Chapter 15 Business Law
A promise to answer for the duty of another.
A suretyship, applies to the contractual promise by a surety (promisor) to a creditor (promisee) to perform the duties or obligations of a third party. EX: A mother tells a merchant to extend $1,000 worth of credit to her son and promises that if he doesn't pay, then she will. This promise must be in writing or it isn't enforceable.
Clay orally promises Trent to sell him five crops of potatoes to be grown on Blackacre, a farm in Minnesota, and Trent promises to pay a stated price for them on delivery. Is the contract enforceable?
One Year Provision. The contract may not be enforceable. Where an oral agreement cannot be performed within one year from the date of the making of the contract it is within the statute of frauds. The contract is within the statute of frauds for the reason that it is impossible in Minnesota for five crops of potatoes to mature in one year, but if they could, then the contract would be enforceable.
Green was the owner of a large department store. On Wednesday, January 26, he talked to Smith and said, "I will hire you to act as sales manager in my store for one year at a salary of $48,000. You are to begin work next Monday." Smith accepted and started work on Monday, January 31. At the end of three months, Green discharged Smith. On May 15, Smith brought an action against Green to recover the unpaid portion of the $48,000 salary. Is Smith's employment contract enforceable?
One Year Provision. No, decision in favor of Green. The oral contract of employment between Green and Smith was entered into on Wednesday, January 26, but Smith was not required to begin work until Monday, January 31, five days after the making of the contract. The agreement was thus not capable of performance within one year from the day on which it was made and is within the statute of frauds. The contract is, hence, not enforceable. Where a contract of service is for the term of a year beginning or which may begin on the day of the making of the contract, the statute of frauds is inapplicable. An oral contract for a year's services, as here, to begin more than one day after the contract is entered into is impossible of performance within one year from the date of making and is therefore unenforceable under the statute of frauds. Part performance of an oral contract not performable within a year does not take a contract out of the statute of frauds.
Rachel bought a car from the Beautiful Used Car Agency under a written contract. She purchased the car in reliance on Beautiful's agent's oral representations that it had never been in a wreck and could be driven at least two thousand miles without adding oil. Thereafter, Rachel discovered that the car had, in fact, been previously wrecked and rebuilt, that it used excessive quantities of oil, and that Beautiful's agent was aware of these facts when the car was sold. Rachel brings an action to rescind the contract and recover the purchase price. Beautiful objects to the introduction of oral testimony concerning representations of its agent, contending that the written contract alone governed the rights of the parties. Explain whether Rachel should succeed?
Parol Evidence Rule. Decision for Rachel. The used car agency's objection to the introduction of the oral testimony would be overruled. The oral representations by used car agency's agent that the car had never been in a wreck and could be driven two thousand miles without adding oil were fraudulent. The parol evidence rule does not exclude the admission of evidence to establish fraud. The reason for the rule is that where the parties have reduced their contract to writing, they intend that all of the terms of the contract are incorporated in the writing. Consequently, the introduction of extrinsic evidence to vary, alter, change, or add to the terms contained in writing would be changing the contract made by the parties. However, fraudulent misrepresentations which induced the contract are not part of the contract but separate and apart from it. The introduction of evidence of fraud, therefore, is not prohibited by the parol evidence rule.
Grant leased an apartment to Epstein for the term May 1 to April 30 at $750 a month "payable in advance on the first day of each and every month of said term." At the time the lease was signed, Epstein told Grant that he received his salary on the tenth of the month and that he would be unable to pay the rent before that date each month. Grant replied that would be satisfactory. On June 2, due to Epstein's not having paid the June rent, Grant sued Epstein for such rent. At the trial, Epstein offered to prove the oral agreement as to the date of payment each month. Is the oral evidence admissible?
Parol Evidence Rule. Decision for Grant. The lease expressly provided that the rent for each month was payable in advance on the first day of the month. The oral agreement that the lessee could pay each month's rent on the 10th of the month would not be admissible to change the terms of the lease, because it is contemporaneous parole evidence that contradicts an integrated document. If Grant had allowed Epstein to make the payment on the 10th of the month for several months, his actions may give Epstein a stronger argument for enforcement of the oral agreement under a course of performance argument.
Statute of frauds
Requires certain designated types of contracts to be evidenced by a writing to be enforceable. A promise to answer for the duty of another. Promise of an executor or administrator to answer personally for a duty of the descendent whose funds he is administering. Agreements upon consideration of marriage. Agreements for the transfer of an interest of land. Agreements not to be performed within a year. Agreements for goods over $500.
Exceptions to the statute of frauds rule
Specially manufactured goods don't have to be in writing. EX: Sorority shirt example from lecture. Acceptance of delivery means the person has to pay for any of the goods they accepted, but they don't have to accept all the goods.
Jesse Carter and Jesse Thomas had an auto accident with a driver insured by Allstate. Carter and Thomas hired attorney Joseph Onwuteaka to represent them. Mr. Onwuteaka sent a demand letter for settlement of plaintiffs' claims to Allstate's adjustor, Ms. Gracie Weatherly. Mr. Onwuteaka claims Ms. Weatherly made, and he orally accepted, settlement terms on behalf of the plaintiffs. When Allstate did not honor the agreements, Carter and Thomas filed a suit for breach of contract. Discuss the enforceability of the oral agreement.
Statute of Frauds. The appellants contend the alleged oral agreement is not governed by the Statute of Frauds. Allstate claims the Statute of Frauds is applicable to the alleged agreement under the suretyship provision, which allows "a promise by another person to answer for the debt, default, or miscarriage of another person." One test for determining whether a promise to pay the debt of another is within or without the Statute of Frauds is whether the promisor is a surety, only secondarily liable, or has accepted primary responsibility for the debt. If the party is primarily liable, its promise to pay a debt is not required to be in writing by the Statute of Frauds. However, if the party is a surety, the promise to pay the debt of a third party is required to be in writing. If Allstate were merely a surety, its obligation would have been to pay its insured's debt upon default by its insured. However, as an insurer, Allstate contracted with its insured to assume responsibility for the liability of its insured, at least to the limits of the insurance policy. By Allstate's oral promise to settle, it was settling not only its insured's potential liability but its own possible obligation to pay and its own duty to defend its insured. The oral promise to settle was an original undertaking, not a promise to answer for the debt of the insured. Therefore, the suretyship provision of the Statute of Frauds does not apply to Allstate's promise to settle.
Rowe was admitted to the hospital suffering from a critical illness. He was given emergency treatment and later underwent surgery. a critical illness. He was given emergency treatment and later underwent surgery. On at least four occasions, Rowe's two sons discussed with the hospital the payment for services to be rendered by the hospital. The first of these four conversations took place the day after Rowe was admitted. The sons informed the treating physician that their father had no financial means but that they themselves would pay for such services. During the other conversations, the sons authorized whatever treatment their father needed, assuring the hospital that they would pay for the services. After Rowe's discharge, the hospital brought this action against the sons to recover the unpaid bill for the services rendered to their father. Are the sons' promises to the hospital enforceable? Explain.
Suretyship Provision: Collateral Promises. Decision for the hospital; the promises are enforceable. The promise of the sons is not to answer for the debt of another. The oral promise of the sons is an original undertaking by themselves to pay the hospital expenses to be incurred by Rowe. The sons did not guarantee to pay the hospital in the event Rowe did not pay the bill; they agreed, instead, in the first instance, to pay the father's bill.
Agreements not to be performed within a year.
To determine if the job can be completed within a year, it must pass the possibility test.
Ames, Bell, Cain, and Dole each orally ordered LCD televisions from Marvel Electronics Company, which accepted the orders. Ames's television was to be encased in a specially designed ebony cabinet. Bell, Cain, and Dole ordered standard televisions described as "Alpha Omega Theatre." The price of Ames's television was $1,800, and the televisions ordered by Bell, Cain, and Dole were $700 each. Bell paid the company $75 to apply on his purchase; Ames, Cain, and Dole paid nothing. The next day, Marvel sent Ames, Bell, Cain, and Dole written confirmations captioned "Purchase Memorandum," numbered 12345, 12346, 12347, and 12348, respectively, containing the essential terms of the oral agreements. Each memorandum was sent in duplicate with the request that one copy be signed and returned to the company. None of the four purchasers returned a signed copy. Ames promptly called the company and repudiated the oral contract, which it received before beginning manufacture of the set for Ames or making commitments to carry out the contract. Cain sent the company a letter reading in part, "Referring to your Contract No. 12347, please be advised I have canceled this contract. Yours truly, (Signed) Cain." The four televisions were duly tendered by Marvel to Ames, Bell, Cain, and Dole, all of whom refused to accept delivery. Marvel brings four separate actions against Ames, Bell, Cain, and Dole for breach of contract. Decide each claim.
U.C.C. (a) Decision for Ames. The U.C.C. has tightened the so-called special order rule. The Code requires, in order that such an oral contract be enforceable against the buyer, that the seller, before receiving notice of repudiation and under circumstances which reasonably indicate that the goods are for the buyer, either make a substantial beginning of their manufacture or commitments for their procurement. Section 2-201 (3). Ames repudiated before Marvel commenced manufacture of the set or made commitments for procurement of the goods. (b) Decision for Marvel. Bell has made part payment of the purchase price. Section 2-201(3) (c) of the U.C.C. provides that a contract which does not satisfy the requirements of the U.C.C. statute of frauds but which is valid in other respects is enforceable "with respect to goods for which payment has been made and accepted or which have been received and accepted." Where the contract is indivisible, as here, there is a division of authority as to whether part payment makes the whole contract enforceable. The majority rule is that part payment and acceptance makes the entire contract enforceable. (c) Decision for Marvel. Cain has signed a writing sufficient to indicate that a contract for sale has been made between Marvel and himself. Section 2-201(1). (d) Decision for Dole. Dole is not liable on the contract. He has done nothing to make his oral contract enforceable.
Parol evidence 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, parol evidence of prior oral or written negotiations or agreements of the parties, or their contemporaneous oral agreements that vary or change the written contract, are not admissible.
Alice solicited an offer from Robett Manufacturing Company to manufacture certain clothing that Alice intended to supply to the government. Alice contends that in a telephone conversation Robett made an oral offer that she immediately accepted. She then received the following letter from Robett, which, she claims, confirmed their agreement: Confirming our telephone conversation, we are pleased to offer the 3,500 shirts at $14.00 each and the trousers at $13.80 each with delivery approximately ninety days after receipt of order. We will try to cut this to sixty days if at all possible. This, of course, as quoted f.o.b. Atlanta and the order will not be subject to cancellation, domestic pack only. Thanking you for the opportunity to offer these garments, we are Very truly yours, ROBETT MANUFACTURING CO., INC. Is the agreement enforceable against Robett?
Writing or Memorandum. No, judgment for Robett Manufacturing Company. Since the alleged transaction involved a sale of goods for more than $500, the memorandum must satisfy the statute of frauds. Under the Uniform Commercial Code, the memorandum need not contain all the terms of the agreement. It must, however: (1) evidence a contract for the sale of goods between the parties; (2) be signed by the party to be charged; and (3) specify a quantity. ' Here, Robett admits the signing of the letter and that the letter specifies a quantity. Nevertheless, the writing does not evidence a contract for the sale of goods; it merely constitutes an offer to sell. Hence, the memorandum does not satisfy the minimum requirements of the statute of frauds and the agreement is unenforceable.
