Question
Please complete the following questions using the IRAC Method after review the notes on Writing - Parole Evidence - Interpretation of Contracts down bellow: In
Please complete the following questions using the IRAC Method after review the notes on Writing - Parole Evidence - Interpretation of Contracts down bellow:
- In February of 2022, Catherine and DB entered into a verbal agreement for purchase of Catherine's home. The parties agreed to a price of $475,000 for the property with a closing date for the contract of March 15. Catherine purchased a new home and had already moved to that home, so her home was empty. Prior to the March 15 closing date, DB started working on the house and enclosed the back deck so that he could use the space for his home office. Shortly thereafter, Catherine changed her mind about selling the house and tries to back out of the agreement claiming that the verbal agreement is not enforceable. What is the outcome?
- Derek is moving from Tennessee to Massachusetts. Derek has found a place to live but needs to take a short-term loan from Rockland Trust in order to cover the cost of moving and the costs of the security deposit and first month's rent for the home he found. Since Derek is not a resident of the state, the bank is reluctant to give Derek the loan. Derek's friend Stephanie tells the bank that she will be responsible for repaying the money to the bank if Derek does not pay. Six months later Derek has not paid back the loan and Rockland Trust sues Stephanie. What is the outcome of the lawsuit?
WRITING, PAROL EVIDENCE, AND INTERPRETATION OF CONTRACTS Notes I. Written Contracts A. Validity of oral contracts 1. The failure to have a contract in writing does not mean there is no contract. Oral agreements that contain all of the elements of a contract are enforceable. However, oral contracts are difficult to prove in cases where the parties have a disagreement. For that reason it is best to put all agreements into a written form. B. Statute of Frauds - although oral contracts can be enforced, certain types of contracts are required to be in writing to be enforceable. These contracts are covered under the theory of the Statute of Frauds. In the event that someone forms an oral agreement for one of the contracts covered by the Statute, the other party may use the Statute of Frauds as a defense as to why the contract cannot be enforced. The following is a list of the types of contracts that are covered by the Statute of Frauds. 1. A contract that, by its terms, cannot be completed within one year Example: A contract to hire an employee for two years. Does not fall under Statute of Frauds: a contract for construction that was scheduled to be completed within one year but was not completed within that time frame 2. A contract for the purchase or sale of real estate or land Example: A contract to purchase land, or apply for a mortgage 3. A contract to answer for the debt of another out of personal funds Example: I tell the bank I will pay my son's car loan if he does not pay. Does not fall under Statute of Frauds: The executor of someone's estate promises to pay the debts of the person who is deceased. 4. A Promise made in consideration of marriage; for example a prenuptial agreement or a promise to pay money, or give property in contemplation of marriage. Example: Andrew promises to give Carol a house in Florida once they are married. If we get divorced I promise to pay you $10,000 per month 6. A Contract for the sale of goods for over $500. Example: The purchase of a television for $550. Does not fall under Statute of Frauds: A contract for plowing services for $1,500 C. Exceptions to the Statute of Frauds 1. Part Performance - If a buyer has taken partial possession of real or personal property and/or pays part of the contract price attributable to the property received, and if the parties cannot be returned to their pre-contractual positions, a court may order that the remainder of the contract be specifically performed --that is, performed according to the precise terms of the contract. Example: John makes an oral agreement to sell his land to Alice. Alice gives John a deposit and begins to clear the land, which John witnesses. John claims that the agreement is not enforceable because the agreement must be in writing under the Statute of Frauds. However, since Alice has made a deposit and taken possession of the land, the agreement falls under the exception of Part Performance and the contract is enforceable. 2. Promisor Benefit - When the main purpose of a promise to pay the debt of another is to benefit the promisor, the Statute of Frauds does not apply. Example: Adam owed ABC Supply Company $10,000 for roofing supplies. ABC refused to sell Adam more supplies until the balance was paid. Linda hired Adam to repair the roof on her home. Upon learning that ABC would not sell Adam the supplies he needed to repair her roof, Linda guaranteed ABC that she would pay any balance that Adam owed if they would allow Adam to purchase the supplies. ABC agreed and when Adam didn't pay, they sued Linda for payment. Linda claimed that the agreement was not enforceable because it was not in writing. However, because Linda's promise to pay is for her benefit (supplies needed for Adam to repair her roof), the oral agreement is enforceable.
3. Promissory estoppel -- If a promisor makes a promise on which the promisee justifiably relies to the promisee's detriment, the promisor may be prevented from denying the existence and validity of the contract. Example: Mary makes a verbal agreement to become manager of a company in Boston for three years. She sells her home in Seattle, packs up her belongings, and moves to Massachusetts where she buys another home. Four months later she is fired. When she sues the company they claim that the contract is not enforceable because it is not in writing. Can she still enforce it? Yes, this falls under the Promissory Estoppel exception. The company should have reasonably expected that she would rely on the promise of a job for 3 years since she was moving across the country. Mary did rely on the promise to her detriment because she moved based on the promise of the job.
D. What writing satisfies the statute of frauds? 1. The Statute of Frauds requires a writing to evidence the existence of a contract. However, that does not mean that the writing must be a formal document unless required by law (purchase and sale of a real estate or land). A memo, letter, fax, email, or note will satisfy the requirement that the contract be in writing. 2. Signing - The Statute of Frauds does not require that both parties sign the contract. For example, one party may write the terms of the agreement in the form of a note and sign their name. a. Unless specified by law, a signature may be made in pencil, pen, crayon, print or stamped b. Electronic signatures have the same effect as written signatures E. The effect of not enforcing a verbal agreement under the statute of frauds 1. Recovery of value conferred - A person who is prevented from enforcing the contract because it is not in writing under the Statute of Frauds is entitled to recover the value of any services provided, or money that was given under the oral agreement. Example: Kathy made a verbal agreement with Judy to sell her laptop for $650. Kathy asked Judy for a $100 deposit in order to hold the laptop for one week. Two days later Kathy decided she didn't want to sell the laptop. Judy filed a lawsuit. Is the agreement enforceable? Answer: The oral agreement is not enforceable because it involves the purchase of goods for over $500. Therefore, it is an agreement that needs to be in writing to be enforced. Because it is a verbal agreement, the court will not enforce the contract. However, Kathy must return the $100 she received from Judy. II. What is the Parol Evidence Rule and What Does it Do? The parol evidence rule prohibits the use of oral evidence that contradicts the terms of a complete, final, and unambiguous contract. The rule is used to prevent parties from denying the existence of a contract or the finality of its terms. The Rule only applies to contracts that have been put in writing. It does not apply at all to oral agreements. Example: Ashley enters into a written agreement to purchase Jason's 2013 Toyota Tacoma for $15,000. On the day the parties are set to finalize the agreement, Ashley claims that after the two signed the agreement, Jason told her that she only needed to pay $10,000. Will the courts allow testimony of this oral agreement? Answer: No. The court will not allow any evidence of a lower amount of money because this contradicts the contract they have in writing. This is based on the Parol Evidence Rule. A. Exclusion of parol evidence -- There are some exceptions to the parol evidence rule. 1. When the parol evidence rule does not apply a. Ambiguity - if a written contract has two or more different meanings, parol evidence will be allowed to clarify the meaning (see discussion below on how the court interprets contradictory terms). Example: The contract for the purchase of a home states that the address is 519 Main. Parol evidence will be allowed to clarify if the address is 519 Main Street, 519 Main Avenue, 519 Maine Street. 2. Fraud, accident, or mistake - Parol evidence may be admitted to show that something was omitted from the contract as a result of fraud or to show that there was a mutual mistake in the contract.
3. Modification of contract - The parole evidence rule does not apply to subsequent agreements. The parties are free to modify, cancel, and rescind written contracts previously entered into. In addition, the party can always use evidence to prove that no contract exists. The evidence rule is used to protect a written contract from contradictions; however, the contract must first exist before it is entitled to this protection.
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