Chapter 14: Statute of Frauds and Equitable Exceptions

58) Which of the following is an example of a specific term qualifying general term?

Dollars referred to as Australian dollars

1) The ________ requires certain contracts to be in writing.

Statute of Frauds

52) Section 2A-201(1) of the Uniform Commercial Code (UCC) states that lease contracts involving payments of $1,000 or more must be in writing.

TRUE

20) Which of the following statements is true of a guaranty contract?

The guarantor's liability is secondary.

55) Which of the following statements is true of signature on a written contract?

The signature of the person who is enforcing the contract is not necessary.

2) Which of the following is an exception to the Statute of Frauds?

contracts under promissory estoppel

19) In a guaranty situation, the original contract is between the ________.

debtor and the creditor

15) Which of the following does the one-year rule state?

A contract that cannot be performed on its own terms within a year should be in writing.

25) In most states, contracts for the sale of goods for $900 do not require to be in writing.

FALSE

33) An easement is a form of real property security given by a borrower to a lender.

FALSE

35) An easement contract occurs when one person agrees to answer for the debts or duties of another person.

FALSE

36) In a guaranty situation, there is only one contract among three parties.

FALSE

39) A guaranty contract between people with no bad credit history can be oral.

FALSE

50) Section 2-201(1) of the Uniform Commercial Code (UCC) states that a unilateral promise to pay money or property in consideration for a promise to marry must be in writing.

FALSE

64) The signature of the person who is enforcing the contract is necessary.

FALSE

73) How are contract words and terms interpreted?

If the parties have not defined the words and terms of a contract, the courts apply the following standards of interpretation: 1. Ordinary words are given their usual meaning according to the dictionary. 2. Technical words are given their technical meaning, unless a different meaning is clearly intended. 3. Specific terms are presumed to qualify general terms. 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. 4. If both parties are members of the same trade or profession, words will be given their meaning as used in the trade (i.e., usage of trade). If the parties do not want trade usage to apply, the contract must indicate that. 5. Where a preprinted form contract is used, typed words in a contract prevail over preprinted words. Handwritten words prevail over both preprinted and typed words. 6. If there is an ambiguity in a contract, the ambiguity will be resolved against the party who drafted the contract.

46) Section 2A-201(1) of the Uniform Commercial Code (UCC) states which of the following?

Lease contracts involving payments of $1,000 or more must be in writing.

61) ________ stipulates that the contract is a complete integration and the exclusive expression of the parties' agreement.

Merger clause

5) Which of the following statements is true of the Statute of Frauds?

Most states require contracts to pay compensation for services rendered in negotiating the purchase of a business to be in writing.

60) ________ says that 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.

Parol evidence rule

76) ________ is an equitable doctrine that permits enforcement of oral contracts that should have been in writing.

Promissory estoppel

16) Good Faith Consultants partnered with QuickFind IT Solutions for a period of six months. After three months, they wanted to extend the contract by two years. According to the Statute of Frauds, which of the following is true of the contract?

The modification to the duration of the contract should be in writing.

48) Santos told his friend Ernesto that he would sell Ernesto his car for $5,000. However, on the day of the sale, Santos refused to sell the car for the agreed-upon price and demanded more money. Which of the following statements is true in this scenario?

The oral contract to trade a car for $5,000 is not binding, according to the Uniform Commercial Code (UCC).

6) Which of the following is considered a real property?

a fixture permanently affixed to a building

11) A right to use someone else's land without owning or leasing it is called ________.

easement

23) The ________ says that agents' contracts to sell property covered by the Statute of Frauds must be in writing to be enforceable.

equal dignity rule

21) Nina wants to borrow money from Tina, but Tina refuses to lend the money unless another person promises to pay the money in case Nina cannot clear the debt. James agrees to pay the debt if Nina does not. James is the ________ in this transaction.

guarantor

22) The ________ 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.

leading object exception

9) Ida moves to New York from Poland and wants to live in an apartment. However, she does not have sufficient money to buy one. Her colleague Henry said Ida can live in his old apartment for a year, if she pays him $25,000. This contract would be considered a(n) ________.

lease

8) Which of the following phrases explains the term lease?

the transfer of the right to use real property for a specified period of time

42) Explain the creation and working of guaranty contracts.

A guaranty contract occurs when one person agrees to answer for the debts or duties of another person. Guaranty contracts are required to be in writing under the Statute of Frauds. In a guaranty situation, there are at least three parties and two contracts. The first contract, which is known as the original contract, or primary contract, is between the debtor and the creditor. It does not have to be in writing (unless another provision of the Statute of Frauds requires it to be). The second contract, called the guaranty contract, is between the person who agrees to pay the debt if the primary debtor does not (i.e., the guarantor) and the original creditor. The guarantor's liability is secondary because it does not arise unless the party primarily liable fails to perform.

41) Equal dignity rule says that agents' contracts to sell property covered by the Statute of Frauds must be in writing to be enforceable.

TRUE

27) Trees, crops, minerals, and timber are barred from being included in contracts involving interests in real property.

FALSE

30) A lease is an interest in real property given to a lender as security for the repayment of a loan.

FALSE

51) If Johnny made an oral contract with Peter to sell Peter his truck for $15,000, Johnny's eventual refusal to sell the truck is considered breach of contract.

FALSE

65) A person's nickname or initials that indicate his or her intent are not considered binding signatures.

FALSE

66) The Uniform Commercial Code (UCC) does not permit several writings to be integrated to form a single written contract.

FALSE

70) If there is an ambiguity in a contract, the ambiguity will be resolved in favor of the party who drafted the contract.

FALSE

18) A ________ is a person who agrees to pay a debt if the primary debtor does not.

Guarantor

56) ________ refers to the integration made by express reference in one document that refers to and incorporates another document within it.

Incorporation by reference

44) If an oral contract that should have been in writing under the Statute of Frauds is already executed, neither party can seek to rescind the contract on the grounds of noncompliance with the Statute of Frauds.

TRUE

54) Why is it a bad idea for Edward and his landlord to make an oral lease contract for $30,000? Suggest an alternative and explain how it is beneficial to an oral contract.

It is a bad idea for Edward and his landlord to make an oral lease contract for $30,000 as such a contract is vulnerable to fraud. Instead, they must create a written contract in accordance to Section 2A-201(1) of the Uniform Commercial Code (UCC), which is the Statute of Frauds provision that applies to the lease of goods. It states that lease contracts involving payments of $1,000 or more must be in writing. If a lease payment of an original lease contract is less than $1,000, it does not have to be in writing under the UCC Statute of Frauds. However, if a modification of the lease contract increases the lease payment to $1,000 or more, the modification has to be in writing to be enforceable. The most recent revision to UCC 2A-201 requires that lease contracts involving payments of $20,000 or more must be in writing to be enforceable.

74) When is parol evidence admitted in court?

Parol evidence may be admitted in court if it: 1. shows that a contract is void or voidable (e.g., evidence that the contract was induced by fraud, misrepresentation, duress, undue influence, or mistake). 2. explains ambiguous language. 3. concerns a prior course of dealing or course of performance between the parties or a usage of trade. 4. 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). 5. corrects an obvious clerical or typographical error. The court can reform the contract to reflect the correction.

4) Which of the following statements is true of the writing requirement of contracts, according to the Statute of Frauds?

Promises made in consideration of marriage must be in writing.

12) Which of the following is an instance of a mortgage?

Richard gives his country estate as collateral to a bank from where he has borrowed money to buy an apartment.

49) Jim's landlord insists on a written agreement to lease his apartment for $25,000 in order to comply with ________ of the Uniform Commercial Code (UCC).

Section 2A-201(1)

57) Which of the following statements is true of interpreting contract words and terms?

Specific terms are presumed to qualify general terms.

24) Statute of Frauds is a state statute that requires certain types of contracts to be in writing.

TRUE

26) In most states, contracts for the lease of goods with payments of $2000 require to be in writing.

TRUE

28) Built-in cabinets in a house would be considered as permanent parts of the real property.

TRUE

29) Under the Statute of Frauds, any contract that transfers an ownership interest in real property must be in writing to be enforceable.

TRUE

31) A life estate will be transferred to another party in the event of the holder's death.

TRUE

32) The transfer of the right to use real property for a specified period of time is known as a lease.

TRUE

34) According to the Statute of Frauds, an executory contract that cannot be performed by its own terms within one year of its formation must be in writings.

TRUE

37) The primary contract in a guarantee situation is between the debtor and the creditor.

TRUE

38) In a guarantee situation, the guarantor's liability is secondary.

TRUE

40) The main purpose exception to the Statute of Frauds allows oral collateral contracts to be enforced if there is a monetary benefit to the guarantor.

TRUE

53) If a modification of the lease contract increases the lease payment to $1,000 or more, the modification has to be in writing to be enforceable.

TRUE

63) Any writing—including letters, telegrams, invoices, sales receipts, checks, and handwritten agreements written on scraps of paper—can be an enforceable contract.

TRUE

67) Incorporation by reference is an integration made by express reference in one document that refers to and incorporates another document within it.

TRUE

68) Placing several documents in the same envelope indicates implied integration.

TRUE

69) While interpreting contract words and terms, specific terms are presumed to qualify general terms.

TRUE

71) Any oral or written words outside the four corners of the written contract are called parol evidence.

TRUE

72) A merger clause stipulates that the contract is a complete integration and the exclusive expression of the parties' agreement.

TRUE

78) The doctrine of part performance 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 performance is necessary to avoid injustice.

TRUE

79) Promissory estoppel is an equitable doctrine that permits enforcement of oral contracts that should have been in writing.

TRUE

43) Jonas enters into an oral contract with Chelsea to lease his house to her for $100,000. Chelsea pays him $100,000 and moves in. A month later, Jonas learns that his state requires contracts for the lease of goods with payments of $1,000 or more to be in writing. Which of the following options does either party have now?

The contract cannot be rescinded by either party as it has already been executed.

80) Explain the doctrine of equitable estoppel.

The doctrine of promissory estoppel, or equitable estoppel, is an equitable exception to the strict application of the Statute of Frauds. The version of promissory estoppel in the Restatement (Second) of Contracts provides that if parties enter into an oral contract that should be in writing under the Statute of Frauds, 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. 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.

17) A(n) ________ occurs when one person agrees to answer for the debts or duties of another person.

guaranty contract

13) Which of the following grants a person the right to use real property for a specified period of time?

lease

10) Which of the following interests in real property transfers to another person after the present holder's death?

life estate

7) Which of the following is an interest in real property given to a lender as security for the repayment of a loan?

mortgage

14) The ________ states that an executory contract which cannot be performed by its own terms within one year of its formation must be in writing.

one-year rule

59) Any oral or written words outside the four corners of a written contract are termed as ________.

parol evidence

75) The doctrine of ________ 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.

part performance

3) Which of the following contracts is required to be in writing in most states?

promises to write a will

45) Section 2-201(1) of the Uniform Commercial Code (UCC) is the basic Statute of Frauds provision for ________.

sales contracts

47) Section 2-201(1) of the Uniform Commercial Code (UCC) states that ________.

sales contracts involving payments of $500 or more must be in writing

62) In which of the following cases is parol evidence admitted by a court?

when the evidence explains ambiguous language

77) Under which of the following conditions does a promissory estoppel provide for the enforceability of an oral contract?

when the promise induces action or forbearance of action by another