Copyright © 2009 Delmar | Cengage Learning. ALL RIGHTS RESERVED Chapter 9 Protecting the Judicial Process

Copyright © 2009 Delmar | Cengage Learning. ALL RIGHTS RESERVED DISCUSSION POINTS Statute of Frauds –Contracts that require a writing and what constitutes the writing –Circumventing the statute of frauds through reliance –Could restitution be a cause of action when the contract is unenforceable due to the statute of frauds? Illegality –Illegality as a defense to a breach of contract action –Could restitution be a cause of action when the contract is unenforceable due to illegality? Forum Selection Provisions

Copyright © 2009 Delmar | Cengage Learning. ALL RIGHTS RESERVED Statute of Frauds General rule – A writing is not required to form a valid contract, but written evidence may be required to enforce it The British Parliament in 1677 enacted a Statute of Frauds that required certain types of contracts to be in writing to be enforceable –Two fold purpose Cautionary-Cautioned the parties that this contract was important & they should pay close attention to it Evidentiary-Terms were what parties had to follow, even if memories faded over time –Reduced the opportunity for perjury

Copyright © 2009 Delmar | Cengage Learning. ALL RIGHTS RESERVED Statute of Frauds Each state legislature enacted its own Statute of Frauds –A typical Statute of Frauds may provide that the following promises or agreements are not binding unless in writing: A special promise of an executor to answer damages out of his own estate A special promise to answer for the debt, default, or mischarge of another person An agreement made upon consideration of marriage A contract for the sale of real estate An agreement that is not to be performed within one year from the making thereof

Copyright © 2009 Delmar | Cengage Learning. ALL RIGHTS RESERVED Contracts that Require a Writing and What Constitutes the Writing Writing a contract requires the parties to think about the terms that are included –A written contract may be more definite, refined, and complete than an oral contract –Provides parties documentation of their promises Different Statutes of Frauds require different writings –Writing for sale of goods for $500 or more will significantly differ from one that can’t be fully performed in one year

Copyright © 2009 Delmar | Cengage Learning. ALL RIGHTS RESERVED Three Types of Contracts that Must be in Writing to be Enforceable A contract that cannot be fully performed within one year –One year period runs from the time of contract formation & not from when performance begins –Probability that contract will be fully performed with the year is irrelevant The lack of any possibility that performance will be completed within one year brings it within the Statute of Frauds Determination made at time contract formed, not after parties have performed, i.e., no hindsight allowed –Whether duty to perform could be terminated within a year of contract formation irrelevant when determining if writing is required

Copyright © 2009 Delmar | Cengage Learning. ALL RIGHTS RESERVED Three Types of Contracts that Must be in Writing to be Enforceable A contract for the transfer of an interest in real property –Covers the sale of land as well as the transfer of a lesser interest, e.g., lease, easement, mortgage –Part performance exception Writing not required if buyer pays the seller & takes possession of the realty, or makes valuable improvements on it with the consent of the seller Acts of buyer, relying on seller’s promise, leaves little doubt that a contract was formed Would be unjust to permit the seller to claim the contract was unenforceable because it was not in writing

Copyright © 2009 Delmar | Cengage Learning. ALL RIGHTS RESERVED Three Types of Contracts that Must be in Writing to be Enforceable A contract for the sale of goods of $500 or more –Section 2-201(1) of the UCC requires a contract to be in writing to be enforceable if it is for the sale of goods at a price of $500 or more –The following do not fall within that section A transaction for the lease of goods A transaction for the sale of services A transaction for the sale of goods for a price below $500 –Section 2-201(1) lists three requirements for what the writing must contain Writing must evidence a contract for the sale of goods Party against whom enforcement is sought must sign it Writing must specify a quantity, even if inaccurate

Copyright © 2009 Delmar | Cengage Learning. ALL RIGHTS RESERVED Three Types of Contracts that Must be in Writing to be Enforceable A contract for the sale of goods of $500 or more –A contract may still be enforceable even if it does not meet the writing requirement of Section 2-201(1) –Subsection (2) addresses the lack of signature in a contract between merchants by providing that a written confirmation sent by the party who is not being held liable under the contract may satisfy the signature requirement of the other party –Subsection (3)(a) exempts specially manufactured goods (custom made) from the writing requirement

Copyright © 2009 Delmar | Cengage Learning. ALL RIGHTS RESERVED Three Types of Contracts that Must be in Writing to be Enforceable A contract for the sale of goods of $500 or more –Subsection (3)(b) eliminates written evidence of a contract when a party admits in court or in a court document that a contract exists Admission of the contract against interest verifies the existence of a contract Contract will not be enforced beyond the admitted quantity –Subsection (3)(c) eliminates the writing requirement if the seller accepted payment, or if the buyer accepted shipment, of the goods Actions of the parties evidence the contract

Copyright © 2009 Delmar | Cengage Learning. ALL RIGHTS RESERVED Circumventing the Statute of Frauds Through Reliance Section 139 of The Restatement (Second) of Contracts supports using reliance to circumvent the Statute of Frauds writing requirement To do so, a party must establish the following: –A promise by the promisee –That the promisor should reasonably expect the promise to induce action or forbearance on the part of the promisee or a third person –That the promise does induce the action or forbearance –That injustice can be avoided only by enforcement of the promise notwithstanding the Statute of Frauds Section 139 mirrors section 90(1) except for the phrase “notwithstanding the Statute of Frauds”

Copyright © 2009 Delmar | Cengage Learning. ALL RIGHTS RESERVED Circumventing the Statute of Frauds Through Reliance Contract Not to be Performed Within One Year –Foresight, not hindsight, determines whether a contract is within the one year Statute of Frauds requirement –Hindsight is important when determining whether performance substitutes for the writing after the fact Part performance, per se, does not substitute for the writing Full performance (hindsight) takes the contract that was within the Statute of Frauds (foresight) out of the Statute so that the fully performing party may enforce the contract Unilateral contracts are taken out of the Statute since one party must fully perform to accept the offer & form a contract

Copyright © 2009 Delmar | Cengage Learning. ALL RIGHTS RESERVED Circumventing the Statute of Frauds Through Reliance Contract for the Transfer of an Interest in Real Property –Part performance, i.e., when one party takes possession of the real property and makes improvements, may substitute for the writing –Specific performance may be ordered when one party relies on the other party’s promise to transfer an interest in land –Restatement (Second) of Contracts Section 129 restates the part performance doctrine

Copyright © 2009 Delmar | Cengage Learning. ALL RIGHTS RESERVED Circumventing the Statute of Frauds Through Reliance Contract for the Sale of Goods for $500 or More –One must overcome the obstacle found in Section (1) of the UCC which begins with “Except as otherwise provided in this section” (2-201) –If the exception is not found in subsections (2) or (3), it does not exist –Reliance, as described in Restatement (Second) of Contracts Section 139, is not an exception to UCC (1) for the sale of goods since reliance is not found in either subsections (2) or (3) Note that many courts continue to use the phrase “promissory estoppel” even though the Restatement (Second) uses “reliance” instead –Reliance can be substituted for promissory estoppel

Copyright © 2009 Delmar | Cengage Learning. ALL RIGHTS RESERVED Restitution as a Cause of Action If the Statute of Frauds renders a contract unenforceable, a Restitution cause of action may be available to a party that confers a benefit on the other in order to prevent unjust enrichment Restitution not the same as enforcing the contract –Restitution actions occur only when the contract is unenforceable due to the Statute of Frauds –The plaintiff proves the other party was enriched & it would be unjust to permit the defendant to retain the benefit without compensating the plaintiff –Plaintiff does not allege a breach of contract & the defendant does not defend a breach of contract action –Plaintiff entitled to recover reasonable value of benefit he conferred on defendant

Copyright © 2009 Delmar | Cengage Learning. ALL RIGHTS RESERVED Restitution as a Cause of Action Contract That Cannot be Fully Performed Within a Year –A party who conferred a benefit on the other without receiving compensation may recover for the reasonable value of the benefit if the contract is unenforceable due to the one year Statute of Frauds limitation Contract for the Transfer of an Interest in Real Property –Courts generally hold that an individual who pays money, renders services, or transfers personal property in an oral contract for the transfer of an interest in real estate may recover in a restitution action if the vendor repudiates The vendor may recover the reasonable value of the benefit conferred on the vendee – no benefit, no restitution action

Copyright © 2009 Delmar | Cengage Learning. ALL RIGHTS RESERVED Restitution as a Cause of Action Contract For the Sale of Goods for the Price of $500 or More –Contract is enforceable even without a writing if (1) the buyer relied on the contract & paid for the goods & the seller accepted payment or; (2) the seller shipped the goods & the buyer received & accepted them – UCC Section 2-201(3)(c) –Cause of action is breach of contract if (1) seller does not ship (or ships substandard goods) or; (2) the buyer does not pay Nonbreaching party entitled to appropriate Article 2 expectation damages

Copyright © 2009 Delmar | Cengage Learning. ALL RIGHTS RESERVED Illegality as a Defense to a Breach of Contract Action Illegal Contract and Illegal Terms –A contract that violates the law is illegal and therefore unenforceable –Court will not aid either party when the contract is illegal, even though it has been performed by one or both of the parties –Court will leave the parties where it finds them –Illegality ordinarily determined in accordance with the law of the place where the contract is performed –Covenant not to compete may be illegal as an impermissible restraint on trade if it is too broad Used in a sale of a business or when a business hires a new employee

Copyright © 2009 Delmar | Cengage Learning. ALL RIGHTS RESERVED Illegality as a Defense to a Breach of Contract Action Illegal Conduct to Procure a Legal Contract –Illegal conduct may be present in the procurement of the contract even though the subject of the contract does not involve illegal conduct, e.g., bribery Illegal Conduct in the Performance of a Legal Contract –One of the parties may act illegally when performing the contract even though the contract does not contemplate illegal activities –Not all illegal activity will preclude contract enforcement Illegality must be significant & directly relate to the performance of the contract

Copyright © 2009 Delmar | Cengage Learning. ALL RIGHTS RESERVED Restitution When the Contract is Unenforceable Due to Illegality General rule – parties who enter into illegal contracts can neither enforce their bargains or obtain restitution for benefits conferred –Courts created exceptions, but opinions unclear whether the party who conferred the benefit is entitled to a breach of contract or a restitution action –Restitution actions limit recovery to disgorging the benefit from the wrongdoer receiver –Three exceptions that permit restitution recovery: In pari delicto Collateral illegality Repentance

Copyright © 2009 Delmar | Cengage Learning. ALL RIGHTS RESERVED Restitution When the Contract is Unenforceable Due to Illegality In pari delicto (equal fault) –Exception comes into play when parties are not in pari delicto & the court allows restitution to the party with less fault Collateral illegality –An illegal act that occurred during the performance of the contract although not contemplated as a part of the performance of the contract when it was formed –Arises when the illegality is not closely related to the plaintiff’s cause of action –Collateral illegality should not be an obstacle to either a breach of contract or restitution action

Copyright © 2009 Delmar | Cengage Learning. ALL RIGHTS RESERVED Restitution When the Contract is Unenforceable Due to Illegality Repentance –A feeling of remorse or regret concerning one’s actions –Some courts will permit a restitution action by the repenting party against the non-repenting party if repentance occurs before the illegal objective of the contract is accomplished –Restitution may be available when: The illegal purpose of the contract has not been accomplished & can be avoided by allowing the repenting party restitution; and The illegality has not been so serious or shamefully wicked in itself that the court regards the mere making of the contract as a substantial offense

Copyright © 2009 Delmar | Cengage Learning. ALL RIGHTS RESERVED Forum Selection Provisions The parties may select the forum, when the contract is being formed, that will hear any dispute that may arise during contract performance –Called a “forum selection clause” –A forum selection clause does not guarantee that all future disputes will be heard only in that forum –The defendant may request the court enforce a forum selection clause if the plaintiff files the complaint in a forum different than the one in the contract

Copyright © 2009 Delmar | Cengage Learning. ALL RIGHTS RESERVED Forum Selection Provisions A court will transfer the action only if the selection clause satisfies the following criteria: –The provision must not violate the public policy of the named forum –The provision must not be unjust & unreasonable –The provision must be free from fraud, undue influence, & unequal bargaining power that subverts the parties’ free will at the time of contract formation –The provision must be the exclusive forum & not merely a suggested forum for dispute resolution