Contracts – Fall 2008 Statute of Frauds

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Contracts – Fall 2008 Statute of Frauds Powered By Docstoc
					Contracts – Fall 2010
Professor Kundawala
  Statute of Frauds
      Introduction and Overview
• Not all agreements have to be reflected on paper.
• “Statute of Frauds” refers generally to each
  states’ particular statute or common law relating
  to the requirement that certain contracts must be
  in writing in order to be enforceable.
• History of Statute of Frauds dates back to 1677
  England  “An Act for Prevention of Frauds and
  Perjuries” passed by English Parliament.
       What is the general rule?
• A contract that is within the scope of the Statute
  of Frauds may not be enforced unless a
  memorandum of it is written and signed by the
  party seeking to be charged.
• Who is the party seeking to be charged? Usually,
  the defendant. The party who has been sued for
  breach of contract. The party against whom
  enforcement is sought.
• This rule applies to contract modifications as well.
  Remember, a modification is a separate contract.
 General Purpose of Statute of Frauds
• Prevent injury from fraudulent conduct
  – Perjured or unreliable oral testimony
• Facilitate proof of the fact and terms of certain
  types of agreements
• Good public policy to require writing of
  certain types of contracts
  – Reduces chance of future litigation
  – Gives parties a second chance to review the terms
    before they become final
 What types of contracts come within
      the scope of the Statute?
• Generally, there are 6 types of agreements that come
  “within” the scope/application of the Statute of Frauds:
   1.   contracts for the sale of land or an interest in land
   2.   contracts that cannot be performed within a year (not applied
        rigidly, as demonstrated by McIntosh v. Murphy, p. 880)
   3.   contracts for the sale of goods in excess of $500 (see UCC 2-
        201; c.f. Revised UCC  raises amount to $5,000 – not yet
   4.   surety agreements (contracts to answer for the debt or
        obligation of another; i.e., a co-signer, guarantor, etc.)
   5.   contracts of executors or administrators to answer for the
        duty of their decedents
   6.   contracts in consideration of marriage (pre-nups, etc., not a
        promise to marry/engagement)
   Assuming the Statute applies, is the
      contract reflected in a written
• What is a written memorandum? No particular form needed – just
  something that reflects the agreement and is signed by the party to
  be charged. A writing on a tangible surface (i.e., piece of paper). E-
  mail? Under the UCC and some common law jurisdictions  yes.
  An e-mail can be reduced to tangible form through a printer.
• Written memorandum can be made up of several writings. How
  many writings were involved in Crabtree v. Elizabeth Arden Sales
  Corp. (p. 875)?
• Writings could be made at different times.
• Need not even be directed to the other party; i.e., internal memo.
• Types of writings that have been held to satisfy the Statute: a letter,
  an e-mail, a telegram, a receipt, an invoice, a check, a price list,
  meeting minutes, another contract, a will, etc.
• May be made either before or after contract formation. Before 
  written offer. After  letter acknowledging deal.
What must the memorandum contain
to be sufficient to satisfy the Statute?
1. Identify the parties to the contract and show
   that a contract has been made by them
2. Indicate the nature of the contract and its
   subject matter
3. State the essential terms of the promises to
   be performed under the contract

- Evidentiary bar is set low. You just need enough to show existence of a
contract. Writing doesn’t have to contain all terms. Remember Texaco
v. Pennzoil (p. 42)? Did that memorandum contain all terms for the
multi-billion dollar deal at issue? Missing or unclear terms can be
supplied by parol evidence. Remember parol evidence can be oral or
- Compliance with the Statute is a completely different issue from
adequate proof of the contract for the purpose of relief.
    Memorandum must be signed by
        party to be charged.
• This requirement is not universally applied by the courts.
• Modern test  whether the other party reasonably believes that
  the asserted signer’s intention is to authenticate the writing as the
  asserted signer’s own.
• What kind of signature will work? Regular signature, initials,
  symbol, an “X”, e-mail/digital signature, company letterhead, etc.
• Signature can be at the end of the writing (traditional) or in the case
  of letterhead, at the top of the writing.
• Need not be signed by both parties.
• Signature can be made by party to be charged or his/her agent (i.e.,
  authorized employee) or representative (i.e., an attorney
  representing the party).
• Exception  UCC 2-201(2)  a signed writing is not required in sale
  of goods among merchants. Unsigned confirmatory memorandum
  sent afterwards is okay, unless recipient objects within 10 days.
Memorandum  Several Writings
• “The memorandum exacted by the statute …
  may be pieced together out of separate
  writings, connected with one another either
  expressly or by the internal evidence of
  subject matter and occasion.” Judge Cardozo
  in Marks v. Cowdin, 123 N.E. 139, 141 (N.Y.
  1919); see bottom of text at p. 876.
Crabtree v. Elizabeth Arden, p. 875
• Parties and Procedural History: Crabtree, employee-
  plaintiff. Elizabeth Arden, employer-defendant. Trial court
  awarded Crabtree damages in amount of $14,000 and
  appellate division affirmed.
• Relevant facts? Crabtree’s employment agreement was
  evidenced by two payroll cards (signed by employer after
  employment began) and employer’s memorandum of her
  oral offer, which recorded all essential terms but was
  unsigned. Crabtree left his employment before his two
  years was up because they didn’t pay him the correct
  amount and he sued the employer. Employer claimed that
  there was no agreement and even if there was an
  agreement, the SOF bars its enforcement. Why would SOF
  bar enforcement?
Crabtree v. Elizabeth Arden, p. 875
• Issue? Whether the memorandum requirement
  of the SOF is satisfied by multiple documents.
• Holding? Yes. SOF doesn’t require the
  memorandum to be in one document.
• Law/Analysis
  – Who prepared the writings at issue here? Employer
    did. “Where each of the separate writings has been
    subscribed by the party to be charged [here, the
    employer+, little, if any difficulty is encountered.” Top
    of p. 877.
  – Did the signed writings make reference to the
    employer’s memorandum?
Crabtree v. Elizabeth Arden, p. 875
• Law/Analysis, cont’d
  – Here, the employment agreement was evidenced by
    two payroll cards (signed by employer after
    employment commenced and contained all essential
    terms except for contract duration).
  – The employment agreement was also evidenced by an
    unsigned office memorandum prepared by employer’s
    agent. That memorandum contained language which
    suggested the contract’s duration was two years. The
    memorandum didn’t reference the other writings
    (payroll cards).
  – Can the court consider the office memorandum?
    Crabtree v. Elizabeth Arden, p. 875
•   Law/Analysis, cont’d
     – NY Court of Appeals rejected the view of some jurisdictions that there must be
       “a reference, of varying degrees of specificity, in the signed writing to that
       unsigned.” This case was a trend setter and now reflects the modern trend.
     – Court held that it’s enough that “a sufficient connection between the papers is
       established simply by a reference in them to the same subject matter or
       transaction … and oral testimony is admitted to show the connection between
       the documents and to establish the acquiescence of the party to be charged,
       to the contents of the one unsigned.”  Less rigidity in application.
     – In light of all of the circumstances, including the identity of the terms
       contained in the writing, “it is apparent … that all three *writings+ refer on
       their face to the same transaction” and that oral evidence was admissible to
       explain a reference in one of the payroll cards to ‘contractual arrangements’
       with the employer.”
     – SOF was therefore satisfied. AFFIRMED.
     – Risks of subject matter or transaction test? Occasional enforcement of an
       agreement that was in fact never made. Does the risk outweigh benefit? This
       court doesn’t think so, nor do many others that follow. What benefit?
       Enforcement of legitimate agreements and the resulting stability.
  Exceptions to Application of SOF: If
SOF applies but is not complied with, is
     there any way to enforce the
1. Judicial Admission Exception

2. Estoppel and Promissory Estoppel

3. Part Performance Exception
  Judicial Admission Exception
– In Crabtree, the employer denied the existence of any
  agreement to employ Crabtree for two years. What if,
  during the litigation, the employer admitted that such an
  agreement had been made? Would that affect employer’s
  SOF defense?
– Judicial Admission Exception  a party that admits the
  existence of the contract in pleadings or sworn testimony
  (deposition or court testimony) should not be allowed to
  raise the SOF as a defense.
– UCC supports this exception (see UCC 2-201(3)(b)).
  Common law acceptance of the judicial admission
  exception varies state by state. Regardless, try to get your
  opponent to admit existence of contract in a deposition or
  cross examination at trial.
   Estoppel and Promissory Estoppel
• Equitable estoppel may be used to protect
  reliance on a false factual assertion; i.e., if one of
  the parties says that he has made a signed
  written note of the contract (when he really
  hasn’t) and the other party reasonably relies on
  this assertion.
• Promissory estoppel comes into play when there
  is no false factual assertion inducing reliance, but
  one of the parties justifiably relies on the oral
  contract as a promise and suffers some detriment
  as a result.
       Part Performance Exception
• Part performance after the making of an oral contract provides
  some reliable evidence that a contract was in fact made. Thus,
  some courts allow the SOF to be circumvented if there is part
  performance of an oral contract.
• Courts do not follow this exception universally, mileage varies on a
  state by state basis.
• Courts require very clear showing that conduct demonstrates the
  existence of a contract. In addition, some courts require some
  degree of harm/prejudice to have been suffered in reliance on the
  agreement by the party seeking enforcement.
• UCC provides for two exceptions. See UCC 2-201(3): (1) Goods
  specially manufactured for the buyer (can’t be easily sold to anyone
  else) and (2) the goods have been paid for OR the goods have been
  delivered and accepted.
      McIntosh v. Murphy, p. 880
• Parties and Procedural History: McIntosh, employee-
  plaintiff. Murphy, employer-defendant. Trial court
  found for plaintiff and awarded damages in the amount
  of $12,103.40. With respect to whether the contract
  was performable within one year (whether the
  contract was within scope of SOF), the trial court said
  to the defendant that “*he+ make*s+ the law look
  ridiculous, because one day is Sunday and the man
  does not work on Sunday; the other day is Saturday; he
  is up in Fresno. He can’t work down there… I don’t
  want to make the law look ridiculous…” Fn. 1, p. 881.
       McIntosh v. Murphy, p. 880

Ridiculous? This is ridiculous. Is asserting the one year
requirement of the SOF really ridiculous?
     McIntosh v. Murphy, p. 880
• Relevant Facts: McIntosh entered into an oral
  employment contract with Murphy whereby
  McIntosh was to provide managerial services for
  Murphy’s Chevy-Olds dealership in Honolulu. In
  reliance on this oral agreement, McIntosh moved
  from Los Angeles to Honolulu (sold possessions,
  leased an apartment, lost other employment
  opportunities, etc.). After only 2 ½ months,
  Murphy fired McIntosh on the grounds that
  McIntosh was unable to close deals and couldn’t
  train the salesmen. McIntosh sued for breach of
     McIntosh v. Murphy, p. 880
• Issue: Whether the plaintiff can maintain an
  action on the alleged oral contract in light of
  the prohibition of the SOF making
  unenforceable an oral contract that cannot be
  performed in one year’s time.
• Holding: Yes.
     McIntosh v. Murphy, p. 880
• Law/Analysis
  – What is the general rule regarding contracts not
    performable in one year’s time?
     • General rule  a contract not to be performed within
       one year from its making is unenforceable if not in
  – Did this court say the contract was performable in
    one year’s time?
     • No. The court side-stepped the issue by basing its
       decision on the doctrine of equitable estoppel.
     McIntosh v. Murphy, p. 880
• Law/Analysis, cont’d
  – Does this court believe in a mechanical application of
    the SOF?
     • No. A mechanical and rigid application of the SOF is no
       longer justified and can in fact promote fraud. (Remember,
       the SOF was designed to prevent fraud.)
  – What does this court say about what we can do?
     • Judicial circumvention of SOF through court’s equity powers.
     • Hawaii has recognized equitable doctrines (part
       performance) by enforcing an oral contract to convey real
       estate. Other courts have also enforced contracts on
       equitable grounds, despite SOF.
     McIntosh v. Murphy, p. 880
• Law/Analysis, cont’d
  – Monarco v. Lo Greco  California Supreme Court
    decision supporting equitable enforcement of
    contracts despite application of SOF.
  – Court finds the Restatement (section 217A, now
    section 139) very persuasive as well.
  – What does the Restatement say?
         McIntosh v. Murphy, p. 880
• Law/Analysis, cont’d
   – Restatement, section 139, states:
      • (1) A promise which the promisor should reasonably expect to
        induce action or forbearance on the part of the promisee or a
        third person and which does induce action or forbearance is
        enforceable notwithstanding the SOF if injustice can be avoided
        only by enforcement of the promise. The remedy granted for
        breach is to be limited as justice requires.
      • (2) In determining whether injustice can be avoided only by
        enforcement of the promise, the following circumstances are
        significant: (a) the availability and adequacy of other remedies
        (e.g., cancellation and restitution); (b) the definite and substantial
        character of the action or forbearance in relation to the remedy
        sought; (c) the extent to which the action or forbearance
        corroborates evidence of the making and terms of a promise, or
        the making and terms are otherwise established by clear and
        convincing evidence; (d) the reasonableness of the action or
        forbearance; (e) the extent to which the action or forbearance was
        foreseeable by the promisor.
        McIntosh v. Murphy, p. 880
• Law/Analysis, cont’d
  – Court adopts Restatement approach.
  – Under this approach…
      • It is clear that McIntosh’s move to Honolulu from LA was
        foreseeable by Murphy.
      • Injustice can only be avoided by the enforcement of the
        contract and the granting of money damages.
      • No other remedy is adequate  McIntosh is jobless and
        hungry in Honolulu.
      • Also clear that there was an agreement of some kind
        because McIntosh performed for 2 ½ months and was paid
        for his services. [Restatement sec. 139(c) – the terms are
        established by clear and convincing evidence]
• Dissent?
  – Circumvention of the Statute of Frauds is not for the courts to
    do. Judiciary shouldn’t legislate from the bench.
     Lawrence v. Anderson, p. 899
• Parties and Procedural History: Lawrence, physician-
  plaintiff. John Anderson’s estate, defendant.
  Subsequently, Anderson’s daughter was added as a
  defendant. Trial court directed a verdict for defendant.
  Physician appealed.
• Facts: Dr. Lawrence answered an emergency call to
  assist John Anderson after Anderson suffered severe
  injuries from a car accident. Dr. performed services at
  the scene and at the hospital, but nevertheless,
  Anderson died a few days after the accident. Dr. sent a
  bill to Anderson’s estate, but the bill was not paid.
     Lawrence v. Anderson, p. 899
• Facts, cont’d
   – Allegation that daughter of decedent John Anderson
     promised to pay for services.
   – Charles Brown, witness, corroborated this
   with his trial testimony. He testified that the
   daughter said, “I want my father taken care
   of, and give him the best care you can give
   him, and what the charges are … I will pay for it.”
   – Suit was finally brought after bill went unpaid for over
     a year.
     Lawrence v. Anderson, p. 899
• Issue: Whether the daughter’s statement created a
  primary or secondary obligation to pay the doctor for
  his services. Why does this matter?
  • The agreement was not in writing, so we have to
    determine if the SOF applies. If secondary, it is a surety
    obligation. Surety obligations are subject to the SOF, which
    means you need a writing. If it is primary, the SOF is not
    applicable and no writing is necessary.
• Primary/Original  I will pay for it.
• Secondary/Collateral  I will pay for it, if my father
     Lawrence v. Anderson, p. 899
• Holding: Daughter’s statement created a primary obligation, but
  physician elected to treat Anderson on his own credit as
  evidenced by the fact that he sued Anderson’s estate first rather
  than the daughter. So the promise was collateral, not primary. As
  collateral, a writing is required under the SOF.
• Law/Analysis: Extension of credit to the third party involved
  (Anderson) requires a written promise on the part of the
  promisor. Factual circumstances indicate that physician elected to
  treat Anderson as the primary debtor. Since credit was extended
  to Anderson, the daughter’s promise to pay is collateral; i.e., the
  physician treated the daughter’s statement of “I will pay for it” as
  “I will pay for it if my father doesn’t.” No writing, no enforcement.
• Judgment of the trial court AFFIRMED.
• If doctor had sued the daughter first, there may have been a
  different result.
    Shaughnessy v. Eidsmo, p. 908
• Is the oral agreement in this case subject to the
   – Yes, it’s an oral lease agreement with an option to
     purchase the land. It is an agreement for the sale of land
     or an interest in land.
• Is there a writing or memorandum evidencing the oral
   – No writing or memorandum. Result? Agreement would
     not be enforceable due to the SOF.
• Did the buyers partially perform the oral agreement?
   – Yes, they moved in, paid rent, paid on purchase of a stove
     and further, they exercised their option to purchase the
    Shaughnessy v. Eidsmo, p. 908
• Was there an oral contract to purchase the land?
   – Yes, as soon as the buyers exercised their option, an oral
     contract to purchase the land “came into being.”
• Is there a way around the SOF?
   – Yes, the doctrine of part performance creates an
     exception. But in the Brown case, this same court adopted
     the fraud theory which meant that plaintiff had to show
     reliance AND alteration of position such that plaintiff
     would incur an unjust and unreasonable injury.
• Restatement view  taking possession and making
  part payment, when done in reliance on an oral
  contract, are sufficient to remove the contract from the
  scope of SOF.
     Shaughnessy v. Eidsmo, p. 908
• Court adopts the Restatement principle and overrules prior
  precedents which require plaintiff to show reliance + injury.
• Rule  taking possession, coupled with making part payment, in
  reliance upon and with unequivocal reference to the buyer-
  seller relationship, without proof of irreparable injury through
  fraud, is sufficient to avoid the SOF.
• Dean Pound’s academic view  fraud and part performance are
  two independent grounds to avoid application of SOF and as
  such, the two shouldn’t be commingled by the courts.
• Prof. Williston and the Restatement support Dean Pound’s view.
• Judgment of the trial court affirmed. Buyers get a vendee’s
  (buyer’s) interest in the property for $5,000 as a purchase price.
Effect of Non-Compliance with SOF
• Some jurisdictions call a non-compliant contract invalid
  or void, of no force and effect.
• Other jurisdictions call a non-compliant contract
• This is really a distinction without a difference.
• If a contract is subject to the SOF, and the SOF is not
  complied with (or if not complied with, no exceptions
  apply), the contract will not be enforced.
• Practice tip: Pleading SOF must be done affirmatively
  in defendant’s answer; i.e., as an affirmative defense
  rather than through a general denial of plaintiff’s