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1 Legal Environment
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2 Legal Environment 
 The Statute of Frauds
 Many agreements are unenforceable,
unless it, or some memorandum of it, is
in writing and signed.
 Agreements that must be in writing are
those:
• For any interest in land
• That cannot be performed within one year
• To pay the debt of another

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• Made by an executor of an estate
• Made in consideration of marriage; and

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• For the sale of goods over $500

3 Legal Environment
 Agreement for Interest in Land
 A contract for interest in land must be in
writing to be enforceable.
• Exception: Full Performance by the Seller
• Exception: Part Performance by the Buyer
– the buyer of land may be able to enforce an oral
contract if she paid part of the price and either
entered the land or made improvements to it.
• Exception: Promissory Estoppel

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– If a promisor makes an oral promise that should
reasonably cause the promisee to rely on it, and
the promisee does rely, the promisee may be

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able to enforce the promise.

4 Legal Environment
 Agreements That Cannot Be
Performed Within One Year
 Unenforceable unless in writing.

Promise to Pay Debt of

Another
 When one person agrees to pay the

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debt of another as a favor to that debtor,
it is called a collateral promise and must

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be in writing.

5 Legal Environment
 Promise Made by and Executor
of an Estate
 An executor’s promise to use her own
funds to pay a debt of the deceased
must be in writing to be enforceable.

Promise Made in
Consideration of Marriage
 Unenforceable unless in writing. 10
6 Legal Environment 
 What the Writing Must
Contain
 The contract or memorandum must be
signed by the defendant, and
 It must state with reasonable certainty:
• the name of each party
• the subject matter of the agreement, and
• all of the essential terms and promises.
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
Click here to go to the internet for samples of written contracts.

7 Legal Environment
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8 Legal Environment 
 Sale of Goods --
UCC §2-201(1) - The Basic Rule
 A contract for sale of goods worth $500
or more is not enforceable unless there
is some writing, signed by the
defendant, indicating that the parties
reached an agreement.

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Click to read the Uniform Commercial Code on the internet.

Legal Environment 
 Electronic Contracts
 In this age of Internet commerce, the
rules of contracting have to be
interpreted in light of the technology.
• Is an e-mail sufficient to be a writing?
• Is an electronic signature sufficient?
 However, the essential questions are
still the same:
• Did the parties intend to make a deal?
• What were the terms?
• Is there evidence that they both agreed?
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10 Legal Environment 
 Parol Evidence
 Parol evidence refers to anything
(apart from the written contract itself)
that was said, done, or written before
the parties signed the agreement or as
they signed it.

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11 Legal Environment 
 The Parol Evidence Rule
 When two parties make an integrated
contract, neither one may use parol
evidence to contradict, vary, or add to its
terms.
• Exception: Incomplete or Ambiguous
– If a court determines that a written contract is
incomplete or ambiguous, it will permit parol
evidence.

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• Exception: Misrepresentation or Duress
– A court will permit parol evidence of

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misrepresentation or duress.

12 Legal Environment
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13 Legal Environment 
 Third Party Beneficiary
Someone who was not a party to the contract
but stands to benefit from it.
 An intended beneficiary may enforce a
contract if the parties intended her to benefit
and if either:
• enforcing the promise will satisfy a duty of the
promisee to the beneficiary; or
• the promisee intended to make a gift to the beneficiary.
 Any beneficiary who is not an intended
beneficiary is an incidental beneficiary, and
may not enforce the contract.
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14 Legal Environment 
 Assignment and Delegation
 A contracting party may transfer his
rights under the contract, which is
called an assignment of rights.
 A contracting party may transfer her
duties pursuant to the contract, which is
a delegation of duties.
 The assignor is the one making an
assignment and the assignee is the one
receiving an assignment. 10
15 Legal Environment 
 Assignment
 Any contractual right may be assigned
unless assignment:
• (a) would substantially change the obligor’s
rights or duties under the contract; or
• (b) is forbidden by law or public policy; or
• (c) is validly precluded by the contract itself.

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16 Legal Environment 
 Rights of the Parties after
Assignment
 Once the assignment is made and the
obligor notified, the assignee may
enforce her contractual rights against
the obligor.
 The obligor may generally raise all
defenses against the assignee that she
could have raised against the assignor.
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17 Legal Environment 
 Delegation of Duties
 Most duties are delegable. But
delegation does not by itself relieve the
delegator of his own responsibility to
perform the contract.
 An obligor may delegate unless
• (1) delegation would violate public policy, or
• (2) the contract prohibits delegation, or
• (3) the obligee has a substantial interest in
personal performance by the obligor. 10
18 Legal Environment 
 Novation
 A novation is a three-way agreement in
which the obligor delegates all duties to
the delegatee and the obligee agrees to
look only to the delegatee for
performance.
 The obligee releases the obligor from
all liability.

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19 Legal Environment 
 Discharge
 A party is discharged when she has no
more duties under a contract.
 Most contracts are discharged by full
performance.
 Sometimes the parties discharge a
contract by agreement.
 Rescind means that they terminate it by
mutual agreement. 10
20 Legal Environment 
 Performance
 Strict Performance
• Performance that is exactly what promised;
is usually not expected and failure to do so
does not cause for discharge.
 Substantial Performance
• A party that substantially performs its
obligations will receive the full contract price,
minus the value of any defects.

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• A party that fails to perform substantially
receives nothing on the contract and will only

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recover the value of the work, if any.

21 Legal Environment
 Personal Satisfaction Contracts
 A personal satisfaction contract is one
which the promisee makes a personal,
subjective evaluation of the promisor’s
performance.
• A court uses a subjective standard only if
assessing the work involves feelings, taste,
or judgment and the contract explicitly
demands personal satisfaction.
• In all other cases, a court applies an
objective standard to the decision. 10
22 Legal Environment 
 Good Faith
 The Restatement (Second) of
Contracts §205 states: “Every contract
imposes upon each party a duty of
good faith and fair dealings in its
performance and its enforcement.”

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23 Legal Environment 
 Time of the Essence
Clauses
 A time of the essence clause will
generally make contract dates strictly
enforceable.
 Merely including a date for performance
does not make time of the essence.

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24 Legal Environment 
 Breach
 Material Breach
• Generally courts will discharge only if a
party committed a material breach – one
that causes substantial harm.
 Anticipatory Breach
• Anticipatory breach is committed by one
party making it unmistakably clear that he
will not honor the contract.
 Statute of Limitations
• Will limit the time within which the injured
party may file suit.
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25 Legal Environment 
 Impossibility
 True Impossibility
• Something has happened making it utterly
impossible to fulfill the promise.
 Commercial Impracticability
• Some event has occurred that neither party
anticipated, making the contract extra-
ordinarily difficult and unfair to one party.
 Frustration of Purpose

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• Some event has occurred that neither party
anticipated and the contract now has no

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value for one party.

26 Legal Environment
 Identifying the “Interest”
 Expectation Interest
• Designed to put the injured party in the
position she would have been in had both
sides fully performed their obligations.
 Reliance Interest
• Designed to put the injured party in the
position he would have been in had the

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parties never entered into a contract.

27 Legal Environment 
 Identifying the “Interest” (cont’d)
 Restitution Interest
• Designed to return to the injured party a
benefit that he has conferred on the other
party, which it would be unjust to leave with
that person.
 Equitable Interest
• When money is not sufficient to help the
injured party, a court may order a transfer
of property or may issue an injunction to
prevent a particular action from continuing.
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28 Legal Environment 
 Compensatory Damages
 Compensatory damages are the most
common monetary awards.
 They generally flow directly from the
contract, such as an order to pay what
was promised or to pay for expenses
caused by the breach.
 The injured party must prove the breach
caused damages that can be quantified
with reasonable certainty. 10
29 Legal Environment 
 Consequential Damages
 Consequential damages are those
resulting from the unique circumstances
of this injured party.
 Because damage calculation can be
complex, there are companies that
specialize in doing the work on behalf of
litigants or other interested parties.

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
Click here for the web page of a damage calculation company.

30 Legal Environment
 Incidental Damages
 Incidental damages are the relatively
minor costs incurred when the injured
party responds to the breach (obtaining
cover), such as the extra cost of buying
replacement goods.

Acme agrees to sell Big Bob has to Big Bob can recover

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1000 widgets to Big buy 1000 widgets incidental damages
Bob’s for $1 each, from ConCo for of the extra $250
but fails to deliver. $1.25 each. from Acme.

31 Legal Environment 
 Equitable Interests
 Specific Performance
• A court will order the parties to perform the
contract only in cases involving the sale of
land or some other asset that is unique.
 Injunction
• An injunction is a court order that requires
someone to do something or refrain from
doing something.
 Reformation
• Reformation is a process in which a court 10
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will partially “re-write” a contract.

32 Legal Environment
 Special Issues of Damages
 Mitigation of Damages
• A party may not recover for damages that
could be avoided with reasonable efforts.
 A liquidated damages clause, is a
provision stating in advance how much
a party must pay it if it breaches.
 A court will generally enforce a
liquidated damages clause if :
• (1) at the time of creating the contract it was
very difficult to estimate actual damages, and
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• (2) the liquidated amount is reasonable.

Legal Environment 
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34 Legal Environment 
 10
35 Legal Environment 
  Example 1 (Contract) - Legal problem
solving - Subject guides at Monash
University

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36 Legal Environment 
  Example 1 (Contract) - Legal problem
solving - Subject guides at Monash
University

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37 Legal Environment 
 “The parties to disputes very
often could have avoided
litigation with a few carefully
crafted sentences. It is worth the
time and effort to write them.”

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38 Legal Environment 