Chapter 13 Form of Contracts

The Requirement of Proper Form 13-2 The requirements for a valid contract are: Offer and acceptance Mutual agreement Consideration Competent parties Legality of purpose Proper form Learning Outcome 13-1: Describe the requirement of proper form of contracts, and name instances when contracts should not be in writing, should be in writing, and must be in writing. Page: 202

When Contracts Should Be in Writing 13-3 The element of proper form requires that certain contracts must be in writing to be enforceable. Some contracts should be in writing to protect against later disagreement. Some contracts must be in writing because the law requires such for the contract to be enforceable. Learning Outcome 13-1: Describe the requirement of proper form of contracts, and name instances when contracts should not be in writing, should be in writing, and must be in writing. Page: 202

The Parol Evidence Rule 13-4 The Parol Evidence Rule Parol evidence: Any supplementary evidence or conditions, written or oral, that a party wants to add to a written contract. Parol evidence rule: The rule that any spoken or written words in conflict with what the written contract states cannot be introduced as evidence in a court of law. The word parol in parol evidence rule means “speech” or “words.” Learning Outcome 13-2: Explain how the parol evidence rule affects the addition of supplementary provisions to a written contract. Page: 202

The Parol Evidence Rule (cont.) 13-5 The Parol Evidence Rule (cont.) There are numerous exceptions to the parol evidence rule. A common exception occurs when oral evidence serves to clear up an ambiguous part of an agreement. Thus, oral evidence introduced after a contract is signed is legally accepted if it clarifies some point in the written agreement. Learning Outcome 13-2: Explain how the parol evidence rule affects the addition of supplementary provisions to a written contract. Page: 202

The Parol Evidence Rule (cont.) 13-6 The Parol Evidence Rule (cont.) A few examples of exceptions to the parol evidence rule are: incomplete contracts, contracts that contain typographical errors, voidable contracts, and Subsequent oral modification of contracts. In these cases, a court may rule that oral evidence is admissible. Learning Outcome 13-2: Explain how the parol evidence rule affects the addition of supplementary provisions to a written contract. Page: 202

Example: The Parol Evidence Rule 13-7 Facts: Wlodyka signed a purchase agreement for a tractor. The salesperson orally assured her that several attachments came with the purchase. The attachments were not delivered with the trailer. The seller has no legal obligation to furnish the attachments if their inclusion was not specified in the written agreement. If Wlodyka decides to sue the seller, the court will probably refuse to allow her to introduce testimony regarding the oral statements. Learning Outcome 13-2: Explain how the parol evidence rule affects the addition of supplementary provisions to a written contract. Page: 202

13-8 The Statute of Frauds The Statute of Frauds specifies that certain kinds of agreements must be in writing to be enforceable. While there is some variation in its interpretation, most states agree on the main principle of the statute. It is important to note that the Statute of Frauds does not prohibit a person from legally entering into oral contracts for certain kinds of agreements; it only specifies that certain contracts must be in writing to be enforceable. Learning Outcome 13-3: Discuss the Statute of Frauds. Page: 203

13-9 The Statute of Frauds The Statute of Frauds applies to executory contracts only; however, once a contract has been completed, it cannot be canceled merely because it was not in writing. Learning Outcome 13-3: Discuss the Statute of Frauds. Page: 203

Types of Contracts That Must Be in Writing 13-10 The Statute of Frauds specifies six types of contracts that must be in writing to be legally enforceable: Agreements by an executor or administrator to pay the debts of a deceased person. Agreements to answer for the debts of another. Agreements that cannot be completed in less than one year. Agreements made in contemplation of marriage. Agreements to sell any interest in real property. Agreements to sell personal property for $500 or more. Learning Outcome 13-4: Identify the six types of contracts that the Statute of Frauds requires to be in writing. Page: 203

Agreements by an Executor or Administrator 13-11 Executor: A personal representative named in a will to handle matters involving the estate of the deceased person. Administrator: A personal representative named by the court to perform as the executor would in instances in which the deceased person has not left a will. Learning Outcome 13-4: Identify the six types of contracts that the Statute of Frauds requires to be in writing. Page: 204

Agreements by an Executor or Administrator 13-12 An executor or an administrator has legal authority to arrange for the distribution of the assets of a deceased person, and pay debts of the deceased. The Statute of Frauds requires that such a promise must be in writing to be enforceable. Learning Outcome 13-4: Identify the six types of contracts that the Statute of Frauds requires to be in writing. Page: 204

Example: Agreements by an Executioner 13-13 Facts: Dellner was named executor in his father’s will. After his father’s death, Dellner was attempting to close the estate when a creditor demanded immediate payment of an old debt of $4,000. To avoid embarrassment for other members of the family, Dellner orally advised the creditor that he would pay the debt personally. The promise isn’t enforceable because not in writing. Learning Outcome 13-4: Identify the six types of contracts that the Statute of Frauds requires to be in writing. Page: 204

Agreements to Answer for the Debts of Another 13-14 A guaranty, or promise, to pay the debts or settle the wrongdoings of another if he or she does not pay personally is not enforceable unless it is written. Example: Mata, the president of Callin Products, Inc., orally promised to pay the corporation’s debts from his own resources. Under the Statute of Frauds, Mata’s promise is not enforceable because it is not in writing. Learning Outcome 13-4: Identify the six types of contracts that the Statute of Frauds requires to be in writing. Page: 204

Agreements that Cannot be Completed in Less than One Year 13-15 A contract that cannot be completed within one year must be in writing. If the life of the contract is indefinite and there is a possibility of its being completed within a year, it need not be in writing. Learning Outcome 13-4: Identify the six types of contracts that the Statute of Frauds requires to be in writing. Page: 204

Agreements Made in Contemplation of Marriage 13-16 Antenuptial or Prenuptial Agreement: An exchange of promises made by persons planning to marry. It is enforceable only if it is reduced to writing before the marriage takes place. This law applies to agreements by the parties to accept additional obligations not ordinarily included in the marriage contract. Learning Outcome 13-4: Identify the six types of contracts that the Statute of Frauds requires to be in writing. Page: 205

Agreements to Sell Any Interest in Real Property 13-17 Real Property or Real Estate: Land and items permanently attached to the land, such as buildings or trees. All contracts to sell real property or any interest in it must be in writing to be enforceable. Learning Outcome 13-4: Identify the six types of contracts that the Statute of Frauds requires to be in writing. Page: 205

Agreements to Sell Any Interest in Real Property (Cont.) 13-18 An exception to the written requirement occurs when there has been partial performance of an oral agreement, thus proving the existence of a contract. In such a case, a court might rule that partial performance is substantial enough to prove that the contract is enforceable even though it was not in writing. Learning Outcome 13-4: Identify the six types of contracts that the Statute of Frauds requires to be in writing. Page: 205

Agreements to Sell Personal Property for $ 500 or More 13-19 Per the UCC, sales of personal property of $500 or more must be in writing. Exceptions to this requirement: Partial or full payment to the seller renders the contract enforceable because it shows the serious intent of the buyer, just as much as a written agreement does. Learning Outcome 13-4: Identify the six types of contracts that the Statute of Frauds requires to be in writing. Page: 206

Agreements to Sell Personal Property for $ 500 or More (cont.) 13-20 Additional Exceptions to the UCC requirement: Auction sales: Goods are sold to the highest bidder, and the sale is completed at the fall of the hammer. Auction bids made by telephone: The bidder is required to sign an agreement in which he or she agrees to be bound by the telephone bids made. Online sale: The Web page or e-mail is generally regarded as the writing that satisfies the Statute of Frauds. Learning Outcome 13-4: Identify the six types of contracts that the Statute of Frauds requires to be in writing. Page: 206

Information Included in a Written Contract 13-21 Most important contracts are printed and signed by hand by the parties to the agreement. A signature may include any symbol used by a contracting party intending to authenticate a written agreement. This can include a firm’s logo or a purchase order. A valid agreement can be entirely handwritten as long as it is legible. It may even be a series of letters or e-mail among several persons. Learning Outcome 13-5: Specify items of information that must be included in a written contact to satisfy the Statute of Frauds. Page: 207

Contents of a Contract or Agreement 13-22 To satisfy the Statute of Frauds, a written contract or agreement (memorandum) must contain: The names of the parties. The purpose of the agreement. A description of the consideration promised. The date and place where the contract was made. The signatures of the parties. Learning Outcome 13-5: Specify items of information that must be included in a written contact to satisfy the Statute of Frauds. Page: 207

Contents of a Contract or Agreement (cont.) 13-23 In addition written contracts frequently contain the following information: Warranties provided by the seller. An agreement to be bound by the laws of a specific state. An acknowledgment that the buyer has inspected the goods, or has waived his or her right to such inspection. The form of acceptable payment (cash, certified check, etc.). Learning Outcome 13-5: Specify items of information that must be included in a written contact to satisfy the Statute of Frauds. Page: 208