The following classes of contracts are subject to a statute, commonly called the Statute of Frauds, forbidding enforcement unless there is a written memorandum or an applicable exception:
a contract of an executor or administrator to answer for a duty of his decedent (the executor-administrator provision):
a contract to answer for the duty of another (the suretyship provision);
a contract made upon consideration of marriage (the marriage provision);
a contract for the sale of an interest in land (the land contract provision);
a contract t hat is not to be performed within one year from the making thereof (the one-year provision).
The following classes of contracts, which were traditionally subject to the Statute of Frauds, are now governed by Statute of Frauds provisions of the Uniform Commercial Code:
a contract for the sale of goods for the price of $500 or more (UCC §2-201);
a contract for the sale of securities (UCC §8-319);
a contract for the sale of personal property not otherwise covered, to the extent of enforcement by way of action or defense beyond $5,000 in amount or value of remedy (UCC §1-206).
In addition the Uniform Commercial Code requires a writing signed by the debtor for an agreement which creates or provides for a security interest in personal property or fixtures not in the possession of the secured party.
Statutes in most states provide that no acknowledgment or promise is sufficient evidence of a new or continuing contract to take a case out of the operation of a statute of limitations unless made in some writing signed by the party to be charged, but that the statute does not alter the effect of any payment of principal or interest.
In many states other classes of contracts are subject to a requirement of a writing.
Requirements of Signed Writing - Restatement 2d – liberal view
§ 132 several writings may be combined as long as one is signed and all relate to same transaction
§ 133 signed writing may have been made for any purpose, not necessarily manifestation of assent to contract
§ 133 signed writing may be purely a memorialization made after the fact
Rest. 2d § 131 General Requisites of a Memorandum
Unless additional requirements are prescribed by the particular statute, a contract within the Statute of Frauds is enforceable if it is evidenced by any writing, signed by or on behalf of the party to be charged, which
reasonably identifies the subject matter of the contract,
is sufficient to indicate that a contract with respect thereto has been made between the parties or offered by the signer to the other party, and
states with reasonable certainty the essential terms of the unperformed promises in the contract.
Rest. 2d § 132 Several Writings
The memorandum may consist of several writings if one of the writings is signed and the writings in the circumstances clearly indicate that they relate to the same transaction.
Crabtree v. Elizabeth Arden (NY 1953)
breach of contract within one year not the same as performance within one year for purposes of Statute of Frauds
signature requirement - only party against whom Statute of Frauds asserted must have signed – nonmutual obligation
Court concerned that Statute of Frauds applied in narrow way, form over substance, would prevent meritorious claims, so adopts liberal Restatement view allowing several writings(§ 132) to be read together
Rest. 2d § 133 Memorandum Not Made as Such
Except in the case of a writing evidencing a contract upon consideration of marriage, the Statute may be satisfied by a signed writing not made as a memorandum of a contract.
Rest. 2d § 134 Signature
The signature to a memorandum may be any symbol made or adopted with an intention, actual or apparent, to authenticate the writing as that of the signer.
examples: company letterhead; signature of authorized agent for principal
Rest. 2d § 139 Enforcement by Virtue of Action in Reliance
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 the action or forbearance is enforceable notwithstanding the Statute of Frauds if injustice can be avoided only by enforcement of the promise. The remedy granted for breach is to be limited as justice requires.
In determining whether injustice can be avoided only by enforcement of the promise, the following circumstances are significant:
the availability and adequacy of other remedies, particularly cancellation and restitution;
the definite and substantial character of the action or forbearance in relation to the remedy sought;
the extent to which the action or forbearance corroborates evidence of the making and terms of the promise, or the making and terms are otherwise established by clear and convincing evidence;
the reasonableness of the action or forbearance;
the extent to which the action or forbearance was foreseeable by the promisor.
McIntosh v. Murphy
promissory estoppel (§139) used to provide some remedy for failure to satisfy Statute of Frauds; broader than part performance, not limited to land
remedy under promissory estoppel limited as justice requires (not entire contract but only reliance interest), so court has great deal of discretion in determining extent of reliance
court ignores Statute of Frauds one-year completion provision and instead creates whole alternative theory where Statute of Frauds presents overly formalistic barrier to legitimate claims, thereby eliminates Statute of Frauds as bar to recovery except for purely executory contract – any time there is some performance can use promissory estoppel to enforce
Terms of Agreement
Missing Material Terms
Common law doctrine
Agreements to Agree are unenforceable, unless parties agree to some method to calculate term.
Walker v. Keith (KY, 1964)
Option to extend 10-year lease with monthly rental to be determined upon renewal based on “comparable business conditions”; not dealt with under UCC §2-204(3) because real estate very different from goods
Court refuses to uphold agreement to agree because parties never agreed how rent would be determined so court cannot fix term by stepping in when parties themselves failed to set term; otherwise court would be making an agreement rather than finding one to enforce.
Why parties might Agree to Agree, or make Letter of Intent:
Lower transaction costs – option to renew allows most terms to be carried over to save cost of renegotiating entire contract though cannot agree on certain term at present
Preserve flexibility in the event of adverse market movement
Obtain some level of commitment (Letter of Intent) before going forward with expensive and time-consuming negotiations, but may want to get out of deal later if can’t agree on rest of terms, or change mind after due diligence.
(Current practice is not to use Letters of Intent or to make them extremely detailed because substantial risk that they will be enforceable, and would prefer upfront costs over risk of being bound later when do not want to be.)
Why a Court might enforce:
Protect interests of lessee due to structural disparity in bargaining relationship. Renewal option is for benefit of lessee who is less able to relocate and make new contract
Parties intended to come to later agreement, not enter into unenforceable deal. There must be some purpose to clause (bargaining chip).
Courts don’t like to intrude into bargain by writing clause out of contract.
Rest. 2d Contracts §33 Certainty
Even though manifestation of intention is intended to be understood as an Offer, it cannot be accepted so as to form a contract unless the terms of the contract are reasonably certain.
The terms of a contract are reasonably certain if they provide a basis for determining the existence of a breach and for giving an appropriate remedy.
(3) The fact that one or more terms of a proposed bargain are left open or uncertain may show that a manifestation of intention is not intended to be understood as an Offer or an Acceptance.
UCC – Open terms not necessarily fatal
UCC §2-204 (3) Formation in General
Even though one or more terms are left open a contract for sale does not fail for indefiniteness if the parties have intended to make a contract [Comment:The more terms the parties leave open, the less likely it is that they have intended to conclude a binding agreement, but their actions may be frequently conclusive on the matter despite the omissions.] and there is a reasonably certain basis for giving an appropriate remedy [Comment: Test is not certainty as to what parties were to do nor as to the exact amount of damages. Rather, commercial standards on the point of indefiniteness are to be applied, with the Act making provisions for missing terms.].
Pennsylvania Co. v. Wilmington Trust Co. (DE, 1960)
Court applies UCC §2-204(3) by analogy because excludes investment securities
Court allows a substantial amount of indefiniteness (how TPW would continue to be operated as independent company) and upholds parties’ intention to be bound
UCC §2-306 Requirements Contract
A term which measures the quantity by the output of the seller or the requirements of the buyer means that such actual output or requirements as may occur in good faith, except that no quantity unreasonably disproportionate to any stated estimate or in the absence of a stated estimate to any normal or otherwise comparable prior outputor requirements may be tendered or demanded.
A lawful agreement by either the seller or the buyer for exclusive dealing in the kind of goods concerned imposes unless otherwise agreed an obligation by the seller to use best efforts to supply the goods and by the buyer to use best efforts to promote their sale.
1. commercial background and intent read into language of agreement; demands good faith performance
2. not too indefinite . . . actual good faith output or requirements
mutual obligation . . . party who will determine quantity is required to operate his plant or conduct his business in good faith and according to commercial standards of fair dealing in the trade . . . reasonably foreseeable figure.
4. if enterprise sold and contract assumed, continue under normal operation
5. if exclusive, implied obligation to use reasonable diligence as well as good faith in performance, expansion of market or promotion of product
Mid-South Packers, Inc. v. Shoney’s (1985)
Court found no requirements contract under UCC §2-306 because noobligation from Shoney’s to purchase exclusively from Mid-South, therefore no consideration.
Common law viewed Requirements K as illusory promise (Rest. 2d § 77), not mutual obligation (see Comment 2), too indefinite.
Seller runs risk that Buyer will go out of business but preferable to losing business to other Seller. Market fluctuations allocated over time for both parties.
UCC §2-305 Open Price Term
The parties if they so intend[Comment 2:question for trier of fact]can conclude a contract for sale even though the price is not settled. [Comment 1:rejects common-law formulas that “an agreement to agree is unenforceable” and “indefiniteness” based on dominant intention of the parties to have the deal continue to be binding upon both; usually “reasonably certain basis for granting an appropriate remedy for breach” so does not fail for indefiniteness under §2-204(3)] In such a case the price is a reasonable price at the time for delivery if
nothing is said as to price; or
the price is left to be agreed by the parties and they fail to agree; or
the price is to be fixed in terms of some agreed market or other standard as set or recorded by a third person or agency and it is not so set or recorded. [Comment 4:if no market standard, particular person’s judgment may be essential condition]
A price to be fixed by the seller or by the buyer means a price for him to fix in good faith. [Comment 3: in observance of reasonable commercial standards of fair dealing in the trade if the party is a merchant]
When a price left to be fixed otherwise than by agreement of the parties fails to be fixed through fault of one party the other may at his option treat the contract as cancelled or himself fix a reasonable price.
Where, however, the parties intend not to be bound unless the price be fixed or agreed and it is not fixed or agreed there is no contract. [Comment 6:purpose is to give effect to agreement which has been made, conditioned by requirement of good faith] In such a case the buyer must return any goods already received or if unable so to do must pay their reasonable value at time of delivery and the seller must return any portion of the price paid on account.
UCC §1-203 Obligation of Good Faith
Every contract of duty within this Act imposes an obligation of good faith in its performance or enforcement.
UCC §2-103(b)“Good faith” in the case of a merchant means honesty in fact and the observance of reasonable commercial standards of fair dealing in the trade.
Principles of Interpretation
Subjective – Intent regardless of words or conduct
Each party entitled to exercise individual will as to what that party intended. If no meeting of the minds, then mutual mistake, therefore no contract.
Policy - free will, autonomy.
Practical Effect – more difficult to enforce agreements
Objective – Words or conduct regardless of intent
Reasonable person’s understanding of actual exchange of words, objective manifestation of assent.
Policy - fairness (unfair to allow parties to escape meaning); efficiency (keep transaction costs down by holding parties to reasonable meaning)
Modified Objectivist (Rest. 2d §§ 201-204)
Reasonable meaning will govern but evidence of intent will overcome objective meaning.
Rest. 2d § 201 Whose Meaning Prevails
Where the parties have attached the same meaning to a promise or agreement or a term thereof, it is interpreted in accordance with that meaning.
Where the parties have attached different meanings to a promise or agreement or a term thereof, it is interpreted in accordance with the meaning attached by one of them if at the time the agreement was made
that party had no reason to know of any different meaning attached by the other, and the other had reason to know the meaning attached by the first party.
Except as stated in this Section, neither party is bound by the meaning attached by the other, even though the result may be a failure of mutual assent.
Rest. 2d § 202 Rules in Aid of Interpretation
Words and other conduct are interpreted in the light of all the circumstances, and if the principal purpose of the parties is ascertainable it is given great weight.
A writing is interpreted as a whole, and all writings that are part of the same transaction are interpreted together.
Unless a different intention is manifested,
where language has a generally prevailing meaning, it is interpreted in accordance with that meaning;
technical terms and words of art are given their technical meaning when used in a transaction within their technical field.
Where an agreement involves repeated occasions for performance by either party with knowledge of the nature of the performance and opportunity for objection to it by the other, any course of performance accepted or acquiesced in without objection is given great weight in the interpretation of the agreement.
Wherever reasonable, the manifestations of intention of the parties to a promise or agreement are interpreted as consistent with each other and with any relevant course of performance, course of dealing, or usage of trade.
In the interpretation of a promise or agreement or a term thereof, the following standards of preference are generally applicable:
an interpretation which gives a reasonable, lawful, and effective meaning to all the terms is preferred to an interpretation which leaves a part unreasonable, unlawful, or of no effect;
express terms course of performance course of dealing usage of trade
specific terms and exact terms are given greater weight than general language;
separately negotiated or added terms are given greater weight than standardized terms or other terms not separately negotiated.
Prof. Patterson’s Maxims of Interpretation:
Noscitur a sociis. Series of words read together; word affected by immediate context.
Ejusdem generis. Specific term defines limits on more general term. Rest. 2d § 203(c)
Expressio unius exclusio alterius. Specific term excludes other more general terms not specifically included (why contracts often state “including but not limited to”) Rest. 2d § 203(c)
Ut magis valeat quam pereat. Interpretation that validates contract is preferable to one that invalidates contract. Rest. 2d § 203(a)
Omnia praesumuntur contra proferentem. Ambiguity construed against drafter.
Joyner v. Adams (1987)
Interpret contract as a whole. Term read consistently throughout documents in combined contract. Rest. 2d 202(2)
“Purpose of the parties.” Principal apparent purpose given great weight in determining meaning of manifestation of intent. Rest. 2d § 202(1)
Specific provision is exception to a general one. Rest. 2d § 203(c)
Handwritten or typed provisions control printed provisions. Rest. 2d § 203(d)
Public interest preferred.
UCC §1-205 Course of Dealing and Usage of Trade
A course of dealing is a sequence of previous conduct between the parties [Comment 2:literally, before the agreement] to a particular transaction which is fairly to be regarded as establishing a common basis of understanding for interpreting their expressions and other conduct.
A usage of trade is any practice or method of dealing having such regularityof observance [Comment 7:universality not required] in a place, vocation or trade as to justify an expectation that it will be observed with respect to the transaction in question. The existence and scope of such a usage are to be proved as facts. If it is established that such a usage is embodied in a written trade code or similar writing the interpretation of the writing is for the court. [Comment 3:intended to fill in points which parties have not considered and in fact agreed upon; yield to contrary agreement of the parties; framework of common understanding which hold only when there is no such understanding.]
A course of dealing between parties and any usage of trade in the vocation or trade in which they are engaged or of which they are or should be aware give particular meaning to and supplement or qualify terms of an agreement. [Comment 1:Meaning of agreement to be determined by language used by them and by their action, interpreted in light of commercial practices. Background for interpretation set by commercial context, which may explain and supplement even the language of a formal or final writing.]
The express terms of an agreement and an applicable course of dealing or usage of trade shall be construed wherever reasonable as consistent with each other; but when such construction is unreasonable express terms control both course of dealing and usage of trade and course of dealing controls usage of trade.
An applicable usage of trade in the place where any part of performance is to occur shall be used in interpreting the agreement as to that part of the performance.
Evidence of a relevant usage of trade offered by one party is not admissible unless and until he has given the other party such notice as the court finds sufficient to prevent unfair surprise to the latter.
Frigaliment Importing Co. v. B.N.S. International Sales Corp. (1960)