by Mills to be paid in installments over 107 months. After being paid $100k, Mills stopped paying, so Sawyer sued. Court ruled in favor of Mills since this was an oral contract that exceeded the one-year rule it was unenforceable.

Which section of the UCC is the basic statue of Frauds provision for sales contracts?

Section 2-201(1) of the Uniform Commercial Code (UCC)

Exceptions to the Parol Evidence Rule

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. Concerns a prior course of dealing or course of performance between the parties or a usage of trade.8 Fills in the gaps in a contract (e.g., if a price term or time of performance term is omitted from a written contract, the court can hear parol evidence to imply the reasonable price or time of performance under the contract). Corrects an obvious clerical or typographical error. The court can reform the contract to reflect the correction.

Sutton v. Warner

Suttons made downpayment on house as well as payments (and improvements) over 4.5 years, knowing they'd be able to own the house in year 5. Owners (Warners) reneged on the contract after 4.5 years. The court ruled that the Warners had to enforce the contract under the equitable doctrine of partial performance.

integration

The combination of several writings to form a single contract.

Echo enters an oral contract to sell James her used car for $10,000, with the delivery date to be May 1. When May 1 comes and James tenders $10,000 to Echo, Echo refuses to sell her car to James. The contract will not be enforced against Echo. Why not?

The contract will not be enforced against Echo because it was an oral contract for the sale of goods costing $500 or more, and it should have been in writing.

Suppose Echo enters into an oral contract to sell James her used car for​ $10,000, with the delivery date to be May When May 1 comes and James tenders​ $10,000 to​ Echo, Echo refuses to sell her car to James. Is the contract enforceable?

The contract will not be enforced against Echo because it was an oral contract for the sale of goods costing​ $500 or more.

Who must sign a written contract?

The party against whom enforcement is sought. The signature of the person who is enforcing the contract is not necessary. Thus, a written contract may be enforceable against one party but not the other party.

Regarding standards of interpretation, how do specific terms qualify general terms?

They provide more detail regarding what the general term means. For example, if a provision in a contract refers to the subject matter as "corn" but a later provision refers to the subject matter as "feed corn" for cattle, this specific term qualifies the general term.

What is the purpose of the Statue of Frauds?

This statute is intended to ensure that the terms of important contracts are not forgotten, misunderstood, or fabricated.

True or False: An executory contract required to be in writing under the Statue of Frauds that isn't in writing is unenforceable by either party.

True

True or False: If there is an ambiguity in a contract, the ambiguity will be resolved against the party who drafted the contract.

True

True or False: In a written contract, handwritten > typed > preprinted words

True

True or False: The Statute of Frauds is usually raised by one party as a defense to the enforcement of the contract by the other party.

True

True or False: Where the doctrine of promissory estoppel applies, the promisor is estopped (prevented) from raising the Statute of Frauds as a defense to the enforcement of the oral contract.

True

Weitz v. H & S

Weitz was a major contractor working on a nursing home. H & S was a subcontractor that bid to work with Weitz on the job. After winning the bid, H & S left the agreement, leaving Weitz to find more expensive contractors. Although their was no contract, Weitz used promissory estoppel to hold H & S liable and won.

Yarde Metals, Inc. v. New England Patriots Limited Partnership

Yarde Metals, Inc. (Yarde) was a season ticket holder to New England Patriots professional home football games. The football team is owned by the New England Patriots Limited Partnership (Patriots). Yarde permitted a business associate to attend a Patriots game. However, the associate was ejected from the game for disorderly conduct. Subsequently, the Patriots sent Yarde a letter terminating the season ticket privileges in the future. Yarde sued the Patriots, claiming that the Patriots had breached its implied contractual right to purchase season tickets. The Patriots countered that the Patriots' written contract with season ticket holders expressly provided the "purchase of season tickets does not entitle purchaser to renewal in a subsequent year." The Patriots asserted that because the contract with Yarde was an express written contract, Yarde's claim of an implied right to purchase season tickets in the future was parol evidence and was inadmissible to change the express terms of the contract. The appeals court held that there was an express written contract between Yarde and the Patriots, and that the parol evidence rule prevented Yarde's alleged implied right to purchase season tickets from becoming part of that contract. The appeals court affirmed the trial court's dismissal of Yarde's case.

Do contracts involving real property have to be in writing?

Yes

Statue of Frauds

a state statute law that requires that certain contracts be in writing

Borrowers often give a lender an interest in real property as security for the repayment of a loan. This action must be done through the use of a written mortgage or​ _____.

deed of trust

Easements can be either __________________ or ________________.

express, implied

What is pecuniary benefit?

financial benefit

If​ a(n) ______ contract for the sale of land or transfer of other interests in real property has been partially​ performed, it may not be possible to return the parties to their status quo. To solve this​ problem, the courts have developed the equitable doctrine of​ _______________.

oral, part performance

Usage of trade ________.

refers to any practice or method of dealing that is regularly observed or adhered to in a place, a vocation, a trade, a profession, or an industry.

Under the​ _____, a unilateral promise to pay money or property in consideration for a promise to marry must be in writing.

statute of frauds

For this performance exception to apply, most courts require

that the purchaser either pay part of the purchase price and take possession of the property or make valuable improvements on the property.

What's considered real property?

the land itself, buildings, trees, soil, minerals, timber, plants, crops, fixtures, and things permanently affixed to the land or buildings. Certain items of personal property that are permanently affixed to the real property are fixtures that become part of the real property.

What is the minimum number of parties and contracts in a guaranty contract?

three parties and two contracts

rescind

to cancel a contract

True or False: Both the common law of contracts and the UCC permit several writings to be integrated to form a single written contract.

true