Contract Law for Paralegals: Traditional and E-Contracts

© 2009 Pearson Education, Upper Saddle River, NJ 07458.All rights reserved

Writing and E-Commerce Signature Law

Chapter 6

14 - 2Reed/Cheeseman: Contract Law for Paralegals © 2009 Pearson Education, Upper Saddle River, NJ 07458.

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Statute of Frauds

State statute that requires certain types of contracts to be in writing. Intended to ensure that the terms of important contracts are not forgotten, misunderstood, or fabricated.

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Most states require the following types of contracts to be in writing:

Contracts involving interests in land Contracts that by their own terms cannot

possibly be performed within one year

Collateral contracts where a person promises

to answer for the debt of another

Promises made in consideration of marriage

14 - 4Reed/Cheeseman: Contract Law for Paralegals © 2009 Pearson Education, Upper Saddle River, NJ 07458.

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Contracts required to be in writing (continued):

Real estate agents’ contracts Agents’ contracts where the

underlying contract must be in writing Promises to write a will Contracts to pay debts barred by the

statute of limitations or discharged in bankruptcy

14 - 5Reed/Cheeseman: Contract Law for Paralegals © 2009 Pearson Education, Upper Saddle River, NJ 07458.

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Contracts required to be in writing (continued):

Contracts to pay compensation for services rendered in negotiating the purchase of a business

Contracts for the sale of goods for more than $500

Finders fee contracts

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Contracts Involving Interests in Land

Any contract that transfers an ownership interest in real property must be in writing under the Statute of Frauds to be enforceable. Real Property Fixtures

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Contracts Involving Interests in Land (continued)

Real Property Land Buildings Trees, Plants, Crops Soil Minerals Timber Other things that

are permanently affixed to the land

Fixtures Personal property

that is permanently affixed to the real property e.g., built-in

cabinets in a house

14 - 8Reed/Cheeseman: Contract Law for Paralegals © 2009 Pearson Education, Upper Saddle River, NJ 07458.

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Contracts Involving Interests in Land (continued)

Other contracts that transfer an ownership interest in land must be in writing under the Statute of Frauds.

These interests include: Mortgages Leases Life Estates Easements

14 - 9Reed/Cheeseman: Contract Law for Paralegals © 2009 Pearson Education, Upper Saddle River, NJ 07458.

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Contracts Involving Interests in Land (continued)

Part Performance ExceptionAn equitable doctrine that allows the court to order an oral contract for the sale of land or transfer of another interest in real property to be specifically performed if it has been partially performed and performance is necessary to avoid injustice.

14 - 10Reed/Cheeseman: Contract Law for Paralegals © 2009 Pearson Education, Upper Saddle River, NJ 07458.

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One Year Rule

An executory contract that cannot be performed by its own terms within one year of its formation must be in writing.

Intended to prevent disputes about contract terms that may otherwise occur toward the end of a long-term contract.

Contract may be oral if the performance of the contract is possible within the one year period.

14 - 11Reed/Cheeseman: Contract Law for Paralegals © 2009 Pearson Education, Upper Saddle River, NJ 07458.

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One Year Rule (continued)

Employment contracts are often for periods longer than one year.

These contracts should be in writing to be enforceable.

14 - 12Reed/Cheeseman: Contract Law for Paralegals © 2009 Pearson Education, Upper Saddle River, NJ 07458.

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Collateral Promises

Collateral Contract – occurs where one person agrees to answer for the debts or duties of another person. Required to be in writing under the

Statute of Frauds. Guaranty Contract – the contract

between the guarantor and the original creditor.

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Original and Guaranty Contracts

Contract No. 1Contract No. 1

Contract No. 2Contract No. 2

Original ContractOriginal Contract

Guaranty ContractGuaranty Contract

Guarantor agrees to Guarantor agrees to pay the debt if the pay the debt if the debtor fails to pay debtor fails to pay the creditor.the creditor.

DebtorDebtor

GuarantoGuarantorr

CreditorCreditor

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Collateral Promises (continued)

The Main Purpose Exception If the main purpose of a transaction

and an oral contract is to provide pecuniary benefit to the guarantor, The collateral contract is treated like

an original contract, and Does not have to be in writing to be

enforced.

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Contracts for the Sale of Goods Section 201 of the Uniform

Commercial Code (UCC) is the basic Statute of Frauds provision for sales contracts.

Contracts for the sale of goods costing $500 or more must be in writing to be enforceable.

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Contracts for the Sale of Goods (continued)

Equal Dignity Rule A rule that states that agents’

contracts to sell property covered by the Statute of Frauds must be in writing to be enforceable.

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Contracts for the Sale of Goods (continued)

Electronic Signature in Global and National Commerce Act (2000)

Federal statute designed to place the world of electronic commerce on a par with the world of paper contracts in the U.S.

Recognizes electronic contracts as meeting the writing requirement of the Statute of Frauds for most contracts.

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Promissory Estoppel

An equitable doctrine that permits enforcement of oral contracts that should have been in writing.

Where this doctrine applies, the promisor is estopped (prevented) from raising the Statute of Frauds as a defense to the enforcement of the oral contract.

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Promissory Estoppel (continued)

The oral promise is enforceable against the promisor if three conditions are met:

1. The promise induces action or forbearance of action by another.

2. The reliance on the oral promise was foreseeable.

3. Injustice can be avoided only by enforcing the oral promise.

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Sufficiency of the Writing

Formality of the Formality of the WritingWriting

Required SignatureRequired Signature

Integration of Integration of Several WritingsSeveral Writings

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Formality of the Writing

Generally, the law only requires a writing containing the essential terms of the parties’ agreement.

Any writing can be enforceable under this rule.

A written contract does not have to be drafted by a lawyer or formally typed to be legally binding.

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Required Signature

The Statute of Frauds and the UCC require the written contract, whatever its form, to be signed by the party against whom enforcement is sought.

The signature of the person who is enforcing the contract is not necessary.

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Required Signature (continued)

Electronic Signature in Global and National Commerce Act (2000)

Recognizes an electronic signature, or E-signature.

The act gives an E-signature the same force and effect as a pen-inscribed signature on paper.

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Integration of Several Writings The combination of several

writings to form a single contract. The entire writing does not have to

appear in one document to be an enforceable contract. Incorporation by reference Implied integration

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Interpreting Contract Words and Terms

If the parties have not defined the words and terms of a contract, the courts apply the following standards of interpretation:

Ordinary words are given their usual meaning according to the dictionary.

Technical words are given their technical meaning unless a different meaning is clearly intended.

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Interpreting Contract Words and Terms (continued)

Specific terms are presumed to qualify general terms.

Where a preprinted form contract is used, Typed words prevail over preprinted

words. Handwritten words prevail over both

preprinted and typed words.

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Interpreting Contract Words and Terms (continued)

If both parties are members of the same trade or profession, words will be given their meaning as used in the trade.

Words will be interpreted to promote the principal object of the contract.

If there is ambiguity in a contract, the ambiguity will be resolved against the party who drafted the contract.

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The Parol Evidence Rule

Parol Evidence – Any oral or written words outside the four corners of the written contract.

Parol Evidence Rule Originally developed by courts as part

of the common law of contracts. The UCC has adopted the parol

evidence rule as part of the law of sales contracts.

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The Parol Evidence Rule (continued)

The rule states that if a written contract is a complete and final statement of the parties’ agreement, any prior or contemporaneous oral or written statements that alter, contradict, or are in addition to the terms of the written contract are inadmissible in court regarding a dispute over the contract.

14 - 30Reed/Cheeseman: Contract Law for Paralegals © 2009 Pearson Education, Upper Saddle River, NJ 07458.

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Exceptions to the Parol Evidence Rule

Parol evidence may be admitted in court if it:

Shows that a contract is void or voidable. e.g., evidence that the contract was

induced by fraud, misrepresentation, duress, undue influence, or mistake.

Explains ambiguous language.

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Exceptions to the Parol Evidence Rule (continued)

Concerns a prior course of dealing or course of performance between the parties or a usage of trade.

Fills in the gaps in the contract. Corrects an obvious clerical or

typographical error. The court can reform the contract to

reflect the correction.

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The Parole Evidence Rule (continued)

Merger, or Integration Clause A clause in a contract that stipulates

that it is a complete integration and the exclusive expression of the parties’ agreement.

Parol evidence may not be introduced to explain, alter, contradict, or add to the terms of the contract.

14 - 33Reed/Cheeseman: Contract Law for Paralegals © 2009 Pearson Education, Upper Saddle River, NJ 07458.

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Writing Requirements for International Contracts

United Nations Convention on Contracts for the International Sale of Goods (CISG)

Article 11 of the Convention states: “A contract of sale need not be concluded

in or evidenced by writing an is not subject to any other requirement as to form.”

“It may be by any means, including witnesses.”

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Writing Requirements for International Contracts (continued)

Article 96, however, authorizes a contracting nation that requires written sales contracts, To stipulate at the time of ratification

that Article 11 (and some other provisions of the Convention) does not apply if any party operates a business in that nation.