II. Business Law-Contracts Flashcards
- Contracts: Applicable Laws
A. Sources of Contract Law
- Common law: is the law developed in judicial decisions on contracts.
- Article 2 of UCC:
is codified in statutory form
is a form of codified commercial law that was developed by business people, lawyers, and legal experts to create a system of consistent contract principles across state lines.
- Types of Contracts
- Express Contract: A contract formed wholly by oral and/or written words (Phone offer, Fax acceptance)
- Implied or Implied-in-Fact Contract: A contract formed, at least in part, based on the conduct of the parties or based on the factual circumstances. It exists through the actions and circumstances of the parties, not through their express oral or written words (Dropping documents in a Tax office, Visiting doctor office)
- Quasi-Contract or Implied-in-Law Contract: A contract imposed by the courts or by law when some performance has gone forward, even though there is no express or implied contract. (political campaign order posters at a copy center)
- Bilateral Contract: A type of contract in which both sides make a promise
- Unilateral Contract: A type of contract in which one side makes a promise in exchange for an action or performance from the other side. In unilateral contracts, one side does not promise. One side must act to form a contract.
- Executed Contract: A contract that has been fully performed by both parties to that contract.
- Executory Contract:A contract that has not yet been fully performed by the involved parties.
- Valid Contract: A contract that has been legally formed and meets all necessary requirements for formation.
- Void Contract: A contract that lacks a legal purpose or is in violation of the law.
- Voidable Contract: An otherwise valid contract that can be set aside
- Unenforceable Contract: An otherwise valid contract that cannot be enforced because of a statutory or other legal defense is an unenforcable contract.
- Contracts: Offer and Acceptance
Formation
- Offer
- Acceptance
- Consideration (see next lesson on “Consideration”)
- No defenses (see lessons on “Contracts: Formation” and “Defenses to Formation”)
- Writing and Records: The Statute of Frauds
I. The Statute of Frauds—at common law, called the Statute for the Prevention of Frauds and Perjuries
II. Types of Contracts that Must Be in Writing under the Statute of Frauds
- Guaranty of debt contracts
- Contracts involving an interest in real property
- Contracts impossible to perform within one year of formation
- Contracts for the sale of goods priced at $500 or more
- Promises of executors for personal liability for debts of the estate
Example
Able is a commission agent selling Peter’s products. Peter has a rule that his agents only sell to customers for cash. Able knows she can sell more, and thus make more commissions, if she can also sell to customers on credit. Able orally contracts with Peter allowing Able to sell to customers on credit, and if any customer does not pay when due, she agrees she will pay Peter. Some customers who were sold Peter’s products on credit fail to pay Peter. Peter demands that Able pay.
Question: Does the Able-Peter contract allowing Able to sell on credit come under the Statute of Frauds?
Answer: Yes. It is a contract (formed by words) between a guarantor (Able) and a creditor (Peter) creating a secondary debt obligation. Able is liable only if customer, the principal debtor, fails to pay. In order to enforce the guaranty by Able, Peter must have a written agreement (record) signed by Able.
Exception to Writing Requirement for Real Property Rule
- Payment of some part or all of the purchase price has been made.
- The buyer in possession of the land by living there (residential) or proceeding to develop it (commercial land); and
- The buyer has made valuable improvements. In some situations, the possession is simply whatever possession is necessary for making the improvements. Courts are looking for some proof beyond one person’s word against another’s.
(1)payment, (2)possession, and (3)valuable improvements
Exceptions to the UCC General Statute of Frauds Rule—UCC-201(2)(3)
- Merchant’s confirmation memorandum—between merchants (only)—If one merchant sends the other merchant a written confirmation, and the other, after receipt, does not object in writing within 10 days, the oral contract is enforceable by either party even though only one party actually signed the memorandum. The memorandum can be given via letter, e-mail, or fax.
- Specially manufactured goods—Goods that a seller cannot resell in his/her ordinary course of business are special-ordered goods.
- Admission under oath—Any admission under oath (deposition, interrogatory, signing of answer, or on the stand during trial) that an oral contract was made removes the Statute of Frauds as a defense.
- Performance by buyer—If the buyer takes possession or makes a payment accepted by the seller, the Statute of Frauds is removed (oral contract enforced), at least to the quantity accepted or paid for.
XI. Parol Evidence Rule and How It Affects Contracts
Example
Tenant leased a commercial warehouse from Landlord for three years. Landlord orally agreed to replace the elevator in the warehouse but did not want to put the replacement clause in their written agreement. Landlord didn’t want other tenants to know and begin demanding new elevators. The lease agreement is fully integrated. If Landlord does not replace the elevator, Tenant cannot enforce the elevator part of the agreement because it was not part of the written contract or record.
Kram sent Fargo, a real estate broker, a signed offer to sell a specific parcel of land to Fargo for $250,000. Kram, an engineer, had inherited the land. On the same day that Kram’s letter was received, Fargo telephoned Kram and accepted the offer. Which of the following statements is correct under the common law Statute of Frauds?
- No contract could be formed because Fargo’s acceptance was oral.
- No contract could be formed because Kram’s letter was signed only by Kram.
- A contract was formed and would be enforceable against both Kram and Fargo.
- A contract was formed but would be enforceable only against Kram.
3.
This answer is incorrect because although a contract was formed, the contract was for realty and falls under the Statute of Frauds. Thus, the contract, to be enforceable, required a writing signed by the party to be charged under the contract. Fargo did not sign, and the contract cannot be enforced against Fargo.
4.
This answer is correct because a contract for the sale of realty falls under the Statute of Frauds requiring a writing signed by both parties or a written memo signed by the party to be charged to be enforceable. Kram signed the letter and the contract is enforceable against Kram.
Sand orally promised Frost a $10,000 bonus, in addition to a monthly salary, if Frost would work two years for Sand.
If Frost works for the two years, will the Statute of Frauds prevent Frost from collecting the bonus?
- No, because Frost fully performed.
- No, because the contract did not involve an interest in real estate.
- Yes, because the contract could not be performed within one year.
- Yes, because the monthly salary was the consideration for the contract.
1.
Generally, contracts that cannot be performed within one year are not enforceable unless they are in writing. However, this case illustrates an exception to the rule. If a contract has been finished, or fully performed, a party may then sue to enforce payment, even if the contract is not in writing.
Bond and Spear orally agreed that Bond would buy a car from Spear for $475. Bond paid Spear a $100 deposit. The next day, Spear received an offer of $575, the car’s fair market value.
Spear immediately notified Bond that Spear would not sell the car to Bond and returned Bond’s $100.
If Bond sues Spear and Spear defends on the basis of the Statute of Frauds, Bond will probably
- Lose, because the agreement was for less than the fair market value of the car.
- Win, because the agreement was for less than $500.
- Lose, because the agreement was not in writing and signed by Spear.
- Win, because Bond paid a deposit.
2.
This is correct because for the sale of goods under the Statute of Frauds, contracts for goods priced at $ 500 or more require a writing to be enforceable. This oral contract for a good (car) is $475, under $500, and thus enforceable.
wo individuals signed a contract that was intended to be their entire agreement.
The parol evidence rule will prevent the admission of evidence offered to
- Explain the meaning of an ambiguity in the written contract.
- Establish that fraud had been committed in the formation of the contract.
- Prove the existence of a contemporaneous oral agreement modifying the contract.
- Prove the existence of a subsequent oral agreement modifying the contract.
3.
The parol evidence rule prohibits the introduction of evidence that additional terms were agreed upon before the contract was signed. In effect, it dictates that a written contract will have the final say on what agreements are present. A contemporaneous oral agreement is one that allegedly existed before or at the time the written contract was signed, and evidence pertaining to one cannot be introduced.
Where the parties have entered into a written contract intended as the final expression of their agreement, which of the following agreements will be admitted into evidence because they are not prohibited by the parol evidence rule?
Subsequent oral agreements Prior written agreements
A. Yes Yes
B. Yes No
C. No Yes
D. No No
- Row A
- Row B
- Row C
- Row D
2.
The parol evidence rule will not allow evidence of prior agreements to be admitted as evidence. If a contract is established as a final expression of an agreement or a “total integration,” it is assumed that anything not in the final, written contract was not intended to be a part of the agreement. The rule does allow evidence of agreements made after the contract was signed, as such agreements would not have naturally been included in a final agreement.
- Contracts: Defenses to Formation
I. Five Types of Defenses to Formation
If that voluntary and open atmosphere did not exist, there is a defense to the formation.
- Mistake
- Fraud (also called fraud in the inducement) or misrepresentation
- Duress
- Undue Influence
- Illegality
- Contracts: Defining Performance and Breach
A. Types of Conditions for Performance
- Condition Precedent: qualify for a home mortgage loan before the purchase of her home
- Condition Subsequent: submit a proof of loss by filing with the insurer within 60 days
- Condition Concurrent: A buyer promises to pay for only upon seller’s delivery.
