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Dynamic business law 4e kubasek 4e CH18

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 1
• 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 2
• 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 do 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 3


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 do 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 4
• 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



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