Lesson 5: Contract Form, Obligations, and Remedies (Printer Friendly Format)

Lesson 5: Contract Form, Obligations, and Remedies

Introduction

This lesson explores a broad range of contract law. I want to focus on the importance of explicit contract language and a strong preference in the law to getting contracts in writing.

Lesson Objectives

After successfully completing this lesson, you should be able to:

Appreciate the deference the law gives to written contracts and the importance of favorable contract language being clearly articulated in that writing.
Know how a party effectively assigns rights or delegates duties to a third party under an existing contract.
Understand how a party can effectively discharge a contractual obligation and appreciate the remedies that are available if an obligation is breached.

Lesson 5 Road Map

To Read:

Clarkson, Kenneth W., Miller, Roger LeRoy, Jentz, Gaylord A., and Cross, Frank B., (2006), West’s Business Law. 10th ed. Chapter 15—The Statute of Frauds; Chapter 16—Third Party Rights; Chapter 17—Performance and Discharge; Chapter 18—Breach of Contract and Remedies; Chapter 19—E-Contracts.

Supplemental reading (suggested but not required):

Updated links to resources available on the Web, as well as a variety of other materials, can be found at the textbook’s website at

http://wbl.westbuslaw.com

Professor Eric Talley of the University of Southern California provides a thoughtful discussion of the history and current applicability of the Statute of Frauds both internationally and in the United States at

http://www~bcf.usc.edu/~etalley/frauds.html

To Do (Activities)

Participate in the Lesson 5 discussion forum by discussing the following cases

Under “Statute of Frauds” in Chapter 15—Michael v. Bush; Coca-Cola Co. v. Babyback’s International, Inc.; Yocca v. Pittsburgh Steelers Sports, Inc.
Under “Third Party Rights” in Chapter 16—Martha Graham School and Dance Foundation, Inc. v. Martha Graham Center of Contemporary Dance, Inc.: Gold v. Ziff Communications Co.; Midwestern Indemnity Co. v. Systems Builders, Inc.
Under “Performance and Discharge” in Chapter 17—Jacobs & Young, Inc. v. Kent; Shah v. Cover-It, Inc.; Manganaro Corp. v. HITT Contracting, Inc.; Cape-France Enterprises v. Estate of Peed.
Under “Breach of Contract and Remedies” in Chapter 18—Hadley v. Baxendale; Green Park Inn, Inc. v. Moore; Lucier v. Williams.
Under “E-Contracts” in Chapter 19—Mortgage Plus, Inc. v. DocMagic, Inc.; Specht v. Netscape Communications Corp.; In re Cafeteria Operators, L.P.

Topics

The Statute of Frauds
The Parol Evidence Rule
Third-Party Rights
Contractual Obligations and Remedies for Breach
E-Contracts

Lesson Content and Commentary on Contract Form

The Statute of Frauds

To prevent a jury from finding the existence of an oral agreement alleging certain types of contracts, the British Parliament passed a Statute of Frauds in 1633. In a largely illiterate world, this legal requirement of a written document protected the social class with the great estates from fraudulent claims of an agreement to sell the land that insured the family’s status. The possibility of a jury of commoners being tricked into believing a story that one of the landed gentry had sold the family estate was too much to bear. The legislature enactment of the Statute of Frauds made clear then as it does today that the judge will grant a summary judgment against claims under certain contracts unless there is a signed writing to put before the court.

Today, every state of the United States has a statute of frauds. The requirement of a signed writing promotes a more deliberate and, hopefully, more thoughtful deliberation in negotiating the terms of a contract.

The nearly 400 year old requirement that contracts in consideration of marriage be written and signed has taken a new life with the rise of the pre-nuptial agreement. When these agreements are the product of thoughtful negotiations, modern courts give them the same deference of other written contracts.

Parol Evidence Rule

The parol evidence rule highlights the importance of getting your language—provisions that benefit your side of the negotiation—in the final write-up of the contract. Using this rule, judges can exclude evidence that could show the oral “side-deal” not included in the formal written contract. The common inclusion in contracts of an integration clause—that the written document is the complete agreement—highlights the traditional exclusion of oral evidence that might contradict the terms in the writing.

Third-Party Rights

When a contractual relationship between two parties is extended to a third party, a host of complicated problems can arise. Again, a carefully crafted, comprehensive written agreement can anticipate and avoid many of these potential problems.

Contractual Obligations and Remedies for Breach

The introduction to contract obligations and remedies here gives a sense of the range of remedies for breaching a contractual obligation. The most common remedy, compensatory damages, puts the wronged party in the same position he would have been in if the breaching party had performed as promised. There is seldom “big money” for successful litigants in breach of contract lawsuits. The courts and the legislature are sending the disputants a simple message—settle. The successful litigant “made whole” by compensatory damages must, under the “American rule,” win or lose, pay their own attorney fees. The cost of expensive lawyers in commercial litigation should be a further impetus to avoid trial and negotiate a resolution of the contract dispute.

E-Contracts

E-Contracts reflect a clash between the remoteness and speed of commerce on the internet with a body of rules created for deal-making at a time when contracts were formed in a more intimate, personal setting and at more deliberate pace. Many of the old rules don’t work very well in cyberspace. So, legislatures have stepped in with a number of statutes. Time will tell if the new legislation helps.