Contracts in Writing

 Contracts in Writing 

In general, an oral contract is just as valid as a written one. However, when it comes to proving
the existence of a contract or the specific terms of a contract, having the agreement in writing is a
significant benefit. In certain types of contracts, the law requires that it must be in writing.

1. Statute of Frauds: Certain categories of contracts covered by the Statute of Frauds must be
in writing and signed by the party against whom the contract is to be enforced. The following
contracts fall within the coverage of the Statute of Frauds:

a. Promise to be responsible for the debt of another: When a person agrees to be
responsible for the debts of another person, that promise must be in writing and signed.

Example: Ann signs a contract with Fairlane Ford to buy a new Mustang automobile.
Ann’s father also signs the agreement, promising to make the payment if Ann fails to do
so. Since Ann’s father is promising to be responsible for the debt of another person, the
promise must be in writing and signed by him.

Exception: Gordon holds a note from Annette in which Annette promises to repay
$1,000 each month for the next year. Gordon would like to sell the note, and in order to
make the note as attractive as possible, promises to pay the late payment penalty in the
event Annette misses a payment. Even though Gordon is promising to be responsible for
Annette’s debt, the promise is being made for Gordon’s benefit (to make his note as
attractive as possible). In this case, because the primary intent is to benefit Gordon rather
than being responsible for Annette’s debt, the promise need not be in writing.

b. Promises of an executor-administrator: Promises made by an executor of a will or an
administrator of an estate to pay the debts of the decedent out of the executor or
administrator’s own funds are not enforceable unless it is in writing.

1) Promises made by an administrator or executor to pay the debt of the decedent out of
the funds of the decedent’s estate are enforceable even though it is not in writing.

c. Promise to marry: The Statute of Frauds does not apply to mutual promises to marry. It
applies to promises made as a part of a promise to marry.

Example: Johnson promises to marry Taylor and promises to buy a house and put the
house in Taylor’s name. The promise to buy the house must be in writing.

d. Sale of real property: Contracts for the sale of real property must be in writing.

2) Exception for part performance: An oral contract for the sale of real property will
be enforced if the party seeking to enforce the agreement significantly changed his or
her position in reasonable reliance on the oral promise so that it would be unfair not
to enforce the agreement. In most states, the party must have paid all or part of the
purchase price and have either taken possession or started making valuable
improvements to the property.

3) Exception where conveyance has been made: An oral agreement to sell real
property will be upheld where the seller has already conveyed the land to the buyer.

b. Contracts that cannot be performed within one year: If a contract cannot be
performed within one year of the making of the contract, it must be in writing.

1) Possibility of performance: In applying the one-year rule, the court will look at the
agreement and ask if there is any possibility, no matter how unlikely, that the contract
could be performed within one year. If the answer is yes, the contract will be
enforceable even though it is not in writing.

Example: Don’s boss offers Don an oral contract for lifetime employment with his
company. Is this contract enforceable even though it is not in writing? To answer this
question, ask whether this contract could be performed within one year. If the answer
is yes, it need not be in writing. In this case, the answer is yes because Don could die
before the year is up.

(a) Calculation of the time: The year starts from the time the agreement is made, not
from the time when performance is scheduled to start.

(b) Full performance by one party: If one party has fully performed his or her part
of an oral agreement that cannot be completed within one year, the contract is
now enforceable.

(c) Example: A contract to employ Thompson for 13 months must be in writing
since it cannot be performed within one year.

c. Sale of goods in excess of $500: When a contract is made to sell personal property for
$500 or more, it must be in writing. Exceptions are:

1) If a party admits the existence of an oral contract for the sale of goods for $500 or
more, it will be enforced. Such admissions may result from performance over a
period of time.

2) If an oral contract is made for the sale of custom made goods valued at $500 or more,
it will be enforced.

3) When a party actually delivers and accepts goods valued at $500 or more pursuant to
an oral contract, the courts will enforce the contract to the extent of the goods actually
delivered and accepted.

2. Electronic contracts: In most states, an electronic contract that meets the state requirements
for an electronic contract will satisfy the Statute of Fraud requirement for a written contract.

3. Modification of existing contracts within the Statute of Frauds: An oral modification of
an existing contract that falls within the coverage of the Statute of Frauds is not enforceable
if the resulting contract would also fall within the coverage of the Statute of Frauds.

Example: Bill signed a contract promising to be responsible for his son’s debt. If his son
takes on an additional debt, Bill’s promise to be responsible for the additional debt must also
be in writing in order to be enforceable. The additional debt is covered by the Statute of
Frauds.

Example 2: Universal Transport Co and Cindy Barnes entered into a 20 month employment
contract. This contract was in writing in order to comply with the Statute of Frauds (contract
that cannot be performed within one year). A modification of the employment contract
reducing the term of employment to 7 months need not be in writing. This is because the
employment term is less than one year and, therefore, not covered by the Statute of Frauds.

4. What writing is required by the Statute of Frauds: The Statute of Frauds requirement that
the contract be in writing can be satisfied by any writing that contains the following
information:

a. The names of the parties to the agreement
b. The subject matter and essential terms of the agreement
c. The signature of the party to be charged

The contract may simply be a memorandum of understanding between the parties as long
as it contains the information indicated above. The writing may consists of several
memoranda or letters, and the signature may be an abbreviation or printed or typed as
long as it was intended by the party as a substitute for the signature.

5. Consequences when the Statute of Frauds is violated: Generally, a contract that does not
comply with the Statute of Frauds is unenforceable.

a. Fully performed oral contracts: Once the parties to an oral contract fully perform, the
contract is considered to be outside the coverage of the Statute of Frauds.

b. Restitution for services already rendered: If a party partially performs the terms of an
unenforceable oral contract, that party is entitled to restitution for the work that was done
or for the products that were delivered.

c. Promissory Estoppel: Where a party has performed in reliance upon an oral contract,
many courts will enforce the oral agreement if the elements of promissory estoppels are
present.

6. Parol evidence rule: When two parties negotiate a complex contract, there may be numerous
meetings where a number of promises are made. If a contract should result, all the promises
that were made may also become a part of the contract even though they are not included in
the final document (contract). This may prove to be very confusing when it comes time for
the parties to carry out the terms of the contract. The parol evidence rule was developed to
deal with this situation. The rule states that when the parties to a contract agree that the final
contract is complete and contains all the promises and obligations between them, neither
party to the agreement may introduce outside (outside of the contract) evidence that would
vary the terms of the contract. The intent of the rule is to have one written document that
both parties recognize as containing all the terms and conditions of their agreement.

a. Exceptions to the rule: There are a number of cases where outside evidence (parol
evidence) would be allowed to come in. These instances are:

1) Outside evidence that will clarify, explain, and correct: Parol evidence may be
introduced to explain parts of the contract.

2) To show lack of capacity: If one of the parties to the contract lacked capacity, parol
evidence may be introduced to show this.

3) To show defenses to a contract: If there are possible defenses that would make the
contract void or voidable, this evidence (parol evidence) may be introduced.

4) To show that a contract was replaced by another contract: Parol evidence is
always admissible to show that one contract was replaced by another. b. Supplemental evidence: The UCC does allow the following types of evidence to be
introduced in order to explain parts of the existing contract that may be unclear.

1) Course of dealing between the two parties: If previous dealings between the two
parties provide some clue that would help clarify terms of the contract, such evidence
may be admitted.

2) Usage of trade: Accepted practices in a given trade or profession may also be used to
help explain a portion of the contract that is unclear.

3) Course of performance: The extent to which both parties have accepted the
performance of the other party that may not have been specifically indicated in the
contract.

7. Interpretation of contracts: A court will use the following guidelines in interpreting
portions of a contract that may not be clear:

a. Specific contract clauses that are unclear will be interpreted in light of all the
circumstances and the entire contract ,

b. Words will be given their plain and ordinary meaning unless specialize usage is
warranted,

c. Specific and exact terms are given more weight than general language,

d. Specifically negotiated terms will be given greater weight than standardized contract
language,

e. Past performance and common trade terms, where applicable, can be used to clarify terms
in the contract,

f. Where there is inconsistency between written and printed or typed terms, the written
terms will be given greater weight. Where there is inconsistency between printed and
typed terms, the typed terms will be given greater weight.