McGraw-Hill/Irwin
16-1
Copyright © 2013 by The McGraw-Hill Companies, Inc. All rights reserved.
P
A
R
T
Contracts
3
•Introduction to Contracts
•The Agreement: Offer
•The Agreement: Acceptance
•Consideration
•Reality of Consent
16-2
P
A
R
T
Contracts
3
•Capacity to Contract
•Illegality
•Writing
•Rights of Third Parties
•Performance and Remedies
16-3
C H A P
T
E R
16
Writing
A verbal contract isn’t
worth the paper it’s
written on.
Samuel Goldwyn
quoted in The Great
Goldwyn by Alva Johnson,
1937
16-4
Learning Objectives
• List contracts that must be written to
satisfy the Statute of Frauds
• Identify exceptions to the Statute of
Frauds
• Compare UCC with the Statute of
Frauds under common law
• Describe the Parole Evidence Rule
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Basics
• In general, a writing is not
required to create a legally
enforceable contract
• However, a writing is preferable
to an oral contract for several
reasons: more definite, use as
evidence, and signature
provides authentication
• Sometimes, a writing is required
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The Statute of Frauds
• In 17th Century England,
the Statute of Frauds was
enacted to prevent
fraud by requiring written
evidence before
enforcing certain types
of contracts
• American states
adopted similar statutes
House of Lords, England
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Consequences
• If a covered contract does not satisfy
the requirements of the statute of
frauds, the contract is unenforceable
• A person injured by the unenforceable
contract may pursue an action based
on quasi-contract or promissory
estoppel
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Covered Contracts
•
•
•
•
•
•
•
Collateral contracts
Contracts for real estate
Contracts for more than one year
Contracts for sale of goods over $500
Executor’s promise
Marriage as consideration
See the list on page 435 of the text
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Covered Contracts:
Collateral Contracts
• Collateral contracts are those in which a
person (guarantor) promises to perform an
obligation of another person (principal
debtor) to a third person (obligee)
Example: Jason is a
personal guarantor on
a loan from City Bank
to Jason’s sister, Mary
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The Collateral Contract
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Exception to
Collateral Contract Rule
• Under the main purpose or leading
object rule, no writing is required where
the guarantor makes a collateral
promise for the main purpose of
obtaining personal economic
advantage
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Covered Contracts: Real Estate
• Contracts for the transfer or sale of an
interest in real estate
– Some states require a writing for leases
and certain easements on real property
– Exception: if vendor fully performed on
the contract or vendee reasonably relied
on the contract to his/her detriment
• Then statute of frauds does not apply
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Covered Contracts: One Year Rule
• Bilateral contracts that cannot be
performed within a year from the date
of their formation (one year rule)
– Is performance possible within year?
• Probability of performance irrelevant
– Example: Jack signs contract to consult
with Company X for 13 months, so the
contract must be in writing
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Covered Contracts: $500+ in Goods
• UCC 2-201: contracts for the sale of
goods for a price of $500 or more
• Includes agreements to modify existing
sales contracts if contract as modified is
for a price of $500 or more [UCC section
2–209(3)]
• Example: Pam buys a refrigerator for $501,
thus a writing is required to be enforceable
– No writing required for <$500 refrigerator
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Other Covered Contracts
• Though uncommon, the statute of frauds
requires a writing to evidence (a) contracts
in which an executor or administrator
promises to be personally liable for debt of
an estate, or (b) contracts in which
marriage is the consideration
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Satisfying the Statute of Frauds
• Most states require only a signed
memorandum of the parties’
agreement stating the essential terms:
– (a) identity of parties, (b) subject matter
identified with reasonable certainty, and
(c) signed by the party to be charged
– The memorandum need not be made
at the same time the contract comes
into being
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Satisfying the Statute of Frauds
• UCC 2–201: writing must be sufficient to
indicate a contract for sale has been made
between the parties, but must indicate the
quantity of goods to be sold
– A sales receipt may satisfy the requirement
• Sufficient writing includes: (a) confirmatory
memorandum between merchants, (b) part
payment or part delivery, (c) admission in
pleadings or court, and (d) specially
manufactured goods
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The Parol Evidence Rule
• Parol evidence rule provides that, when
parties enter a written contract that they
intend as a complete integration (final
statement of agreement), a court will not
permit evidence of contemporaneous or
prior statements to contradict, add to, or
alter the terms of the written contract
• Example: Hinkel v. Sataria Distribution &
Packaging
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More on Parol Evidence
• UCC 2-202 includes parol evidence rule
• Admissible parol evidence:
– Additional terms in partially integrated
contracts
– Explaining ambiguities
– Circumstances invalidating contract
– Existence of condition
– Subsequent agreements
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Parol Evidence Chart
16-21
Thought Question
• Do the Statute of
Frauds and parol
evidence rule –
legal principles from
the 1600s – still make
sense in today’s
commercial world?
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