CHAPTERS 10 and 11
FORM OF THE CONTRACT & HOW CONTRACTS COME TO AN END
Chp. 10 - Form of a Contract
Most states have laws requiring that certain contracts be in writing. These laws are called "Statutes of Frauds." There are several elements that must be included in a written contract that typically identify the place, date, involved parties, subject matter, price and terms, and intent of the parties. The contract should also contain the signature of the party who may be charged on the agreement.
STATUTE OF FRAUDS
There are seven elements that must be included in contracts covered by the Statute of Frauds:
- names of involved parties
- subject matter
- price and terms of the contract
- intent of the parties to the contract
- signatures of the parties to the contract
Written evidence could be something as simple as a memorandum such as a letter, sales slip, invoice, or even words written on a check.
Differences between words and numbers on a checkIf there is a difference between the amount written in both words and numbers on a check, they amount written in words will prevail.
The court will presume that the handwritten terms were place in the writing after a contract was already printed. The handwritten changes likely represent the final intent of the parties.
The courts will most likely lean in favor of the party who did not draft the contract if there are terms that are confusing or unclear (ambiguous).
Contract that MUST be in Writing
- Contracts to Pay the Debts of Others - the debtor still owes the money, the person promising to cover his/her debt does so only if the debtor fails to pay
Example: a co-signor on your car loan
- Contracts to Pay the Debts of Deceased Persons - executors handle the property of the deceased, they pay all debts, and divide remaining property according to terms of the will…debts are paid out of the estate…executor may promise to pay debts with his/her own money if not covered by the estate
Example: A family member dies and you agree to pay their debts with your own money
- Contracts Requiring More Than a Year to Perform – if it takes longer than 1 year to complete the contract (from the date the contract is made, not when performance is to start), it must be in writing
Example: Elizabeth agrees to work on a political campaign for the 18 months leading up to the election
- Contracts in Consideration of Marriage – when 2 people decide to marry, they have entered into a valid, binding contract, but is generally not enforceable…unless one person agrees to marry another in return for a 3rd party’s promise of money or property…or a promise to adopt a child from former marriage in return for promise of marriage
Example: Bob asks Sue to marry him. Sue will only accept if Bob agrees to adopt her son after the marriage. Bob accepts.
- Contracts for Sale of Goods of $500 or More – Goods (consists of movable items such as furniture, books, cars, clothes) Example: Joe agrees to buy Jane’s cow for $5,000. Jane accepts. They sign a contract stating the $5,000 and all required info.
- Contracts to Sell Real Property – Real property is land and anything permanently attached to it. Example: buying or selling a home (Purchase contract signed by buyer and seller stating offer and acceptance of the offer)
Parol Evidence Rule
This rule may be used to explain something that is not clear in the contract, to prove something was incorrectly typed, or to prove fraud.
Chp. 11 How Contracts Come to an End
When contracts come to an end, they are discharged. Contracts can be discharged by performance, meaning the parties fulfilled the terms of the contract, or by agreement, meaning that both parties mutually agree to end their contract. Sometimes contracts become legally impossible to perform and can be discharged. Other times, the death or illness of a party to a contract may discharge it.
Section 11.1 : Performance and Agreement
Most contracts are discharged, come to an end, when the parties fulfill their obligations.
Discharge by Performance - The parties fulfill the terms of the contract by doing what they promised earlier
Contract Discharged by Complete Performance when all terms have been carried out properly and completely
- Time for Performance - when time for performance is not stated in a contract the court will say that the actions or duties associated with the contract must be completed within a reasonable time - the time that is suitable, fair, and proper to the objective in view
Time is of the essence when it is a vital or essential element of the contract.
Example: I need my pool done by July 3rd because I’m having a party on July 4th.
Both parties to a contract must fully perform their parts of the bargain to discharge a contract by complete performance. If one person does not fully perform his/her duties, they will not will a lawsuit for money owed or other damages.
Substantial Performance: slightly less than full performance. Someone has fulfilled the major requirements, leaving minor details incomplete.
The court will allow the person to recover the amount agreed upon under the contract, minus the cost of completing the job
Tender of Performance - A party can fulfill the terms of a contract by performing an act or by paying money.
Tender: an offer to do what you have agreed to do under a contract
It is important to make tender even if you know the other party will not perform his or her party of the contract because making tender is necessary to test the other party’s willingness and ability to perform.
Discharge by Agreement
Contracts are created by mutual agreement and may be terminated by mutual agreement.
Mutual Release: an agreement between two parties to end an agreement
Accord and Satisfaction - when one party to an agreement agrees to accept performance from the other party that is different from what was agreed upon in the original contract (one contract is substituted for another)
Section 11.2 : Impossibility of Performance and Operation of Law
Some contracts come to an end because one party could not perform his or her duties due to circumstances beyond their control. These contracts can be discharged and both parties released from the obligation. There are 2 primary ways contracts are involuntarily discharged: discharge by impossibility of performance and by operation of law.
Discharge by Impossibility of Performance
A contract could be discharged due to a death or illness if the contract requires the personal service of the person who has died or become ill.
A contract would not be discharged due to a death or illness when another person can be hired to carry out the contract.
Destruction of the Exact Subject Matter
If the subject matter that is essential to the performance of the contract is destroyed through no fault of either party, the contract can be discharged.
The destruction would have to occur after the contract is entered into, but before it is carried out.
A contract is considered void if its performance would be illegal at the time the agreement was initiated.
Example of impossibility of performance due to illegality: unlicensed vendor made an agreement with a business even though there’s a law requiring all vendors be licensed
Discharge by Operation of Law
Operation of law - Certain laws can discharge a contract if it is in the best interests of society
Wrongful acts by one of the parties will discharge a contract
Example: altering or changing a contract
Statute of Limitations - laws that specify in what time a legal action may be brought on a contract
In most states, the statute of limitations for failure to perform contracts for the sale of goods is 4 years.
Bankruptcy laws set procedures for discharging a debtor’s obligations. These obligations still exist, but the debtor can no longer be imprisoned for failure to pay.
The debts that cannot be discharged under bankruptcy laws:
Student loans, taxes, alimony, child support