CHAPTER 8 STATUTE OF FRAUDS AND EQUITIBLE EXCEPTIONS

Statute of Frauds State statute that requires certain types of contracts to be in writing. Intended to ensure that the terms of important contracts are not forgotten, misunderstood, or fabricated. © 2010 Pearson Education, Inc. , publishing as Prentice-Hall 2

Contracts that Must Be in Writing • Contracts involving interests in land • Contracts that by their own terms cannot possibly be performed within one year • Collateral contracts where a person promises to answer for the debt of another • Promises made in consideration of marriage © 2010 Pearson Education, Inc. , publishing as Prentice-Hall 3

Contracts that Must Be in Writing (continued) • Contracts for the sale of goods for more than $500 • Real estate agents’ contracts • Agents’ contracts where the underlying contract must be in writing • Promises to write a will © 2010 Pearson Education, Inc. , publishing as Prentice-Hall 4

Contracts that Must Be in Writing (continued) • Contracts to pay debts barred by the statute of limitations or discharged in bankruptcy • Contracts to pay compensation for services rendered in negotiating the purchase of a business • Finders fee contracts © 2010 Pearson Education, Inc. , publishing as Prentice-Hall 5

Contracts Not in Compliance with Statute of Frauds • Unenforceable if executory. • Contract voluntarily executed by parties will not be rescinded. © 2010 Pearson Education, Inc. , publishing as Prentice-Hall 6

Contracts Involving Interests in Land • Any contract that transfers an ownership interest in real property must be in writing under the Statute of Frauds to be enforceable. © 2010 Pearson Education, Inc. , publishing as Prentice-Hall 7

Contracts Involving Interests in Land (continued) Real Property Fixtures • Land • Personal property that • Buildings is permanently affixed to the real property • Trees, Plants, Crops – e. g. , built-in cabinets in • Soil a house • Minerals • Timber • Other things that are permanently affixed to the land © 2010 Pearson Education, Inc. , publishing as Prentice-Hall 8

Contracts Involving Interests in Land (continued) • Other contracts that transfer an ownership interest in land must be in writing under the Statute of Frauds. • E. g. , – Mortgages – Leases – Life Estates – Easements © 2010 Pearson Education, Inc. , publishing as Prentice-Hall 9

Contracts Involving Interests in Land (continued) Part Performance Exception • Court may order an oral contract to be specifically performed if it has been partially performed and performance is necessary to avoid injustice. • Applies if purchaser paid part of price and took possession or made improvements to land, so that parties cannot be returned to status quo. © 2010 Pearson Education, Inc. , publishing as Prentice-Hall 10

One-Year Rule • Executory contract that cannot by its own terms be performed within one year of its formation must be in writing. – E. g. , six month employment contract. • Contract may be oral if performance of contract is possible within the one-year period. – E. g. , lifetime employment contract. © 2010 Pearson Education, Inc. , publishing as Prentice-Hall 11

Collateral Promises (Guaranty Contracts) • One person agrees to answer for the debts or duties of another person. • Guaranty Contract – contract between the guarantor and the original creditor. – Must be in writing unless main purpose is to provide pecuniary benefit to guarantor. – E. g. , company promises to pay debts of supplier, to keep supplier in business so that it can obtain supplies for its own operations. © 2010 Pearson Education, Inc. , publishing as Prentice-Hall 12

Original and Guaranty Contracts Debtor Guarantor © 2010 Pearson Education, Inc. , publishing as Prentice-Hall Contract No. 1 Original Contract No. 2 Guaranty Contract Creditor Guarantor agrees to pay the debt if the debtor fails to pay the creditor. 13

Contracts for the Sale of Goods • Section 2 -201 of the Uniform Commercial Code (UCC) is the basic Statute of Frauds provision for sales contracts. • Contracts for the sale of goods priced at $500 or more must be in writing to be enforceable. • If modification brings sales price above $500, modification must be in writing. © 2010 Pearson Education, Inc. , publishing as Prentice-Hall 14

Contracts for the Lease of Goods • Section 2 A-201 of the Uniform Commercial Code (UCC) is the basic Statute of Frauds provision for contracts for the leasing of goods. • Contracts for lease payments of $1, 000 or more must be in writing to be enforceable. • If modification brings lease payment to $1, 000 or more, modification must be in writing. © 2010 Pearson Education, Inc. , publishing as Prentice-Hall 15

Agents’ Contracts Equal Dignity Rule • Agents’ contracts to sell real property must be

Promises in Consideration of Marriage • Prenuptial agreements must be in writing to be

Sufficiency of the Writing Formality of the Writing Required Signature Integration of Several Writings

Formality of the Writing • A written contract does not have to be drafted by a lawyer or formally typed to be legally binding. • Generally, law only requires a writing containing the essential terms of the parties’ agreement. – E. g. , handwritten agreement on scrap paper may satisfy writing requirement. © 2010 Pearson Education, Inc. , publishing as Prentice-Hall 19

Required Signature • Statute of Frauds and the UCC require the written contract, whatever its form, to be signed by the party against whom enforcement is sought. – Anywhere on the writing. – Stamp or mark (X) suffices if party intended to sign. – Signature of person who is enforcing the contract is not necessary. © 2010 Pearson Education, Inc. , publishing as Prentice-Hall 20

Integration of Several Writings • Entire writing does not have to appear in one document to be an enforceable contract. – Incorporation by reference – Implied integration – E. g. , several documents stapled together as contract. © 2010 Pearson Education, Inc. , publishing as Prentice-Hall 21

Interpreting Contract Words and Terms If the parties have not defined the words and terms of a contract, the courts apply the following standards of interpretation: • Ordinary words are given their usual meaning according to the dictionary. • Technical words are given their technical meaning unless a different meaning is clearly intended. © 2010 Pearson Education, Inc. , publishing as Prentice-Hall 22

Interpreting Contract Words and Terms (continued) • Specific terms presumed to qualify general terms. • Trade usage incorporated in contract unless otherwise stated. • Where a preprinted form contract is used: – Typed words prevail over preprinted words. – Handwritten words prevail over both preprinted and typed words. • Ambiguity resolved against drafter of contract. © 2010 Pearson Education, Inc. , publishing as Prentice-Hall 23

Parol Evidence Rule • Parol Evidence – Any oral or written words outside the four corners of the written contract. • Parol Evidence Rule applied under common law and UCC. © 2010 Pearson Education, Inc. , publishing as Prentice-Hall 24

Parol Evidence Rule (continued) If a written contract is a complete and final statement of the parties’ agreement, any prior or contemporaneous oral or written statements that alter, contradict, or are in addition to the terms of the written contract are inadmissible in court. © 2010 Pearson Education, Inc. , publishing as Prentice-Hall 25

Parol Evidence Rule (continued) Merger, or Integration Clause • A clause in a contract that stipulates that it is a complete integration and the exclusive expression of the parties’ agreement. • Parol evidence may not be introduced to explain, alter, contradict, or add to the terms of the contract. © 2010 Pearson Education, Inc. , publishing as Prentice-Hall 26

Exceptions to Parol Evidence Rule Parol evidence may be admitted in court if it: • Shows that a contract is void or voidable. – e. g. , evidence that the contract was induced by fraud, misrepresentation, duress, undue influence, or mistake. • Explains ambiguous language. © 2010 Pearson Education, Inc. , publishing as Prentice-Hall 27

Exceptions to Parol Evidence Rule (continued) • Concerns a prior course of dealing or course of performance between the parties or a usage of trade. • Fills in the gaps in the contract. • Corrects an obvious clerical or typographical error. © 2010 Pearson Education, Inc. , publishing as Prentice-Hall 28

Promissory Estoppel • Equitable doctrine that permits enforcement of oral contracts that should have been in writing. • Where this doctrine applies, the promisor is estopped (prevented) from raising the Statute of Frauds as a defense to the enforcement of the oral contract. © 2010 Pearson Education, Inc. , publishing as Prentice-Hall 29

Promissory Estoppel (continued) Oral promise is enforceable against promisor if: • The promise induces action or forbearance of action by another. • The reliance on the oral promise was foreseeable. • Injustice can be avoided only by enforcing the oral promise. © 2010 Pearson Education, Inc. , publishing as Prentice-Hall 30