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Writing

PA ET RHC 16

A verbal contract isn’t worth the paper it’s written on.

Samuel Goldwynquoted in The Great Goldwyn by Alva Johnson, 1937

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Learning Objectives

• List contracts that must be written to satisfy the Statute of Frauds

• Identify exceptions to the Statute of Frauds

• Compare UCC with the Statute of Frauds under common law

• Describe the Parole Evidence Rule

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• In general, a writing is not required to create a legally enforceable contract

• However, a writing is preferable to an oral contract for several reasons: more definite, use as evidence, and signature provides authentication

• Sometimes, a writing is required

Basics

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• In 17th Century England, the Statute of Frauds was enacted to prevent fraud by requiring written evidence before enforcing certain types of contracts

• American states adopted similar statutes

The Statute of Frauds

House of Lords, England

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• If a covered contract does not satisfy the requirements of the statute of frauds, the contract is unenforceable

• A person injured by the unenforceable contract may pursue an action based on quasi-contract or promissory estoppel

Consequences

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• 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• See the list on page 435 of the text

Covered Contracts

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• Collateral contracts are those in which a person (guarantor) promises to perform an obligation of another person (principal debtor) to a third person (obligee)

Covered Contracts: Collateral Contracts

Example: Jason is a personal guarantor on a loan from City Bank to Jason’s sister, Mary

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The Collateral Contract

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Dynegy, Inc. v. Yates

• Facts & Procedural History: – 2002: Dynegy board passed resolution

authorizing payment of attorney's fees and expenses to certain officers and directors, including Olis, if Olis signed statement that he acted in good faith and in corporation's best interests, "with no reasonable cause to believe his conduct was unlawful."

– 06/03: federal grand jury returned an indictment against Olis, who hired Yates to defend him• Olis signed written fee agreement with Yates

with no mention of Dynegy

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• Facts & Procedural History: – 08/03: Dynegy gave letter to Yates stating

that Dynegy would pay Yates directly for legal fees billed through 8/17/03 and made two payments, but refused to pay Yates' final invoice

– Yates sued Dynegy in 2005 alleging breach of contract and fraudulent inducement

– Dynegy argued it never had an oral or written agreement with Yates to pay Olis' bill

– Jury found for Yates and Dynergy appealed

Dynegy, Inc. v. Yates

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• Legal Reasoning: – Dynegy promised to pay for legal services that

Yates was to provide Olis because Olis was an officer of Dynegy• Olis was under investigation for actions taken in

connection with his work for Dynegy that provided substantial benefits to Dynegy

– Dynegy’s promise was a primary obligation and not a promise to pay the debt of another, thus statute of frauds is inapplicable

– Breach of contract claim affirmed in favor of Yates

Dynegy, Inc. v. Yates

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• Under the main purpose or leading object rule, no writing is required where the guarantor makes a collateral promise for the main purpose of obtaining personal economic advantage

Exception to Collateral Contract Rule

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• 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– Exception: if vendor fully performed on

the contract or vendee reasonably relied on the contract to his/her detriment•Then statute of frauds does not apply

Covered Contracts: Real Estate

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• Bilateral contracts that cannot be performed within a year from the date of their formation (one year rule)– Is performance possible within year?

• Probability of performance irrelevant

– Example: Jack signs contract to consult with Company X for 13 months, so the contract must be in writing

Covered Contracts: One Year Rule

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Schaadt v. St. Jude Medical S.C., Inc.

• Facts & Reasoning: – Schaadt fired by St. Jude before end of

alleged one-year employment contract and filed suit

– Question is whether parties can fully perform their obligations under contract within one year if those obligations are not excused• Schaadt’s obligations begin after St. Jude’s

employment of Schaadt for one year

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• Reasoning and Holding: – Since obligations cannot

be fulfilled within one year, Statute of Frauds requires a writing

– St. Jude (party charged with breach) did not sign the contract, thus the contract is unenforceable at St. Jude’s option

Schaadt v. St. Jude Medical S.C., Inc.

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• UCC 2-201: contracts for the sale of goods for a price of $500 or more

• Includes agreements to modify existing sales contracts if contract as modified is for a price of $500 or more [UCC section 2–209(3)]

• Example: Pam buys a refrigerator for $501, thus a writing is required to be enforceable– No writing required for <$500

refrigerator

Covered Contracts: $500+ in Goods

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• Though uncommon, the statute of frauds requires a writing to evidence (a) contracts in which an executor or administrator promises to be personally liable for debt of an estate, or (b) contracts in which marriage is the consideration

Other Covered Contracts

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• Most states require only a signed memorandum of the parties’ agreement stating the essential terms:– (a) identity of parties, (b) subject matter

identified with reasonable certainty, and (c) signed by the party to be charged

– The memorandum need not be made at the same time the contract comes into being

Satisfying the Statute of Frauds

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• UCC 2–201: writing must be sufficient to indicate a contract for sale has been made between the parties, but must indicate the quantity of goods to be sold– A sales receipt may satisfy the requirement

• Sufficient writing includes: (a) confirmatory memorandum between merchants, (b) part payment or part delivery, (c) admission in pleadings or court, and (d) specially manufactured goods

Satisfying the Statute of Frauds

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Green Garden Packaging Co., Inc. v. Schoenmann Produce Company, Inc.

• Decision: – Summary judgment evidence conclusively

established that alleged agreement that Green Garden seeks to enforce against Schoenmann was for a sale of goods over $500, so UCC § 2.201 applies to bar breach of contract claim unless exception applies

– Mere provision of information and samples does not constitute partial performance and no other exception applies; affirmed

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Cyberlaw

• Electronic Signatures in Global and National Commerce Act (E-Sign) of 2000 provides that in interstate commerce transactions, an electronic signature has the same legal effect as a handwritten signature, and an electronic contract has the same legal effect as a traditionally-printed contract

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• The Convention on the International Sale of Goods does not require any contract to be written in order to be enforceable– A contract need not

take any particular form, and can be proven by any means

The CISG and a Writing

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• Parol evidence rule provides that, when parties enter a written contract that they intend as a complete integration (final statement of agreement), a court will not permit evidence of contemporaneous or prior statements to contradict, add to, or alter the terms of the written contract

• Example: Hinkel v. Sataria Distribution & Packaging

The Parol Evidence Rule

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More on Parol Evidence

• UCC 2-202 includes parol evidence rule• Admissible parol evidence:

– Additional terms in partially integrated contracts

– Explaining ambiguities– Circumstances invalidating contract– Existence of condition– Subsequent agreements

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Parol Evidence Chart

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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.

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• True=A, False = B– Eric owes Sookie money, so Eric

contracts with LoanCo for a short-term loan. Bill orally gave his personal guaranty to LoanCo that Eric would repay the loan. Eric defaulted and Bill must repay the loan for Eric.

– If a state law conflicts with the federal E-Sign, the provisions of E-Sign prevail.

Test Your Knowledge

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• Multiple Choice– Parol evidence refers to:

a) The evidence required to prove a caseb) Written or spoken statements not

contained in the written contractc) The lack of evidence

– E-Sign states that: a) An electronic signature has the same legal

effect as a handwritten signature.b) A contract in electronic form is not

enforceable unless proven with a hard copy

Test Your Knowledge

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• Multiple Choice– Keisha agreed to sell Susan her Picasso

painting. She wrote the name of the painting and $600 on a napkin. Both Keisha & Susan signed the napkin. Susan paid Keisha the money and Keisha:

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

Test Your Knowledge

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Thought Question

• Do the Statute of Frauds and parol evidence rule – legal principles from the 1600s – still make sense in today’s commercial world?