978-0077733735 Chapter 11 Lecture Notes

Type

Quiz

Book Title

Business Law with UCC Applications 14th Edition

ISBN 13

978-0077733735

April 10, 2019

Chapter 11 - Written Contracts and Cyber-Commerce

Chapter 11

Written Contracts and Cyber-Commerce

I. Key Words

Acknowledgment (p. 266) Main purpose test (p. 259)

Administrator (p. 258) Memorandum (p. 260)

Antenuptial agreement (p. 259) Obligee (p. 259)

Best evidence rule (p. 263) Obligor (p. 259)

Collateral contract (p. 259) Parol evidence rule (p. 261)

Condition precedent (p. 262) Part performance (p. 257)

Cosigner (p. 259) Premarriage agreement (p. 259)

Cyber-signature(p. 270) Prenuptial agreement (p. 259)

Equal dignities rule (p. 263) Primary objective test (p. 259)

Equitable estoppel (p. 257) Standard construction rule (p. 260)

Executor (p. 258) Statute of Frauds (p. 255)

Guarantor (p. 259) Uniform Facsimile Signatures

Guaranty contract (p. 259) of Public Officials Act (p. 264)

Guaranty of payment (p. 259) Workmanlike Manner (p. 268)

Leading objective test (p. 259)

II. Learning Objectives

1. Identify the goals of the Statute of Frauds.

2. Identify those contracts that must be in writing.

3. List the information that must be in the writing.

4. Explain the Standard Construction Rule.

5. Discuss the Parol Evidence Rule.

6. Explain the exceptions to the Parol Evidence Rule.

7. Explain the Best Evidence Rule.

8. Discuss the Equal Dignities Rule.

9. Explain the problems associated with cyber-commerce.

10. Outline the latest cyber-commerce statutes.

III. Major Concepts

11-1 The Statute of Frauds

The Statutes of Frauds outlines six types of contracts that must be in writing to be

enforceable. These include contracts that cannot be completed within one year; contracts

transferring real property rights; contracts for the sale of goods of $500 or more; certain

contracts entered by executors and administrators; contract by one party to pay a debt

incurred by another party; and contracts in consideration of marriage.

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Chapter 11 - Written Contracts and Cyber-Commerce

11-2 Legal Rules for Written Contracts

The legal system has developed certain basic criteria that make the construction and

interpretation of written contracts consistent. These four criteria are (1) the standard

construction rule, (2) the parol evidence rule, (3) the best evidence rule, and (4) the equal

dignities rule.

11-3 Formalities of Construction

Certain formalities are followed in the formation of contracts. Written agreements need

not be signed by both parties. However, any agreement signed by only one party would

obligate only that party. Facsimile signatures are allowed on a contract if the contract

states that such signatures are valid. Some states have statutes allowing facsimile

signatures. Persons who are illiterate usually sign written contracts with an X. Several

states have begun to revise the basic requirements for the written expression of (a)

contracts for the sale or lease of residential real estate; and (b) real property construction

projects, especially involving private homes.

11-4 E-Commerce and the Law

There are problems associated with buying and selling on the Internet. One of these

problems involves the difficulty of verifying the identity of the person on the other side of

an Internet connection. Another involves the question of how to deal with the fact that

electronic transactions do not produce paper documents. In both cases, the law has

provided some solutions to these difficulties. Three laws that address these problems

include the E-Sign Act, the Uniform Electronic Transactions Act (UETA), and the

Uniform Computer Information Transactions Act (UCITA). A fourth act that deals with

the problem of identity theft is the Fair and Accurate Credit Transactions Act (FACT).

IV. Outline

I. The Statute of Frauds (11-1)

A. Contracts that Must Be in Writing

1. If the terms of a contract make it impossible to complete the agreement within one

year, the contract must be in writing.

2. Conveyances of real property must be in writing to be enforceable.

a. In addition to the sale of land, the provision covers trusts that are created by one

party permitting a second party to possess and control land for the advantage of a

third party.

b. Some jurisdictions permit short leases to be oral, but generally a writing is

required for leases of over one year.

c. Most states require that a provision covering security deposits be added to written

leases and have other requirements in regard to leases.

d. The Statute of Frauds requires a writing for different transactions involving land

such as easements and mineral rights.

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Chapter 11 - Written Contracts and Cyber-Commerce

e. Part performance, or equitable estoppel, is an exception to the rule that contracts

for the sale of land must be in writing.

f. No writing is required for a contract in which the owner of land agrees to improve

the land for the use of another party who has already received a partial interest in

the land.

3. Under the UCC contracts for the sale of goods for $500 or more must be in writing to

be enforceable although the following exceptions exist.

a. Oral contracts between merchants when a written confirmation has been received

by one party and not objected to by the other party.

b. Contracts involving specially manufactured goods that cannot be resold easily.

c. Admissions in court.

d. Executed agreements.

4. Any promise to pay the debts of an estate using the executor’s or the administrator’s

own funds is unenforceable without a writing.

5. A promise made by one party to pay another person’s debts if that person fails to pay

the debt falls within the statute of frauds and must be in writing to be enforceable.

a. Terms used to describe such of transactions are guaranty of payment, a guaranty

contract, or a collateral contract.

b. An exception to the rule is the primary objective test under which if the promise

to pay another party’s debt is actually made to obtain a gain for the guarantor,

there is no need for a writing in order to enforce the promise.

6. Agreements made in consideration of marriage must be in writing to be enforceable.

a. This part of the Statute of Frauds does not refer to the marriage contract itself or

to engagement promises to marry.

b. This part of the Statute of Frauds refers to promises made by parties before

marriage in which they accept additional obligations not usually covered in the

marriage vows.

c. A prenuptial agreement (also referred to as a premarriage agreement and an

antenuptial agreement) involves two people who are planning marriage and who

agree to change the property rights they possess by law in a marriage.

d. Many jurisdictions have enacted the Uniform Premarital Agreement Act.

7. Each state has enacted special statutes outlining other agreements that must be in

writing.

a. Other contracts that are usually required by statute to be in writing include the

release of a party from debt and the resumption of obligations after bankruptcy,

and some states require that real estate listing contracts and insurance binders be

in writing.

b. Other contracts requiring a writing under the UCC are contracts for the sale of

securities and agreements creating security interests.

B. The Contents of a Writing

1. The writing must be intelligible but need not follow any preset format.

2. The writing may be embodied in documents such as letters, memos, telegrams,

invoices, and purchase orders.

3. The writing may be in an e-mail, text message, or on a website, so long as it can be

stored and reproduced, and as long as the cyber-record includes an electronic

signature as defined by the appropriate cyber-commerce statute.

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Chapter 11 - Written Contracts and Cyber-Commerce

4. To be complete, a writing should contain the terms of the agreement, an identification

of the subject matter, a statement of the consideration promised, the names and

identities of the persons to be obligated, and the signature of the party sought to be

bound to the agreement.

II. Legal Rules for Written Contracts (11-2)

A. The Standard Construction Rule

1. The standard construction rule guides the entire interpretation process by directing the

interpreter of a contract to determine the principal objective of the parties in making

the contract.

2. Once the principal objective is stated, everything else must be interpreted in order to

promote that objective.

3. Common words used in the contract are given their expected, everyday definition.

4. Technical terms or professional slang will be given their technical or professional

definitions.

5. Whenever an ambiguous term, clause, or line is found in a prewritten or preprinted

contract, that ambiguity is interpreted against the party who wrote the contract.

B. The Parol Evidence Rule

1. Under the parol evidence rule, evidence of oral statements made before signing a

written agreement is usually not admissible in court to change or to contradict the

terms of a written agreement.

2. The parole evidence rule will not apply when unfair and unjust decisions might result

from its application.

3. In cases in which a written agreement is incomplete, oral evidence may be used to

supply missing terms.

4. When a written contract is obscure or indistinct in certain terms, oral evidence may be

used to clarify those terms.

5. If a written agreement contains a typographical or clerical error, the court will allow

oral evidence as to the true intent of the parties.

6. In general, courts allow a party to a written agreement to introduce oral testimony to

show that the contract is void or voidable due to a lack of mutual assent or contractual

capacity.

7. If a written agreement depends on some event before it becomes enforceable, oral

evidence may be offered regarding the condition precedent.

8. Oral evidence may be used to prove that the parties orally agreed to rescind or modify

the terms of a written contract after entering into it.

a. If the change involves an agreement that would have to be in writing under the

Statute of Frauds, then a writing would be required.

b. If the original written contract requires that later modifications be in writing, then

a writing is required.

9. The UCC allows oral testimony about how the parties have done business together

over a long time period.

C. The Best Evidence Rule

1. Under the best evidence rule, the courts generally accept into evidence only the

original of a writing, not a copy.

2. Under this rule a written instrument is regarded as the primary or best possible

evidence.

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Chapter 11 - Written Contracts and Cyber-Commerce

D. The Equal Dignities Rule

1. The equal dignities rule, which is followed in some states, provides that when a party

appoints an agent to negotiate an agreement that must be in writing, the appointment

of the agent must also be in writing.

2. The appointment of an agent to negotiate an agreement that the law does not require

to be in writing may be accomplished through an oral agreement.

III. Formalities of Construction (11-3)

A. Signature Requirements

1. Written agreements should be, but need not be, signed by both parties.

2. If signed by only one party, any obligation on the agreement would be limited to that

party alone.

3. Any mark that the signer intends to be a signature will be the legal signature of that

person.

4. A facsimile signature will be acceptable on a contract if the contract states that

facsimile signatures are valid.

5. Some states have enacted statutes allowing certain facsimile signatures, and some

have adopted the Uniform Facsimile Signatures of Public Officials Act allowing for

the use of facsimile signatures of public officials when certain requirements are met.

6. In cases in which a party cannot sign the written agreement because of some physical

reason, another person may sign for that person; and the circumstances should be

designated on the document.

B. Witnesses and Acknowledgments

1. Witnesses are required in the signing of a will and sometimes a deed.

2. Certain official documents require the owner’s signature and an acknowledgment by a

notary public that the signature was the person’s free act and deed.

C. Special Conditions and Circumstances

1. Several states have begun to revise the basic requirements for some written contracts

involving real property.

2. The first type of contract that has been revised and updated by state law is a contract

for the sale or lease of residential real estate.

3. The second type of contract that has been revised and updated involves real property

construction contracts with the trend today being for the state legislatures to develop

legally binding terms that must be included in all construction contracts but especially

those involving private homes.

4. Home construction contract statutes often stipulate what cannot be in a written

contract.

I. Cyber-Commerce and the Law (11-4)

A. Verification Problems

1. Although most parties find these solutions unacceptable, the problem of verification

may be avoided by delaying the creation of the contract until the identities of the

parties can be verified by means other than by computers or by using a Website only

as an advertisement site.

2. A technique to avoid verification problems is for the parties to an Internet transaction

to customize the verification process for each contract individually, but it is preferable

to have a process that applies to all contracts.

3. A possible solution to the problem of verification is the use of digital signatures.

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Chapter 11 - Written Contracts and Cyber-Commerce

4. A “digital signature” is defined under the Uniform Electronics Transactions Act as

“an “an electronic sound, symbol, or process attached to or logically associated with a

record and executed or adopted by a person with the intent to sign the record.”

5. In regard to offer and acceptance online, an electronic party should ensure that a copy

of the contract is available on a hyperlink.

a. An electronic party should ensure that the following terms appear in an online

agreement package:

(a) The payment procedure.

(b) Limitations on remedies.

(d) The return process.

(e) Dispute settlement, forum selection, and choice-of-law provisions.

(f) The applicability of cyber-signatures.

(g) Liability disclaimers.

(h) Provisions relating to the offeree’s manner of acceptance.

b. In general, a party accepts by clicking on a box.

c. When a cyber-agreement deals with goods, provisions of Article 2 of the UCC

apply.

6. In regard to hyperlinks, courts have rather consistently that terms hidden behind

hyperlinks do not prevent enforceability of contracts so long as the information in the

link itself is not ambiguous, false, or uncertain.

7. Fraudulent clicking on Internet sites causes problems for advertisers who are charged

based on the number of clicks recorded.

B. Cyber-Commerce Legislation

1. The E-Sign Act

a. The federal act states that if the parties to a contract have voluntarily agreed to

transact business electronically, the electronic contract that results will be as

legally acceptable as a paper contract.

b. The parties must be able to store and reproduce the electronic record of the

contract.

c. A few documents are not covered by the statute.

2. The Uniform Electronic Transactions Act (UETA)

a. Under the act, once parties have voluntarily agreed to enter a transaction using an

electronic medium, the agreement that results in electronic form, including the

cyber-signatures, will be as valid as a paper agreement.

b. The act applies only to transactions that involve some sort of commercial,

business, or governmental matter.

c. The law states that if an act, such as the Statute of Frauds, requires a writing and a

signature, a cyber-record and a cyber-signature will fulfill that requirement.

d. Under provisions of the E-Sign Act, the UETA will trump the E-Sign Act

provided that the state that has adopted the UETA has not altered its content.

e. Most states have adopted the UETA, but some have altered its content.

3. The Uniform Computer Information Transactions Act (UCITA)

a. The act focuses on contracts that involve the sale or lease of computer

information.

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Chapter 11 - Written Contracts and Cyber-Commerce

b. The act declares that any transaction entered into using an electronic medium is as

valid as a paper agreement.

c. Not all states have adopted the act.

4. The Fair and Accurate Credit Transactions Act (FACT)

a. This new federal law is designed to cut down on identity theft related to the use of

credit cards.

b. The act prohibits merchants from using credit card receipts that show anything

other than the last five credit card numbers.

c. Receipts cannot display credit card expiration dates.

II. Background Information

A. Historical Notes

1. That witnesses took bribes to perjure themselves in the King’s Court should not be a

surprise in light of the fact that Charles II, who was king when the Statute for the

Prevention of Frauds and Perjuries was passed, frequently took bribes from the French

monarch in exchange for directing British foreign affairs in favor of French interests.

Charles’s successor, James II, also had a habit of suspending the law for his own

purposes, and when James II left the throne, Parliament created a completely

fabricated tale about a voluntary abdication that never really took place. (See

Woodward, E. L. History of England from Roman Times to the End of World War I.

New York: Harper and Row, 1962, pp. 116–120.)

2. Throughout history, requiring orderly form for certain agreements has proved

necessary. Possibly the oldest set of laws written on contracts is in the Babylonian

Code of Hammurabi. Under Roman law, a contract that did not adhere to the legal

requirements could not be enforced.

B. State Variations

1. Under New York law, professional boxer Mike Tyson was held liable for $4.4 million

in damages for breach of an oral contract with his trainer, in which he agreed that his

trainer would represent Tyson “for as long as the boxer fights professionally.”

2. State laws vary regarding the enforceability of prenuptial agreements. For example,

California has specific rules regarding enforceability.

3. Many states’ laws require certain provisions in contracts. For example, in Colorado,

outfitters and guides must provide their clients with written contracts. Massachusetts

has specific rules regarding contracts for customer goods or services over $25 made

away from the place of business of the seller (such as through door-to-door selling),

http://www.mass.gov/ocabr/docs/consumer-university-guide.pdf. Tennessee has

specific rules regarding the requirement of a writing when a bank customer seeks to

enforce a promise to lend money.

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Chapter 11 - Written Contracts and Cyber-Commerce

C. Quotations

1. The family circle has widened. The whirlpool of information fathered by electric

media—movies, Telstar, flight—far surpasses any possible influence mom and dad

can bring to bear. Character no longer is shaped by only two earnest, fumbling experts.

Now all the world’s a stage.

— Marshall McLuhan, The Medium Is the Message

2. It's a very sobering feeling to be up in space and realize that one's safety factor was

determined by the lowest bidder on a government contract.

__ Alan Shepard

III. Terms

1. Executor, executive, and executioner all come from the Latin word sequi, meaning “to

follow.”

2. Both valid and valiant come from the Latin word valere, which means “to be strong

and worthy.”

3. Although the word evidence is most closely related to the Latin diver, meaning “to

see,” it also is associated with the Greek edemas, which means “to know.”

IV. Related Cases

1. Boothby, a top executive for a shoe company, was lured away by a competitor’s agent

to work for the rival firm. The agent assured Boothby orally that his position at the

firm would be permanent. After three years, Boothby was fired. He filed suit against

the firm, claiming breach of contract. The company defended by claiming that the

statute of frauds prohibited the enforcement of the oral agreement. The court ruled in

Boothby’s favor, stating that the statute of frauds “does not apply to contracts which

may be performed within, although they may extend beyond, one year.” Boothby v.

Texon, Inc. 608 N.E. 2d 1028 (Mass. 1993).

2. Mr. and Mrs. Gush made a mostly oral contract with Standard Builders Suppliers,

ordering custom-designed cabinets for their new home. When the Gushes refused to

accept the cabinets, the manufacturer sued for breach of contract. The court ruled that

the contract, though only partly in writing, was valid, since the goods ordered were

specifically manufactured and not suitable for sale to others in the ordinary course of

business. Standard Builders Suppliers v. Gush, 614 N.Y.S.2d 632 (N.Y. App. Div.

1994).

3. A pre-nuptial agreement should have complete disclosure of each party’s assets. One

prenuptial agreement was declared invalid in part because the groom’s assets were not

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Chapter 11 - Written Contracts and Cyber-Commerce

fully disclosed. The bride only knew that her husband-to-be was wealthy, and the

evidence suggested that she underestimated the extent of his wealth. Sogg v. Nevada

State Bank, 832 P.2d 781 (Nev. 1992).

4. In McIntosh v. Murphy, 469 P.2d 177 (Haw. 1970), the court applied equitable

estoppel in regard to an employment contract in order to avoid the effect of the statute

of frauds.

VIII. Teaching Tips and Additional Resources

1. At

http://family.findlaw.com/marriage/marriage-agreements/invalid-prenup-reasons.html

is an article titled “Top 10 Reasons a Premarital Agreement May be Invalid.”

2. A “Prenup Primer” titled “Yes There Is One Thing You Can Learn From Britney –

Get It in Writing” can be found at http://www.msnbc.msn.com/id/15836239/.

3. An article titled “Getting a Bad Rap? Unconscionability in Clickwrap Dispute

Resolution Clauses and a Proposal for Improving the Quality of These Online

Consumer ‘Products’” is available from the Ohio State Journal on Dispute

Resolution, at 26 Ohio St. J. on Disp. Resol. 119 (2011).

4. Information on creating or getting a digital signature is available from Microsoft at

http://office.microsoft.com/en-us/excel-help/get-or-create-your-own-digital-signature-

HA010099764.aspx.

5. An article titled “Click Here to Accept the Terms of Service” is available from the

American Bar Association’s Communications Lawyer publication at

http://www.americanbar.org/publications/communications_lawyer/2015/january/click

_here.html.

6. Ask students if they have encountered Internet fraud and if they have ideas on how to

prevent such fraud.

7. Give students some examples of contracts that will take more than one year to

perform, such as an apartment lease, a construction contract, or a contract for

employment. Make up dates for the contracts, for the start of performance on the

contracts, and for the completion of the performance. Ask students which of the three

dates one year is measured from according to the Statute of Frauds.

8. Pair students up and let them select two or three different types of contracts that

would be covered by the Statute of Frauds. Then have each member of each pair draft

a contract with his or her partner that will meet the requirements of the statute.

Student pairs can trade and compare their contracts.

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Chapter 11 - Written Contracts and Cyber-Commerce

9. When students wonder about how a purely English law like the Statute of Frauds,

became so ingrained within the American legal system, it might be helpful to refer to

Lawrence Friedman’s observations in his book Law in America: “[T]he colonies were

poor in legal sources; few law books were published in the colonies, and lawyers and

judges relied very much on English materials (not that these were themselves at all

common in the colonies).”

10. William Blackstone’s Commentaries on the Laws of England, published in the middle

of the eighteenth century, became a wild best-seller in legal circles on the American

side of the Atlantic. Here, in limpid and elegant English, and in the short space of four

volumes, was a skeleton key to the mysteries of English Law: a guide to its basic

substance.” (See Friedman, Lawrence M. Law in America: A Short History. New

York: The Modern Library, 2002, p. 31.)

11. In his treatise Corbin on Contracts, Arthur Linton Corbin writes, “The third provision

of section 4 is that ‘no action shall be brought . . . to charge any person upon any

agreement made upon consideration of marriage.’ This is obviously aimed at the

fortune hunter; but only at the fortune hunter who is also a perjurer.”

12. An early case that invoked the parol evidence rule took place in 1806 when the buyer

of a ship sued the seller for making a false claim that the ship would be

copper-fastened. The bill of sale included no such provision. The court ruled that

when a written contract is in force, “everything in parol becomes thereby

extinguished.”

13. In your discussion of exceptions to the parol evidence rule, encourage students to

think about activities that they are involved in on a regular basis that require written

contracts. Ask them to share their ideas of universal practices in those areas that

might not be included in a written contract.

14. Ask students to think about the consequences of not having in writing any of the

contracts described under the Statute of Frauds. Ask them to consider what would

happen to the parties involved in each situation. Make sure the class understands that

a failure to comply is not a crime and there is no punishment. Point out that the

contract is simply not enforceable.

15. Invite students to discuss their own related experiences in which oral understanding

superseded written agreement. For example, students may cite job descriptions as

agreements that commonly evolve in this way. Ask students if they think oral

evidence should be more restrictive or whether it should not impact at all on the

enforceability of a contract.

16. Assign students the task of finding out how to become a notary public and what

services can be performed in that capacity. They should investigate legal

requirements, cost, necessary training, and time limitations for the position.

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