Chapter 14 Statute of Frauds and Equitable Exceptions 25-1

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1 Chapter 14 Statute of Frauds and Equitable Exceptions 25-1

2 Statute of Frauds for Common Contracts Statute of Frauds: A state statute that requires certain types of contracts to be in writing 14-2

3 Contracts that Must Be in Writing Contracts involving interests in real property Contracts that by their own terms cannot possibly be performed within one year Collateral contracts in which a person promises to answer for the debt or duty of another Promises made in consideration of marriage Contracts for the sale of goods for $500 or more Contracts for the lease of goods with payments of $1,000 or more 14-3

4 Contracts that Must Be in Writing Real estate agents contracts Agents contracts where the underlying contract must be in writing Promises to write a will 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 Finder s fee contracts 14-4

5 Contracts Involving Interests in Real Property Real property: The land itself, as well as buildings, trees, soil, minerals, timber, plants, crops, fixtures and other things permanently affixed to the land or buildings 14-5

6 Contracts Involving Interests in Real Property Other contracts that transfer an ownership interest in land must be in writing under the Statute of Frauds Mortgages Leases Life Estates Easements 14-6

7 One-Year Rule A rule that states that an executory contract that cannot be performed by its own terms within one year of its formation must be in writing 14-7

8 Exhibit 14.1 Guaranty contract 14-8

9 Case 14.1: Guaranty Contract Case Page v. Gulf Coast Motors 903 So.2d 148, Web 2004 Ala. Civ. App. Lexis 982 (2004) Court of Civil Appeal of Alabama Issue Was Mary s alleged oral promise to guarantee her husband s debts an enforceable guaranty contract? 14-9

10 Agents Contracts Many state Statutes of Frauds require that agents contracts to sell real property covered by the Statute of Frauds be in writing to be enforceable The requirement is referred to as the equal dignity rule Equal dignity rule: A rule that says that agents contracts to sell property covered by the Statute of Frauds must be in writing to be enforceable 14-10

11 Promises Made in Consideration of Marriage Under the Statute of Frauds, a unilateral promise to pay money or property in consideration for a promise to marry must be in writing 14-11

12 UCC Statutes of Fraud Section 2-201(1) of the Uniform Commercial Code (UCC): A section of the Uniform Commercial Code (UCC) that states that sales contracts for the sale of goods costing $500 or more must be in writing Section 2-201(1) of the Uniform Commercial Code (UCC): A section of the Uniform Commercial Code (UCC) that states that sales contracts for the sale of goods costing $500 or more must be in writing 14-12

13 Equitable Exception: Part Performance If an oral contract for the sale of land or transfer of other interests in real property has been partially performed, it may not be possible to return the parties to their status quo To solve this problem, the courts have developed the equitable doctrine of part performance 14-13

14 Equitable Exception: Part Performance Part performance: An equitable doctrine that allows the court to order an oral contract for the sale of land or transfer of another interest in real property to be specifically performed if it has been partially performed and performance is necessary to avoid injustice 14-14

15 Formality of the Writing A written contract does not have to be drafted by a lawyer or formally typed to be legally binding The law only requires a writing containing the essential terms of the parties agreement 14-15

16 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 If a signature is suspected of being forged, the victim can hire handwriting experts and use modern technology to prove it is not his or her signature 14-16

17 Integration of Several Writings The combination of several writings to form a single contract Incorporation by reference: Integration made by express reference in one document that refers to and incorporates another document within it 14-17

18 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 14-18

19 Interpreting Contract Words and Terms 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 14-19

20 Parol Evidence Rule Parol Evidence Any oral or written words outside the four corners of a written contract. Parol Evidence Rule: A rule that says 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 regarding a dispute over the contract 14-20

21 Parol Evidence Rule Merger clause (integration clause): A clause in a contract that stipulates that it is a complete integration and the exclusive expression of the parties agreement 14-21

22 Exceptions to Parol Evidence Rule Parol evidence may be admitted in court if it: Shows that a contract is void or voidable Explains ambiguous language Concerns a prior course of dealing or course of performance between the parties or a usage of trade Fills in the gaps in a contract Corrects an obvious clerical or typographical error 14-22

23 Case 14.2: Parol Evidence Rule Case Yarde Metals, Inc. v. New England Patriots Limited Partnership 834 N.E.2d 1233, Web 2005 Mass. App. Lexis 904 (2005) Appeals Court of Massachusetts Issue Does Yarde have an implied right to purchase Patriots season tickets? 14-23

24 Equitable Exception: Promissory Estoppel Promissory estoppel (equitable estoppel): An equitable doctrine that permits enforcement of oral contracts that should have been in writing It is applied to avoid injustice 14-24

25 Equitable Exception: Promissory Estoppel The oral promise is enforceable against the promisor if three conditions are met 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 14-25

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Pearson Education Limited Edinburgh Gate Harlow Essex CM20 2JE England and Associated Companies throughout the world

Pearson Education Limited Edinburgh Gate Harlow Essex CM20 2JE England and Associated Companies throughout the world Visit us on the World Wide Web at: www.pearsoned.co.uk Pearson Education Limited 2014