Unit V DB BL

BBA 3210, Business Law 1

Course Learning Outcomes for Unit V Upon completion of this unit, students should be able to:

5. Identify the kinds of contracts that must be in writing in order to be enforced. 5.1 Describe the circumstances that cause contracts to have to be in writing to be enforceable. 5.2 Identify the factors that can create exceptions to the rule that a specific contract must be in

writing to be enforceable.

6. Compare the ways that contractual obligations can be discharged. 6.1 Examine the means by which contractual obligations can be terminated through the actions of

the parties to the contract. 6.2 Discuss the release of contractual obligations by operation of the law.

Course/Unit Learning Outcomes

Learning Activity

5.1

Unit Lesson Chapter 13 Article: “The Rick Pitino-Louisville Legal Battle is Finally Over” Unit V Assessment

5.2 Unit Lesson Chapter 13 Unit V Assessment

6.1 Unit Lesson Chapter 14 Unit V Assessment

6.2 Unit Lesson Chapter 14 Unit V Assessment

Required Unit Resources Chapter 13: Contracts in Writing and Third-Party Contracts Chapter 14: Discharge and Remedies In order to access the following resource, click the link below. Bogage, J. (2019, September 18). The Rick Pitino-Louisville legal battle is finally over. The Washington Post.

https://link.gale.com/apps/doc/A599992090/ITBC?u=oran95108&sid=ITBC&xid=c8f17ce5

Unit Lesson

Requirement of a Written Contract: Statute of Frauds Most verbal agreements are enforceable if all of the necessary elements (i.e., agreement, consideration, capacity, and legality) are present; however, certain contracts are required to be in writing to be enforceable, even if all of the necessary elements are present. Those contracts that are required to be in writing to be enforceable are described in the statute of frauds, but the term statute of frauds can be misleading and needs some explanation.

UNIT V STUDY GUIDE

Contracts in Writing and Discharge of Contractual Obligations

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First, the statute of frauds is not really intended to stop fraud, deception, and dishonesty. The idea arose in English common law and required that certain contracts that were considered to be important and/or difficult to prove to be in writing to be enforced. Second, the statute of frauds is a state requirement for written contracts. Most contract law is state law, and there is very little federal law relating to contracts other than specific federal laws that govern contracts with the United States. Third, a state’s statute of frauds does not always apply to statutes or laws passed by the legislature of a state. There are a few states that do have laws that describe the kinds of contracts that have to be in writing to be enforceable, but in most states, the statute of frauds or descriptions of contracts that must be in writing to be enforceable have been created by court decisions, which we learned in an earlier unit are called the common law. Though the specifics can vary from state to state, there are four kinds of contracts that must be in writing to be enforceable, which are listed below:

 contracts that cannot be performed within 1 year,

 contracts to pay the debt of another person if that person does not pay the debt,

 contracts in consideration of marriage, and

 contracts relating to an interest in real estate. Contracts That Cannot Be Performed Within 1 Year If a contract, by its terms, cannot be completely performed within 1 year of the date the contract was made, that contract must be in writing to be enforceable. That means 1 year from the date that the contract was made—not the date that the contract is to begin. For example, a bilateral contract is a contract based on the promises of both parties to perform an obligation in the future, so performance will probably begin after the date that the contract is made. Whether that contract can be performed within 1 year so that it does not have to be in writing is measured from the date that the contract was made—not the date that the performance under the contract is to begin. Also, the performance must be impossible to be performed within the year. If performance of the contractual obligations can possibly be performed within 1 year from the date that the contract was made, then the contract does not have to be in writing to be enforceable. For example, if Big Company and Steve make a contract that requires Steve to work for Big Company for 2 years at a stated salary, that contract cannot be performed within 1 year because Steve has to work for 2 years, and the contract would have to be in writing to be enforceable. However, if Big Company hired Steve to complete a specific project that was estimated to take 2 years to complete, but if Steve worked efficiently and without breaks and he could possibly complete the project in less than 1 year, the contract would not have to be in writing because it is possible to perform all that the contract required in less than 1 year. Contracts to Pay the Debt of Another If one person owes a debt, and someone agrees to pay that debt if the person who owes the debt does not pay it, that contract has to be in writing to be enforceable. This kind of arrangement is often called a surety contract or a guarantee obligation. For example, if a young person wants to buy a car and finance the purchase, a parent might have to cosign the loan, agreeing to pay the loan if the purchaser of the car does not pay the loan as agreed. Although this kind of transaction is usually in writing, the obligation of the purchaser to repay the loan is not required by the statute of frauds to be in writing; only the guarantor’s obligation is required by the statute of frauds to be in writing. Contracts in Contemplation of Marriage Actual agreements to marry are not required by the statute of frauds to be in writing to be enforceable, but contracts that otherwise involve marriage are required by the statute of frauds to be in writing to be enforceable. These contracts generally take the form of prenuptial agreements, which are agreements made by two people prior to their marriage that specify what interest each party will acquire at the time of the marriage in the other party’s property and what each party will receive in the event that the marriage ends in divorce. It may seem somewhat pessimistic to enter into such an agreement before a marriage even begins, but if one or both of the parties owns extensive assets before the marriage, what happens to those assets

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when the parties marry can be an important question, even if the marriage does not end in divorce. For example, consider if Ms. Smith plans to marry Mr. Jones, and Ms. Smith owns hundreds of acres of timberland. Without a prenuptial agreement, in most states, as soon as the marriage occurred, Mr. Jones would become an owner of a one-half interest in the timberland that Ms. Smith owned, and if the couple was divorced next year, Mr. Jones would be entitled to have the timberland sold and be paid one-half of the proceeds of the sale. A prenuptial agreement could change that legal outcome, but the prenuptial agreement would have to be in writing to be enforceable. Contracts Involving Interests in Real Estate If a contract involves an interest in real estate, that contract must be in writing to be enforceable. An interest in real estate is sold using a written deed that identifies the seller and the buyer and provides the legal description of the real estate being sold. A mortgage that secures a loan to buy a house must be in writing because the mortgage allows the holder of the mortgage to acquire ownership of the real estate if the loan is not repaid as required. A lease of real estate must be in writing because the owner of the real estate (the lessor) is giving the person leasing the real estate (the lessee) a temporary interest, the right to use the real estate during the term of the lease.

Exceptions to the Statute of Frauds Even when the statute of frauds applies and requires that a contract be in writing to be enforceable, a court may still enforce the verbal contract if the actions of the parties indicate that there is a verbal contract. Admissions If a verbal contract comes before a court and the party claiming that the contract is unenforceable because it should have been in writing admits that there was a contract, that admission may be enough for the court to enforce the contract. Partial Performance If performance under a verbal contract that the statute of frauds requires to be in writing has begun by both parties to the contract, a court will probably enforce the contract because the partial performance of the contract indicates that there is a contract. Promissory Estoppel If one of the parties to a verbal contract that the statute of frauds requires to be in writing has taken some action to their own detriment in relying on the verbal contract, and the other party to the verbal contract has not acted to deny the contract, a court will apply the doctrine of promissory estoppel and enforce the contract to prevent further damage to the party who has taken action under the contract. Discharge of Contractual Obligations When a contract has been established and there are no defenses to that contract, the next relevant consideration is how the contractual obligations come to an end. Performance The most common way that contractual obligations end is when all of the obligations under the contract have been performed. The contract calls for specific obligations to be performed by each party to the contract, those obligations are to be performed without dispute, and the contract is to be fulfilled. In a similar vein, if the parties who made the contract thereafter agree that all of the contractual obligations should be canceled, they can end the contract by mutual agreement. Substantial Performance If most of a party’s obligations under a contract have been performed, and there has been no intentional failure to perform all of their obligations under the contract, a court may find that there has been substantial

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performance rather than declaring that the contract has been breached because all of the obligations under the contract have not been performed. In that event, the court can determine that the contract has been fulfilled if the party who has almost completed the contract pays a relatively small amount of damages to the other party. Breach of Contract If one party to the contract breaches the contract by not performing their obligations under the contract when that performance is due, they have materially breached the contract. Their material breach relieves the other party to the contract from performing whatever obligations they still have to perform under the contract. If, before a party to a contract is required to perform some obligation under a contract, that party indicates by words or deeds that they do not intend to perform their obligations under the contract, an anticipatory breach of contract occurs. The other party to the contact is then relieved from performing their obligations under the contract. Conditions If obligations to perform under a contract are conditioned on the occurrence of some event before the obligations, there is a condition precedent to the contract, and unless that specified event occurs, performance under the contract is not required. If performance under a contract is to continue until a specific event occurs, the occurrence of that event is a condition subsequent. When that condition subsequent occurs, no further performance under the contract is required. Operation of Law Several events can result in the cancellation of a contract by operation of law. If one of the parties to the contract files for protection under the federal Bankruptcy Code, the contract is cancelled. If one of the parties to a contract is an individual, and that individual dies, the contract is cancelled. If an event occurs that could not reasonably have been foreseen when the contract was made and makes performance under the contract impossible, further performance under the contract is not required according to the doctrine of impossibility of performance. Also, if an event occurs that could not reasonably have been foreseen when the contract was made and makes performance under the contract extremely more expensive than was originally contemplated, further performance under the contract may be cancelled under the doctrine of commercial impracticability. Knowing how contractual obligations can be discharged can be just as important as knowing what elements are necessary to create the contractual obligations.

Suggested Unit Resources In order to access the following resource, click the link below. The following article addresses the question of when a party should want a performance to be required versus when they should want money for a breach of contract. Shavell, S. (2006). Specific performance versus damages for breach of contract: An economic analysis.

Texas Law Review, 84(4), 831–876. https://libraryresources.columbiasouthern.edu/login?url=http://search.ebscohost.com/login.aspx?direc t=true&db=bsu&AN=20781182&site=ehost-live&scope=site

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Learning Activities (Nongraded) Nongraded Learning Activities are provided to aid students in their course of study. You do not have to submit them. If you have questions, contact your instructor for further guidance and information.

View the Unit V Glossary to review key terms presented in this unit. Alternate format for Unit V Glossary

Reference

Photogl. (n.d.). Books on library shelves (ID 20785201) [Photograph]. Dreamstime.

https://www.dreamstime.com/stock-image-books-library-shelves-image20785201

(Photogl, n.d.)