978-1305575080 Chapter 16 Solution Manual

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Chapter 16

WRITING, ELECTRONIC FORMS, AND INTERPRETATION OF

CONTRACTS

RESTATEMENT

Some contracts must be in writing to be enforceable. These contracts include contracts that cannot be performed

within one year, contracts for the sale or mortgage of real property, agreements to pay the debt of another,

contracts to marry and contracts for the sale of goods costing $500 or more.

If a contract is required to be in writing, the writing may be a formal contract, but it may also consist of notes,

memos, faxes, letters, or electronic transmissions. Oral contracts that are required to be in writing are

unenforceable, but the courts do recognize certain exceptions such as part performance and reliance.

The parol evidence rule prohibits the use of oral evidence to contradict the terms of a complete, final and

unambiguous contract. The rule is used to prevent parties from denying the existence of a contract or the finality

of its terms. There are some exceptions to the parol evidence rule such as modification of a contract, illegality

and misrepresentation.

Once a contract is reduced to its written form, the interpretation of that contract is important in determining the

parties’ performance and rights. A jury plays a key role in judging the intent of the parties from the words chosen

and the references incorporated. Other rules for interpretation include looking at the whole contract to determine

overall intent or isolating one clause so that the contract is preserved despite an ambiguity in one portion.

Issues in interpretation include the meaning and satisfaction of condition as well as the meaning of contradictory

or ambiguous terms. In interpretation of contracts, courts may also imply terms from industry practice, custom,

statutes, standards of fairness or in order to avoid hardship.

STUDENT LEARNING OUTCOMES

LO.1: Explain when a contract must be evidenced by a writing.

LO.2: Explain the effect of noncompliance with the statute of frauds.

LO.3: Explain the parol evidence rule and the exceptions to this rule.

LO.4: Understand the basic rule of contract construction that a contract is enforced according to its terms.

LO.5: State the rules for interpreting ambiguous terms in a contract.

INSTRUCTOR’S INSIGHTS

Break the chapter down into three components – related Learning Outcomes are indicated in ( ):

1. What is the statute of frauds and what is its impact on the enforceability of contracts?

Discuss when oral contracts are valid

2. What is the parol evidence rule and what does it do?

Present the nature of the parol evidence rule (LO.3)

3. What are the rules of construction and interpretation of contracts?

Explain the role of the intention of the parties in interpretation of contracts (LO.4)

Present the rules for dealing with contradictory, ambiguous and implied terms (LO.5)

CHAPTER OUTLINE

I. What is the Statute of Frauds and What is its Impact on the Enforceability of Contracts?

A. Validity of oral contracts

1. The failure to have a writing does not mean there is no contract

B. Contracts that must be evidenced by a writing (See Figure 16-1 in text)

1. Agreement that cannot be performed within one year after the contract is made

a. The statute of frauds does not apply if it is possible under the terms of the agreement to

perform the contract within one year

CASE BRIEF: Bithoney v. Fulton-DeKalb Hospital

721 S.E. 2d 577 (Ga. App. 2011)

FACTS: Dr. Bithony filed suit against the hospital’s governing board after he accepted an oral

employment offer from the hospital, but the night before he was to begin work, the board did not

approve his hiring. He sued for breach of an oral contract for severance of 15 month’s salary. A

draft employment contract contained a severance provision for “full severance payment” which

would be “for 15 months from the effective date of said termination”.

ISSUE: Was the oral severance agreement barred by the statute of frauds?

REASONING: Contracts that cannot be performed within one year must be in writing. Because the draft

employment agreement provided the severance “shall be payable for 15 months”, it was found

to be a 15-month payment term barred by the statute of frauds.

2. Agreement to sell or a sale of any interest in real property

a. Mortgages

3. Promise to answer for the debt or default of another (guarantor)

a. Main purpose issue

CASE BRIEF: MPI v. Jorge Lopez Ventura

102 S.W.2d 252 (Tex. App. 2003)

FACTS: Joel Burgower owned Material Partnerships, Inc. (MPI), which supplied Sacos

Tubulares del Centro, S.A. de C.V. (Sacos), a Mexican bag manufacturer, with essential

materials to make its products. When MPI was not paid for shipments, MPI insisted that Jorge

Lopez, Sacos’s general manager, personally guarantee all past and future obligations to MPI. In

a letter to Burgower dated September 25, 1998, Lopez wrote:

“I…want to certify you [sic] that I, personally, guaranty all outstanding [sic] and

liabilities of Sacos Tubulares with Material Partnerships as well as future

shipments.”

Lopez drafted the letter himself and signed it over the designation “Jorge Lopez Venture,

General Manager” on the manufacturer’s letterhead. After receiving the September 25 letter,

MPI resumed shipping product to Sacos, sending additional shipments valued at approximately

$200,000. MPI subsequently received one payment of approximately $60,000 from Sacos.

When Sacos did not pay for the additional shipments, MPI stopped shipping to Sacos. The

Sacos plant closed and MPI brought suit in a Texas court against Lopez, claiming he was

individually liable for the corporate debt of over $900,000 under the terms of the personal

guarantee. Lopez contended that he signed the letter in his capacity as general manager of

Sacos as a corporate guarantee and that it was not an enforceable personal guarantee. MPI

contended that the letter was a clear personal guarantee.

ISSUE: Is Lopez bound in a personal capacity for the debt of Sacos, even though his

letter was written on Sacos’ letterhead and his signature was followed by the

designation “General Manager”?

HOLDING: Yes, Lopez’s letter unambiguously expressed intent to be bound by a guaranty and

REASONING: The essential terms of a guarantee agreement required by the statute of frauds were present in

this case. Lopez states in his September 25 letter that “I, personally, guaranty” manifesting an

intent to guarantee; and described the obligation being guaranteed as “all outstandings and

liabilities of Sacos,” as well as “future shipments.” Lopez’s signature over his corporate office

does not render the document ambiguous because the clear intent was expressed in the word

“personally.”

4. Promise by the executor or administrator of a decedent’s estate to pay a claim against the estate

from personal funds

6. Sale of goods

a. Price of $500 ($5,000 revised UCC) or more

7. Promissory estoppel

C. What satisfies the statute of frauds

1. Note or memo

a. Can combine various documents and can now be electronic or via fax

2. Signing

a. Check for local statutes that may be different than material in the text

b. If the subject matter of the contract is one that must be in writing under the statute of frauds,

many states require that the authority of an agent executing the contract on behalf of a principal

3. Content

a. Include all material terms

4. Time of writing – can be contemporaneous or subsequent to negotiations

D. The effect of noncompliance with the statute of frauds

1. Contract that should be in writing under the statute of frauds but is oral is a unenforceable contract

2. Explain that the statute of frauds is used as a defense to a lawsuit and not as an offense. For

example, S owns a lot that B wishes to purchase. They enter into a verbal contract whereby B will

deliver $6,000 at noon on Friday to S, and S will provide B with the deed to the property. If either

3. Recovery of value conferred

a. Quasi contract used to help when value has been given pursuant to oral promise

Emphasize that a party who has conferred some benefit on the other party in an attempt to

perform according to the terms of a verbal contract that violates the statute of frauds may

b. Proof of fraud – fraudulently induced another by oral promise

II. What is the Parol Evidence Rule and What Does it Do?

A. Exclusion of parol evidence

1. Parol evidence will not be allowed to modify or contradict the terms of a written contract that is

complete

3. Reason for the parol evidence rule

a. Stability for contracts

4. Conflict between oral and written contracts

a. Reformation possible if mistake

B. Liberalization of parol evidence rule

1. Been relaxed in some jurisdictions

C. When the parol evidence rule does not apply

1. Incomplete contract

2. Ambiguity

Stress that the parol evidence rule does not apply to subsequent agreements. The parties are free

to modify, cancel, and rescind written contracts previously entered into. In addition, emphasize that

a party can always use evidence to prove that no contract exists. The evidence rule is used to

CASE BRIEF: Bourg v. Bristol Boat Co.

705 A. 2d 969 (R.I. 1998)

FACTS: Bourg hired Bristol to construct and deliver a yacht. Bristol did not live up to their promises and

Bourg and Bristol settled the case with Bourg to pay an additional $135,000 for the yacht and

loan Bristol $80,000. Bourg sued after Bristol failed to make the payments and was awarded

$59,081. Bristol appealed.

ISSUE: Was there an enforceable contract?

REASONING: The settlement accompanying the modification was definitive and there was some performance.

6. Illegality

III. What are the Rules of Construction and Interpretation of Contract?

A. Intention of the parties

2. Objective intent

a. What would a reasonable person believe the parties intended?

3. Meaning of words

a. Ordinary words are given ordinary meaning

4. Incorporation by reference

a. Using another document

5. Expectations vs. meaning

B. Whole contract

1. Construe contract so that all parts have effect

2. Divisible contract

With regard to whole contracts and divisible contracts, have the students solve the following

problem. You will probably find a 50/50 split in the class with regard to the solution. This case

becomes an excellent example of how the parties should have clarified their intention at the

beginning of the contract, as this would have saved them extensive legal fees, court time, and grief

in litigating the case. Emphasize that it is often important to spend a few dollars in the beginning and

Holding; divisibility of contracts. No. The contract was to be regarded as divisible, so the obligation

as to one section of land was distinct from the obligation as to the other section. Because the

3. What constitutes the whole contract

a. Separate papers may or may not be part of the contract

CASE BRIEF: C.A. Acquisition Newco, LLC v. DHL Express (USA), Inc.

795 F. Supp. 2d 140 (D. Mass. 2011)

FACTS: C.A. Acquisition Newco, LLC, is a successor in interest to Cyphermint, Inc. (“CI”), a New York

corporation specializing in software development for self-service kiosks. DHL Express (USA),

Inc., is an Ohio corporation with a principal place of business in Florida. It is a division of DHL

International GmBH, a Deutsche Post Company and express carrier of documents and freight.

Until 2008, DHL provided express pick-up and delivery, including same-day air delivery of letters

and packages throughout the United States.

DHL entered into an agreement with Cyphermint, hoping to expand its customer base by

offering domestic shipping services in retail locations, such as Walgreens and OfficeMax, via

kiosks, or “Shipping Spots.” Customers were able to use the kiosks’ touch screen to pay for

shipping costs and print shipping labels. The contract provided for an initial three-year term

(August 1, 2006, through July 31, 2009) that automatically renewed for two more years unless

either party gave notice of its election not to renew 90 days before the end of the initial contract.

Under the contract, Cyphermint agreed to provide interactive software, enabling customers to

use DHL’s services from the shipping spots. Section 10.5 of the contract governs termination

fees:

There shall be no termination fees for any termination by either party, irrespective of

the reason for such termination, except for a “Material Breach” or as provided pursuant

to the “Statement of Work” (SOW).

The SOW contains the following provision concerning termination fees:

Should DHL terminate this agreement for any reason other than a material breach by

Cyphermint before its termination date, DHL agrees to compensate CI in the amount of

$50,000 per month for each month remaining in the initial term.

In November 2008, DHL decided to end all domestic delivery service within the United States.

CI requested early termination fees under Section 10.5 of the contract of $413,333.33. DHL

refused to pay, contending that Section 2.8 of the contract gave DHL the discretion to control

the number and placement of the shipping spots, and when it ended U.S. domestic operations,

it exercised its discretion to reduce shipping spots to zero.

ISSUE: When DHL permanently reduced the shipping spots to zero, did it “terminate the

agreement” under the plain meaning of the language of the contract?

REASONING: Judgment for CI. In reviewing a document, a court must consider the document as a whole,

rather than attempting to isolate certain parts of it. Even if the court were to accept DHL’s

argument that Section 2.8 gave it blanket authority to reduce or eliminate the shipping spot

project altogether, the outcome would remain the same. The relevant provision in the contract

provides for termination fees without regard to whether the termination was authorized. The

only restriction placed on the recovery of such fees is that they will not be available in the case

of a material breach by Cyphermint. DHL failed to explain how reducing the shipping spots to

zero was in any way different from “terminating” the contract.

C. Contradictory and ambiguous terms

1. Use parole evidence – permissible for clarification

CASE BRIEF: Olander Contracting v. Wachter

643 N.W. 2d 29 (2002)

FACTS: Olander Contracting Co., Wachter and the City of Bismark entered into a water and sewer

contract, which among other things called for the construction of a manhole. Olander installed

the manhole, but it collapsed within a few days. It then installed a second manhole with larger

base for greater support, but it also collapsed soon after installation. Olander then constructed

a third manhole with a significantly larger base. It then sued defendants for damages in excess

of $450,000 for extra work claimed to have been required to complete performance on the

contract. Defendants deny responsibility for the amount sued under the contract, arguing the

contract was clear and unambiguous and the claim therefore should be settled as matter of law

in favor of defendants. Plaintiff argues the contract was ambiguous and should be interpreted

by a jury as a question of fact.

ISSUE: Should the jury interpret the contract to determine its meaning?

REASONING: If the intent of the parties can be ascertained from the agreement alone, interpretation of the

contract is a matter of law. However, if the terms of the contract are ambiguous, extrinsic

evidence regarding parties’ intent may be considered, and the terms of the contract and parties’

intent become questions of fact. The contract does not define unforeseen work or extra work,

and does not specify which party is required to pay for such work. Plausible arguments exist for

both positions. Therefore the contract is ambiguous and should be interpreted by a jury.

2. Nature of writing

a. Can be printed, handwritten, or typewritten

3. Ambiguity

a. There can be more than one reasonable interpretation

b. Students sometimes have problems with the concept of ambiguous language. They see a term,

phrase, or clause as having only one meaning and have difficulty realizing that others could

4. Contradictory

a. E.g., 45¢ vs. 90¢ in two different places

5. Strict construction against drafting party

D. Implied terms

1. The parties failed to provide necessary terms

3. Details of performance

a. Trade practices; reasonable

4. Good faith and fair dealing

CASE BRIEF: Holguin v. Dish Network, LLC

178 Cal. Rptr. 3d 100 (Cal. App. 2014)

FACTS: The Holguins ordered a bundle of services from AT&T and affiliates DISH California and

EchoStar consisting of telephone, Internet, and satellite television services, with Deborah

Holguin signing up with the AT&T sales agents. The installation process did not go as planned.

The DISH technician drilled through a sewer pipe in the Holguins’ wall, fed a satellite television

cable through it, and patched the wall without repairing the sewer pipe. The improper installation

was not discovered until 14 months later. The damaged pipe leaked sewer water into the

surrounding wall cavity and caused mold buildup in the Holguins’ home. As a result, the

Holguins suffered respiratory problems and other health issues. The repair efforts were a

nightmare causing the Holguins to hire their own contractor to complete the remediation work.

The Holguins sued AT&T, DISH, and EchoStar for breach of contract. From a judgment for the

Holguins for $109,000 in compensatory damages and attorney fees, the defendants appealed.

ISSUE: Did the trial court err in interpreting the Holguins’ contract to contain an implied term

requiring the Holguins’ satellite television equipment to be properly installed?

REASONING: It is a the well-settled principle that express contractual terms give rise to implied duties,

violations of which may themselves constitute breaches of contract. Accompanying every

contract is a common-law duty to perform with care, skill, reasonable expedience, and

faithfulness the thing agreed to be done, and a negligent failure to observe any of these

conditions is a tort, as well as a breach of the contract.

AUTHORS’ NOTE: The plaintiff vigorously pursued contract damages in this case and the defendants resisted

this theory because the prevailing party was entitled to attorneys’ fees for breach of

contract under the Residential Customer Agreement applicable in this case. The plaintiffs

were not entitled to attorney fees on the tort theories that were also successfully pursued in

this case.

E. Conduct and custom

1. Conduct of the parties

a. Used to determine what contract means

2. Custom and usage of trade

a. Definitions, e.g., “turn key” construction

F. Avoidance of hardship

1. Unfair advantage to one side is avoided

ANSWERS TO QUESTIONS AND CASE PROBLEMS

1. Effect of written contract on prior oral agreement. No. The written contract made by the parties displaced any

prior oral agreement that they may have made with respect to the twenty -foot strip. Consequently, even if

The case involves the ethical values of integrity, truthfulness, and promise keeping. Whether the decision is

ethical presents a difficult question. If in fact the parties made the alleged agreement with respect to the

2. What is required by “evidenced by a writing”. Yes. The requirement that a contract be evidenced by a writing

does not mean that the contract itself must be in writing and signed by both parties. There is evidence of

3. Statute of frauds; promise to pay debt of another. Yes. The widow has the defense that her promise was not

4. Sufficiency of writing. The court held that leaving out the description of the land reserved out of the tract to

5. Primary purpose exception to statute of frauds. Judgment for Freitag. The promise to pay the bills of the

subcontractor was made by the defendants primarily for their benefit in order to keep the work progressing

The ethical values of promise keeping and integrity are involved. The statute of frauds leaves us with the

question of whether it is ethical to require a person to keep a serious promise. Boeing made the promise to

6. Integration of separate writing to satisfy statute of frauds. No. The ad could not be combined with the signed

7. Statute of frauds and contracts that cannot be performed within one year. There is a contract between the

This decision would appear to be unethical, as ethics would require that a person keep a promise made to

another person. This decision is technically correct as a matter of law because it follows the requirements of

the statute of frauds. The legislature is not exclusively concerned with the right and wrong of a given

8. Prenuptial agreements [§ 0]. The record shows that the husband’s net worth, as of 2002, appeared to be

approximately $22,700,000. After eighteen years of marriage and the birth of four children, the husband filed

an action for divorce in 2003 and sought to enforce the prenuptial agreement. The trial court held the

prenuptial agreement enforceable ruling in accordance with the agreement that the wife was entitled to

9. Interpretation according to unambiguous terms. Judgment for PIC. The contract expressly stated that PIC had

unlimited right to sell where it chose. No exception was made that PIC should not sell to established

This case shows that the mere fact that a hardship exists does not determine the result of the case. PIC

acted within the authority of the express terms of the contract. A court could not imply an antihardship

The ethical values of fairness and doing no economic harm are involved in this case. It is uncertain whether

either party thought, at the time of contracting, that the “freedom to sell” provision gave PIC the right to sell to

customers of MECI. Certainly, if MECI thought that this was the case, it would have objected to the provision.

10. Interpretation of contracts. Yes. The condition of “cannot be sold” referred to some condition or circumstance

independent of the parties. Situations may arise in which the seller wants to reserve the right to cancel the

11. Interpretation. The court held that the typewritten provision on payment was inconsistent with the preprinted

12. In corporation by reference. No. Consolidated was not obligated to arbitrate the dispute under paragraph 17.

Mere reference to another document is not sufficient to incorporate that document into the contract absent

13. Meaning of words in a contract. No. The only evidence was that the insured was intoxicated at the time of the

fatal occurrence. This did not affect the liability of the insurer, as it did not prove “alcoholism.” The latter, by

14. Interpretation standards. Judgment for Grove. The Court held that the offer made by Charbonneau was

ambiguous in that it could refer either to making the hole in one as the hole on the first time around the

course, or to making the hole in one in the same cup on the 8 th hole on the second time around the course,

Authors’ Comments: Students may enjoy discussing the correctness of the court’s decision in this case. A

view supporting Charbonneau Buick follows. A contract is ambiguous if the words used can support the two

15. Parol evidence rule § 5. Judgment for Tambe Electric. The parol evidence of an oral condition precedent

[Tambe Electric v. Home Depot, 856 N.Y. S .2d 373)]

LAWFLIX

The Santa Clause (1996) (PG)

When Scott Calvin (Tim Allen) tries on a Santa Claus suit, he discovers that he has assumed all of Santa’s

responsibility. Calvin tries to challenge his acceptance of the terms of the agreement, and the students can

management system for classroom use.