978-1285427003 Chapter 14 Lecture Note Part 1

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Suggested Additional Assignments

Get it in Writing, and Then Read It

A side benefit of the Statute of Frauds is that the parties end up with a written record of the agreement

they made. However, the value of this memorial is reduced by the fact that many people never look at the

writing, either before or after signing. Most students live in rented accommodations, either dormitories or

apartments, yet many will have never laid eyes on their rental agreement. Ask them to obtain and read

their lease or residency agreement and submit a short summary of (1) one item that surprised them, and

why, (2) two items that seemed unfair, and why; and (3) three items that were incomprehensible, with

their best guess as to what each means.

Research: Written Contract

Students are parties to more contracts than they think. Ask students to review their written contracts with

their cell phone service carrier, their credit card company, a software company, or their own school. Have

them pay particular attention to clauses like: forum selection clauses, arbitration clauses, and choice of

law clauses. Did students realize these terms at the time they entered into the contract? Have students

explain what these terms mean and which clauses most surprised them.

Drafting Exercise: Sales Contract

Students should draft a simple, one-page sales contract for either real estate or goods over $500. They

should type their name on the paper. Students whose college ID numbers end with even digits should do

their best to make this agreement complete and enforceable. Students whose college ID numbers end with

odd digits should deliberately leave out an essential term. In class, students can exchange papers and try

to determine whether the agreement is complete or incomplete.

Chapter Overview

Chapter Theme

The parties to every dispute in this chapter could have avoided litigation with a few carefully crafted

sentences. It is worth the time and effort to write them.

Contracts That Must Be in Writing

The Statute of Frauds: A plaintiff may not enforce any of the following agreements, unless the

agreement, or some memorandum of it, is in writing and signed by the defendant. The agreements that

must be in writing are those:

• For any interest in land;

• That cannot be performed within one year;

• To pay the debt of another;

• Made by an executor of an estate;

• Made in consideration of marriage; and

• For the sale of goods worth $500 or more.

Purpose of the Statute of Frauds

Question: What is the purpose of the Statute of Frauds?

Question: Why has the Statute of Frauds historically included the six types of contract listed in the text?

Question: What is the effect of the Statute of Frauds?

Question: Is unenforceable the same as void?

Question: What is the difference between an unenforceable contract and a void contract?

Answer: The difference is that if the parties do perform the contract, it makes no difference that it was

Question: Is it still true today that the most valuable contracts must be in writing?

Ethics and Oral Agreements

The text poses these questions, based on the hypothetical appearing in the chapter opening:

The law permits Perry to keep all of the lottery money. Is that right? Does Perry have a moral right to

deny Oliver his half-share, when we know the two friends had agreed? Is the Statute of Frauds serving a

useful purpose here? Remember that Parliament passed the original Statute of Frauds believing that a

written document would be more reliable than the testimony of alleged witnesses. If we permitted Oliver

to enforce the oral contract, based on his testimony and that of the witnesses, would we simply be inviting

other plaintiffs to conjure up lottery “contracts” that had never been made?

There are no perfect answers to the questions posed. Clearly, the British Parliament is persuaded that the

evil of the statute largely outweighs the good, which is why it has eliminated the writing requirement for

most contracts. In support of eliminating the statute:

Oliver and Perry had many unbiased witnesses who could demonstrate that the parties arrived at a

clear agreement. There is no ethical reason for Perry to get all the money.

Why should a judge or jury be unable to determine the existence vel non of a contract, when we

entrust the factfinder with far more difficult decisions, such as who committed a murder, whether a

corporation has dominated a market, whether two musical pieces are “substantially similar,” and so

forth?

In support of retaining the statute:

A writing forces one to be cautious in making deals. The Statute of Frauds reminds the parties that

they are engaging in serious business, and forces them to think through details and anticipate

problems and unexpected issues.

Writing an agreement may encourage clarity. When the parties read the first draft of an agreement,

they may realize that certain topics that seemed settled are filled with ambiguity. Far better to resolve

the ambiguities now, rather than in court.

Landmark Case: The Lessee of Richardson v. Campbell 1

Facts: A tenant had rented land from Richardson. However, Campbell claimed the property was really

his. Unless the tenant could prove that Richardson owned the land, he would have no right to stay

there.

Richardson’s tenant offered a deed (which was then called a patent) to support his claim; Campbell

provided receipts as evidence that he had bought the property.

1 1 U.S. 10, Supreme Court of Pennsylvania, 1764.

To prove that the receipts were for the disputed property, Campbell wanted to introduce statements

from an important person — Thomas Penn, whose father, William, had founded the Pennsylvania

colony. Obviously, the tenant did not want that evidence admitted in court.

Issue: Was oral evidence about the ownership of land admissible in court?

Decision: No. Oral evidence is not admissible in court to prove ownership of land.

Excerpts from Justice Coleman’s Decision: Plaintiff supported his Title by a patent. The Defendant

produced receipts several years prior to Plaintiff’s patent; but Plaintiff contend[ed] that the receipts

were only for money paid on an adjacent tract; the Defendant produced a Witness to prove a parol

Declaration of Mr. Thomas Penn that the land in dispute was sold to Defendant.

This piece of evidence was opposed by Plaintiff, and refused by the Court.

Question: Did this issue fall under the Statute of Frauds?

Answer: Although the Statute of Frauds was not specifically mentioned, this case appears to be one

Question: What kind of evidence was the oral evidence in the case?

Question: Why require a writing, when the Defendant produced evidence that may have been

sufficient to prove ownership of the land?

Answer: In order to avoid situations where perjury is a possibility. By requiring a writing to prove

Agreements for an Interest in Land

A contract for the sale of any interest in land must be in writing to be enforceable. “Interest in land”

means any legal right regarding land, including a house on a lot, a mortgage, an easement, and a lease

(except short-term leases of one year or less).

Exception: Full Performance by the Seller

If the seller completely performs her side of a contract for an interest in land, a court is likely to enforce

the agreement even if it was oral. The delivery of the deed by the seller is an example of full performance.

Exception: Part Performance by the Buyer

The buyer of land may be able to enforce an oral contract if she paid part of the purchase price and either

entered upon the land or made improvements to it. Most claims of part performance fail, however. Merely

paying a deposit on a house is not part performance. A plaintiff seeking to rely on part performance must

show partial payment and either entrance onto the land or physical improvements to it.

Exception: Promissory Estoppel

If a promisor makes an oral promise that should reasonably cause the promisee to rely on it, and the

promisee does rely, the promisee may be able to enforce the promise, despite the Statute of Frauds, if that

is the only way to avoid injustice.

Additional Case: Baker v Daves2

Facts: Tommy and Eleanor Daves gave their daughter Lisa Baker the deed to a two-acre property with a

house on it, keeping for them a life interest in the parcel. When they died, the property was to return to

their daughter. Two years later Tommy and Eleanor divorced and settled their affairs amicably. In court,

with Baker watching from the second row, their lawyers informed the court of an agreement that all three

parties had allegedly made to sell the two-acre property. Baker would be reimbursed for taxes and

insurance paid during her ownership and the three of them would split the remainder of the sale proceeds.

After the agreement was announced in court, Baker put the property on the market, but then withdrew it

and refused to sell. Tommy sued Baker and she defended based on the Statute of Frauds. The trial court

acknowledged that Baker had signed nothing, but found that the courtroom statements proved the parties

had formed a binding contract. The judge ordered Baker to sell the house and she appealed.

Issue: Was Lisa obligated to sell the house?

Holding: Judgment for Daves reversed and remanded. The record of the court proceedings, introduced as

an exhibit, showed that there was testimony in open court reciting the details of the purported sales

transaction. Baker contends that she never agreed to sell the property and that “even if some of the parties

thought there was an agreement to sell the land, it cannot be enforced since it was not in writing.” The

record does not reveal any writing signed by Baker, or by any other person properly authorized by her, to

sell the property. The fact that appellant was present in the courtroom when the property-settlement

agreement was read into the record during the Daves’s divorce proceedings is of no benefit to Daves

under these circumstances.

One judge dissented and would have affirmed the trial court’s decision, arguing that Baker was

present in court when the agreement was discussed and that she admitted listing the property for sale

pursuant to the agreement.

Question: What is a life interest?

Question: What evidence does the court rely on in ruling for Baker?

Question: What argument did the Daves make based on the courtroom testimony?

Question: Did they rely on anything else?

Question: What is the significance of Baker listing the property for sale?

Question: What is partial performance?

Answer: Partial performance is an exception to the Statute of Frauds in the sale of land. If makes an

Question: Why didn’t partial performance apply here?

Question: Can’t the court construe listing the land for sale as proof of the oral agreement with her

parents?

Question: Isn’t that unethical for Baker to ignore her promise? Shouldn’t the law support ethics?

2 83 Ark. App. 145, 119 S.W.3d 53 Court of Appeals of Arkansas, 2003.

Answer: The rationale for not enforcing an oral agreement is that this will protect all buyers and

Agreements That Cannot Be Performed Within One Year

Contracts that cannot be performed within one year are unenforceable unless they are in writing. The one

year period begins on the date the parties make the agreement. If a contract could possibly be completed

within one year, it need not be in writing.

You Be The Judge: Sawyer v. Mills3

Facts: Barbara Sawyer, a paralegal, worked for attorney Melbourne Mills, assisting him in a class action

lawsuit against the makers of a popular diet drug called Fen-Phen. Mills promised Sawyer a large bonus

“when the ship comes in,” but he never specified how much he would pay her. Mills successfully settled

the Fen-Phen case for millions of dollars, and he later met with Sawyer and her husband to discuss her

bonus. The Sawyers secretly recorded the conversation.

The Sawyers asked Mills for a $1 million bonus, to be paid as a lump sum. Mills refused. However, the

parties kept talking and Mills eventually agreed to pay Sawyer $1 million, plus $65,000 for a luxury

automobile. Payments were to be made in monthly installments of $10,000, for 10 years. Mills also

agreed to sign a document confirming his promise. Sawyer’s lawyer drafted the writing, but Mills never

signed it. He did pay nine monthly installments, along with an extra payment of $100,000.

At trial, jurors heard the tape recording, which confirmed the oral agreement. The jury concluded that the

parties had reached a binding agreement and awarded Sawyer $900,000. However, the court granted a

judgment notwithstanding the verdict for Mills. He ruled that the agreement was barred by the Statute of

Frauds. Sawyer appealed.

You Be the Judge: Does the Statute of Frauds prevent enforcement of Mills’ promise?

Argument for Sawyer:

The Statute of Frauds exists to make sure that a plaintiff does not come into court and allege an oral

promise that never existed. The fear of fraudulent claims is legitimate, but obviously it does not apply in

this case. We know that Mills agreed to pay a million dollars because we can hear him make the promise.

We know the exact terms of the agreement, and we know it was a reasonable arrangement based on years

of work and a massive settlement. We even hear Mills agree to sign a document confirming his promise.

The Statute of Frauds was designed to prevent fraud—not encourage it. Mills’s tiresome, technical

arguments did not fool the jurors. After hearing—literally—the evidence, the jury knew there had been a

deal and awarded Sawyer her fair share. Let’s stop playing legal games, start doing justice, and restore the

verdict.

Argument for Mills:

This is a simple case. The plaintiffs allege an oral contract for 10 years’ worth of installment payments. In

other words, if there was an agreement, it was for 10 years’ duration. Sawyer’s own lawyer drafted a

contract—never signed—for compensation lasting a full decade. Under the Statute of Frauds, an

agreement that cannot be performed within one year is unenforceable unless written and signed. End of

case.

If our legislature wanted to encourage secret tape recordings and deception, it could have included an

exception to the Statute of Frauds, giving tricky plaintiffs a reward for bad-faith negotiating. However, the

legislators wisely have made no such exception. The alleged oral contract is worthless.

3 2007 WL 1113038. Kentucky Court of Appeals, 2007.

Decision: Yes, The order for Judgment Notwithstanding the Verdict (JNOV) is affirmed. According to the

court, the undisputed testimony from Sawyer, her husband, and her attorney and a draft agreement of the

parties’ conversation regarding the bonus, coupled with the tape recording of that conversation, all

confirmed that the parties agreed the bonus would be paid in monthly installments over 107 months. The

tape recording clearly showed that Mills never intended to pay Sawyer the bonus as a lump sum and

Sawyer was recorded agreeing to the monthly payments. Thus, the parties never contemplated that the

bonus would be paid within one year, and therefore the oral promise is not enforceable.

Question: Didn’t Mills agree to pay Sawyer $10,000 for ten years?

Question: Is it fair that he can make that promise then not honor it?

Answer: Perhaps not. But the point of Statute of Frauds is to force people to be wary of relying on

oral promises. In this case, the court noted that Sawyer did have a lawyer draft a contract

checks constitute a “writing”?

Answer: Sawyer tried to make this clam, but the court did not agree. According to the court, the nine

Additional Case: Bed, Bath & Beyond of La Jolla, Inc. v La Jolla Village

Square Venture Partners4

Facts: From May 1992 through January 1993, Plaintiff Bed, Bath & Beyond negotiated with Defendant

La Jolla Village Square Venture Partners (“La Jolla”) for a lease of retail space in La Jolla Village Square,

a shopping center La Jolla was then in the process of building. In February 1993, La Jolla’s legal

representative in the negotiations presented Plaintiff with four copies of a proposed written lease

agreement and guaranty agreement to be executed by Plaintiff and its guarantor, Plaintiff’s parent

corporation. The cover letter accompanying these documents requested the documents be executed by

Plaintiff and its guarantor and returned to La Jolla’s legal representative for “execution by the Landlord.”

Plaintiff signed the lease and its parent corporation signed the guaranty. The documents were then

returned to Defendant for execution. Defendant never executed the lease. In late March 1993, Defendant

informed Plaintiff that it intended to lease the subject premises to Linens ‘N Things, Plaintiff’s competitor.

Prior to that communication, Plaintiff was unaware that La Jolla had been negotiating with Linens ‘N

Things. Plaintiff sued Defendant for specific performance, breach of contract, and fraud and asked the

court to enjoin Defendant from proceeding with the Linens ‘N Things lease. Defendant moved for

summary adjudication on Plaintiff’s claims and injunctive relief. The factual predicate to each of the

causes of action is a valid, enforceable lease. The court granted Defendant’s motion and Plaintiff

appealed.

Issue: Was the lease between Plaintiff and Defendant subject to the Statute of Frauds?

Holding: Judgment for Defendant affirmed. Excerpts from the court’s opinion:

Three different “statutes of fraud” apply to bar enforcement of the alleged lease agreement in this

case.

Civil Code section 1624, subdivision (d) specifies, as a type of contract which is invalid

unless it is in writing and subscribed by the party to be charged, “[a]n agreement. .. to lease real

estate for a longer period than one year. .. .”

4 60 Cal. Rptr. 2d 830, 52 Cal. App. 4th 867 Court of Appeal of California, Fourth Appellate District,

Division One, 1997.

Civil Code section 1091 provides: “An estate in real property, other than an estate at will

or for a term not exceeding one year, can be transferred only by operation of law, or by an

instrument in writing, subscribed by the party disposing of the same, or by his agent thereunto

authorized by writing.”

Similarly, Code of Civil Procedure section 1971 provides, in pertinent part: “No estate or

interest in real property, other than for leases for a term not exceeding one year.. . can be created,

granted, assigned, surrendered, or declared, otherwise than by operation of law, or a conveyance

or other instrument in writing, subscribed by the party creating, granting, assigning, surrendering,

or declaring the same, or by the party’s lawful agent thereunto authorized by writing.”

Plaintiff contends the lease agreement is not subject to the Statute of Frauds because it possibly could

have been performed within one year from the date of its making. Plaintiff’s argument rests on two

provisions in the unexecuted written lease. The first provided the tenant could terminate the lease before

the rental term commenced if the landlord failed to begin certain preparatory work on the leased premises

by June 1, 1993, or substantially complete that work by December 31, 1993. The second gave the

landlord the right to terminate the lease before commencement of the rental term if the landlord was

unable to obtain the various governmental permits and approvals required for construction of the premises

despite exercising diligence and good faith in attempting to do so.

The provisions of Civil Code section 1624, subdivision (d), along with Civil Code section 1091 and

Code of Civil Procedure section 1971, render the alleged lease unenforceable despite its

pre-commencement termination provisions because the actual term of the lease exceeds one year. We hold

that an agreement to lease real property for a term exceeding one year is within the Statute of Frauds of

Civil Code section 1624, subdivision (d) regardless whether such agreement provides that it may be

canceled or terminated within one year of the date of its making and prior to commencement of the lease

term.

Question: What were the two special provisions in the original, unexecuted written lease?

Answer: The first provision allowed the tenant to terminate the lease before the rental term

commenced if the landlord failed to begin certain preparatory work on the leased premises by June 1,

Question: Did either of these provisions matter in the end? Why or why not?

Promise to Pay Debt of Another

When one person agrees to pay the debt of another as a favor to that debtor, it is called a collateral

promise, and it must be in writing to be enforceable. However, when the promisor guarantees to pay the

debt of another and the leading object of the promise is some benefit to the promisor himself, then the

contract will be enforceable even if unwritten. In other words, if the promisor makes the guarantee not as

a favor to the debtor, but primarily out of self-interest, then the Statute of Frauds does not apply, and the

contract need not be in writing to be enforceable.

Promise Made by Executor of an Estate

When the executor of an estate promises to pay the estate’s debts with her own funds, the executor’s

promise must be in writing to be enforceable. An executor is the person who is in charge of an estate after

someone dies. The executor’s job is to pay debts of the deceased, obtain money owed to him, and disburse

the assets according to the will.

Promise Made in Consideration of Marriage

A promise made in consideration of marriage must be in writing to be enforceable.

What the Writing Must Contain

Common Law Statute of Frauds

The writing may consist of more than one document, and must

• be signed by the party to be charged (the party against whom enforcement of the agreement is

sought), and

• state with reasonable certainty the name of each party, the subject matter of the agreement, and all

of the essential terms and promises.

Additional Case: Ahrens v. Dodd5

Mr. and Ms. Ahrens wanted to buy a trailer court owned by Charles Dodd. The Ahrenses drafted and

signed a contract to buy “Blue Bell Trailer Court” for $305,000. The contract stated that the trailer court

included 31 acres. Dodd held the deed to a 33.72-acre tract of land; the land included the 31 acres of Blue

Bell Court and two more acres on which Dodd lived. The Ahrenses wrote a check to Dodd for $65,000,

noting “trailer park” on the check. Dodd cashed the check. Later, Dodd refused to sell the trailer park to

the Ahrenses, who sued.

Question: This case raises two issues under the Statute of Frauds. What are they?

Question: The court held that the contract, together with the check, satisfied the writing requirement.

Was the writing clear and complete?

Answer. No, it was not. It was unclear exactly where the land’s boundaries lay. “Blue Bell Court”

indicated the existing trailer park, but it was clear from the contract that the Ahrenses did not expect

Electronic Contracts and Signatures

What happens to the writing requirement, when there is no paper? The present Statute of Frauds requires

some sort of “signature.” Today, an “electronic signature” could mean a name typed (or automatically

included) at the bottom of an e-mail message, a retinal or vocal scan, or a name signed by electronic pen

on a writing tablet, among others.

E-signatures are valid in all 50 states. Almost all states have adopted the Uniform Electronic Transactions

Act, which declares that electronic contracts and signatures are as enforceable as those on paper. In other

words, the normal rules of contract law apply, and neither party can avoid such a deal merely because it

originated in cyberspace. A federal statute, The Electronic Signatures in Global and National

Commerce Act (E-SIGN), also declares that contracts cannot be denied enforcement simply because

they are in electronic form, or signed electronically. It applies in states that have not adopted UETA.

In many states, certain documents still require a traditional (non-electronic) signature. Wills, adoptions,

court orders, and notice of foreclosure are common exceptions.

5 863 S.W.2d 611, 1992 Mo. App. LEXIS 1587 Court of Appeals of Missouri, 1992.

The UCC’s Statute of Frauds

The Uniform Commercial Code (UCC) requires a writing for the sale of goods worth $500 or more. The

Code’s requirements are easier to meet than those of the common law. UCC §2-201, the Statute of Frauds

section, has three important elements:

1. The basic rule

2. The merchants’ exception

3. Special circumstances

UCC §2-201(1)—THE BASIC RULE

A contract for the sale of goods worth $500 or more is not enforceable unless there is some writing,

signed by the defendant, indicating that the parties reached an agreement. The key difference between the

common law rule and the UCC rule is that the Code does not require all of the terms of the agreement to

be in writing. The Code looks for something simpler: an indication that the parties reached an agreement.

Sale of Goods Distinguished from Other Contracts

Under UCC §2-201(1), a contract for the sale of goods worth $500 or more is not enforceable unless there

is some writing, signed by the defendant, indicating that the parties reached an agreement. The common

law requires that all terms of the agreement be in writing; the UCC does not. It requires writing

containing an indication that the parties reached an agreement, and a statement of the quantity of goods

being sold.

For example, suppose Antonia has just made two excellent business deals on the phone. In the first

she agreed to buy Natalie’s condominium in Fort Myers, Florida. In the second, she ordered 1,000 tons of

gravel from Butch’s Gravel Co.

Natalie faxes this memo to Antonia:

Dear Antonia–This will confirm our agreement that you will buy my condo in Ft. Myers, Florida

[Signed] Natalie.

Butch faxes this memo to Antonia:

Toni–This confirms I’m selling 1,000 tons of Grade 3 gravel.

[Signed] Butch.

Question: What is missing from each fax?

Answer: Natalie’s fax omits the price, a description of the unit, the time, and place of performance, and

Question: Natalie and Butch both refuse to go through with their agreements. Antonia sues both. Who

will win her suit against Natalie?

Answer: Natalie wins. The agreement is in writing and signed by the defendant–Natalie–but it is not

Question: Who will win Antonia’s suit against Butch?

Answer: Antonia wins. Butch’s fax is no more specific than Natalie’s, but the UCC does not demand

UCC §2-201(2)—The Merchants’ Exception

When both parties are “merchants,” that is, business people who routinely deal in the goods being sold,

the Code will accept an even more informal writing. If a merchant sends a written confirmation of an oral

contract to another within a reasonable time of making the contract, and if the confirmation is definite

enough to bind the sender herself, then the merchant who receives the confirmation will also be bound by

it unless he objects in writing within 10 days.