2. 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.

3. 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.

4. 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)

5. 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 16 - 5

6.  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 16 - 6

7.  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 16 - 7 House of Lords, England

8.  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 16 - 8

9.  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 16 - 9  UCC 2-201 requires a writing for contracts for the sale of goods for a price of $500 or more

10.  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 16 - 10

11.  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 16 - 11

12.  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 16 - 12

13. 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. 16 - 13

14. 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. 16 - 14

15. 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 16 - 15

16. 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 16 - 16

17. Thought Question  Does the Statute of Frauds – a legal principle from the 1600s – still make sense in today’s commercial world? 16 - 17