P A R T P A R T Contracts Introduction to Contracts The Agreement: Offer The Agreement: Acceptance Consideration Reality of Consent 3 McGraw-Hill/Irwin Business Law, 13/e © 2007 The McGraw-Hill Companies, Inc. All rights reserved.

P A R T P A R T Contracts Capacity to Contract Illegality Writing Rights of Third Parties Performance & Remedies 3 McGraw-Hill/Irwin Business Law, 13/e © 2007 The McGraw-Hill Companies, Inc. All rights reserved.

Writing PA E TR HC 16 “A verbal contract isn’t worth the paper it’s written on.” Samuel Goldwyn, quoted in The Great Goldwyn (Alva Johnson, 1937)

Learning Objectives  Significance of a writing in contract law  The Statute of Frauds  Contracts covered by the Statute of Frauds and the requirements  The UCC & the Statute of Frauds  The Parole Evidence Rule

 In general, a writing is not required to create a legally enforceable contract  Writing may be required by Statute of Frauds  Enacted in 17 th century England to prevent fraud by requiring written evidence  American states adopted similar statutes  A contract is unenforceable if it does not satisfy the statute of frauds Basics

 Collateral contracts  Contracts for real estate  Contracts for more than one year  Contracts for sale of goods over $500  Executor’s promise  Marriage as consideration Covered Contracts House of Lords, England

 Collateral contracts in which a guarantor promises to perform an obligation of a principal debtor to a third person ( obligee )  Exception: under the main purpose or leading object rule, no writing required if guarantor makes a collateral promise for main purpose of obtaining personal economic advantage  See Wintersport Ltd. v. Millionaire.com, Inc. Collateral Contracts

 A writing is required for contracts for the transfer or sale of an interest in real estate  Some states require a writing for leases and certain easements on real property Real Estate & Sale of Goods  UCC requires a writing for contracts for the sale of goods for a price of $500 or more

 A writing is required for bilateral contracts that cannot be performed within a year from the date of their formation ( one year rule )  Likelihood of full performance is irrelevant  Test: is performance possible within year?  Example: If Jack signs contract to consult with Company X on a 13 month project, the contract must be in writing to be enforceable The One Year Rule

 Most states require signed memorandum of parties’ agreement stating essential terms:  (a) identity of parties, (b) subject matter identified with reasonable certainty, and (c) signed by the party to be charged  Need not be made at time contract is made  Convention on International Sale of Goods does not require writing to enforce a contract Satisfying the Statute of Frauds

 Parol evidence rule provides that, when parties enter a written contract they intend as a complete integration (final statement of agreement), a court will not allow evidence of prior or contemporaneous statements to alter or contradict terms of written contract  Parol evidence is admissible to explain ambiguities or allegations of fraud The Parol Evidence Rule

Test Your Knowledge  True=A, False = B  All contracts must be in writing to be enforceable.  A contract for the sale of a carpet for $499 must be in writing to be enforceable.  Jill orally promised the President of First Bank to pay Jack’s debt to First Bank if Jack defaulted on the note. Jack defaulted and Jill must pay Jack’s debt

Test Your Knowledge  True=A, False = B  Joey owes Chandler money, so Joey contracts with LoanCo for a short-term loan. Chandler orally gave his personal guaranty to LoanCo that Joey would repay the loan. Joey defaulted and Chandler must repay the loan for Joey

Test Your Knowledge  Multiple Choice  Parol evidence refers to:  (a) The evidence required to prove a case  (b) Written or spoken statements not contained in the written contract  (c) The lack of evidence

Test Your Knowledge  Multiple Choice  Mamie agreed to sell Susan her Picasso painting. She wrote the name of the painting and $600 on a napkin. Both Mamie & Susan signed the napkin. Susan paid Mamie the money and Mamie:  (a) May refuse to hand over the painting since contract was on a napkin and is unenforceable  (b) Must give Susan the painting since the contract satisfies the statute of frauds

Thought Question  Does the Statute of Frauds – a legal principle from the 1600s – still make sense in today’s commercial world?