Chapter 18 Contracts in Writing Copyright © 2017 McGraw-Hill Education All rights reserved No reproduction or distribution without the prior written consent of McGrawHill Education Overview • LO18-1: What is the purpose of the statute of frauds? • LO18-2: Which kinds of contracts require a writing to satisfy the statute of frauds? • LO18-3: What must a writing contain to be sufficient to satisfy the statute of frauds? • LO18-4: What is the purpose of the parol evidence rule? 18-2 Chapter 18 Hypothetical Case • 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 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 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 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 Hypothetical Case • Assume two 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 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 Statute of Frauds • Definition: • Rule of state law requiring certain types of contract to be in writing in order to be enforceable • Purposes: • 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 parties from entering into contracts with which they not agree 18-5 Contracts Subject to Statute of Frauds • Contracts that cannot be performed within one year from the date of their making • Promises made in consideration of marriage (prenuptial agreements) • Contracts to pay the debt/default of another party • Real estate contracts • Contracts for the sale of goods valued at $500 or more 18-6 Statute of Frauds Writing Requirements • Common Law—Written contract must clearly indicate: • • • • • Parties to contract Subject matter/purpose of agreement Consideration given by both parties Significant terms (price, quantity, etc.) Signature of party plaintiff seeks to hold responsible under contract (i.e., signature of defendant) 18-7 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) • Partial performance: Performance of portions of unwritten agreement can constitute proof that oral contract exists • 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 18-8 Parol 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 • Purpose: • To prevent evidence that substantially contradicts the agreement in its written form 18-9 Exceptions to Parol Evidence Rule • Contracts that are subsequently modified • Contracts conditioned on orally agreed-upon terms • Contracts that are not final, as they are part written and part oral • Contracts with ambiguous terms • Incomplete contracts • Contracts with obvious typographical errors • Void or voidable contracts • Evidence of prior dealings or usage of trade will provide clarification 1810 Integrated Contracts • Definition: Written contracts within statute of frauds intended to be complete and final representation of parties' agreement • General rule: Integrated contracts prevent admissibility of parol evidence 1811 Chapter 18 Hypothetical Case • 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 Anderson will pay $2,000 in damages for every day the bricklaying remains incomplete 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 is ask"; and 2) a crumpled index card, purportedly in Fred Stein's handwriting, indicating that there was "no 'hard and fast' deadline on Anderson Brick's work." • Should the trial court judge admit the foregoing evidence? 1812 Chapter 18 Hypothetical Case • Ginny Sandford agrees to buy a used car from her cousin, Cindy Markham, for $1,500 Although the total amount of the sale requires a contract in writing, Sandford and Markham have only an oral agreement Sandford keeps the car for two months and then decides she does not want it after all She returns the car to Markham and demands her money back Markham sues, and in court, Sandford says, "Well, just because I said I'd buy the car at one point in time doesn't mean I really wanted it I didn't sign anything or formally agree to anything Cindy has no proof that a contract existed." • Who wins? 1813 ... honor an oral contract, even though the law technically requires the agreement to be in writing? 18-4 Statute of Frauds • Definition: • Rule of state law requiring certain types of contract to... for the sale of goods valued at $500 or more 18-6 Statute of Frauds Writing Requirements • Common Law Written contract must clearly indicate: • • • • • Parties to contract Subject matter/purpose... contracts for customized (specially manufactured) goods 18-8 Parol Evidence Rule • Definition: • Common law rule stating that oral evidence of agreement made before or contemporaneously with written agreement