CHAPTER 6 SLIDES: CONTRACTS

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CHAPTER 6 SLIDES CONTRACTS
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Chapter
10
Form of a Contract
Section 10.1 The Statute of Frauds Section
10.2 Special Rules and Formalities
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What Youll Learn

• How to explain the purpose of the Statute of
  Frauds (p. 206)
• How to explain the legal status of a contract
  that is not in writing (p. 206)

4
What Youll Learn

• How to identify the elements that must be
  included in a written contract (p. 206)
• How to deal with contradictory and ambiguous
  terms in a written agreement (p. 207)

5
What Youll Learn

• How to identify which contracts must be in
  writing (p. 208)

6
Why Its Important
Understanding which contracts must be in writing,
as well as the elements of a writing, will help
you avoid pitfalls associated with the Statute of
Frauds.
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Legal Terms

• breach of contract (p. 206)
• perjury (p. 206)
• Statute of Frauds (p. 206)
• memorandum (p. 206)
• goods (p. 213)
• real property (p. 213)

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Section Outline
Purpose of a Writing Elements of a Writing
Evaluating Contradictory Terms Evaluating
Ambiguous Clauses
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Section Outline
Contracts That Must Be in Writing
Contracts to Pay Debts of Others Contracts to Pay
Debts of Deceased Persons Contracts Requiring
More Than a Year to Perform
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Section Outline
Contracts That Must Be in Writing, continued
Contracts in Consideration of Marriage Contracts
for Sale of Goods of 500 or More Contracts to
Sell Real Property
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Pre-Learning Question
Why do you think some contracts should be in
writing?
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Purpose of a Writing
In early England, contracts did not have to be
written to be fully enforceable. Persons could be
brought to trial for breach of written or oral
contracts.
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Purpose of a Writing
A breach of contract is a wrongful failure to
perform one or more promises of a contract.
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Purpose of a Writing
Only persons who were not parties to the contract
could be witnesses in court. To protect their
friends or self-interests, witnesses often made
false statements under oath in court.
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Purpose of a Writing
Making such false statements is called perjury
and is a crime.
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Purpose of a Writing
To discourage such practices, Parliament passed
the Act for the Prevention of Frauds and
Perjuries, which became known as the Statute of
Frauds. It required certain contracts to be in
writing to be enforceable.
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Purpose of a Writing
Most states now have a Statute of Frauds, which
are state laws requiring that certain contracts
be evidenced by a writing.
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What is a breach of contract?
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ANSWER
A wrongful failure to perform one or more
promises of a contract.
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Pre-Learning Question
What elements should be present in a written
contract?
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Elements of a Writing
A memorandum is the written evidence of an
agreement, need not be formal, and could be

• a letter
• a sales slip
• an invoice

• a telegram
• words written on a check

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Elements of a Writing
Elements of a writing should identify the
following

• Place
• Date
• Parties involved
• Subject matter

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Elements of a Writing

• Price and terms
• Intent of the parties
• Signature of the party who may be charged

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Evaluating Contradictory Terms
If changes are made to a contract, the court will
uphold the most recent terms.

• If handwritten changes are made to a typewritten
  or printed contract, the handwritten terms will
  prevail.

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Evaluating Contradictory Terms

• Typewriting prevails over printing.
• A dollar amount written in words will prevail
  over the amount written in figures.

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10.1
Contradictory Terms
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Evaluating Ambiguous Clauses
When a written contract can be understood in
different ways, the court will lean in favor of
the party who did not draft the contract and
against the one who drafted it.
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Pre-Learning Question
What type of contracts do you think should be in
writing?
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Contracts That Must Be in Writing
Every state has a law requiring that certain
kinds of contracts be in writing to be
enforceable.
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Contracts to Pay Debts of Others
A contract that one person makes with another to
pay the debts of someone else must be in writing
to be enforceable.
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Contracts to Pay Debts of Deceased Persons
An executor uses property from the estate to pay
off any debts. If the estate lacks the money to
pay the debt, the executor may promise to pay
them with his or her own money.
32
Contracts to Pay Debts of Deceased Persons
Such an agreement, which is actually an agreement
to pay anothers debts, must be in writing to be
enforceable.
33
Contracts Requiring More Than a Year to Perform
All contracts must be written if they cannot be
performed within one year of the date they are
made. The year legally begins when the contract
is made, not when performance is to start.
34
Contracts in Consideration of Marriage
When two persons agree to marry, a written
contract is not required. The promises they
make to one another serve as the consideration
for the contract.
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Contracts in Consideration of Marriage
However, if one person agrees to marry another
person in return for a third persons promise of
money or property, then the agreement must be in
writing.
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Contracts for Sale of Goods of 500 or More
A contract for the sale of goods for the price of
500 or more must be in writing to be enforceable.
37
Contracts for Sale of Goods of 500 or More
Goods consist of movable items, including
specially manufactured items. Furniture, books,
livestock, cultivated crops, clothing,
automobiles, and personal effects of any kind are
considered goods.
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For contracts requiring more than a year to
perform, when does the year legally begin?
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ANSWER
When the contract is made.
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Contracts to Sell Real Property
Contracts for the sale of real property, which is
land and anything permanently attached to it,
must be in writing to be enforceable.
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Section 10.1 Assessment
Reviewing What You Learned

1. What is the purpose of the Statute of Frauds?

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Section 10.1 Assessment
Reviewing What You Learned
Answer
To prevent fraud and perjury
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Section 10.1 Assessment
Reviewing What You Learned

1. What is the legal status of a contract that is
   not is writing?

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Section 10.1 Assessment
Reviewing What You Learned
Answer
A contract that is supposed to be in writing, but
which is not, is unenforceable.
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Section 10.1 Assessment
Reviewing What You Learned

1. What are the elements that must be included in a
   written contract?

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Section 10.1 Assessment
Reviewing What You Learned
Answer
Place, date, parties, subject matter, price and
terms, and intent of the parties.
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Section 10.1 Assessment
Reviewing What You Learned

1. How are contradictory and ambiguous terms in a
   written agreement interpreted by a court?

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Section 10.1 Assessment
Reviewing What You Learned
Answer
With contradictory terms, the court will uphold
the most recent terms. The court will interpret
ambiguous clauses against the person who wrote
the contract.
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Section 10.1 Assessment
Reviewing What You Learned

1. What contracts must be in writing?

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Section 10.1 Assessment
Reviewing What You Learned
Answer
Contracts to pay the debts of others and to pay
the debts of deceased persons, contracts
requiring more than a year to perform, and
contracts in consideration of marriage.
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Section 10.1 Assessment
Reviewing What You Learned
Answer
Contracts to sell real property and contracts for
the sale of goods of 500 or more.
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Section 10.1 Assessment
Critical Thinking Activity Statue of Frauds
Does a writing have to be a formal document to
satisfy the requirements of the Statute of Frauds?
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Section 10.1 Assessment
Critical Thinking Activity Answer Statue of
Frauds
No. A writing does not have to be a formal
document to satisfy the requirements of the
Statutes of Frauds.
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Section 10.1 Assessment
Legal Skills in Action History of the Law
Clark and Fiona believe that the Statute of
Frauds was originally intended as a criminal
provision designed to catch con artists who prey
on innocent, unsuspecting victims.
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Section 10.1 Assessment
Legal Skills in Action History of the Law
Write a report in which you explain the actual
historical context in which the Statute of Frauds
was first enacted in England.
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Section 10.1 Assessment
Legal Skills in Action Answer History of the Law
Reports will vary. The original purpose of the
Statute of Frauds was to discourage the practice
of fraudulent statements in court by witnesses
when an oral contract has not been fulfilled.
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End of Section 10.1
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CHAPTER 6 SLIDES II
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How Contracts Come to an End
Chapter
11
Section 11.1 Performance and Agreement Section
11.2 Impossibility of Performance and Operation
of Law
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What Youll Learn

• How to identify when time is important in a
  contract (p. 224)
• How to distinguish between satisfactory and
  substantial performance (p. 226)

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What Youll Learn

• How to explain tender of performance (p. 228)
• How to explain how contracts can be discharged by
  agreement (p. 229)

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Why Its Important
Understanding when contracts come to an end will
help you determine your legal rights and
obligations in such situations.
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Legal Terms

• discharged (p. 224)
• performance (p. 224)
• complete performance (p. 224)
• reasonable time (p. 224)
• substantial performance (p. 226)

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Legal Terms

• tender (p. 228)
• legal tender (p. 229)
• mutual release (p. 230)
• accord and satisfaction (p. 230)

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Section Outline
Ending a Contract Discharge by Performance
Time for Performance Satisfactory
Performance Substantial Performance Tender of
Performance
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Section Outline
Discharge by Agreement
Mutual Release Accord and Satisfaction
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Pre-Learning Question
How does a contract come to an end?
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Ending a Contract
When contracts eventually end, they are said to
be discharged. Contracts can be discharged by
performance and by agreement.
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Pre-Learning Question
What do you think discharged by performance
means?
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Discharge by Performance
Most contracts are discharged by performance,
meaning the parties fulfill the terms of the
contract by doing what they promised earlier.
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Discharge by Performance
As long as all terms have been carried out
properly and completely, the contract is
discharged by complete performance.
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Time for Performance
The time for completing a contract may be
important to one or both of the parties.
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Time for Performance
If the time is not stated in the contract and
there is a question of performance, the courts
will say the contract must be completed in a
reasonable time.
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Time for Performance
Reasonable time

• Will vary with the circumstances.
• Is defined as the time that is suitable, fair,
  and proper to the objective in view.

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Time for Performance
A contract will specify that time is of the
essence when it is a vital or essential element
of the contract.
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How are most contracts discharged?
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ANSWER
By performance
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Satisfactory Performance
When people perform services for others, the law
requires that those services be done in a
satisfactory manner.
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Satisfactory Performance
Regardless of whether a contract specifically
states the work be performed in a satisfactory
manner, if one party believes the job is
unsatisfactory, the court uses the reasonable
person test.
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11.1
Reasonable Person Test
The court asks, Would a reasonable person
consider the job to be completed in a
satisfactory manner?
Im a reasonable person. Has this job been
completed in a satisfactory manner?
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Reasonable Person Test
The dispute will then be settled based on the
answer to this question as determined by a judge
or jury.
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Satisfactory Performance
If one party agrees to perform services for
another to the others satisfaction, then the
other party must be satisfied to be bound to the
contract.
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Substantial Performance
An exception to the rule of discharging a
contract by complete performance is substantial
performance.
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Substantial Performance

• Substantial performance is slightly less than
  full performance.
• Someone who has fulfilled the major requirements
  of a contract in good faith, leaving only minor
  details incomplete, has substantially performed.

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Substantial Performance

• The courts will allow the person to recover the
  amount agreed upon under the contract, minus the
  cost of completing the job.
• Substantial performance is often applied to
  construction contracts.

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Tender of Performance
A tender is an offer to do what you have agreed
to do under a contract.
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Tender of Performance
For example

• If buying a caroffering to pay money to the
  seller at the agreed time
• If selling a caroffering to give the car to the
  buyer at the agreed time

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Tender of Performance
If neither party has made tender, then neither
party is in a position to bring suit against the
other.
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Tender of Performance

• The person offering to pay the required amount of
  money must offer legal tenderU.S. coins or
  currency.
• Offering a check, even if it is certified, is not
  a valid tender of payment.

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Judy Anfinson agreed to create a garden landscape
for Bill MacArthur to his satisfaction for
1,200.
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When it was complete, Bill noticed Judy had
planted some shrubs around the patio to which he
was highly allergic. Is Judy required to replant
the shrubs? Why or why not?
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ANSWER
Yes. The contract requires Judy to complete the
project to Bills satisfaction.
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Pre-Learning Question
What do you think discharged by agreement means?
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Discharge by Agreement
Contracts are created by mutual agreement and may
be terminated by mutual agreement.
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Mutual Release
A mutual release is an agreement between two
parties to end an agreement. By mutual agreement,
the contract no longer exists.
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Accord and Satisfaction
A contract can also be discharged 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.
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Accord and Satisfaction
In effect, one contract is substituted for
another, which is known as accord and
satisfaction. It is often used to settle an
honest disagreement or unforeseen circumstances
regarding an amount owed.
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Section 11.1 Assessment
Reviewing What You Learned

1. What is a reasonable time for completing a
   contract?

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Section 11.1 Assessment
Critical Thinking Activity Discharge by Agreement
Why does the court permit certain contracts to be
discharged by accord and satisfaction?
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Section 11.1 Assessment
Critical Thinking Activity Answer Discharge by
Agreement
It is used to settle an honest disagreement or
unforeseen circumstances regarding an amount owed.
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End of Section 11.1
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CHAPTER 6 SLIDES III
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What Youll Learn

• How to explain situations in which the law will
  permit a discharge by impossibility (p. 231)
• How to identify discharges that occur by
  operation of law (p. 233)

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Why Its Important
Understanding when contracts are discharged by
impossibility and by operation of law will help
you know your legal rights and obligations in
such situations.
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Section Outline
Involuntary Discharge Discharge by Impossibility
of Performance
Death or Illness in a Personal Service
Contract Destruction of the Exact Subject
Matter Illegality
106
Section Outline
Discharge by Operation of Law
Wrongful Alteration Statute of Limitations Bankrup
tcy
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Involuntary Discharge
Some contracts come to an end despite what the
parties intend or what they actually do. In these
situations, the obligations that exist under the
contract may also expire.
108
Involuntary Discharge
Two ways contracts are discharged

1. By impossibility of performance
2. By operation of law

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Pre-Learning Question
How can contracts be discharged by impossibility
of performance?
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Discharge by Impossibility of Performance
A contract that becomes legally impossible to
perform generally may be discharged and both
parties released from the obligation.
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Discharge by Impossibility of Performance
Three situations in which the courts will allow a
discharge for impossibility of performance are

1. Death or illness that prevents the performance of
   a personal service contract

112
Discharge by Impossibility of Performance

1. Destruction of the exact subject matter or the
   means for performance
2. Illegality, or situations in which the
   performance of a contract becomes illegal

113
Death or Illness in a Personal Service Contract
The death or illness of a party to a contract may
be an excuse for nonperformance only if the
contract requires the personal service of the
person who has died or become ill.
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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, then the contract is
discharged.
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Destruction of the Exact Subject Matter
The destruction must occur after the contract is
entered into, but before it is carried out.
116
Illegality
A contract is considered void if its performance
would be illegal at the time the agreement was
initiated. The same general rule applies when
performance becomes illegal after the contract
has been initiated.
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Discharge by Operation of Law
At times, the best interests of society demand
that a contract be terminated. Under these
circumstances, the law declares contract
discharged by operation of law.
118
Discharge by Operation of Law
These situations include

• When a wrongful alteration has occurred
• When the statue of limitations has run its course
• In cases of bankruptcy

119
Statute of Limitations
All states have a law that specifies the time
period in which legal action may be brought on a
contract. This law is called the statute of
limitations.
120
Bankruptcy
Congress has the authority to pass bankruptcy
laws, which are set procedures for discharging a
debtors obligations.
121
Bankruptcy
Certain debts cannot be discharged under
bankruptcy laws.

• Education loans, during the first five years of
  the repayment period
• Taxes

122
Bankruptcy

• Alimony
• Child support
• Maintenance payments

123
Explain which method of involuntary discharge
would be suitable in each of the following cases.
124

1. Kimi added a 0 after the date March 3 to
   attempt to extend the date a contract was to be
   completed.

125
ANSWER
Wrongful alteration
126

1. Kharim was hired to paint a mural for the middle
   school gym one week before a tornado ripped
   through the school.

127
ANSWER
Destruction of exact subject matter
128

1. Between amassed credit card debt, car payments,
   and school loans, Bob, who could not find a
   well-paying job when he graduated from college,
   was totally unable to pay his bills.

129
ANSWER
Bankruptcy
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Section 11.2 Assessment
Reviewing What You Learned

1. When will the law permit a discharge by
   impossibility?

131
Section 11.2 Assessment
Reviewing What You Learned
Answer
Death or illness of a party in a personal service
contract, destruction of the exact subject matter
of the contract, and when the contract becomes
illegal
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Section 11.2 Assessment
Reviewing What You Learned

1. When will the law permit a discharge by operation
   of law?

133
Section 11.2 Assessment
Reviewing What You Learned
Answer
When a wrongful alteration has occurred, when the
statute of limitations has run its course, and in
cases of bankruptcy
134
Section 11.2 Assessment
Reviewing What You Learned

1. What is the statute of limitations?

135
Section 11.2 Assessment
Reviewing What You Learned
Answer
Specifies the length of time within which legal
actions can be brought
136
Section 11.2 Assessment
Reviewing What You Learned

1. What debts cannot be discharged in bankruptcy?

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Section 11.2 Assessment
Reviewing What You Learned
Answer
Education loans, taxes, alimony, child support,
and maintenance payments.
138
Section 11.2 Assessment
Critical Thinking Activity Bankruptcy
What is the legal philosophy behind the idea that
certain contracts cannot be discharged in
bankruptcy?
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Section 11.2 Assessment
Critical Thinking Activity Answer Bankruptcy
Answers will vary, but should recognize that
certain debts are too important to society be
discharged.
140
Section 11.2 Assessment
Legal Skills in Action Debts after Bankruptcy
Your friend Charlotte says her parents are about
to go to bankruptcy court. She believes that all
of the familys debts will vanish as a result of
the bankruptcy proceedings.
141
Section 11.2 Assessment
Legal Skills in Action Debts after Bankruptcy
Write a letter to your friend explaining that
some of her familys debts will remain even after
declaring bankruptcy.
142
Section 11.2 Assessment
Legal Skills in Action Answer Debts after
Bankruptcy
Letters will vary, but may include that
educational loans, taxes, alimony, child support,
and maintenance payments are not affected by a
general discharge of debts in bankruptcy.
143
End of Section 11.2
144
BREACH OF CONTRACT AND ITS REMEDIES

• Occurs when one party to a contract fails to
  perform the duties set out in the terms of the
  agreement. If you fail to fulfill your
  obligations by not carrying them out or by
  performing them in an incomplete or
  unsatisfactory manner, then you are said to have
  breached the contract.

145
ANTICIPATORY BREACH

• Sometimes parties to a ctonract notify the other
  party that they will not go through with the
  contract before the time for performance. This
  is called Anticipatory Breach. In this event,
  damages may be paid either actual or incidental
  (damages incurred by the buyer).

146
EQUITABLE REMEDIES FOR BREACH

• SPECIFIC PERFORMANCE Sometimes the remedy of
  money is not enough to repay a breach of
  contract. In that case, one party may sue for
  specific performance by asking the court to order
  the other party to do specifically what he or she
  originally agreed to do.
• INJUNCTION This is when a court order prevents a
  party from performing an act of some sort. It
  may be temporary or permanent.