Chapter 18 Contracts in Writing Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

18-2 Chapter 18 Case Hypothetical Black Aquifer Construction Company, Inc. contracted with Amalgamated Machining Corporation to erect a commercial building on property owned by Amalgamated in Folkston, Georgia. The written agreement between the parties stipulated that Black Aquifer had six (6) months from the date of the contract’s execution to complete the work. Also included in the written agreement was a “liquidated damages” clause requiring Black Aquifer to pay Amalgamated Machining $2,500 per day for every day the builder was late in the completion of its work. Black Aquifer finished construction of the building in seven (7) months, and Amalgamated Machining now seeks to recover $75,000 in liquidated damages ($2,500 per day multiplied by thirty days). Black Aquifer refuses to pay the $75,000. The company’s owner, Richard Black, recalls that in a conversation during the contract’s execution, Amalgamated Machining’s owner, William Riddell, informed him that his company could have as long as nine (9) months to finish the building. Riddell denies ever having made the statement. If the dispute goes to court, would a judge allow the jury to consider William Riddell’s alleged statement regarding the nine-month completion deadline? Ultimately, does Black Aquifer Construction Company, Inc. owe Amalgamated Machining Corporation $75,000 in liquidated damages?

18-3 Chapter 18 Ethical Dilemma Assume two (2) parties enter into an oral agreement that must generally be in writing in order to be enforceable. (The “statute of frauds” indicates that the following four (4) types of agreements must 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; and 4) contracts related to an interest in land. According to the Uniform Commercial Code, contracts for the sale of goods totaling more than $500 must also be in writing.) From an ethical standpoint, even though the parties have entered into an oral agreement, is it permissible for one of the parties to deny liability based on the statute of frauds or Uniform Commercial Code writing requirement? In your reasoned opinion, should a party honor an oral contract, even though the law technically requires the agreement to be in writing?

18-4 Chapter 18 Case Hypothetical On January 2, Wabash Construction Company, a general contractor, executed a written contract with Anderson Brick, Inc., a subcontractor. The contract relates to a major “strip mall” building project in Morgantown, and Wabash faces a deadline of October 31 in its contract with The Mackie Consortium, L.L.C., the owners of the new mall. In the agreement between Wabash and Anderson, the parties stipulate that “time is of the essence” in terms of performance of the bricklaying work, and that the deadline for Anderson’s completion of the bricklaying work is July 15. There is also a “liquidated damages” clause in the contract between Wabash and Anderson, indicating that if the work is not completed by July 15, Anderson will pay $2,000 in damages for every day the bricklaying is not completed beyond July 15. Anderson does not complete the bricklaying work by July 15. In fact, the project is not finished until August 30, and Wabash now claims liquidated damages from Anderson in the amount of $92,000 (representing 46 days beyond the July 15 deadline, multiplied by $2,000 per day.) Anderson refuses to pay the $92,000, and Wabash sues. At trial, Anderson’s attorney seeks to introduce the following evidence: 1) the testimony of Henry Anderson, Anderson’s owner, who is willing to testify under oath that at the time of the signing of the contract, Wabash’s general manager, Fred Stein, said “Pay no attention to the July 15 deadline in the contract; if you need more time, all you have to do is ask;” and 2) a crumpled index card, purportedly in Fred Stein’s handwriting, indicating “no ‘hard and fast’ deadline on Anderson brick work.” Should the trial court judge admit the foregoing evidence?

Statute of Frauds (Definition): Rule of state law requiring certain types of contract to be in writing in order to be enforceable 18-5

18-6 Purposes of Statute of Frauds Ease contractual negotiations by requiring sufficient, reliable evidence to prove existence and specific terms of contract Ease contractual negotiations by requiring sufficient, reliable evidence to prove existence and specific terms of contract Prevent unreliable, oral evidence from interfering with contractual relationship Prevent unreliable, oral evidence from interfering with contractual relationship Prevent parties from entering into contracts with which they do not agree Prevent parties from entering into contracts with which they do not agree

18-7 Contracts Subject to Statute of Frauds Contracts that cannot be performed within one year from the date of their making Contracts that cannot be performed within one year from the date of their making Promises made in consideration of marriage (Prenuptial agreements) Promises made in consideration of marriage (Prenuptial agreements) Contracts to pay the debt/default of another party Contracts to pay the debt/default of another party Real estate contracts Real estate contracts Contracts for the sale of goods valued at $500 or more Contracts for the sale of goods valued at $500 or more

18-8 Statute of Frauds Writing Requirements Common Law--Written contract must clearly indicate: Common Law--Written contract must clearly indicate: Parties to contract Parties to contract Subject matter/purpose of agreement Subject matter/purpose of agreement Consideration given by both parties Consideration given by both parties Significant terms (Price, quantity, etc.) Significant terms (Price, quantity, etc.) Signature of party plaintiff seeks to hold responsible under contract (i.e., signature of defendant) Signature of party plaintiff seeks to hold responsible under contract (i.e., signature of defendant) Uniform Commercial Code (UCC)—Written contract for sale of goods must include: Uniform Commercial Code (UCC)—Written contract for sale of goods must include: Quantity of goods Quantity of goods Signature of defendant Signature of defendant

18-9 Exceptions to Statute of Frauds Writing Requirement Admission: Statement made in court, under oath, or at some state during a legal proceeding in which defendant admits that oral contract existed (even though contract was originally required to be in writing) Admission: Statement made in court, under oath, or at some state during a legal proceeding in which defendant admits that oral contract existed (even though contract was originally required to be in writing) Partial Performance Partial Performance Promissory Estoppel: Legal enforcement of otherwise unenforceable contract, due to party’s detrimental reliance on contract Promissory Estoppel: Legal enforcement of otherwise unenforceable contract, due to party’s detrimental reliance on contract Miscellaneous exceptions recognized by Uniform Commercial Code (UCC): Examples—Oral contracts between merchants, oral contracts for customized (“specially manufactured”) goods Miscellaneous exceptions recognized by Uniform Commercial Code (UCC): Examples—Oral contracts between merchants, oral contracts for customized (“specially manufactured”) goods

Parole Evidence Rule (Definition): Common law rule stating that oral evidence of agreement made before or contemporaneously with written agreement is inadmissible when parties intended to have written agreement be complete and final version of agreement 18-10

Purpose of Parole Evidence Rule Lends stability, predictability and integrity to written contracts 18-11

18-12 Exceptions to Parole Evidence Rule Contracts that are subsequently modified Contracts that are subsequently modified Contracts conditioned on orally agreed-upon terms Contracts conditioned on orally agreed-upon terms Contracts that are not final, as they are part written and part oral Contracts that are not final, as they are part written and part oral Contracts with ambiguous terms Contracts with ambiguous terms Incomplete contracts Incomplete contracts Contracts with obvious typographical errors Contracts with obvious typographical errors Void or voidable contracts Void or voidable contracts Evidence of prior dealings or usage of trade Evidence of prior dealings or usage of trade

18-13 Integrated Contracts Definition: Written contracts within statute of frauds intended to be complete and final representation of parties’ agreement Definition: Written contracts within statute of frauds intended to be complete and final representation of parties’ agreement General Rule: Integrated contracts prevent admissibility of parole evidence General Rule: Integrated contracts prevent admissibility of parole evidence