Business Law Ch. 18 Outline PDF

Preview

Summary

This document includes an outline of the information provided in chapter 18 of "Dynamic Business Law" 5th Edition. This chapter covers "Contracts in Writing" and includes definitions, explanations, and examples to help you better understand the concepts in the chapter....

Description

Business Law 1 – Chapter 18 – Outline Contracts in Writing Disclaimer: The following content is MY personal interpretation of the content provided in the textbook or lecture, it is NOT the exact information given in the textbook or lecture. This document does not contain any exam/quiz content for the course, it is only composed of the information I found most important in the section. Although I try my best to include as much accurate information as possible, it is advised that you study your own materials and gather your own interpretations.

Written contracts provide specific advantages that oral contracts cannot provide. Disputes regarding specific terms in a contract are easier to resolve when the terms are solidified in writing. The action of writing also allows the parties to reconsider their terms and ensure they are advocating for the what they desire. Written contracts smooth the conduct of business transactions. - Thus, some contracts require a writing. This idea comes from English Law - The Act for the Prevention of Frauds and Perjuries passed by the Parliament in 1677. o Required certain types of contracts be in writing and signed by both parties. Almost every state has adopted the English Act in total or in part (created their own version). “Statute of Frauds” is misleading because… 1. There is no federal legislation entitled “Statute of Frauds” a. Not a “unitary government Act” 2. It does not relate to fraudulent contracts 3. Does not address the issue of illegal contracts. a. Rather, it addresses the enforceability of contracts that fail to meet the requirements set forth in it. Statute serves to protect promisors from poorly considered oral contracts by requiring writings for certain contracts. Statute of Frauds Statute of Frauds: state-level legislation that addresses the enforceability of contracts that fail to meet the requirements set forth in the statute; Serves to protect promisors from poorly considered oral contracts by requiring certain writings. Has 3 Main Purposes: 1. Attempts to ease contractual negotiations by requiring sufficiently reliable evidence to prove the existence and specific terms of a contract. 2. Prevents unreliable oral evidence from interfering with a contractual relationship. 3. Prevents parties from entering into contracts with which they do not agree. a. Provides some degree of cautionary protection for parties by requiring steps that allow parties to carefully consider their decisions.

Contracts Falling Within the Statute of Frauds Types of Contracts required by the Statute of Frauds to be in writing: 1. Contracts whose terms prevent possible performance within one year. 2. Promises made in consideration of marriage. 3. Contracts for one party to pay the debt of another if the initial party fails to pay. 4. Contracts related to an interest in land. 5. RELATED (required by UCC, not SOF), Contracts for the sale of goods totaling more than $500. Contracts Whose Terms Prevent Possible Performance Within One Year When the performance included in the terms of the contract could not possibly occur within one year, it falls under the SOF and therefore, must be in writing. - One-Year Period begins the day after the contract is created, NOT when it’s scheduled to begin. - Example: Chad enters into a contract with May to work for her for one year starting October 1st. If the contract is created on September 15, the terms cannot be completed in one year from September 16, therefore, it must be in writing. The test for compliance doesn’t focus on the likelihood of completing the contract in one year, it focuses on the possibility of completing the contract in one year. - Example: if Chad enters into a lifetime contract with May, it would NOT fall into the SOF or require writing because Chad could die after 2 days of work, making is possible for the contract to be fulfilled within one year. Same applies for contracts for complex construction projects not requiring a writing. Theoretically, there is a possibility they could finish in one year, even if it is highly unlikely. Legal Principle: If the contract can possibly be performed within a year, even if such performance is highly unlikely, then the contract does not need a writing to be enforceable. Promises Made in Consideration of Marriage Refers to agreements regarding marriage in which one party is gaining something other than a return on their promise to get married. - When one party promises something to the other as part of an offer of marriage, the contract must be in writing. - Example: Ed and Jane want to get married. Ed offers to by Jane a new car every 3 years if she marries him. Contract must be in writing because Jane stands to benefit, by way of new cars, if she agrees to marry Ed. Mutual promises to marry do not fall under the SOF (normal marriage). Prenuptial Agreements DO fall under the SOF. Prenuptial Agreement: an agreement two parties enter into before marriage that clearly states the ownership rights each party enjoys in the other party’s property. - MUST be in writing to be enforceable. - NOT required to include consideration, but is recommended. Contracts for One Party to Pay the Debt of Another if the Initial Fails to Pay Very limited.

Secondary Obligations: occurs when a party outside of a primary agreement promises to fulfill one of the original party’s (debtor) obligations if they fail to do so. The distinction between primary and secondary obligations determines whether the contract is required to be in writing or not. Primary Obligations: debts incurred in an initial contract. - Don’t fall under SOF and do not need to be in writing. Examples: - Secondary Obligation: Bill enters a contract with Sue to sell her his car. Subsequently, Regina agrees to pay Sue’s debt if she fails to pay. - Primary Obligation: Sue’s promise to pay Bill for his car. A specific instance of primary obligations involved administrators/executors of someone’s estate because they are responsible for paying off the debts of an estate and then dividing the remaining assets among the heirs. Exception to the Secondary Obligation is the Main-Purpose Rule. Main-Purpose Rule: “if the main purpose for incurring a secondary obligation is to obtain a personal benefit, the promise does NOT fall under the Statute of Frauds and does NOT have to be in writing”. Court’s job is to determine the third party’s main purpose for entering into the agreement, which will then determine whether a writing is required or not. No Personal Benefit: Writing Required Personal Benefit: No Writing Required Legal Principle: Primary obligations do not require a writing, but secondary obligations do unless the main reason a person makes a secondary promise is to obtain a personal benefit. Contracts Related to an Interest in Land Within the Statute of Frauds, “Land” includes not only the land and soil itself, but also anything attached to the land, such as tress or buildings. Writing is required as evidence to a contract; therefore, a claim to an oral contract for the sale of land is not enough to prove the contract existed. Contracts transferring other interests in land are also under the SOF. - Mortgages and leases are within the statute because they are considered to be transfers of interest in land. - Determining what exactly constitutes “interest in land” within the SOF is difficult. Contracts for the Sale of Goods Totaling More Than $500 UCC Section 2-201: Agreements for a sale in which the total price is $500 or more are required to be recorded in a written contract or a memorandum. Quantity to be sold is the only thing that needs to be stated. Will be enforceable for the stated quantity and not a single unit more. For the contract to be enforceable, the UCC and the SOF require that the party against whom action is sought must have signed the written document. - If you sign, you can be sued. Further Requirements Specific to Certain States

Statute of Frauds is State Law; therefore, states have various requirements. Equal Dignity Rule: a rule requiring the contracts would normally fall under the statute of frauds and need a writing if negotiated by the principal must be in writing even if negotiated by an agent. Few states have special provisions regarding matters related to promises to pay debt. - Example: To be enforceable, a promise to pay a debt that’s already been discharged because of bankruptcy must be in writing. - Example: promise to pay a debt when collection is barred by a statute of limitations. o For both examples above, if the agreement is not in writing, the promisor can easily claim he or she does not need to pay. Sufficiency of the Writing No specific requirements for the form of a written contract under the Statute of Frauds. Required Elements: 1. Identification of the parties to the contract. 2. Subject matter of the agreement 3. The consideration (if any). 4. Any pertinent terms. 5. Must be signed (can be signed anywhere and an initial marking counts). a. Only needs to be signed by the party being sued. SOF may help reduce ambiguity involved with contracts. Multiple documents can constitute a writing to satisfy the SOF. Exceptions to the Statute of Frauds Exceptions include: 1. Admission 2. Partial Performance 3. Promissory Estoppel 4. Also, some exceptions under the UCC. Admission Admission: statement made in court, under oath, or at some stage during a legal proceeding in which a party against whom charges have been brought admits that an oral contract existed, even though the contract was required to be in writing. All states except for Louisiana and California allow the admission exception. UCC also makes the exception with a slight difference regarding quantity. Partial Performance Partial-Performance Exception: if the buyer in an alleged contract for the sale of land has paid any portion of the sale price, has begun to permanently improve the land, or has taken possession of it, the courts will consider the contract partially performed and this partial performance will amount to proof of the contract. Can override the statute’s requirement for a written agreement.

-

Because the actions of the parties is enough to indicate that their agreement existed. UCC also makes this exception: an oral contract is enforceable by the buyer or seller to the extent that they accepted payment or delivery of the goods in question. Promissory Estoppel Promissory Estoppel: the legal enforcement of an otherwise unenforceable contract due to a party’s detrimental reliance on the contract. Party’s reliance must be to their own detriment for PE to be in effect. - Also, the other party should have known the other party was going to rely on it. Exceptions Under The UCC Example: Oral contracts between merchants need not be in writing to be enforceable. Example: Oral contracts for customized goods are enforceable even if they would normally have to be in writing. - Reason: customized goods are not likely to be salable to a general audience, so the party that did not back out of the agreement probably incurred unreasonable costs under the contract. Parol Evidence Rule Parol Evidence Rule: a common law rule that states that oral evidence of an agreement made prior to or contemporaneously with a written agreement is inadmissible when the parties intend the written agreement to be the complete and final version of their agreement. Parol means “speech” or “Words”, specifically words outside of the original writing. Purpose: to restrict evidence from being admitted that substantially contradicts the agreement in its written form. - This type of contradicting evidence is typically excluded under this rule. Exceptions to the Parol Evidence Rule 1. Contracts that have been subsequently modified. 2. Contracts conditioned on orally agreed-on terms. 3. Nonfinalized, partially written and partially oral, contracts. 4. Contracts containing ambiguous terms. 5. Incomplete contracts. 6. Contracts with obvious typographical errors. 7. Void or voidable contracts. 8. Evidence of prior dealings or usage of trade. Merger Clause: a clause in a written agreement within the statute of frauds that states that the written agreement accurately reflects the final, complete version of the agreement. Condition Precedent: In a contract, an event that must occur for a party’s duty to arise.

Integrated Contract: a written contract intended to be the complete and final representation of the parties’ agreement....