Chapter 16 - McGraw Hill Higher Education

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P A R T
3
Contracts
Introduction to Contracts
The Agreement: Offer
The Agreement: Acceptance
Consideration
Reality of Consent
McGraw-Hill/Irwin Business Law, 13/e
© 2007 The McGraw-Hill Companies, Inc. All rights reserved.
P A R T
3
Contracts
Capacity to Contract
Illegality
Writing
Rights of Third Parties
Performance & Remedies
McGraw-Hill/Irwin Business Law, 13/e
© 2007 The McGraw-Hill Companies, Inc. All rights reserved.
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 (Alva
Johnson, 1937)
Learning Objectives
 Significance
of a writing in contract law
 The Statute of Frauds
 Contracts covered by the Statute of
Frauds and the requirements
 The UCC & the Statute of Frauds
 The Parole Evidence Rule
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Basics
In general, a writing is not required to create
a legally enforceable contract
 Writing may be required by Statute of Frauds




Enacted in 17th century England to prevent
fraud by requiring written evidence
American states adopted similar statutes
A contract is unenforceable if it does not
satisfy the statute of frauds
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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

16 - 7
House of Lords, England
Collateral Contracts

Collateral contracts in which a guarantor
promises to perform an obligation of a
principal debtor to a third person (obligee)


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Exception: under the main purpose or leading
object rule, no writing required if guarantor
makes a collateral promise for main purpose
of obtaining personal economic advantage
See Wintersport Ltd. v. Millionaire.com, Inc.
Real Estate & Sale of Goods

A writing is required for 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

UCC 2-201 requires a
writing for contracts for
the sale of goods for a price
of $500 or more
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The One Year Rule

A writing is required for bilateral contracts
that cannot be performed within a year from
the date of their formation (one year rule)

Likelihood of full performance is irrelevant
 Test:

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is performance possible within year?
Example: If Jack signs contract to consult
with Company X on a 13 month project, the
contract must be in writing to be enforceable
Satisfying the Statute of Frauds

Most states require signed memorandum of
parties’ agreement stating essential terms:



(a) identity of parties, (b) subject matter
identified with reasonable certainty, and (c)
signed by the party to be charged
Need not be made at time contract is made
Convention on International Sale of Goods
does not require writing to enforce a contract
16 - 11
The Parol Evidence Rule
Parol evidence rule provides that, when
parties enter a written contract they intend as
a complete integration (final statement of
agreement), a court will not allow evidence
of prior or contemporaneous statements to
alter or contradict terms of written contract
 Parol evidence is admissible to explain
ambiguities or allegations of fraud

16 - 12
Test Your Knowledge

True=A, False = B



16 - 13
All contracts must be in writing to be
enforceable.
A contract for the sale of a carpet for $499
must be in writing to be enforceable.
Jill orally promised the President of First
Bank to pay Jack’s debt to First Bank if Jack
defaulted on the note. Jack defaulted and Jill
must pay Jack’s debt.
Test Your Knowledge

True=A, False = B

16 - 14
Joey owes Chandler money, so Joey contracts
with LoanCo for a short-term loan. Chandler
orally gave his personal guaranty to LoanCo
that Joey would repay the loan. Joey
defaulted and Chandler must repay the loan
for Joey.
Test Your Knowledge

Multiple Choice

Parol evidence refers to:
(a) The evidence required to prove a case
 (b) Written or spoken statements not
contained in the written contract
 (c) The lack of evidence

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Test Your Knowledge

Multiple Choice

Mamie agreed to sell Susan her Picasso
painting. She wrote the name of the painting
and $600 on a napkin. Both Mamie & Susan
signed the napkin. Susan paid Mamie the
money and Mamie:
(a) May refuse to hand over the painting since
contract was on a napkin and is unenforceable
 (b) Must give Susan the painting since the
contract satisfies the statute of frauds

16 - 16
Thought Question

Does the Statute of
Frauds – a legal principle
from the 1600s – still
make sense in today’s
commercial world?
16 - 17
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