CHAPTER CHAPTER 1010Legal Purpose Legal Purpose

and Proper Formand Proper Form10-1 Illegal Agreements10-1 Illegal Agreements

10-2 The Statute of Frauds10-2 The Statute of Frauds

10-110-1 Illegal Agreements Illegal Agreements

GOALSGOALS

Identify various forms of illegal Identify various forms of illegal agreementsagreements

Distinguish agreements that, although Distinguish agreements that, although illegal, the courts will enforceillegal, the courts will enforce

FOCUSFOCUS

Identify types of contracts that society, Identify types of contracts that society, through its courts of law, should not through its courts of law, should not enforce even though all the essential enforce even though all the essential elements for an enforceable contract are elements for an enforceable contract are present.present.

WHICH AGREEMENTS WHICH AGREEMENTS ARE ILLEGAL?ARE ILLEGAL?

Illegal lotteries – Most states forbid or regulate gambling Illegal lotteries – Most states forbid or regulate gambling with statutes. with statutes. – To be a To be a lottery lottery you haveyou have

A prizeA prizeA chance (winner determined by luck)A chance (winner determined by luck)Consideration (payment to participate)Consideration (payment to participate)

– A A WagerWager – most common form of gambling. bet on the – most common form of gambling. bet on the uncertain outcome of an event.uncertain outcome of an event.

– Legalized gambling could be:Legalized gambling could be:CasinosCasinosPari-mutuel betting – betting in which the winner share the total Pari-mutuel betting – betting in which the winner share the total prize poolprize poolState-run lotteriesState-run lotteriesBingo games and pull-tab bettingBingo games and pull-tab betting

WHICH AGREEMENTS WHICH AGREEMENTS ARE ILLEGAL?ARE ILLEGAL?

Agreements to pay usurious interest – lending money at Agreements to pay usurious interest – lending money at a rate higher than the state maximum allowable rate.a rate higher than the state maximum allowable rate.– If no rate is stated you pay the legal rate of interest which is If no rate is stated you pay the legal rate of interest which is

specified by state statute. (7 to 12%)specified by state statute. (7 to 12%)– Higher rates are allowed for loan companies and pawnbrokers.Higher rates are allowed for loan companies and pawnbrokers.

Agreements involving illegal discriminationAgreements involving illegal discrimination

Agreements that obstruct legal proceduresAgreements that obstruct legal procedures– Includes to pay non-expert witnesses in a trial to testify, or pay Includes to pay non-expert witnesses in a trial to testify, or pay

for false testimony, bribe jurors, refrain from informing on or for false testimony, bribe jurors, refrain from informing on or prosecuting an alleged crime in exchange for money or other prosecuting an alleged crime in exchange for money or other

consideration. (Called consideration. (Called Compounding a crimeCompounding a crime))

WHICH AGREEMENTS WHICH AGREEMENTS ARE ILLEGAL?ARE ILLEGAL?

Agreements made without a required Agreements made without a required competency license – competency license – – Competency licenseCompetency license - persons need in certain - persons need in certain

occupations. Persons who lack the required occupations. Persons who lack the required competency license may not enforce the contracts competency license may not enforce the contracts they make in doing the regulated work.they make in doing the regulated work.

Agreements that affect marriage Agreements that affect marriage negativelynegatively

WHICH AGREEMENTS WHICH AGREEMENTS ARE ILLEGAL?ARE ILLEGAL?

Agreements that restrain trade unreasonably – US economic system Agreements that restrain trade unreasonably – US economic system based on free and open competition. based on free and open competition.

– Price fixingPrice fixing – crime under federal law. Agreements to fix prices – crime under federal law. Agreements to fix prices are therefore unenforceable. When competing firms agree on the are therefore unenforceable. When competing firms agree on the same price to be charged for a product.same price to be charged for a product.

bid riggingbid rigging – occurs when competitors who bid on jobs agree – occurs when competitors who bid on jobs agree that one bidder will have the lowest bid for a particular job. that one bidder will have the lowest bid for a particular job. They take turns being the lowest bidder.They take turns being the lowest bidder.

– Resale price maintenance – illegal to for manufacturers to agree Resale price maintenance – illegal to for manufacturers to agree with retailers to sell the product at a particular price. (Can have a with retailers to sell the product at a particular price. (Can have a suggested retail price.)suggested retail price.)

QuestionsQuestions

Razer agreed with several published articles that Razer agreed with several published articles that criticized laws prohibiting the production, possession, criticized laws prohibiting the production, possession, and use of marijuana. The authors of the articles and use of marijuana. The authors of the articles claimed such legislation was unrealistic and often claimed such legislation was unrealistic and often violated civil rights. Razer agreed so heartily that he violated civil rights. Razer agreed so heartily that he bought several dozen marijuana plants from a friend, bought several dozen marijuana plants from a friend, Sara. Then he rented a patch of isolated land and Sara. Then he rented a patch of isolated land and persuaded the owner, Tom to accept a share of the persuaded the owner, Tom to accept a share of the proceeds from the sale of the anticipated crop as rent. proceeds from the sale of the anticipated crop as rent. After harvesting the first crop, Razer sold most of the After harvesting the first crop, Razer sold most of the product to a local drug dealer for $7500. Were any of product to a local drug dealer for $7500. Were any of Razer’s agreement illegal?Razer’s agreement illegal?

All of the agreements were criminal and therefore void.All of the agreements were criminal and therefore void.

Agreements not to compete?Agreements not to compete?

– Allocation of markets – when competitors divide Allocation of markets – when competitors divide markets between themselves. markets between themselves.

– Agreements not to compete – are illegal except when Agreements not to compete – are illegal except when persons are hired they have a non-compete clause. persons are hired they have a non-compete clause. They become illegal if unreasonable:They become illegal if unreasonable:

Time period for the limitationTime period for the limitation

Geographic areaGeographic area

employer’s interest protected by the limitationemployer’s interest protected by the limitation

Name four of the eight illegal agreements discussed in this section.

Illegal lotteries, usurious loans, discriminatory agreements, agreements that obstruct legal procedures, agreements made without a competency license, agreements that affect marriage negatively, agreements that restrain trade unreasonably, agreements not to compete.

WHEN WILL THE COURTS WHEN WILL THE COURTS ENFORCE ILLEGAL AGREEMENTS?ENFORCE ILLEGAL AGREEMENTS?

Most illegal contracts are void and unenforceable. Except when Most illegal contracts are void and unenforceable. Except when connection between illegality and the agreement is small or there is connection between illegality and the agreement is small or there is an innocent party. In these cases restitution is allowed.an innocent party. In these cases restitution is allowed.– Restitution – recovery of considerationRestitution – recovery of consideration

Protected victims – If contact violates a law designed to protect a Protected victims – If contact violates a law designed to protect a party to the agreement. The victim may obtain restitution.party to the agreement. The victim may obtain restitution.– If agreement was created by fraud, duress, misrepresentation, or undue If agreement was created by fraud, duress, misrepresentation, or undue

influence, the victim may obtain restitution.influence, the victim may obtain restitution.

The excusably ignorant – can either enforce the legal part of the The excusably ignorant – can either enforce the legal part of the contract or obtain restitution. This person who:contract or obtain restitution. This person who:

Does not know the contract is illegal but,Does not know the contract is illegal but,The other party knows the transaction is illegal andThe other party knows the transaction is illegal andthe illegality is minor.the illegality is minor.

WHEN WILL THE COURTS WHEN WILL THE COURTS ENFORCE ILLEGAL AGREEMENTS?ENFORCE ILLEGAL AGREEMENTS?

Rescission prior to illegal act – if a party rescinds before the illegal act Rescission prior to illegal act – if a party rescinds before the illegal act occurs, then restitution will be available.occurs, then restitution will be available.

Divisible contracts – Contracts can contain a combination of legal and illegal Divisible contracts – Contracts can contain a combination of legal and illegal provisions. Courts may enforce the legal part of a contract if it is divisible.provisions. Courts may enforce the legal part of a contract if it is divisible.

Divisible – means that separate consideration is given for the legal and illegal partsDivisible – means that separate consideration is given for the legal and illegal parts

Unconscionability – UCC governing the sale of goods makes these. This occurs when Unconscionability – UCC governing the sale of goods makes these. This occurs when there is a grossly unfair contract that parties under ordinary circumstances would not there is a grossly unfair contract that parties under ordinary circumstances would not accept. These are illegalaccept. These are illegal

– Procedural Unconscionability – shown by how the contract is created. Arises when contracts Procedural Unconscionability – shown by how the contract is created. Arises when contracts contain very fine print, light typesetting, elements of fraud, duress.contain very fine print, light typesetting, elements of fraud, duress.

– Substantive unconscionability – arises from unfair terms in the agreement. Can be a price so Substantive unconscionability – arises from unfair terms in the agreement. Can be a price so high that it shocks, very one-sided terms.high that it shocks, very one-sided terms.

– Most courts want both procedural and substantive unconscionability before the contract is Most courts want both procedural and substantive unconscionability before the contract is deemed unconscionable and illegal.deemed unconscionable and illegal.

– Courts can refuse to enforce, enforce parts or modify the terms of an agreement ruled Courts can refuse to enforce, enforce parts or modify the terms of an agreement ruled unconscionable.unconscionable.

QuestionsQuestions

A young couple, the Guptas, wanted to provide for the college A young couple, the Guptas, wanted to provide for the college education of their infant daughter. They received this offer in the education of their infant daughter. They received this offer in the mail from the True Bonanza Mining Corp., which seemed perfect for mail from the True Bonanza Mining Corp., which seemed perfect for their need. “Join us now for only 10 cents a share of stock. their need. “Join us now for only 10 cents a share of stock. Become part owner of a gold and silver mine with already proven Become part owner of a gold and silver mine with already proven mineral deposits. In ten years, you will be rich enough to retire.” mineral deposits. In ten years, you will be rich enough to retire.” The Gupta used all their savings to buy 250,000 shares of Bonanza The Gupta used all their savings to buy 250,000 shares of Bonanza stock. Months later they learned that Bonanza had violated the law. stock. Months later they learned that Bonanza had violated the law. It’s “proven mineral deposits’ were commercially worthless It’s “proven mineral deposits’ were commercially worthless aluminum oxide. The sales agreement was illegal. Can the Guptas aluminum oxide. The sales agreement was illegal. Can the Guptas recover their $25,000?recover their $25,000?

Blue sky laws prohibit sales of worthless stocks and bonds. The Blue sky laws prohibit sales of worthless stocks and bonds. The Guptas would have restitution to recover money.Guptas would have restitution to recover money.

Under what circumstances will the courts enforce illegal agreements?

The courts will do so in order to help relatively innocent or ignorant parties out of their bad bargains.

QuestionsQuestions

Crump was coming up for trial on felony Crump was coming up for trial on felony charges. He paid the judge in the case $10,000 charges. He paid the judge in the case $10,000 to make errors in conducting the trial so that to make errors in conducting the trial so that crump’s conviction could be over turned on crump’s conviction could be over turned on appeal. When the appeal failed, Crump sought appeal. When the appeal failed, Crump sought to sue for restitution of the $10,000. Should he to sue for restitution of the $10,000. Should he be allowed to recover the bribe? Why or Why be allowed to recover the bribe? Why or Why not?not?

No. However, the two are not of equal guilt (in No. However, the two are not of equal guilt (in pari delicto)pari delicto)

QuestionsQuestions

Dixon, a wholesaler, was on the brink of bankruptcy. He Dixon, a wholesaler, was on the brink of bankruptcy. He bought fire insurance policies for more than twice the bought fire insurance policies for more than twice the value of the. building and contents from two companies. value of the. building and contents from two companies. Then he arranged to pay a character know only as Then he arranged to pay a character know only as “Sparky” $5000 to “torch” his business building. If Sparky “Sparky” $5000 to “torch” his business building. If Sparky did so but Dixon did not pay him, could Sparky enforce did so but Dixon did not pay him, could Sparky enforce the contract for $5000? Could Dixon legally collect on the contract for $5000? Could Dixon legally collect on his insurance policies if Sparky torched the building?his insurance policies if Sparky torched the building?No. The agreement with Sparky was void because it No. The agreement with Sparky was void because it was a contract to commit a crime. No, Dixon could not was a contract to commit a crime. No, Dixon could not recover the insurance money because he would have recover the insurance money because he would have committed a crime in causing the burning of the insured committed a crime in causing the burning of the insured buildings.buildings.

QuestionsQuestions

A new boss was scheduled to take over Patty’s A new boss was scheduled to take over Patty’s department in three weeks. Patty agreed to pay department in three weeks. Patty agreed to pay Nancy $600 to remove unflattering information Nancy $600 to remove unflattering information from her personnel file so she would look good from her personnel file so she would look good to the new boss. The day before Nance was to the new boss. The day before Nance was going to do it, Patty called and told her not to. going to do it, Patty called and told her not to. She also asked for her money back. Nancy She also asked for her money back. Nancy never took the information. Could Patty sue and never took the information. Could Patty sue and recover her money?recover her money?If Patty had paid, she could recover her money If Patty had paid, she could recover her money because she rescinded before the illegal act.because she rescinded before the illegal act.

QuestionsQuestions

Cliff worked as a site manager for an oil-drilling company. When a Cliff worked as a site manager for an oil-drilling company. When a drill bit broke, he called Texas Bit Company, a bit manufacturer. drill bit broke, he called Texas Bit Company, a bit manufacturer. Cliff asked for a bit able to cut quickly through granite. The Cliff asked for a bit able to cut quickly through granite. The salesperson recommended their model 2123 which was described salesperson recommended their model 2123 which was described as a high carbon steel bit with diamonds embedded on the cutting as a high carbon steel bit with diamonds embedded on the cutting edges. The salesperson quoted a fair price but she said there were edges. The salesperson quoted a fair price but she said there were no warranties and that the product was being sold, “as is.” This is no warranties and that the product was being sold, “as is.” This is an unusual practice in this industry. Cliff didn’t think he could get an unusual practice in this industry. Cliff didn’t think he could get that type of bit from anyone else without a big delay so he ordered that type of bit from anyone else without a big delay so he ordered it. It turned out that the bit was made only of low-carbon steel and it it. It turned out that the bit was made only of low-carbon steel and it cut very slowly. Is there procedural unconscionability here? Is cut very slowly. Is there procedural unconscionability here? Is there substantive unconscionability here? Did the bit company there substantive unconscionability here? Did the bit company create an unconscionable contract?create an unconscionable contract?Yes, there is procedural unconscionability in the misrepresentation Yes, there is procedural unconscionability in the misrepresentation about the drill bit’s carbon content and yes there is substantive about the drill bit’s carbon content and yes there is substantive unconscionability in the requirement that the bit be sold “as is”. unconscionability in the requirement that the bit be sold “as is”. Therefore the contract is illegal.Therefore the contract is illegal.

QuestionsQuestions

A remote community and the surrounding countryside A remote community and the surrounding countryside had no doctor. The city council advertised for help, had no doctor. The city council advertised for help, offering free office space, a six-bed infirmary, and a offering free office space, a six-bed infirmary, and a three year contract. Glamorgan applied and was three year contract. Glamorgan applied and was accepted. Three months later, the council learned that accepted. Three months later, the council learned that although Glamorgan had a medical degree, she had although Glamorgan had a medical degree, she had failed to pass the state examination required to practice failed to pass the state examination required to practice medicine. No patients complained, but the council medicine. No patients complained, but the council summarily discharged her. Glamorgan sued for breach summarily discharged her. Glamorgan sued for breach of contract. Will she win the lawsuit?of contract. Will she win the lawsuit?

No, Glamorgan will lose because she does not have the No, Glamorgan will lose because she does not have the required competency licenserequired competency license

QuestionsQuestions

Randy entered into a contract to provide a Randy entered into a contract to provide a computer program to a New Jersey school computer program to a New Jersey school district. He used without permission parts of a district. He used without permission parts of a computer program copyrighted by another computer program copyrighted by another programmer. The portion of the program that programmer. The portion of the program that violated the copyright law cost $12,000 and the violated the copyright law cost $12,000 and the part that didn’t violated the copyright law cost part that didn’t violated the copyright law cost $44,000. he delivered both parts to the school $44,000. he delivered both parts to the school district. Can he recover anything for his work?district. Can he recover anything for his work?

If the contract is divisible he can collect $44,000If the contract is divisible he can collect $44,000

10-210-2 The Statute of Frauds The Statute of Frauds

GOALSGOALS

Explain why the Statute of Frauds is Explain why the Statute of Frauds is necessary and what it requiresnecessary and what it requires

Identify the main instances when the Identify the main instances when the Statute of Frauds requires a writingStatute of Frauds requires a writing

Understand the rules of contract Understand the rules of contract interpretationinterpretation

FOCUSFOCUS

Must all contracts be in writing?Must all contracts be in writing?

WHY HAVE A STATUTE WHY HAVE A STATUTE OF FRAUDS?OF FRAUDS?

Contracts within the Statute of Frauds – those the states require be Contracts within the Statute of Frauds – those the states require be placed in writing to be enforceable in court. placed in writing to be enforceable in court.

Contracts to buy and sell goods for a price of $500 or more.Contracts to buy and sell goods for a price of $500 or more.Buy/sell real propertyBuy/sell real propertyContracts require more than 1 year to completeContracts require more than 1 year to completePayment of debt/obligation of anotherPayment of debt/obligation of anotherPromises to give something of value in return for a promise of marriage.Promises to give something of value in return for a promise of marriage.

– If contracts that fall under Statue of Frauds are not in writing then:If contracts that fall under Statue of Frauds are not in writing then:Executed contracts – contract that has been fully performed. Courts leave Executed contracts – contract that has been fully performed. Courts leave the parties where they are. Neither party can reverse the contracts. ( You the parties where they are. Neither party can reverse the contracts. ( You receive the pizza and pay for it)receive the pizza and pay for it)

Executory contracts – contract not fully performed. Courts have these as Executory contracts – contract not fully performed. Courts have these as unenforceable and will not take action on either party to enforce the contract. unenforceable and will not take action on either party to enforce the contract. May be able to get back any consideration by suing based on quasi- May be able to get back any consideration by suing based on quasi-contract. (exists when some element of an enforceable contract is missing.) contract. (exists when some element of an enforceable contract is missing.) Courts award $ to prevent the unjust enrichment of one party. Requirements Courts award $ to prevent the unjust enrichment of one party. Requirements of the writing (You call and order a pizza to be delivered.) of the writing (You call and order a pizza to be delivered.)

QuestionsQuestions

While they were playing golf, Haka orally agreed to buy While they were playing golf, Haka orally agreed to buy an apartment building from Simon. In a later telephone an apartment building from Simon. In a later telephone conversation, Haka promised Simon $100,000 as a conversation, Haka promised Simon $100,000 as a down payment on the purchase price with the balance to down payment on the purchase price with the balance to be paid within five years. Simon promised to deliver the be paid within five years. Simon promised to deliver the deed to the property at the time the down payment was deed to the property at the time the down payment was made. Both parties were satisfied that all the terms had made. Both parties were satisfied that all the terms had been completely negotiated. Later Haka found a better been completely negotiated. Later Haka found a better deal and told Simon he was backing out. Is Haka’s deal and told Simon he was backing out. Is Haka’s contract with Simon enforceable?contract with Simon enforceable?

This was a transfer of real property and therefore This was a transfer of real property and therefore needed to be in writing. This oral agreement would not needed to be in writing. This oral agreement would not be enforceable in court.be enforceable in court.

Requirements of the WritingRequirements of the WritingRequirements vary for state to state.Requirements vary for state to state.

– Statute of Frauds requirements – vary from state to state. Some only need to Statute of Frauds requirements – vary from state to state. Some only need to indicate there is a contract. Most stringent ones must contain essential terms:indicate there is a contract. Most stringent ones must contain essential terms:

Name of partiesName of partiesSubject matter descriptionSubject matter descriptionPricePriceQuantityQuantitySignatureSignatureOther essential terms (depends on nature of transaction) Can include method of Other essential terms (depends on nature of transaction) Can include method of delivery, if real estate description of realty.delivery, if real estate description of realty.

– UCC requirements – almost the same in every state. Writing must indicate only:UCC requirements – almost the same in every state. Writing must indicate only:Quantity of goodsQuantity of goodsThat the contract has been created between parties.That the contract has been created between parties.

– Special rules for signatures – Special rules for signatures – under statue of frauds only the names signed on the contract can be sued for under statue of frauds only the names signed on the contract can be sued for enforcement. Signature may be written, stamped, engraved, printed or a mark enforcement. Signature may be written, stamped, engraved, printed or a mark intended to be a signature.intended to be a signature.Under UCC signed by one party and sent to the other party is enforceable against the Under UCC signed by one party and sent to the other party is enforceable against the other party unless the other party objects to the terms of the contract within 10 days.other party unless the other party objects to the terms of the contract within 10 days.

Name the six essential elements in a writing required by the most demanding Statutes of Frauds standards.

Names of the parties, subject matter description, price, quantity, signature, other essential terms.

TYPES OF CONTRACTS WITHIN TYPES OF CONTRACTS WITHIN THE STATUTE OF FRAUDSTHE STATUTE OF FRAUDS

Executory contracts that must be in writing and signed by the party Executory contracts that must be in writing and signed by the party against whom the contract is to be enforced.against whom the contract is to be enforced.– Contract for the sale of goods for $500 or moreContract for the sale of goods for $500 or more

UCC exceptions:UCC exceptions:– Goods ordered to be specially manufacturedGoods ordered to be specially manufactured– When goods ordered and paid forWhen goods ordered and paid for– When goods have been received and accepted by buyerWhen goods have been received and accepted by buyer– When party against whom enforcement is sought admits that oral contract was When party against whom enforcement is sought admits that oral contract was

made.made.

Contract to sell an interest in real propertyContract to sell an interest in real property– Exceptions that will enforce oral contract if seller gave contract to buyer Exceptions that will enforce oral contract if seller gave contract to buyer

and buyer hasand buyer hasMade paymentMade paymentOccupied the landOccupied the landMade substantial improvements to landMade substantial improvements to land

Contracts that require more than one year to completeContracts that require more than one year to complete– Begins when contract madeBegins when contract made

TYPES OF CONTRACTS WITHIN TYPES OF CONTRACTS WITHIN THE STATUTE OF FRAUDSTHE STATUTE OF FRAUDS

Contract to pay a debt or answer for another’s debtContract to pay a debt or answer for another’s debt

– Collateral promise: promise of payment of debts for another. Collateral promise: promise of payment of debts for another. Needs to be in writing.Needs to be in writing.

– Primary promise: promise of payment for self. Does not have to Primary promise: promise of payment for self. Does not have to be in writingbe in writing

– Exception—Exception—mainmain purpose rulepurpose rule (promise serves the promisor’s (promise serves the promisor’s own interest) own interest)

Contract for which the consideration is marriage – needs Contract for which the consideration is marriage – needs to be in writing when one promises to marry in return for to be in writing when one promises to marry in return for something other than the other’s promise to marry.something other than the other’s promise to marry.

QuestionsQuestions

Cervante and Joan were good friends. When they Cervante and Joan were good friends. When they graduated from high school, bother were 18. They graduated from high school, bother were 18. They planned to marry, but first they wanted to become planned to marry, but first they wanted to become financially secure. So they shook hands and agreed to financially secure. So they shook hands and agreed to become partners in operating a small restaurant serving become partners in operating a small restaurant serving Indian cuisine. “This just beginning” Joan said. “I’ll Indian cuisine. “This just beginning” Joan said. “I’ll death do us part” both said. Are they legally bound to death do us part” both said. Are they legally bound to remain partners in business until one of them dies?remain partners in business until one of them dies?

This does not need to be in writing because it can be This does not need to be in writing because it can be completed within one year (unknown). Missing essential completed within one year (unknown). Missing essential elements such as defined time period. Either party can elements such as defined time period. Either party can withdraw at any time.withdraw at any time.

Name the five types of executory contracts that require a writing.

Contracts for the sale of goods valued at $500 or more, contracts to sell real property, contracts that cannot be completed within one year, contracts to pay debts of another, contracts when consideration in marriage.

HOW ARE CONTRACTS HOW ARE CONTRACTS INTERPRETED?INTERPRETED?

Integration clauseIntegration clause – both parties agree that the terms in the written contract – both parties agree that the terms in the written contract and the contract is complete and final.and the contract is complete and final.

Specific rules of interpretationSpecific rules of interpretation

– Analysis – main purpose of the contractAnalysis – main purpose of the contract

– Conflicting termsConflicting termsHandwritten term prevail over typewritten termsHandwritten term prevail over typewritten termsAmounts written in words prevail over amounts written in figuresAmounts written in words prevail over amounts written in figuresTypewritten and handwritten terms prevail over printed terms.Typewritten and handwritten terms prevail over printed terms.

– Words - using plan and normal definitionsWords - using plan and normal definitions

– Authors of ambiguityAuthors of ambiguity – if ambiguous goes against the writer. – if ambiguous goes against the writer.Contract of adhesionContract of adhesion – contracts prepared by the stronger parties – contracts prepared by the stronger parties

– Implied reasonablenessImplied reasonableness – when no time stated for performance a reasonable – when no time stated for performance a reasonable time is allowed. time is allowed.

HOW ARE CONTRACTS HOW ARE CONTRACTS INTERPRETED?INTERPRETED?

Parol evidence rule - words spoken prior to the execution of the final writing Parol evidence rule - words spoken prior to the execution of the final writing or at the time of signing are not allowed to be considered in court.or at the time of signing are not allowed to be considered in court.

– Exception to the parol evidence ruleException to the parol evidence rule

To clarify ambiguities in the written agreementTo clarify ambiguities in the written agreement

If written contract was not intended to be a complete agreementIf written contract was not intended to be a complete agreement

If a condition necessary to the existence of the contract never occurred.If a condition necessary to the existence of the contract never occurred.

If fraud, forgery, illegality, mistake, or misrepresentation occurred.If fraud, forgery, illegality, mistake, or misrepresentation occurred.

To show the parties reached another agreement or terminated the contract under To show the parties reached another agreement or terminated the contract under consideration after executing the written contract.consideration after executing the written contract.

To show that the contract is voidable because a party laced contractual capacity.To show that the contract is voidable because a party laced contractual capacity.

Explain the parol evidence rule.

The parol evidence rule requires that the final written version of the contract be the sole source of evidence about its terms. Therefore, no oral evidence to contradict the terms of the writing can be introduced unless it falls into one of the categories of exceptions.

QuestionsQuestions

Jason’s father, Phil died. He left credit card bills Jason’s father, Phil died. He left credit card bills totaling $17,000 and some additional small bills. totaling $17,000 and some additional small bills. His only asset at the time of death was a savings His only asset at the time of death was a savings account with $6,000 in it. One of the credit card account with $6,000 in it. One of the credit card companies called Jason. In his grief, Jason companies called Jason. In his grief, Jason orally promised to pay them the balance of his orally promised to pay them the balance of his dad’s account $2,000. Is this promise dad’s account $2,000. Is this promise enforceable in court?enforceable in court?No, this oral promise to pay the debt of the No, this oral promise to pay the debt of the father is not enforceable, if Jason was going to father is not enforceable, if Jason was going to pay with his own money.pay with his own money.

QuestionsQuestions

A salesperson tries to persuade you to buy an electonic, A salesperson tries to persuade you to buy an electonic, musical instrument. The price is $499, plus carrying musical instrument. The price is $499, plus carrying charges of $72. The sales person says’, “You’ll soon be charges of $72. The sales person says’, “You’ll soon be the life of the party. If not, just return it and get your the life of the party. If not, just return it and get your money back.” You sign an installment payment contract, money back.” You sign an installment payment contract, which includes or integration clause but which says which includes or integration clause but which says nothing about a return privilege. Can you hold the seller nothing about a return privilege. Can you hold the seller to the promise to accept to return?to the promise to accept to return?

No, the parol evidence rule will bar testimony about the No, the parol evidence rule will bar testimony about the prior and statements regarding written policy.prior and statements regarding written policy.

QuestionsQuestions

Under a written contract, Cabrera bought a used sedan Under a written contract, Cabrera bought a used sedan from Sharpe’s Previously Owned Cars, Inc. The from Sharpe’s Previously Owned Cars, Inc. The salesperson had knowingly falsely assured her that the salesperson had knowingly falsely assured her that the car was in “tip-top condition…with just 45,000 miles car was in “tip-top condition…with just 45,000 miles driven by only one previous owner.” Later in checking driven by only one previous owner.” Later in checking official registration records, Cabrera discovered that the official registration records, Cabrera discovered that the sedan had three previous owners and that the odometer sedan had three previous owners and that the odometer had been set back from 70,000 miles. In court, Sharpe’s had been set back from 70,000 miles. In court, Sharpe’s attorney claims that under the parol evidence rule, attorney claims that under the parol evidence rule, introduction of the salesperson’s oral statement is barred introduction of the salesperson’s oral statement is barred because there ws an integration clause in the written because there ws an integration clause in the written contract. Is this parol evidence admissible?contract. Is this parol evidence admissible?

Parol evidence is admissible because it shows fraud.Parol evidence is admissible because it shows fraud.