Contracts II - Statute of Frauds

Question 1

When was the statute of frauds introduced?

Answer 1

1677

Question 2

What two challenges did contracts law face in the 17th century?

Answer 2

– Simple oral contracts began to be enforced through the writ assumpsit (1602)
– The Civil War (1640-1649) threw records into confusion

Question 3

What requirement regarding contracts did the Statute of Frauds introduce?

Answer 3

Certain contracts need to be in writing.

Question 4

As applied in the United States, the statute of frauds generally requires which following types of contracts to be written to be legally binding? (6)

Answer 4

1) Any promises made in connection with marriage, including such gifts as an engagement ring.
2) Promises that cannot be performed in less than one year.
3) Promises for the sale of land—leases need not be covered unless they are for a year or more.
4) Promises to pay an estate’s debt from the personal funds of the executor. However, promises to pay such debt from the estate’s funds are not subject to the statute of frauds.
5) Promises for the sale of goods above a specific dollar amount, typically $500 or more.
6) Promises in which one person promises to pay the debt of another person is considered a surety and is subject to the statute of frauds.

Question 5

The Statute of Frauds requires contracts to be in writing, but where does the actual potential for fraud come from? (3 points)

Answer 5

The written evidence (“memorandum”) does not need to have been prepared at the time of contract formation. It can be created later to satisfy the statute.

The memorandum does not need to be produced (shown) in court; it can be proven by oral testimony.

The memorandum does not need to include all the terms of the contract. It must, however, provide a memorandum sought to be enforced and the promisor’s signature.

Question 6

The memorandum does not need to be produced (shown) in court; it can be proven by oral testimony.

The memorandum does not need to include all the terms of the contract. It must, however, provide a memorandum sought to be enforced and the promisor’s signature.

Give an example how this could lead to more fraud.

Answer 6

1) Someone can claim in court that there was a memorandum (“written evidence”) without actually having to provide that written evidence.

2) In theory, that written evidence itself does not have to be a contract. It could have been, for instance, a letter to someone else, signed that a promise was made.

Question 7

Under the Statute of Frauds, certain promises must be “evidenced” in
writing and signed by “the party to be charged”. Who is “the party to be charged”?

Answer 7

The person against whom enforcement of the contract is sought. Promisor.
The person who seeks enforcement of the contract. Promisee.

Question 8

If the requirements of the Statutes of Fraud are not met, does it render the contract void or voidable?

Answer 8

It depends on the jurisdiction.

Question 9

What does “taken out of the statute” mean? In what situation does that happen? (3)

Answer 9

Taken Out of the Statute: Courts recognized certain situations where the promise was considered to be “taken out of the statute,” making the oral promise enforceable despite the statute’s requirements. This could happen under various circumstances:

Quasi-Contracts: Claims based on quasi-contracts or restitutionary claims were not affected by the Statute of Frauds. If one party had received a benefit and it would be unjust to allow them to escape payment, the oral promise could be enforced.

Part Performance: Substantial part performance of the oral agreement could make the promise enforceable. Courts acknowledged that if one party had substantially performed their obligations under the oral agreement, it would be inequitable to deny enforcement.

Reliance: Some courts accepted that if a party had reasonably relied on the oral promise to their detriment, enforcing the promise became an equitable remedy. This is often tied to the principle of promissory estoppel, where a promise made without consideration may be enforced to prevent injustice.

Question 10

Why was a strict construction of the Statute of Frauds a problem?

Answer 10

Courts traditionally applied a strict construction of the statute, meaning that if an agreement didn’t strictly comply with its requirements, it was deemed unenforceable. This led to situations where valid agreements were excluded.

Question 11

Give three examples of promises which are excluded from the Statute of Frauds due to a lax construction

Answer 11

1) Promises in Consideration of Marriage:

Statutory Language: The Statute of Frauds often includes a category for promises made in consideration of marriage. However, courts may strictly construe this provision to exclude promises to actually marry.
Explanation: While the statute requires written evidence for promises in consideration of marriage, it may specifically refer to promises made in the context of a marriage contract, such as agreements related to dowries or financial arrangements. A promise to marry itself might not fall within the statute’s scope.

2) Promises to Answer for the Debt of Another (Suretyship or Guaranty):

Statutory Language: The statute typically requires written evidence for promises to answer for the debt of another, known as suretyship or guaranty.
Explanation: Courts may strictly interpret this provision to exclude promises related to indemnification (promise to cover certain costs and expenses, typically stemming from third-party claims). While both scenarios involve assuming responsibility for another’s obligation, the statute may be narrowly construed to cover the specific context of debt repayment.

3) Promises Not to Be Performed Within a Year:

Statutory Language: The statute often requires written evidence for promises that are not to be performed within a year from the making of the agreement.
Explanation: Courts may strictly construe this provision by excluding promises that might theoretically be performed within a year, even if the actual performance is unlikely. For example, a promise to work for life is covered by the statute, while a promise to work for five years may not be, as it could be performed within a year.

Question 12

What is the difference between suretyship or guaranty and indemnification? Why is this important in the context of the Statute of Frauds?

Answer 12

The distinction between promises to answer for the debt of another (suretyship or guaranty) and promises to hold a debtor harmless (indemnification) lies in the nature of the obligations and the parties involved. Here’s an explanation of each:

Promises to Answer for the Debt of Another (Suretyship or Guaranty):

Nature of Obligation: In suretyship or guaranty agreements, a person (the surety or guarantor) undertakes a secondary obligation to pay the debt of another person (the principal debtor) in case the debtor fails to fulfill their obligations.
Primary Debt: The primary obligation is the debt owed by the principal debtor. The surety or guarantor becomes responsible for this debt if the debtor defaults.
Three-Party Relationship: In these arrangements, there are three parties involved—the creditor (to whom the debt is owed), the principal debtor (who owes the debt), and the surety or guarantor (who guarantees payment).
Promises to Hold a Debtor Harmless (Indemnification):

Nature of Obligation: Indemnification involves a promise by one party (the indemnitor) to compensate or make whole another party (the indemnitee) for any losses, damages, or liabilities they may incur.
Protection Against Losses: The indemnification promise is broader and may cover a range of potential losses or harms, not just the specific debt. It is a commitment to protect the indemnitee from adverse consequences.
Two-Party Relationship: Unlike suretyship or guaranty, indemnification typically involves a two-party relationship—the party providing indemnification and the party being indemnified.

Under the Statute of Frauds, promises to answer for the debt of another (suretyship or guaranty) do not include promises to hold a debtor harmless (indemnification). In other words, promises to hold a debtor harmless are excluded from the Statute of Frauds.

Question 13

What is the writing requirement in the UCC? Where can it be found?

Answer 13

Uniform Commercial Code (UCC) Section 2-201 is a provision related to the statute of frauds in contracts for the sale of goods. The statute of frauds is a legal requirement that certain contracts be in writing to be enforceable. UCC § 2-201 outlines the situations in which a contract for the sale of goods must be in writing to be enforceable.

The section mandates that contracts for the sale of goods priced at $500 or more must be in writing to be enforceable.

Content of the Writing:

1) The writing must be sufficient to indicate that a contract for sale has been made between the parties.

2) It should include the quantity term, a signature (or some form of authentication), and, in certain cases, a description of the goods.

Question 14

There are exceptions to the writing requirement under the UCC (2-201). Even without a written contract, a contract for the sale of goods may still be enforceable under which circumstances? (3)

Answer 14

The goods are specially manufactured for the buyer and are not suitable for sale to others in the ordinary course of the seller’s business.

The party against whom enforcement is sought admits in court that a contract for sale was made.

Buyer (part performance): Payment has been made and accepted, or the goods have been received and accepted.

Question 15

Does the Statute of Frauds govern the Convention on the International Sale of Goods?

Answer 15

No.

Question 16

The UCC has an exception to the writing requirement between merchants. Explain it. UCC 2-201(2).

Answer 16

In the context of the UCC, a confirming memorandum is a written document that confirms the terms of an oral agreement between merchants (businesses involved in the sale of goods). The UCC recognizes the importance of providing a written record for certain transactions.

Merchants:

The provision applies specifically to transactions between merchants. In UCC terms, a merchant is someone who deals in goods of the kind involved in the transaction or has special knowledge or skills related to the goods.

Confirming Memorandum:

If one merchant sends a written confirmation of an oral agreement to another merchant, that written confirmation can serve as a memorandum of the agreement.

Binding Effect:

The confirming memorandum is considered binding if the recipient (the other merchant) does not object to its terms within a specified timeframe.

Timeframe for Objection:

The statement mentions a 10-day period within which the recipient merchant must raise objections if they disagree with the terms stated in the confirming memorandum.

In summary, this provision is designed to facilitate and solidify agreements between merchants by allowing a written confirmation to serve as evidence of the agreement. However, the recipient merchant has a limited time to object to the terms if they differ from what was orally agreed upon. If there is no objection within the specified timeframe, the confirming memorandum becomes binding on the parties involved.

Question 17

Are “electronic” memoranda accepted by courts?

Answer 17

Nowadays, most courts accept it.

Question 18

What is a promise in consideration to marriage? Why does it fall under the Statute of Frauds?

Answer 18

Yes. A promise in consideration of marriage refers to a type of contractual promise where one party agrees to do something or refrain from doing something in exchange for the other party’s agreement to marry. Typically, this would include a transfer of property. This was for wealthy families in the late 17th century.

Question 19

A promise in consideration to marriage was common among wealthy families in the 17th century. Nowadays, what kind of contracts relating to marriage also fall under the Statute of Frauds?

Answer 19

Prenuptial agreements (prenups) are typically subject to the statute of frauds.

Question 20

What is the difference between an administrator and an executor?

Answer 20

An executor is appointed by the testator in the will, while an administrator is appointed by the court when there is no will or the named executor is unavailable or not approved. Both roles involve the management and distribution of the deceased person’s estate, but the appointment process differs.

Question 21

What is the plain meaning rule?

Answer 21

The Plain Meaning Rule is a principle of statutory interpretation that suggests that if the language of a statute or legal document is clear and unambiguous, the courts should apply the plain and ordinary meaning of the words. According to this rule, when the language of a statute is clear, courts should not look beyond the words used or consider extrinsic evidence, such as legislative history or intent.

Question 22

Which is the most common case for the statute of frauds?

Answer 22

A promise conveying an interest in land

Question 23

A promise not to be performed within a year - explain this rule

Answer 23

If a promise made in a contract cannot, by its nature, be performed within a one-year period starting from the time the contract is made, the statute of frauds requires that the contract be in writing to be enforceable. The rationale behind this provision is to prevent disputes arising from the lapse of time, fading memories, or changes in circumstances.

For example, if A promises to work for B for a period of two years, this promise falls within the statute of frauds. Even though the performance (two years of work) will extend beyond one year, the statute requires that the contract be in writing to be legally binding.

It’s important to note that the one-year period is calculated from the time the contract is made, not from the time performance begins. If the performance can be completed within one year, even if it is likely to take longer, the statute of frauds may not apply.

Question 24

In case of a two-year debt contract, I pay the money back within six months, does it still fall under the Statute of Frauds?

Answer 24

Yes, what matters are the terms of the contract. They stipulate repayment within two years.

Question 25

A promise not to be performed within a year - how does it apply to a promise to work for life?

Answer 25

Not covered by the Statute of Frauds. The rationale is that people can die within a year.

Question 26

Assume that a farmer has bought land and is paying off the sum over 3 years, but the deed of the land has not been transferred yet. Before the sum is paid off entirely, the seller decides not to hand over the deed until the sum is paid. Can this contract be enforced based on an oral promise?

Answer 26

Yes, courts began to say, in equity, if you sue for specific performance, make him give me the deed. The farmer used the land, that constitutes partial performance.

Quasi-Contract or Unjust Enrichment:

If there is no contract, but one party has received a benefit at the expense of the other, the party conferring the benefit might be able to sue based on quasi-contract or unjust enrichment. This is a remedy based on fairness and preventing one party from unjustly benefiting at the expense of another.

Substantial Part Performance:

In some cases, if one party has substantially performed its obligations under the oral contract, a court might enforce the contract even if it falls under the statute of frauds. This is often seen in situations where one party has made significant payments or carried out substantial actions in reliance on the oral agreement.

Question 27

Sale of interest in land. Mortgages, leases, easements, and licences. Which are covered under the Statute of Frauds?

Answer 27

All but licenses

Question 28

Explain the subjective and objective theory of contracts

Answer 28

The subjective theory of contracts and the objective theory of contracts are two approaches used to understand the formation of contracts and the “meeting of the minds” between parties. Here’s an overview of each:

Subjective Theory of Contracts:

Focus: This theory emphasizes the parties’ subjective intentions and beliefs at the time of contract formation.
Key Element: It looks at what the parties actually thought and intended, even if those intentions were not communicated to the other party.
Challenge: Determining the subjective intentions can be challenging, especially if there is no clear expression of those intentions.

Objective Theory of Contracts:

Focus: This theory places importance on the objective manifestations of assent rather than the parties’ subjective intentions.
Key Element: It considers how a reasonable person would interpret the parties’ words and conduct, rather than their undisclosed thoughts.
Reasonable Person Standard: The standard of interpretation is what a reasonable person in the position of the parties would understand from their words and actions.
Communication: For a contract to be formed, there must be an outward expression of assent (offer and acceptance) that a reasonable person would interpret as an agreement.
Meeting of the Minds:

Subjective View: In the subjective theory, the meeting of the minds is about the actual agreement between the parties, even if one party is not aware of the other’s intentions.
Objective View: In the objective theory, the meeting of the minds is determined by the reasonable understanding of the parties’ outward expressions, creating an objective standard for contract formation.

Question 29

What is the historical shift in interpreting contract intent, and how is “intent” viewed in contract law?

Answer 29

Originally approached subjectively, contract intent has evolved to be interpreted objectively. “Intent” is now considered a conclusion, not a fact. Manifestations of intention are understood based on the meaning a reasonable person in the recipient’s situation would give. If both parties do not share the same unreasonable meaning, and their reasonable meanings differ without a basis for selection, a contract does not exist.

Question 30

What is an offer?

Answer 30

An expression of a present intention to enter into a contract needing only assent by the offeree.

Question 31

For a contract to be formed, there must be an outward expression of assent that a reasonable person would interpret as an agreement. What kind of expression is that?

Answer 31

Offer and acceptance.