Chapter 9
Protecting the Judicial Process
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DISCUSSION POINTS
• Statute of Frauds
– Contracts that require a writing and what constitutes
the writing
– Circumventing the statute of frauds through reliance
– Could restitution be a cause of action when the
contract is unenforceable due to the statute of frauds?
• Illegality
– Illegality as a defense to a breach of contract action
– Could restitution be a cause of action when the
contract is unenforceable due to illegality?
• Forum Selection Provisions
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Statute of Frauds
• General rule – A writing is not required to form a
valid contract, but written evidence may be
required to enforce it
• The British Parliament in 1677 enacted a Statute
of Frauds that required certain types of contracts
to be in writing to be enforceable
– Two fold purpose
• Cautionary-Cautioned the parties that this contract was
important & they should pay close attention to it
• Evidentiary-Terms were what parties had to follow, even if
memories faded over time
– Reduced the opportunity for perjury
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Statute of Frauds
• Each state legislature enacted its own Statute of
Frauds
– A typical Statute of Frauds may provide that the following
promises or agreements are not binding unless in writing:
• A special promise of an executor to answer damages out of
his own estate
• A special promise to answer for the debt, default, or
mischarge of another person
• An agreement made upon consideration of marriage
• A contract for the sale of real estate
• An agreement that is not to be performed within one year
from the making thereof
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Contracts that Require a Writing
and What Constitutes the Writing
• Writing a contract requires the parties to think
about the terms that are included
– A written contract may be more definite, refined, and
complete than an oral contract
– Provides parties documentation of their promises
• Different Statutes of Frauds require different
writings
– Writing for sale of goods for $500 or more will
significantly differ from one that can’t be fully
performed in one year
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Three Types of Contracts that Must
be in Writing to be Enforceable
• A contract that cannot be fully performed within
one year
– One year period runs from the time of contract formation &
not from when performance begins
– Probability that contract will be fully performed with the
year is irrelevant
• The lack of any possibility that performance will be completed
within one year brings it within the Statute of Frauds
• Determination made at time contract formed, not after parties
have performed, i.e., no hindsight allowed
– Whether duty to perform could be terminated within a year
of contract formation irrelevant when determining if writing
is required
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Three Types of Contracts that Must
be in Writing to be Enforceable
• A contract for the transfer of an interest in real
property
– Covers the sale of land as well as the transfer of a
lesser interest, e.g., lease, easement, mortgage
– Part performance exception
• Writing not required if buyer pays the seller & takes
possession of the realty, or makes valuable improvements on
it with the consent of the seller
• Acts of buyer, relying on seller’s promise, leaves little doubt
that a contract was formed
• Would be unjust to permit the seller to claim the contract was
unenforceable because it was not in writing
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Three Types of Contracts that Must
be in Writing to be Enforceable
• A contract for the sale of goods of $500 or more
– Section 2-201(1) of the UCC requires a contract to be in
writing to be enforceable if it is for the sale of goods at a
price of $500 or more
– The following do not fall within that section
• A transaction for the lease of goods
• A transaction for the sale of services
• A transaction for the sale of goods for a price below $500
– Section 2-201(1) lists three requirements for what the
writing must contain
• Writing must evidence a contract for the sale of goods
• Party against whom enforcement is sought must sign it
• Writing must specify a quantity, even if inaccurate
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Three Types of Contracts that Must
be in Writing to be Enforceable
• A contract for the sale of goods of $500 or more
– A contract may still be enforceable even if it does not meet
the writing requirement of Section 2-201(1)
– Subsection (2) addresses the lack of signature in a
contract between merchants by providing that a written
confirmation sent by the party who is not being held liable
under the contract may satisfy the signature requirement
of the other party
– Subsection (3)(a) exempts specially manufactured goods
(custom made) from the writing requirement
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Three Types of Contracts that Must
be in Writing to be Enforceable
• A contract for the sale of goods of $500 or more
– Subsection (3)(b) eliminates written evidence of a contract
when a party admits in court or in a court document that a
contract exists
• Admission of the contract against interest verifies the
existence of a contract
• Contract will not be enforced beyond the admitted quantity
– Subsection (3)(c) eliminates the writing requirement if
the seller accepted payment, or if the buyer accepted
shipment, of the goods
• Actions of the parties evidence the contract
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Circumventing the Statute of
Frauds Through Reliance
• Section 139 of The Restatement (Second) of
Contracts supports using reliance to circumvent the
Statute of Frauds writing requirement
• To do so, a party must establish the following:
– A promise by the promisee
– That the promisor should reasonably expect the promise to
induce action or forbearance on the part of the promisee or
a third person
– That the promise does induce the action or forbearance
– That injustice can be avoided only by enforcement of the
promise notwithstanding the Statute of Frauds
• Section 139 mirrors section 90(1) except for the
phrase “notwithstanding the Statute of Frauds”
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Circumventing the Statute of
Frauds Through Reliance
• Contract Not to be Performed Within One Year
– Foresight, not hindsight, determines whether a contract is
within the one year Statute of Frauds requirement
– Hindsight is important when determining whether
performance substitutes for the writing after the fact
• Part performance, per se, does not substitute for the writing
• Full performance (hindsight) takes the contract that was
within the Statute of Frauds (foresight) out of the Statute so
that the fully performing party may enforce the contract
• Unilateral contracts are taken out of the Statute since one
party must fully perform to accept the offer & form a contract
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Circumventing the Statute of
Frauds Through Reliance
• Contract for the Transfer of an Interest in Real
Property
– Part performance, i.e., when one party takes possession of
the real property and makes improvements, may substitute
for the writing
– Specific performance may be ordered when one party
relies on the other party’s promise to transfer an interest in
land
– Restatement (Second) of Contracts Section 129 restates
the part performance doctrine
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Circumventing the Statute of
Frauds Through Reliance
• Contract for the Sale of Goods for $500 or More
– One must overcome the obstacle found in Section 2201(1) of the UCC which begins with “Except as otherwise
provided in this section” (2-201)
– If the exception is not found in subsections (2) or (3), it
does not exist
– Reliance, as described in Restatement (Second) of
Contracts Section 139, is not an exception to UCC 2201(1) for the sale of goods since reliance is not found in
either subsections (2) or (3)
• Note that many courts continue to use the phrase
“promissory estoppel” even though the Restatement
(Second) uses “reliance” instead
– Reliance can be substituted for promissory estoppel
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Restitution as a Cause of Action
• If the Statute of Frauds renders a contract
unenforceable, a Restitution cause of action may be
available to a party that confers a benefit on the
other in order to prevent unjust enrichment
• Restitution not the same as enforcing the contract
– Restitution actions occur only when the contract is
unenforceable due to the Statute of Frauds
– The plaintiff proves the other party was enriched & it would
be unjust to permit the defendant to retain the benefit
without compensating the plaintiff
– Plaintiff does not allege a breach of contract & the
defendant does not defend a breach of contract action
– Plaintiff entitled to recover reasonable value of benefit he
conferred on defendant
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Restitution as a Cause of Action
• Contract That Cannot be Fully Performed Within
a Year
– A party who conferred a benefit on the other without
receiving compensation may recover for the reasonable
value of the benefit if the contract is unenforceable due to
the one year Statute of Frauds limitation
• Contract for the Transfer of an Interest in Real
Property
– Courts generally hold that an individual who pays money,
renders services, or transfers personal property in an oral
contract for the transfer of an interest in real estate may
recover in a restitution action if the vendor repudiates
• The vendor may recover the reasonable value of the benefit
conferred on the vendee – no benefit, no restitution action
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Restitution as a Cause of Action
• Contract For the Sale of Goods for the Price of
$500 or More
– Contract is enforceable even without a writing if (1)
the buyer relied on the contract & paid for the goods
& the seller accepted payment or; (2) the seller
shipped the goods & the buyer received & accepted
them – UCC Section 2-201(3)(c)
– Cause of action is breach of contract if (1) seller does
not ship (or ships substandard goods) or; (2) the
buyer does not pay
• Nonbreaching party
expectation damages
entitled
to
appropriate
Article
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2
Illegality as a Defense to a Breach
of Contract Action
• Illegal Contract and Illegal Terms
– A contract that violates the law is illegal and therefore
unenforceable
– Court will not aid either party when the contract is
illegal, even though it has been performed by one or
both of the parties
– Court will leave the parties where it finds them
– Illegality ordinarily determined in accordance with the
law of the place where the contract is performed
– Covenant not to compete may be illegal as an
impermissible restraint on trade if it is too broad
• Used in a sale of a business or when a business hires a new
employee
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Illegality as a Defense to a Breach
of Contract Action
• Illegal Conduct to Procure a Legal Contract
– Illegal conduct may be present in the procurement of
the contract even though the subject of the contract
does not involve illegal conduct, e.g., bribery
• Illegal Conduct in the Performance of a Legal
Contract
– One of the parties may act illegally when performing
the contract even though the contract does not
contemplate illegal activities
– Not all illegal activity will preclude contract
enforcement
• Illegality must be significant & directly relate to the
performance of the contract
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Restitution When the Contract is
Unenforceable Due to Illegality
• General rule – parties who enter into illegal
contracts can neither enforce their bargains or
obtain restitution for benefits conferred
– Courts created exceptions, but opinions unclear
whether the party who conferred the benefit is entitled
to a breach of contract or a restitution action
– Restitution actions limit recovery to disgorging the
benefit from the wrongdoer receiver
– Three exceptions that permit restitution recovery:
• In pari delicto
• Collateral illegality
• Repentance
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Restitution When the Contract is
Unenforceable Due to Illegality
• In pari delicto (equal fault)
– Exception comes into play when parties are not in
pari delicto & the court allows restitution to the party
with less fault
• Collateral illegality
– An illegal act that occurred during the performance of
the contract although not contemplated as a part of
the performance of the contract when it was formed
– Arises when the illegality is not closely related to the
plaintiff’s cause of action
– Collateral illegality should not be an obstacle to either
a breach of contract or restitution action
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Restitution When the Contract is
Unenforceable Due to Illegality
• Repentance
– A feeling of remorse or regret concerning one’s
actions
– Some courts will permit a restitution action by the
repenting party against the non-repenting party if
repentance occurs before the illegal objective of the
contract is accomplished
– Restitution may be available when:
• The illegal purpose of the contract has not been
accomplished & can be avoided by allowing the repenting
party restitution; and
• The illegality has not been so serious or shamefully wicked in
itself that the court regards the mere making of the contract
as a substantial offense
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Forum Selection Provisions
• The parties may select the forum, when the
contract is being formed, that will hear any
dispute that may arise during contract
performance
– Called a “forum selection clause”
– A forum selection clause does not guarantee that all
future disputes will be heard only in that forum
– The defendant may request the court enforce a forum
selection clause if the plaintiff files the complaint in a
forum different than the one in the contract
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Forum Selection Provisions
• A court will transfer the action only if the
selection clause satisfies the following criteria:
– The provision must not violate the public policy of the
named forum
– The provision must not be unjust & unreasonable
– The provision must be free from fraud, undue
influence, & unequal bargaining power that subverts
the parties’ free will at the time of contract formation
– The provision must be the exclusive forum & not
merely a suggested forum for dispute resolution
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