Legal Environment of Business Exam 3 - CH 15

The UCC Article 2 statute of frauds provision applies to the sale of goods for the price of __________ or more. a. $50 b. $100 c. $500 d. $1,000

$500

Identify two instances in which a contract to transfer an interest in land need not be in writing, and give an example of each.

- As a general rule, a promise to transfer an interest in land is within the statute of frauds and therefore must comply with its requirements. - There are two exceptions to that rule, however. - The first involves a promise to make a short-term lease. In most states, this is defined by statute to include leases that are for one year or less in duration. - The second involves an oral contract that may be enforced if the party seeking enforcement has so changed his position in reasonable reliance upon the contract that injustice can only be prevented by enforcing the contract.

Original Promise

- If the promisor makes an original promise by undertaking to become primarily liable, then the statute of frauds does not apply. - The statute only applies to a collateral promise. - A collateral promise is an undertaking to be secondarily liable, that is, liable if the principal debtor does not perform. - "If X doesn't pay, I will," is collateral, because the promisor is not the one who is primarily liable, X is. - An original promise (one to become primarily liable) is not collateral.

Interpretation of Contracts

- The Restatement defines interpretation as the ascertainment of the meaning of a promise or agreement or a term of the promise or agreement. - Rules for interpretation include: 1) all the circumstances are considered and the principal purpose of the parties is given great weight; 2) a writing is interpreted as a whole; 3) commonly accepted meanings are used unless a different intention is manifested; 4) technical terms are given their technical meaning; 5) wherever possible, the intentions of the parties are interpreted as consistent with each other and with course of performance, course of dealing, or usage of trade; 6) an interpretation that gives a reasonable, lawful, and effective meaning to all terms is preferred; 7) specific terms are given greater weight than general language; 8) separately negotiated terms are given greater weight than standardized terms or those not separately negotiated; 9) express terms, course of performance, course of dealing, and usage of trade are weighted in that order; and 10) where a term has several possible meanings, the term will be interpreted against the party who supplied the contract or term; 11) written provisions prevail over inconsistent typed or printed provisions, and typed provisions prevail over printed; and 12) if an amount payable is set forth in conflicting words and figures, the words control the figures.

Compare the requirements for a writing to comply with the general statute of frauds and the UCC version. Which is easier to satisfy? Why? List three alternative methods of compliance with the UCC version.

- The general statute of frauds requires that an agreement be in writing to be enforceable. - The writing has to be signed by the party to be charged or his agent, specify the parties to the contract, and specify with reasonable certainty the subject matter and the essential terms of the unperformed promises. - The statute of frauds provision under the UCC is more liberal. - The Code requires only a writing that is sufficient to indicate that a contract has been made between the parties, signed by the party against whom enforcement is sought or by his authorized agent, and specify the quantity of goods to be sold. - An oral contract for the sale of goods may comply with the requirements of the Code in the following three instances: (1) where the party defending against the contract admits it by pleading, testimony, or otherwise in court; (2) under certain circumstances, where the goods are to be specially manufactured; and (3) where there has been payment or delivery and acceptance.

Situations to Which the Rule Does Not Apply

- The rule is considered to be a substantive rule of law that defines the limits of a contract. - It does not apply to the following situations: (1) a contract that is partly written and partly oral; (2) a clerical or typographical error that obviously does not represent the agreement of the parties; (3) the lack of contractual capacity of one of the parties, such as proof of minority, intoxication, or mental incompetency; (4) a defense of fraud, misrepresentation, duress, undue influence, mistake, illegality, lack of consideration, or other invalidating cause; (5) a condition precedent that was orally agreed upon at the time of the contract's execution and to which the entire agreement was made subject; (6) a subsequent mutual rescission or modification of the contract; (7) ambiguous terms are found in the contract; and (8) there was a separate, distinct contract between the same parties.

In which of the following cases will an oral contract for the sale of goods of $750 be enforceable without a writing? a. The goods are to be specially manufactured for the buyer and the seller has made a substantial beginning of their manufacture. b. A party admits in an answer to a complaint in a lawsuit that the contract was made. c. Delivery and acceptance of the goods has been made. d. All of the above.

All of the above. a. The goods are to be specially manufactured for the buyer and the seller has made a substantial beginning of their manufacture. b. A party admits in an answer to a complaint in a lawsuit that the contract was made. c. Delivery and acceptance of the goods has been made.

Sam, a shopkeeper, dies unexpectedly at the age of 46. His lifelong business associate, Paul, is appointed the administrator of the estate. Sam had a personal debt of $8,000 which he owed to Art's Appliance Store. Paul says to Art, "If there isn't enough money in the estate, I'll personally see that the bill is paid." Which of the following is correct? a. The oral statement is enforceable because Paul is the administrator. b. An oral statement such as this is not enforceable because it is outside the statute of frauds. c. An oral statement such as this is not enforceable because it is within the statute of frauds. d. The oral statement is enforceable because it is a collateral promise.

An oral statement such as this is not enforceable because it is within the statute of frauds and should be written

A course of dealing is a practice or method of dealing regularly observed and followed in a place, vocation, or trade.

False

A writing required under the UCC, Article 2 statute of frauds must be signed at the end of the writing with the intent to authenticate the writing.

False

In an employment agreement with Carl, Arnold promises to work for Carl for the rest of his life. This promise must be in writing or in proper electronic form to be enforceable. a. True b. False

False

In order to comply with the requirements of most statutes of frauds, the writing or memorandum must be signed by both parties to the agreement.

False

Most types of contracts are valid without being written a. True b. False

False

Compliance with the Statute of Frauds

If a contract is within the statute of frauds, it will be enforced if there is a sufficient writing or memorandum which complies with the requirements of the statute. - General Contract Provisions - Sale of Goods

Barry's Sport Shop calls Champion Tee Shirt Company to order 200 designer tee shirts at $2 per shirt. The next day, Barry decides he can easily sell 100 more. Before the order is filled, he calls to change the order to 300 tee shirts. Champion sends 200. Can Barry force Champion to send the additional 100? a. No, because there is no consideration for the extra 100 shirts. b. No, because Barry does not have a writing signed by Champion Tee Shirts. c. Yes, because this is a subsequent modification of the original contract. d. Yes, because Champion Tee Shirts is a merchant within the meaning of Article 2 of the UCC.

No, because Barry does not have a writing signed by Champion Tee Shirts.

Interlock, Inc. hires Betty as human resources director under a two-year employment contract. After six months, the president of Interlock and Betty orally agree to modify her existing contract including a change in salary and job description. Discuss the enforceability of the oral contract modifying the existing contract.

Oral contracts modifying previously existing contracts are unenforceable if the resulting contract is with-in the statute of frauds. The contract between Betty and Interlock is within the statute of frauds-it cannot be performed in one year. Therefore, the oral contract modifying the existing contract is unenforceable.

Specially Manufactured Goods.

The Code permits enforcement of an oral contract for goods specially manufactured for a buyer which cannot be readily resold in the ordinary course of the seller's business

Sales of Goods

The UCC provides that a contract for the sale of goods for the price of $500 or more is not enforceable without a writing. - Admission - Specially Manufactured Goods - Delivery or Payment and Acceptance

The parol evidence rule does not apply to: a. a typographical error that obviously does not represent the agreement of the parties. b. evidence showing one of the parties to the contract lacks contractual capacity. c. The parol evidence rule does not apply to either (a) or (b). d. The parol evidence rule applies to both (a) and (b).

The parol evidence rule does not apply to either (a) or (b).

A usage of trade is a practice or method of dealing having such regularity of observance in a place, vocation, or trade a. True b. False

True

In order to induce a car dealer to sell her son a car on credit, Mary promises that she will pay for the son's car if the son defaults on his monthly payments to the dealership. Mary's promise must be in writing or have a sufficient electronic record. a. True b. False

True

The "marriage provision" of the statute of frauds applies only if a promise to marry is made in consideration for some promise other than a mutual promise to marry.

True

The UCC provides that a contract for the sale of goods for the price of $500 or more must satisfy the requirements of the statute of frauds.

True

The parol evidence rule does not apply to parol evidence which is used to show a subsequent mutual rescission of a contract.

True

The statute of frauds does not relate to the circumstances surrounding the making of a contract or to the validity of a contract.

True

The suretyship provision has been interpreted not to include promises made to a debtor.

True

The Rule

When a contract is expressed in a writing that is intended to be the complete and final expression of the rights and duties of the parties, the parol evidence rule, which also applies to wills and deeds, excludes evidence of prior oral or written negotiations or agreements of the parties or their contemporaneous oral agreements that vary or change the integrated written contract.

A party seeks to introduce evidence of a subsequent oral agreement modifying a written employment contract from 2 to 3 years. The oral agreement is a. admissible under the parol evidence rule and valid under the statute of frauds. b. admissible under the parol evidence rule, but invalid because of the statute of frauds. c. inadmissible under the parol evidence rule, but valid under the statute of frauds. d. inadmissible under the parol evidence rule and invalid under the statute of frauds.

b

All of the following are required of a writing to satisfy the requirements of the general statute of frauds EXCEPT: a. it must be signed by the party to be charged or his agent. b. it must be signed by the party seeking to enforce the contract or his agent. c. it must specify the parties to the contract. d. it must specify with reasonable certainty the subject matter of the unperformed promises as well as their essential terms.

b

Arthur writes a letter to Bob in which he promises to pay Clark's debts if Clark doesn't pay. a. Arthur's promise is a primary promise. b. Arthur's promise is an original promise. c. Arthur's promise is a collateral promise. d. Arthur's promise falls within the main purpose doctrine.

c

CPA: The statute of frauds: a. prevents the use of oral evidence to contradict the terms of a written contract. b. applies to all contracts having consideration valued at $500 or more. c. requires the independent promise to pay the debt of another to be in writing. d. applies to all real estate leases.

c

If a contract is expressed in a writing that is intended by the parties to be the complete and final expression of their rights and duties under the contract, the parol evidence rule precludes the admission into evidence of all of the following EXCEPT: a. prior oral negotiations or agreements of the parties. b. prior written negotiations of the parties. c. a subsequent oral agreement between the parties to modify the terms of the contract. d. a contemporaneous oral agreement between the parties that varies or changes the written contract.

c

The following promises or contracts are within the statute of frauds EXCEPT: a. the promise of an executor or administrator that he personally will pay all of the decedent's creditors in full. b. a promise to marry made in consideration for some promise other than a reciprocal promise to marry. c. a promise made by a father to his son by which the father will pay the son's debt in the event of his son's default. d. a promise made by a father to his son's creditor to pay the son's debt in the event of his son's default.

c

Which of the following contracts need not be in writing to be enforced? a. Arthur agrees to buy Bob's house for $60,000. b. Clara's Aunt Amanda promises Clara $1,000 if she will marry Brad. c. Bill Buyer agrees to buy $450 in goods from Sam Seller. d. Oscar agrees to work for Big Bucks, Inc., for two years beginning June 1.

c

Which of the following is not a rule of contract interpretation? a. Words and other conduct are interpreted in light of all the circumstances, and if the principal purpose is ascertainable, it is given greater weight. b. Unless a different intention is manifested, technical terms and words of art are given their technical meaning. c. Express terms, usage of trade, course of dealing, and course of performance are weighed in that order. d. Separately negotiated or added terms are given greater weight than standardized terms or other terms not separately negotiated.

c

In a contract for the sale of goods costing more than $500, the statute of frauds provisions apply except: a. where an admission has been made. b. where the goods have been specially manufactured. c. where there has been a delivery of and payment for the goods. d. all the above are exceptions to statute of frauds provisions.

d

The parol evidence rule will bar the introduction of: a. evidence that one of the parties to the contract was a minor. b. evidence of fraud in the formation of the contract. c. evidence of usage and custom that is not inconsistent with the terms of the written agreement. d. evidence of a letter written prior to the execution of the final contract stating that the price to be charged for the goods was $2.00 each rather than $2.10 as provided in the final contract.

d

Which of the following contracts are within the statute of frauds and therefore must meet its requirements in order to be enforceable? a. A contract to sell half-acre lots of land in a 60-acre subdivision b. A six-month lease of an apartment c. A deed granting an easement d. (a) and (c) above

d

Contracts within the Statute of Frauds

- If a contract is "within" the statute, it must comply with the requirements of the statute, i.e., a writing is necessary. - Suretyship Provision - Executor - Marriage Provision - Land Contract Provision - One-Year Provision - Sales of Goods - Modification or Rescission of Contracts within the Statute of Frauds

Statute of Frauds

- The statute of frauds requires that in order to be enforceable, certain contracts must be evidenced by a written memorandum signed by the party to be charged (the one you want to sue). - The statute of frauds does not relate to any kind of fraud practiced in the making of a contract but rather is aimed at preventing fraud in the proof or evidence of oral contracts by perjured testimony in court.

Full Performance

After all the promises of an oral contract have been performed by all parties, the statute of frauds no longer applies.

Chris (just a private individual) receives a printed form in the mail from Wyandott Heating and Air (a business) indicating that he has placed a telephone order for a $600 furnace and confirming it will be delivered within the month. He doesn't recall placing the order, but it is a good deal. Which of the following is correct? a. Wyandott can hold Chris to the order b. Chris is bound if he makes no objective within 10 days c. Chris can hold Wyandott to the order d. Neither party is bound, because there is no signed writing

Chris can hold Wyandott to the order

Promise Made to Debtor

Courts have interpreted the suretyship provision NOT to include promises made to the debtor. A promise made to a debtor is enforceable without writing.

Under the parol evidence rule, words can be introduced in court which vary or contradict the terms of an integrated contract.

False

The statute of frauds always requires that both parties sign the writing or it won't be enforceable. a. True b. False

Flase

Effects of Noncompliance

The oral contract that should fall within the statute is unenforceable. - Full Performance - Restitution - Promissory Estoppel

The parol evidence rule applies to all integrated, written contracts and deals with what terms are part of the contract.

True

Delivery or Payment and Acceptance

Under the Code, delivery and acceptance of part of the goods or payment and acceptance of part of the price validates part of the oral contract.

Full Performance by One Party

When one party has fully performed, most courts hold that the promise of the other party is enforceable even if performance was not possible within one year.

On March 1, Tammy, a student, received a telephone call from Watterson, Inc. offering her a job for one year beginning on June 15, after completion of the school year. According to the personnel manager, she will have to move to California and be ready to start work at 8:00 a.m. on June 15. Should Tammy ask for a letter confirming the telephone conversation if she accepts the offer immediately? a. Yes, because the job offer is a collateral promise. b. Yes, because the job offer is covered by the parol evidence rule. c. Yes, because the job offer is for longer than one year from March 1. d. No, because the job offer is for one year from June 15.

Yes, because the job offer is for longer than one year from March 1.

By an oral agreement entered into on January 1, 2000, A hires B to work for eleven months starting on February 1, 2000. This contract is: a. enforceable because this contract is outside the statute of frauds. b. enforceable because it can be performed within a year of the start of performance. c. unenforceable because it cannot be performed within one year of when it was made. d. (a) and (b) above.

a

Executor

- Administrator Provision-An executor or administrator is a person appointed to settle a decedent's estate. - If an executor or administrator promises to answer personally for a duty of the decedent, the promise is unenforceable unless in writing. - This provision is a specific application of the suretyship provision.

Land Contract Provision

- An interest in land is any right, privilege, power, or immunity in real property. - It includes ownership interests in land, long-term leases, mortgages, options, and easements. - Under this provision, a promise to transfer an interest in land must be in writing. - However, under the part performance exception, if the transferee has paid a portion or all of the purchase price and either taken possession of the property or started to make valuable improvements on the land in reasonable reliance on the contract, an oral contract is enforceable.

Supplemental Evidence

- Under the Restatement and the Code, a written contract may be explained or supplemented by course of dealing, usage of trade, course of performance, or evidence of consistent, additional terms. - A course of dealing is a sequence of previous conduct between the parties that establishes a common basis for understanding. - A usage of trade is a practice or method of dealing regularly observed and followed in a place, vocation, or trade. - Course of performance is the manner and extent to which the respective parties have accepted successive tenders of performance by the other party without objection. - Supplemental consistent evidence is admissible if it does not contradict the terms of the original agreement and would probably not have been included in the original contract.

The UCC statute of frauds requires that the writing include all agreed-upon terms a. True b. False

False

The parol evidence rule is a rule of evidence that prohibits the parties from subsequently orally modifying their written contract.

False

Restitution

If a party to a contract that is unenforceable because of the statute of frauds has acted in reliance upon the contract, the party may recover in restitution the benefits conferred upon the other.

Modification or Rescission of Contracts within the Statute of Frauds

Oral contracts modifying existing contracts are unenforceable if the resulting contract is within the statute of frauds.

Promissory Estoppel

Oral contracts within the statute of frauds have been enforced where the party seeking enforcement has reasonably and foreseeably relied upon a promise, and injustice can only be avoided by enforcement of the promise.

Briefly explain the "parol evidence" rule.

Parties frequently put their agreements in writing, intending the writing to be the final expression of their agreement. Generally, evidence of their prior oral or written negotiations or agreements or their contemporaneous oral agreements that might vary or change the written expression would not be admissible in court on the presumption that the final written expression is the best evidence of the true agreement.

Admission

The Code permits an oral contract for the sale of goods to be enforced against a party who in a pleading, testimony, or otherwise in court admits that a contract was made, but the Code limits enforcement to the quantity of goods the party admits.

Identify five situations which fall within the statute of frauds

The following five kinds of contracts are within most state statutes: (1) promises to answer for the duty of another, (2) promises of an executor or administrator to answer personally for a duty of the decedent whose funds he is administering, (3) agreements upon consideration of marriage, (4) agreements for the transfer of an interest in land and, (5) agreements that cannot be performed within one year.

General Contract Provisions

The general statutes require that the writing (1) specify the parties to the contract; (2) specify the subject matter and essential terms of the unperformed promises; and (3) be signed by the party to be charged or by her agent. - The note or memorandum may be formal or informal. - The signature may be by initials, printed, or typewritten, and need not be at the bottom of the page. - A personal letter or handwritten note would suffice. It may consist of several papers, none of which would be sufficient by itself. Pursuant to the federal Electronic Signatures in Global and National Commerce Act enacted in 2000, electronic transactions and signatures are valid and enforceable and do not violate the statute of frauds.

The Possibility Test

The test for whether a contract is within the one-year provision is whether it is possible, under the terms of the contract, for the contract to be performed within one year; the test is not whether it is likely to be performed within one year.

Computation of Time

The year runs from the time the agreement is made, not from when the performance is to begin.

Under the "main purpose rule," an oral contract which would ordinarily require a writing can be enforced.

True

Where the "main purpose" of the promisor is to obtain an economic benefit for herself that she did not previously have, the promise is outside the statute, and need not be in writing to be enforceable.

True

Which of the following would NOT require a writing under the statue of frauds? a. All of these need to be written to be enforceable b. A renter agrees to rent a building for a 5-year period c. Where a landscaper agrees to landscape the lot surrounding an office building d. The buyer agrees to pay $10,000 for a piece of real estate

Where a landscaper agrees to landscape the lot surrounding an office building

Under the statute of frauds provision of the UCC, if a writing that is otherwise sufficient incorrectly states the quantity term agreed upon by the parties, the contract is: a. unenforceable. b. enforceable, but only to the extent of the quantity of goods stated in the writing. c. enforceable to the extent of the quantity term orally agreed upon by the parties. d. enforceable to the extent determined by the court to be fair and reasonable at the time of enforcement of the contract.

b

Which of the following is not a collateral promise? a. A mother tells the gas station to extend $1,000 worth of credit to her son over the school year and says, "If he doesn't pay, I will." b. Brett promises Denny's bank that if Denny cannot pay his bills, Brett will. c. A father tells Best Computer to deliver a laptop to his son and says, "Send me the bill. I'll pay for it." d. All of these are correct.

A father tells Best Computer to deliver a laptop to his son and says, "Send me the bill. I'll pay for it."

Suretyship Provision

A suretyship is a promise to pay a debt or perform duties of a third person if the principal debtor fails to do so. - The surety is the person who promises to perform. - The principal debtor is the person whose debt is being supported. - The suretyship provision applies to a contractual promise by a surety (the promisor) to a creditor (the promisee) to perform the duties or obligations of a third person (the principal debtor) if the principal debtor does not perform. - Original Promise - Main Purpose Doctrine - Promise Made to Debtor

General contract law states that contracts that have to be in writing must: a. specify the parties to the contract. b. specify the subject matter and essential terms c. be signed by the party to be charged or by his/her agent. d. All of the above.

All of the above. a. specify the parties to the contract. b. specify the subject matter and essential terms c. be signed by the party to be charged or by his/her agent

On March 20, Alan orally agrees to work for Trower, Inc. for a period of one year commercing on June 1. No writing is necessary here, because the contract can be performed within one year. a. True b. False

False

Parol Evidence Rule

Neither party to a final, complete written contract is later permitted to show that the contract they made is different from the terms and provisions that appear in the written agreement.

Marriage Provision

The marriage provision does NOT apply to mutual promises to marry. A writing is required only if a promise to marry is made in consideration of some other promise, such as if a man's parents promise a woman to convey title to property if she marries their son.

One-Year Provision

The statute of frauds requires that all contracts that cannot be fully performed within one year of the making of the contract must be in writing. - The Possibility Test - Computation of Time - Full Performance by One Party

A collateral promise is an undertaking to be secondarily liable.

True

In which of the following situations would an oral contract that should have been within the statute of frauds no longer have to be written to be enforceable? a. The contract has been fully performed. b. The contract has been partially performed. c. The parties had a previous course of dealing. d. Oral contracts are a common practice in that trade.

a

Under the UCC, a(n) __________ is a sequence of previous conduct between the parties to an agreement which may be fairly regarded as establishing a common basis of understanding for interpreting their conduct under the contract. a. extrinsic set of evidence b. usage of trade c. course of performance d. course of dealing

course of dealing

Main Purpose Doctrine

- This is an exception that the courts have developed to the suretyship provision. It is also known as the leading object rule. - If the main purpose of the promisor/surety is to provide an economic benefit to herself, then the promise comes within the exception and is outside the statute, i.e., no writing is necessary to enforce the promise.

It is optional with the parties, under the statute of frauds, whether to reduce their agreement to writing.

False

Sale of Goods

The Article 2 statute of frauds provision is more liberal. It requires merely a writing (a) sufficient to indicate that a contract has been made between the parties; (b) signed by the party against whom enforcement is sought or by her authorized agent or broker; and (c) specifying the quantity of goods to be sold.

CPA: Sand orally promised Frost a $10,000 bonus, in addition to a monthly salary, if Frost would work for two years for Sand. If Frost works for the two years, will the statute of frauds prevent Frost from collecting the bonus? a. No, because Frost fully performed in reliance on the oral promise. b. No, because the contract did not involve an interest in real estate. c. Yes, because the contract could not be performed within one year. d. Yes, because the monthly salary was the consideration of the contract.

a