Contracts II Outline
Professor Ken Germain
STATUTE OF FRAUDS
· some oral agreements are enforceable
· some Ks must be in writing as required by the Statute of Frauds
o agreements requiring more than a year for full performance, those requiring the transfer of an interest in real property, certain sale-of-goods agreements, and suretyship agreements
· reason for Statute of Frauds: hardship and injustice may result when these types of agreements are oral
· all states have Statute of Frauds; not required to though
· Three issues regarding Statute of Frauds:
o 1: Is this agreement within one or more of the provisions in the Statute of Frauds?
o 2: two parts
§ 2a: Is it signed by the party to be charged; is there a writing meeting the statutory requirements and the judicial interpretations thereof; if yes then that’s it
§ 2b: Is there some basis in performance which takes the case out of the statute?
o 3: Is there an equitable basis for treating this differently; judges saying they think the statute does injustice in the particular case?
a. STATUTORY TEXTS
· provide that an agreement of certain types, otherwise enforceable, is not to be enforced if it is not represented by a signed writing- S.O.F.
· nine classes of agreements, if oral, made unenforceable in almost all states:
o real property agreements
o agreements requiring more than a year for performance
o sale of goods for a price of more than $500
§ code says $5,000; use terms of Code for exam purpsoes
o agreement for the lease of goods providing for rent of $1,000 or more
o surety agreements
§ requires one person to answer for the debts, defaults, and miscarriages of another
o agreement in which performance is not to be completed before the end of a lifetime
o commission to real estate agent
o credit agreements
· Rule of Effrontery: By stating that a promise is within the Statute of Frauds is “unenforceable” or “void,” the law authorizes a promisor both to admit the existence of a promise and to defend successfully against its enforcement on the grounds of the Statute.
· Justifications of S.O.F.:
o prevent enforcement of many untrustworthy claims
o induce caution among people about to make serious undertakings
o they make many transactions familiar, understandable, and easy to replicate by placing them in separate categories
b. EXPLAINING THE LEGISLATIVE CHOICES
· prevents fraud by proving of certain legal transactions particularly susceptible to deception, mistake, and perjury
· not to trust the memory of witnesses for a longer time than one year
c. AMELIORATING RULES
· An agreement within a statute may be “taken out” by circumstances accepted as a sufficient reason for enforcing an undocumented agreement.
o A usual rule is that full performance on one side (such as payments) takes an agreement out of the one-year clause.
o An agreement may be taken out of the Statute by part performance in selling an interest in real property.
o UCC §2-201: K for sale of goods; if performance takes the form either of the making and acceptance of a payment or the receipt and acceptance of goods
o performance of a real-estate broker under an agreement calling for a commission is the subject of an exceptional rule
· Part performance of most types of agreement within a statute of frauds may generate a remedy against a recipient of that performance.
o generates a restitution claim
o When a party seeking enforcement of an oral K has performed to such an extent that repudiation of the K would lead to an unjust or fraudulent result, the court will disregard the requirement of a writing and enforce an oral agreement.
· Estoppel (judge trumps legislature to stop injustice)
o In cases involving oral Ks the estoppel must be based on misrepresentation or concealment if the S.O.F. is to be given effect at all.
o Estoppels have been applied against persons who had no fiduciary obligation to claimants.
· Absent reliance on an undocumented agreement, there remains the possibility that it will be enforced against a promisor who has waived the defense of the statute.
d. ETHICAL PRACTICES AND STATUTE OF FRAUDS
· General rule that a lawyer may act guided only by the objective of furthering the interests of the lawyer’s client.
· The want of consideration for a promise appears, sometimes, to be a technical defense.
II. WRITING, SIGNING, AND OTHERWISE RECORDING AND AUTHENTICATING
a. The Content of a Document
· What constitutes a writing?
o UCC §1-201(b)(43): writing includes printing, typewriting, or any other intentional reduction to tangible form
· What terms of the K must appear in writing?
o essential terms of unperformed promises must be stated
§ not all terms are “essential”
§ what is essential depends on the agreement and its context and also on the subsequent conduct of the parties, including the dispute which arises and the remedy sought
o generally, description of the transaction or promise (including price to be paid) and identification of the parties are essential terms
· A documented agreement that was signed long after the parties agreed on its terms will satisfy a statute of frauds.
· An agreement made long before any part of it was recorded may be enforced if the subsequent documentation is adequate.
· Considerable lenience is shown in deciding what counts as a signature.
c. ELECTRONIC DOCUMENTATION
· Uniform Electronic Transactions Act (UETA): if a law requires a record to be in writing, an electronic record satisfies the law and that if a law requires a signature, an electronic signature satisfies the law.
III. Statutory Scope
a. DURATION OF PERFORMANCE: THE ONE-YEAR AND LIFETIME CLAUSES
· One circumstance that systematically persuades courts to enforce an agreement within the one-year clause is that, by the time of litigation, the agreement has been performed in full on the part of the claimant.
· A single K may well fall into more than one class of agreements under S.O.F.
o prevailing view is an agreement is unenforceable if it is wanting in the documentation required for any class of Ks in which it lies
· It must appear from the agreement itself that performance is not to be performed within one year or the statute does not apply.
o The statute of frauds plainly means an agreement not to be performed within the space of a year, and expressly and specifically so agreed.
o Ks of uncertain duration are simply excluded; S.O.F. only covers Ks whose performance cannot possibly be completed within a year
§ without express terms, courts will not look to see if it is realistically possible that performance of K would be completed within a year
b. INTERESTS IN REAL PROPERTY
· Buyers and sellers should receive equal protection in the process of the sale of land so that neither stands to be unduly benefitted or disproportionately burdened by the fact that the contract has not been reduced to writing.
· A court generally will enforce an alleged oral K pursuant to the doctrine of part performance only if a party can adequately demonstrate, in reliance on said agreement, possession of the property, improvements thereon, OR payment of a substantial part of the purchase price.
o commencement of a possession contemporaneous to an alleged oral agreement typically might satisfy the possession requirement, but a continued or existing possession will not necessarily disqualify application of the part performance doctrine
c. RELIANCE AND OTHER EQUITIES
· Sometimes reliance by a party on an agreement is a ground for enforcing an agreement that would otherwise be unenforceable under the Statute of Frauds.
· Enforcement proceeds under the name estoppel.
o doctrine of estoppel used to prevent fraud that would result from refusal to enforce oral Ks in certain circumstances
§ 2 elements: one party seriously changed his/her position in reliance on the K AND/OR a party unjust enrichment
In jurisdictions that honor these clauses, a party can escape the effect of the clause by showing reliance on the oral modification.
III. THE USE OF EXTRINSIC EVIDENCE OF THE PARTIES’ INTENT
· admissibility of extrinsic evidence, particularly evidence of the parties’ prior negotiations, is one of the most troublesome aspects of contract interpretation
· “plain meaning rule” 2 step process which is generally used only for completely integrated agreements (result of the parol evidence rule)
o Stage 1: Judge determines whether the language in the written agreement, with respect to dispute in question, admits of only one plausible meaning or, rather, is ambiguous.
§ If the language is not ambiguous, extrinsic evidence as to its meaning will be excluded.
o Stage 2: The court determines the meaning of the K language.
§ If in stage 1 language was found to be ambiguous, extrinsic evidence as to its meaning will be admitted to inform the court’s determination of the meaning of the K language.
· the question of a written agreement being ambiguous is a question of law for the courts to decide
· If the agreement on its face is reasonably susceptible of only one meaning, a court is not free to alter the contract to reflect its personal notions of fairness and equity.
a. METHODS OF INTERPRETING AMBIGUOUS CONTRACTS
· A word is vague when its applicability in marginal situations is uncertain.
· In contrast, a word is ambiguous when it has two entirely different connotations so that it may be at the same time both appropriate and inappropriate.
b. RULES IN AID OF INTERPRETATION
· Purpose Interpretation
o These Steps:
§ (1) examination of the law before enactment of the statute
§ (2) ascertainment of the “mischief or defect” for which the law did not provide
§ (3) analysis of the remedy provided by the legislature to “cure the disease”
§ (4) determination of the “true reason of the remedy”
§ application of the statute so as to suppress the mischief, and advance the remedy
o It is not uncommon for written contracts to begin w/ a series of recitals of the surrounding circumstances and of the objectives of the parties.
· Public Interest: Contracts involving performance that would be in violation of some strongly rooted public interest, often expressed in a statute, may be held to be unenforceable.
· Maxims: Many of the same rules of thumb used in statutory interpretation are used in the interpretation of Ks.
o Some maxims of K interpretation are not used in statutory interpretation.
§ Contra Proferentem: If there are two ways to interpret the contract, it will be interpreted in a way in favor of the person that was not the drafter.
· the drafter should have made it clearer in his favor
· fits better when the bargaining power of the party is unequal
c. FUNCTION OF JUDGE AND JURY
· The meaning of language is a question of fact.
o interpretation of written agreements often withdrawn from jury by calling it a question of law
§ distrust of unsophisticated, uneducated, and-at least at one time- illiterate jurors
§ desire for consistency in interpretation of some kinds of Ks
IV. THE USE OF EXTRINSIC EVIDENCE FROM COMMERICAL CONTEXT