978-0077733711 Chapter 16 Lecture Note

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Chapter 16 – Writing

CHAPTER 16

WRITING

I. OBJECTIVES

This chapter is designed to acquaint students with the circumstances under which a contract must be in

writing. It is also designed to teach them about the operation of the parol evidence rule and the basic

rules of contract interpretation. After reading the chapter and attending class, a student should be able

to:

A. List the contracts that must be evidenced by a writing under the Statute of Frauds.

B. Explain the exceptions to the Statute of Frauds.

C. Explain how to satisfy the Statute of Frauds under both the common law and UCC.

D. Explain the parol evidence rule and the exceptions to the rule.

II. ANSWER TO INTRODUCTORY PROBLEM

A. No. This was a contract to answer for the debt of another (a collateral contract) and was within the

statute of frauds. This problem is based on the case of First National Bank in Clarksville v. Moore,

628 S.W.2d 489 (Tex. Ct. App. 1982). In that case, the court held that the main purpose doctrine

did not apply to take the case outside of the statute of frauds because Moore had made the promise

for his own benefit.

B. To satisfy the statute of frauds, a memorandum in writing signed by Moore would have been

necessary.

C. That depends on the nature of the promise, the nature of the writing, and when the promise

was made. The essential promise to pay the debt of another, of course, must be evidenced by

a writing because of the statute of frauds. The parol evidence rule is a concern if the promise

to pay the debt of another was evidenced by a writing and the bank is seeking to enforce

some other oral promise. If the oral promise was made before an integrated writing was

created, the parol evidence rule would bar evidence to add to, alter, or contradict that writing

(subject to the exceptions enumerated in the text). If the writing was only partially integrated,

however, a consistent additional promise could be admitted into evidence. If the promise was

made after the writing was signed, the oral promise could be admitted into evidence and

possibly enforced.

D. Although Moore has the legal right not to pay because of the statute of frauds, he may still have

the ethical duty to pay the debt. Under a deontological approach, keeping one’s word and

respecting another’s property rights have ethical value in themselves. It would be difficult to do a

utilitarian analysis without more facts, but the question would be whether there would be a net

benefit to those affected by Moore’s action. On the surface, it seems unlikely that anyone beside

Moore would be benefited by his refusal to pay the debt.

III. SUGGESTIONS FOR LECTURE PREPARATION

A. Introduction

1. Discuss the variety of functions that writing performs for contracting parties. How can we

fulfill those purposes in e-commerce transactions? You might wish to discuss some of the

statutory proposals that attempt to lay the foundation for accomplishing the functions of

writing in electronic transactions.

2. Discuss the history of the statute of frauds. Students might enjoy the story about the

“contract” for the sale of Fiste, the fighting cock, which was the cause celebre that stimulated

the enactment the first statute of frauds.

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Chapter 16 – Writing

3. Discuss the fact that, contrary to most peoples’ understanding, our legal system does not

require all contracts to be in writing. Why not?

4. Briefly preview the types of contracts that are within the statute of frauds. Note that the

one-year, land, goods, and suretyship or collateral contract provision have the greatest

significance today.

5. Contrast the approach to writing under the CISG (The Global Business Environment, p.

458) with that of U.S. law.

B. Effect of Noncompliance with the Statute of Frauds

1. Discuss the effect of noncompliance with the statute of frauds. Make it clear that

noncompliance with the statute does not make the contract illegal, and that the statute

does not provide a basis for rescinding a contract that has already been performed.

C. Contracts Within the Statute of Frauds

1. Collateral Contracts

a. Explain what a collateral contract is. Refer to the diagram on p. 458 or make a diagram of

a typical collateral contract on the blackboard. Indicate the positions of the guarantor,

principal debtor, and obligee, and point out which of the promises is within the statute of

frauds. Distinguish collateral contracts from the various original contracts that often

involve three-party transactions (e.g., novations, joint liability).

Dynegy, Inc. v. Yates (p. 458): (Note to instructors: The 15th edition contained the

opinion of the Texas Court of Civil Appeals. The decision in the 16th edition is that of

the Supreme Court of Texas, which reversed the lower court’s decision and dismissed

Yates’s case.)

Olis, a former officer of Dynegy, was indicted on multiple counts of securities fraud, mail

and wire fraud, and conspiracy because of his work on a financial transaction while he

was working for Dynegy. The Dynegy board passed a resolution that it would advance

attorney’s fees and expenses to certain officers and directors who were under

investigation. Olis hired Yates to defend him, telling him that Dynegy would be paying

the fees. Yate’s clerk allegedly confirmed this with Dynegy counsel. Dynegy paid part of

the fees but refused to pay the last installment, and Yates sued Dynegy. The issue was

whether the fee arrangement with Dynegy was a collateral contract within the statute of

frauds, or whether it was a primary obligation that did not require a writing. The Supreme

Court of Texas held that it was a collateral contract, that the main purpose exception did

not apply, and that in the absence of a suitable writing, Dynegy’s promise was not

enforceable against it.

Points for Discussion: Don’t the facts here suggest that Dynegy made a primary promise

to pay, not merely a secondary promise that it would pay if Olis didn’t? The fact that Olis

also made a primary promise to pay doesn’t necessarily make Dynegy’s promise

secondary in nature, does it? Walk the students through the main purpose exception to

the writing requirement (assuming, as the court did, that this was a collateral contract).

Do the students agree with the court’s rejection of that exception? Do they agree with the

majority’s decision or, instead, with the dissenting judge’s analysis?

Example: Introductory Problem.

b. Explain the main purpose exception. Note that it is one of the most frequently litigated

doctrines involving the statute of frauds.

Additional Examples: Problem Case #4 and White Stag v. Wind Surfing, Inc., 679 P.2d

312 (Or. Ct. App. 1984) (creditor’s oral promise to supplier to guarantee payment by a

debtor was enforceable under the main purpose exception). Contrast with the

Introductory Problem.

2. Creations and Transfers of Interests in Land

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Chapter 16 – Writing

a. Explain that any creation or transfer of an interest in real property is within the statute of

frauds. If your students have not studied real property, you will probably need to define

what is included in the terms “land” and “real property.” Note that this provision of the

statute of frauds covers the sale of a wide variety of interests in land, not just full

ownership–e.g., easements, mortgages, long-term leases.

b. Distinguish contracts that involve land but do not involve the creation or transfer of an

interest in land. For example, a contract to build a building would not be within the land

provision of the statute of frauds, but a contract to sell the building would be.

c. Discuss the exception for full performance by the vendor. Explain what full performance

by the vendor would be.

Explain the part performance (action in reliance) exception. Discuss the fact that this

exception serves the basic purpose of the statute of frauds because the buyer’s actions are

probative of the existence of a contract; it also permits the court to protect the buyer’s

reliance. Point out that the part performance exception allows the vendee to enforce the

contract through specific performance. Give examples of some situations in which a

vendee’s actions in reliance would be sufficient to enforce an oral contract. Note that

payment alone is not sufficient to justify enforcement of the contract (although the buyer

could get restitution of the money he had paid).

Example: Problem Case #6.

3. Contracts that Cannot Be Performed within One Year

a. Explain the one-year provision. Illustrate how time is computed in determining whether a

contract falls within this provision.

Examples:

1) On May 1, 2015, Wyatt contracts to work for Wilson for an indefinite period of time.

Wyatt eventually works for Wilson for 20 years. CONTRACT IS NOT WITHIN

THE STATUTE OF FRAUDS BECAUSE IT COULD HAVE BEEN PERFORMED

WITHIN ONE YEAR.

2) On May 1, 2015, Wyatt contracts to work for Wilson for 11 months, beginning

immediately. CONTRACT IS NOT WITHIN THE STATUTE OF FRAUDS

BECAUSE IT CAN BE FULLY PERFORMED WITHIN ONE YEAR FROM THE

DATE ON WHICH IT WAS MADE.

3) On May 1, 2015, Wyatt contracts to work for Wilson for one year, beginning June 1,

2015. CONTRACT IS WITHIN THE STATUTE OF FRAUDS BECAUSE IT

CANNOT BE FULLY PERFORMED WITHIN ONE YEAR FROM THE DATE ON

WHICH IT WAS MADE. (Note that according to the terms of the contract,

performance cannot be completed until June 1, 2016–more than one year from May

1, 2015).

b. Note that this provision of the statute of frauds is justified by the need to provide written

evidence of long-term contracts (because memories grow dim). However, this reasoning

does not seem very tenable, given the fact that a long-term contract such as the one in

example #1 above would not even be within the statute of frauds. In England, this

provision has been discarded, but in the United States it has been retained.

Linscott v. Shasteen (p. 462): The Supreme Court of Nebraska holds that a supposed

oral agreement by former partners of a law firm regarding fee division was not

subject to the statute of frauds writing requirement because at the time the agreement

was reached, full performance within a year was possible. The fact that performance

of the agreement stretched out over several years does not mean that full performance

within a year was impossible as of the time the agreement was formed.

Points for Discussion: Note the timing here and how long the parties performed under the

agreement. Emphasize, however, that the impossibility test governs the determination of

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Chapter 16 – Writing

whether a writing is required under the statute of frauds. Is full performance within a

year possible under the terms of the agreement, even if the parties think it is likely that

full performance will take more than a year? If it is possible (despite being unlikely), a

writing is not required. And, of course, as this case demonstrates, the fact that

performance took longer than a year does not mean that full performance within a year

was impossible under the terms of the agreement.

c. In most states, contracts for an indefinite time, such as contracts “for life” or “for

permanent employment” are not within the one-year provision of the statute of frauds,

since performance could be completed within one year.

1. New York and Illinois are two states that treat contracts for lifetime employment as

within the one-year provision of the statute of frauds. See, e.g., McInerny v. Charter

Golf, Inc., 680 N.E.2d 1347 (Sup. Ct. Ill. 1997).

d. Courts tend to construe the one-year provision narrowly, so that contracts that are

susceptible of completion within a year, even if completion within a year is not likely,

generally are held not to be within the statute of frauds.

Example: Problem Case #3.

4. Contracts for Sale of Goods of $500 or More

a. Note that this provision is found in § 2-201 of the UCC. Give some examples of typical

contracts to which it would apply. Emphasize that it applies only when the sales price is

$500 or more.

Example: Problem Case #1.

b. Discuss the requirements of UCC §2-209 as it relates to modifications of contracts within

the statute of frauds.

5. Promise of Executor or Administrator to Pay a Decedent’s Debts Personally

a. Discuss the applicability of this provision and point out the similarity between it and the

collateral contract provision.

6. Contracts in Which Marriage is the Consideration

a. Discuss the nature and applicability of this provision. Point out that no writing is required in

situations involving mutual promises to marry.

D. Requirements of the Statute of Frauds

1. Explain the requirements for the writing. Distinguish a memorandum from a written contract,

and emphasize that a complete written contract is not required by most states to meet the

statute of frauds. The writing may not even be intended to be a contract at all. Note that in

some cases, the writing sufficient to meet the statute of frauds was a letter repudiating the

contract. Note also that the writing can be created at any time up to the time that the lawsuit is

filed.

a. Discuss the requirement of signature by the “party to be charged.” Emphasize that while

it is desirable to have signatures of both parties on the writing, the signature of the party

to be charged is a minimum requirement. Note also that when the writing is signed by

only one of the parties, you have a situation where the contract can be enforced only by

one of the parties (the one who didn’t sign).

b. Discuss the legal meaning of “signature.”

Example: Problem Case #10.

c. Cyberlaw in Action (p. 468): Discuss how writing requirements apply to contracts

transacted electronically. Discuss the application of E-Sign and UETA. Further resources

about E-Sign and UETA are plentiful on the web.

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Chapter 16 – Writing

d. Discuss the basic requirements for the content of the writing in contracts governed by the

common law of contracts and contracts governed by the UCC. Emphasize the UCC’s

requirement that quantity be stated in the writing.

2. Show how different writings can be “tacked” together to satisfy the statute of frauds.

Example: Babdo Sales v. Miller-Wohl Co., 440 F.2d 962 (2d Cir. 1971).

3. Alternative Means of Satisfying the Statute of Frauds in Contracts for the Sale of Goods

a. Discuss why the drafters of the Code provided for alternative means of satisfying the

statute of frauds. What is the underlying assumption? Why haven’t the legislatures

amended the statute of frauds to allow alternative means of satisfying all of the

provisions?

Green Garden Packaging Co., Inc. v. Schoenmann Produce Company, Inc. (p. 468):

Green Garden was a supplier of Shoenmann’s. When Shoenmann was preparing a bid to

provide food for a school district, it asked Green Garden for its information and product

specifications in exchange for its promise to use Green Garden exclusively if it got the

contract. It got the contract, but didn’t purchase Green Garden products and shared Green

Garden’s information with other suppliers. Green Garden sued for breach of contract and

Shoenmann defended based on the goods provision of the statute of frauds. The court

considered the alternative ways of satisfying § 2-201 and found that none of them

applied, so the contract was unenforceable

Points for Discussion: Why was Green Garden’s attempt to use the part performance

exception unsuccessful? Would it have a good argument that providing the confidential

information was payment, which was accepted in exchange for the promised exclusivity?

You may wish to discuss the ethics of Schoenmann’s alleged behavior.

b. Explain and give examples of the four other ways (besides meeting the writing

requirement) of satisfying § 2-201. Note that all of these provisions have something in

common: they all provide fairly persuasive evidence that a contract was made.

Example: Problem Case #1.

c. Note that the merchant’s memo provision requires a writing that satisfies the statute of

frauds in all respects except that it is signed by the charging party instead of the party to

be charged.

d. Students often have trouble with the merchant’s memo exception. It will be helpful to

take the class through an example of two business people making a deal over the

telephone and one of them following it up with a confirmatory letter. Also, students often

confuse the complicated provisions of this exception with the provisions of § 2-207(2)

(because both refer to a person’s objection to terms), so it may be worthwhile for you to

warn them against this possible confusion.

e. Note that the other provisions for alternative ways of satisfying the Code statute of frauds

permit completely oral contracts to be enforced, such as when the party to be charged

admits the contract in court.

E. Promissory Estoppel and the Statute of Frauds

1. Discuss promissory estoppel as a possible way around the statute of frauds. (You may need to

review promissory estoppel briefly and to give an example of how it could be applied in the

context of a statute of frauds issue). Note that there is an active controversy among courts as

to whether it should be applicable. Some courts fear that a promissory estoppel exception

would essentially “eat up” the rule of the statute of frauds.

F. The Parol Evidence Rule

1. Set up an example to show how the parol evidence rule would operate. E.g., John goes

shopping to buy a computer. The salesperson at Compuzone, a retailer of computers, tells

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Chapter 16 – Writing

John that if he buys a computer from Compuzone, Compuzone will service the computer for

free for one year after the warranty expires. John buys the computer from Compuzone, paying

a slightly higher price than he would pay elsewhere because he is attracted by the fact that

Compuzone services its own computers. John signs a contract that says nothing about

Compuzone’s obligation to service the computer, and in fact states that the written contract is

a complete and final statement of the parties’ agreement. The day after the warranty expires,

the computer goes down, and Compuzone refuses to make a free repair. Show how the parol

evidence rule would be applied in this situation. Ask what John should have done to protect

himself.

2. Explain the basic provisions of the parol evidence rule and the ideas underlying the rule.

Jacco & Associates v. HVAC, Inc. (p. 472): The Ohio Court of Appeals holds that the parol

evidence rule bars evidence of a supposed term specifying a particular delivery date, where

the parties’ written agreement specifically stated that no particular delivery date was

guaranteed.

Points for Discussion: The case furnishes a fairly clear, easy-to-understand example of the

parol evidence rule’s operation. Ask the students about each necessary element of the parol

evidence rule (written contract that reasonably appears to be complete integration; party’s

argument that prior term not appearing in written contract was nevertheless part of the

agreement; prior term would add to, alter, or contradict terms of written contract). Stress the

message of the parol evidence rule: If you believe a certain term supposedly agreed to before

the signing of the written contract is part of the deal and that term is important to you, be sure

it shows up in the written document.

Additional Example: Problem Case #5.

3. Ethics in Action (p. 474): The parol evidence rule makes it at least possible for a person

with stronger bargaining power to avoid legal obligation for promises made to him before

the signing of a written contract. As such, it can allow unethical behavior. The exceptions

to the parol evidence rule, modern concepts of unconscionability, and some of the rules of

interpretation, however, operate to reduce the possibility for abuse.

4. Students sometimes get the parol evidence rule mixed up with the statute of frauds. You might

want to distinguish the two. Make clear that the parol evidence rule applies only when there is

a written contract and does not depend upon whether the writing was required under the

statute of frauds.

5. Discuss the circumstances under which parol evidence can be admitted to prove the existence

of additional terms that are consistent with the rest of the contract. Explain and give an

example of a merger clause.

6. Discuss the exceptions to the parol evidence rule. Note that these are situations in which the

writing is not the best evidence of the parties’ agreement or in which the parol evidence is not

being used to contradict the writing.

G. Interpretation of Contracts

1. Discuss courts’ basic methods of interpreting contracts. It would be helpful to present to the

class a sample contract clause that raises interpretation problems to illustrate some of the

problems inherent in interpreting a contract. Have students interpret the meaning of the

clause, and then discuss what assumptions they made and what “rules” they invented.

2. Discuss some of the specific rules of construction that are used to resolve common

interpretation problems.

IV. RECOMMENDED REFERENCES

A. B. E. ALLAN FARNSWORTH, FARNSWORTH ON CONTRACTS (3rd ed. 2004).

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Chapter 16 – Writing

B. Michael B. Metzger & Michael J. Phillips, Promissory Estoppel and Section 2-201 of the U.C.C.,

26 VILL. L. REV. 63 (1980).

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