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This Document Contains Chapters 15 to 16 Chapter 15 CONTRACTS IN WRITING Statute of Frauds Contracts Within the Statute of Frauds [15-1] Electronic Records [15-1a] Suretyship Provision [15-1b] Original Promise Main Purpose Doctrine Promise Made to Debtor Executor-Administrator Provision [15-1c] Marriage Provision [15-1d] Land Contract Provision [15-1e] One-Year Provision [15-1f] The Possibility Test Computation of Time Full Performance by One Party Sale of Goods [15-1g] Admission Specially Manufactured Goods Delivery or Payment and Acceptance Modification or Rescission of Contracts Within the Statute of Frauds [15-1h] Compliance with the Statute of Frauds [15-2] General Contract Provisions [15-2a] Sale of Goods [15-2b] Effect of Noncompliance [15-3] Full Performance [15-3a] Restitution [15-3b] Promissory Estoppel [15-3c] Parol Evidence Rule The Rule [15-4] Situations to Which the Rule Does Not Apply [15-5] Supplemental Evidence [15-6] Interpretation of Contracts Cases in This Chapter Chapter Outcomes After reading and studying this chapter, the student should be able to: • Identify and explain the five types of contracts covered by the general contract statute of frauds and the contracts covered by the Uniform Commercial Code (UCC) statute of frauds provision. • Describe the writings that are required to satisfy the general contract and the UCC statute of frauds provisions. • Identify and describe the other methods of complying with the general contract and the UCC statute of frauds provisions. • Explain the parol evidence rule and identify the situations to which the rule does not apply. • Discuss the rules that aid in the interpretation of a contract. TEACHING NOTES R STATUTE OF FRAUDS The statute of frauds requires that certain types of contracts be in a particular form to be enforceable. If a contract is subject to the statute of frauds, it is said to be “within the statute” and all other types of contracts are said to be “not within” or “outside” the statute. *** Chapter Outcomes *** Identify and explain the five types of contracts covered by the general contract statute of frauds and the contracts covered by the UCC statute of frauds provision. Describe the writings that are required to satisfy the general contract statute of frauds and the UCC statute of frauds provisions. 15-1 CONTRACTS WITHIN THE STATUTE OF FRAUDS The following kinds of contracts are within the statute of frauds in most states. In these, the statute requires a writing signed by the party to be charged (against whom the contract is to be enforced). 1. Promises to answer for the duty of another (suretyship provision) 2. Promises of an executor or administrator to answer personally for a duty of the decedent whose funds he is administering (executor-administrator provision) 3. Agreements upon consideration of marriage (marriage provision) 4. Agreements for the sale of interest in land (land contract provision) 5. Agreements not to be performed within 1 year (one-year provision) Other contracts required by statute or the UCC to be written include: contracts to make a will, to authorize an agent to sell real estate, or to pay a commission to a real estate broker, to sell securities, to create certain types of security interests, and to sell personal property for more than $5,000. 15-1a Electronic Records One significant impediment to e-commerce has been the questionable enforceability of contracts entered into through electronic means such as the Internet or e-mail because of the writing requirements under contract and sales law (statute of frauds). In response, the Uniform Electronic Transactions Act (“UETA”) was promulgated by the NCCUSL in July 1999 and has been adopted by more than forty states. It gives full effect to electronic contracts, encouraging their widespread use, and develops a uniform legal framework for their implementation. UETA protects electronic signatures and contracts from being denied enforcement because of the statute of frauds. Congress, in 2000, enacted the Electronic Signatures in Global and National Commerce (“E-Sign”), which makes electronic records and signatures valid and enforceable across the United States for many types of transactions in or affecting interstate or foreign commerce. E-Sign specifically excludes certain transactions, including (1) wills, codicils, and testamentary trusts; (2) adoptions, divorces, and other matters of family law; and (3) the Uniform Commercial Code other than sales and leases of goods. 15-1b Suretyship Provision Applies to a contractual promise by a surety (promisor) to a creditor (promisee) to perform the duties or obligations of a third person (principal debtor) if the principal debtor does not perform. Must be in writing or have sufficient electronic record to be enforceable. Original Promise — An original promise is a promise to become primarily liable. If the creditor can look directly to the surety for payment without attempting to first collect from the debtor, the surety's promise need not be in writing to be enforceable. Main Purpose Doctrine — The "main purpose doctrine" or "leading object rule" is an exception to the suretyship provision based on the purpose or object of the promisor. Where the object of the promisor is to obtain an economic benefit for himself, the promise is not within the statute and is therefore enforceable without a writing. CASE 15-1 ROSEWOOD CARE CENTER, INC., v. CATERPILLAR, INC. Supreme Court of Illinois, 2007 226 Ill.2d 559, 877 N.E.2d 1091, 315 Ill. Dec. 762 http://scholar.google.com/scholar_case?case=1422781429709921037&q=877+N.E.2d+1091&hl=en&as_sclt=2,22 Burke, J. [On January 3, 2002, Caterpillar contacted HSM Management Services (HSM), the management agent for Plaintiff, Rosewood Care Center, Inc. (Rosewood), a skilled nursing facility. Caterpillar requested that Rosewood admit Betty Jo Cook, an employee of Caterpillar, on a “managed care basis (fixed rate).” HSM advised Caterpillar that Rosewood would not admit Cook on those terms. Shortly thereafter, on January 10, Dr. Norma Just, Caterpillar's employee in charge of medical care relating to workers' compensation claims, contacted HSM. Just told HSM that Cook had sustained a work-related injury and was receiving medical care at Caterpillar's expense under the workers' compensation laws. Just requested that Cook be admitted to Rosewood for skilled nursing care and therapy, and stated that the cost of Cook's care would be 100 percent covered and paid directly by Caterpillar to Rosewood with a zero deductible and no maximum limit. Just further advised HSM that Cook had been precertified for four weeks of care. Just asked that Rosewood send the bills for Cook's care to Caterpillar's workers' compensation division. On January 20, “Sue” from Dr. Just's office telephoned HSM and confirmed approval for Cook's transfer from the hospital to Rosewood. On January 30, Sue reconfirmed, via telephone, Caterpillar's authorization for Cook's care and treatment in accordance with the January 10 agreement, except that Sue now advised HSM that Cook was precertified for two weeks of care instead of the original four weeks. On January 30, Cook was admitted to Rosewood. Upon her admission, Cook signed a document entitled “Assignment of Insurance Benefits” as required by law. In this document, Cook assigned any insurance benefits she might receive to Rosewood and acknowledged her liability for any unpaid services. Caterpillar, through its health care management company, continued to orally “authorize” care for Cook and did so on February 8, February 25, March 11, March 21, April 8, April 18, May 16, and June 4. Cook remained at Rosewood until June 13, 2002. The total of Rosewood's charges for Cook's care amounted to $181,857. Caterpillar never objected to the bills being sent to it for Cook's care, nor did it ever advise Rosewood that treatment was not authorized. However, Caterpillar ultimately refused to pay for services rendered to Cook. The plaintiff filed an action against Caterpillar seeking reimbursement for the services provided to Cook while she was a patient at Rosewood. In response, Caterpillar moved to dismiss the complaint, arguing that the alleged promise to pay for Cook's care was not enforceable because it was not in writing as required by the statute of frauds. The trial court granted Caterpillar's motion for summary judgment and Rosewood appealed. The appellate court reversed and remanded.] * * * In general, the statute of frauds provides that a promise to pay the debt of another, i.e., a suretyship agreement, is unenforceable unless it is in writing. * * * * * * The plain object of the statute is to require higher and more certain evidence to charge a party, where he does not receive the substantial benefit of the transaction, and where another is primarily liable to pay the debt or discharge the duty; and thereby to afford greater security against the setting up of fraudulent demands, where the party sought to be charged is another than the real debtor, and whose debt or duty, on performance of the alleged contract by such third person, would be discharged. [Citation.] * * * II. “Main Purpose” or “Leading Object” Rule * * * According to Rosewood, Caterpillar’s promise falls outside the statute of frauds pursuant to the “main purpose” or “leading object” rule. Under this rule, when the “main purpose” or “leading object” of the promisor/surety is to subserve or advance its own pecuniary or business interests, the promise does not fall within the statute. [Citation.] As section 11 of the Restatement (Third) of Suretyship & Guaranty states: A contract that all or part of the duty of the principal obligor to the obligee shall be satisfied by the secondary obligor is not within the Statute of Frauds as a promise to answer for the duty of another if the consideration for the promise is in fact or apparently desired by the secondary obligor mainly for its own economic benefit, rather than the benefit of the principal obligor. [Citation.] The reason for the “main purpose” or “leading object” rule has been explained: Where the secondary obligor’s main purpose is its own pecuniary or business advantage, the gratuitous or sentimental element often present in suretyship is eliminated, the likelihood of disproportion in the values exchanged between secondary obligor and obligee is reduced, and the commercial context commonly provides evidentiary safeguards. Thus, there is less need for cautionary or evidentiary formality than in other secondary obligations. [Citations.] * * * It is clear * * * that the “main purpose” or “leading object” rule, as set out in the Restatements, has been a part of Illinois law since 1873. We note that the majority of jurisdictions have adopted this rule as well. [Citations.] Applying this rule in the case at bar, Caterpillar denies that the “main purpose” for its alleged promise to Rosewood was to promote its own interest. Caterpillar also denies that it received any benefit from the agreement. Alternatively, Caterpillar argues that we should remand this cause for further proceedings to determine the “main purpose” or “leading object” of its promise. Whether the “main purpose” or “leading object” of the promisor is to promote a pecuniary or business advantage to it is generally a question for the trier of fact. [Citation.] * * * Here, a decision on what was Caterpillar’s “main purpose” or “leading object” in making the promise cannot be made based on the allegations in the complaint. * * * The determination must be made by the trier of fact based on evidence to be presented by the parties. * * * III. Whether a Suretyship Was Created in This Case * * * Rosewood argues that no suretyship was created by Caterpillar’s promise. According to Rosewood, Caterpillar contracted directly with Rosewood, became liable for its own commitment, and received benefits as a result. A suretyship exists when one person undertakes an obligation of another person who is also under an obligation or duty to the creditor/obligee. [Citation.] Specifically, “[a] contract is not within the Statute of Frauds as a contract to answer for the duty of another unless the promisee is an obligee of the other’s duty, the promisor is a surety for the other, and the promisee knows or has reason to know of the suretyship relation.” [Citation.] * * * * * * The question of whether Caterpillar’s promise was a suretyship or not, like the question regarding Caterpillar’s “main purpose” or “leading object,” cannot be determined on the basis of allegations in Rosewood’s complaint. This question is a factual one to be made based on evidence to be presented by the parties. Accordingly, this issue must also be resolved by the circuit court on remand. Promise Made to Debtor — The statute does not include promises made to a debtor, so these promises are enforceable even if made orally. 15-1c Executor-Administrator Provision Applies to the promises to answer personally for a duty of the deceased person made by the executor of the will, or by the administrator of the estate if there is no will. If an executor or administrator promises to pay personally a debt of the decedent, the promise must be in writing—or in proper electronic form—to be enforceable. 15-1d Marriage Provision The notable feature of the marriage provision is that it does not apply to mutual promises to marry. Rather, the provision applies only if a promise to marry is made in consideration for some promise other than a mutual promise to marry. 15-1e Land Contract Provision Covers promises to transfer any interest in land, which includes a right, privilege, power, or immunity in real property. Thus, all promises to transfer, buy, or pay for an interest in land, including ownership interests, leases (of one year or more), mortgages, options, and easements fall within this provision. 15-1f One-Year Provision The statute of frauds requires all contracts that cannot be fully performed within one year of their making to be in writing or in proper electronic form. The Possibility Test — To determine if it falls within the one-year provision, the courts ask if it is possible — not if it is likely — for the performance of the contract to be completed within a year. CASE 15-2 MACKAY v. FOUR RIVERS PACKING CO. Supreme Court of Idaho, 2008 179 P.3D 1064 http://scholar.google.com/scholar_case?case=3479455732652915832&q=179+P.+3d+1064+&hl=en&as_sdt=2,34 Jones, J. Four Rivers operates an onion packing plant near Weiser, Idaho. Randy Smith, the general manager of Four Rivers, hired Stuart Mackay as a field man during the summer of 1999 to secure onion contracts from growers in the area. Four Rivers began experiencing financial difficulties in late 1999. All employees, including Mackay, were laid off at this time because one of the owners of Four Rivers filed suit to prevent the company from conducting business. When the lawsuit was resolved, Smith rehired Mackay as a field man. According to Mackay, Four Rivers offered him a long-term employment contract in March of 2000 to continue working as a field man up to the time of his retirement. Mackay claims he accepted the long-term offer of employment and advised Four Rivers that he may not retire for approximately ten years, at around age 62. Four Rivers denies extending such an offer to Mackay. According to Four Rivers, the owners informed Randy Smith in 2000 that they did not know whether the company would be in business the next fall due to continuing financial difficulties. In 2001, Mackay asked Four Rivers for a written contract of employment. He refused to sign the agreement that was prepared because it gave Four Rivers the right to terminate his employment at will. Subsequent efforts to arrive at a written employment agreement were unsuccessful. * * * On March 7, 2003, Smith terminated Mackay's employment relationship without notice * * * [claiming that] Mackay's performance was not satisfactory because he was not meeting with growers with the frequency or regularity necessary to obtain the quantity of onions necessary to keep Four Rivers' packing plant operational on a full-time basis, resulting in the closure of the packing plant in February 2003. Four Rivers claims its employees, including Mackay, were laid off at this time as a result of the early closure. Mackay claims Four Rivers closed due to the price of onions at the time. Mackay applied for unemployment benefits in 2003, stating in his application that he was laid off due to company financial difficulties. Smith states he offered to rehire Mackay in a different position later that year, and Mackay declined. Mackay filed a complaint on August 24, 2004, claiming Four Rivers breached his employment contract * * *. Four Rivers answered, alleging that Mackay was an "at will" employee. Further, it asserted an affirmative defense that a contract such as that claimed by Mackay is null, void, and unenforceable as violating Idaho Code § 9-505 because the agreement could not be performed within one year of its making. Four Rivers moved for summary judgment in October 2006, and the district court granted its motion. The court concluded the alleged contract could not be performed by its terms within one year and would therefore be invalid in the state of Idaho. Thus, it granted summary judgment with regard to Mackay's breach of contract claim. * * * Plaintiff subsequently filed a motion for reconsideration, which the district court denied, resulting in this appeal. * * * The parties disagree regarding the proper application of Idaho's Statute of Frauds. According to Mackay, the longstanding rule in Idaho is that where an agreement depends upon a condition which may ripen within a year, even though it may not mature until much later, the agreement does not fall within the Statute. Since the alleged contract here contains a term that it will last until Mackay retires, and Mackay could have retired within the first year, the oral contract does not violate the Statute. * * * Four Rivers denies entering into a long-term contract of employment, and * * * claims the contract violates [the] Idaho [Statute of Frauds] * * * Idaho's Statute of Frauds provision * * * provides that "an agreement that by its terms is not to be performed within a year from the making thereof" is invalid, unless the same or some note or memorandum thereof, be in writing and subscribed by the party charged, or by his agent. [Citation.] * * * Under the prevailing interpretation, the enforceability of a contract under the one-year provision does not turn on the actual course of subsequent events, nor on the expectations of the parties as to the probabilities. [Citation.] Contracts of uncertain duration are simply excluded, and the provision covers only those contracts whose performance cannot possibly be completed within a year. [Citation.] Leading treatises follow this general rule. It is well settled that the oral contracts invalidated by the Statute because they are not to be performed within a year include only those which cannot be performed within that period. [Citation.] A promise which is not likely to be performed within a year, and which in fact is not performed within a year, is not within the Statute, if at the time the contract is made there is a possibility in law and in fact that full performance such as the parties intended may be completed before the expiration of a year. [Citation.] The question is not what the probable, or expected, or actual, performance of the contract was, but whether the contract, according to the reasonable interpretation of its terms, required that it could not be performed within the year. [Citation.] Further, a promise which is performable at or until the happening of any specified contingency which may or may not occur within a year is not within the Statute. [Citation.] Idaho cases are in accord. A contract which is capable of being performed and might have been fully performed and terminated within a year does not fall within the Statute. [Citation.] Where the termination of a contract is dependent upon the happening of a contingency which may occur within a year, although it may not happen until the expiration of a year, the contract is not within the Statute, since it may be performed within a year. [Citations.] In this case, the district court applied the Burton decision and found that the alleged oral contract could not, by its terms, be completed within a year. In Burton, the plaintiff alleged there was an implied contract, which guaranteed her employment until she reached retirement, at age 65. * * * This case differs. In this case, Mackay alleges the term of the contract is until retirement. * * * Unlike the contract in Burton, which specified "until age 65," the alleged contract term in this case is indefinite. Thus, the district court erred when it held Burton applied to preclude enforcement of the contract alleged in this case. Rather, this case falls under the general rule cited in numerous Idaho cases and in the Restatement (Second) of Contracts. For the purposes of summary judgment, we must take as true Mackay's allegation that the contract was to last "until retirement." Since Mackay could have retired within one year under the terms of the alleged contract, this contract is outside Idaho's Statute of Frauds provision. * * * Since the event at issue here—Mackay's retirement—could possibly have occurred within one year, the Statute does not bar evidence of such contract. * * * We vacate the district court's order granting summary judgment against Mackay *** and remand the case for further proceedings consistent with this opinion. *** Computation of Time — The one-year runs from the time the agreement is made, not from the time when the performance is to begin. Full Performance by One Party — Where a contract has been fully performed by one party, most courts hold that the promise of the other party is enforceable even though its performance was not possible within the period of a year. *** Chapter Outcome *** Identify and describe the other methods of complying with the general contract and the UCC statute of frauds provisions. 15-1g Sales of Goods The UCC provides that a contract for the sale of goods (movable personal property) for the price of $500 or more is not enforceable unless there is some sufficient writing. Admission — The Code permits an oral contract for the sale of goods to be enforced against a party who admits in his pleading, testimony, or otherwise in court that a contract was made. Specially Manufactured Goods — Where goods are specially manufactured for a particular buyer and cannot be sold to others in the regular course of business, an oral contract will be enforceable if the seller has substantially begun the manufacturing process prior to receiving a repudiation. Delivery or Payment and Acceptance — Under the Code, delivery and acceptance of part of the goods or payment and acceptance of part of the price validates the contract as to that which has been accepted or paid for. CASE 15-3 KALAS v. COOK Appellate Court of Connecticut, 2002 70 Conn.App. 477, 800 A.2d 553, 47 U.C.C. Rep.Serv.2d 1307 http://scholar.google.com/scholar_case?case=9737435026218396545&q=800+A.2d+553&hl=en&as_sdt=2,34 Peters, J. Pursuant to a long-standing oral agreement, a print shop manufactured and delivered written materials designed by the buyer for the buyer’s use and sale. After the buyer’s death, the executor of her estate refused to pay for the last deliveries of these materials to the buyer. The principal issue in this appeal is whether the statute of frauds, as codified in the Uniform Commercial Code, [citation], bars enforcement of the oral agreement. * * * [W]e agree with the [trial] court’s conclusion that, under the circumstances of this case, the seller is entitled to be paid. The plaintiff, Barbara H. Kalas, owner of the print shop, filed a complaint against the defendant, Edward W. Cook, executor of the estate of the buyer, Adelma G. Simmons. The plaintiff alleged that the defendant, in breach of the obligations contained in an oral contract with Simmons for the sale of goods, had refused to pay for goods delivered to her. The defendant denied these allegations and interposed a number of special defenses, including a defense under the statute of frauds. * * * The trial court held that the transaction between the plaintiff and the deceased was a sale of goods as that term is defined in [UCC] §2–105. That determination has not been challenged on appeal. As a contract for the sale of goods, its enforcement was not precluded by the statute of frauds provision. * * * Accordingly, the court rendered a judgment in favor of the plaintiff in the amount of $24,599.38. The defendant has appealed. The facts found by the trial court, which are currently uncontested, establish the background for the court’s judgment. The plaintiff, doing business as Clinton Press of Tolland, operated a printing press and, for several decades, provided written materials, including books and pamphlets for Simmons. Simmons ordered these materials for use and sale at her farm, known as Caprilands Herb Farm (Caprilands). The defendant has not suggested that these materials could have been sold on the open market. Due to limited space at Caprilands, the plaintiff and Simmons agreed that the written materials would remain stored at the plaintiff’s print shop until Simmons decided that delivery was necessary. The materials were delivered either routinely, based on Simmons’ ordinary need for materials, or upon her request for a special delivery. After each delivery, the plaintiff sent an invoice requesting payment by Simmons. These invoices were honored. In 1991, the town of Tolland acquired the land on which the plaintiff resided. In early 1997, the plaintiff was notified that she would have to vacate the property by the end of that calendar year. Upon receiving that notice, the plaintiff decided to close her business. The plaintiff and Simmons agreed that the materials printed for Caprilands and stored at the plaintiff’s print shop would be delivered on an accelerated basis. * * * On December 3, 1997, after several months of deterioration of her physical health, Simmons died. * * * The plaintiff submitted a claim against the estate for $24,599.38 for unpaid deliveries to Caprilands. These deliveries took place from February 12, 1997 to December 11, 1997, with the last two deliveries occurring after Simmons’ death. * * * On appeal, the defendant argues that the oral contract was invalid * * * because a writing was required by [UCC] §2–201. This argument is unpersuasive. * * * * * * * * * Contracts for the sale of goods * * * are governed by §2–201. [Citations.] Under §2–201, oral agreements for the sale of goods at a price of $500 or more are presumptively unenforceable. [Citations.] The applicable provisions in this case, however, are other subsections of §2-201. Under §2–201 (3) (a), an oral contract for the sale of goods is enforceable if the goods in question are “specially manufactured.” In determining whether the specially manufactured goods exception applies, courts generally apply a four part standard: “(1) the goods must be specially made for the buyer; (2) the goods must be unsuitable for sale to others in the ordinary course of the seller’s business; (3) the seller must have substantially begun to have manufactured the goods or to have a commitment for their procurement; and (4) the manufacture or commitment must have been commenced under circumstances reasonably indicating that the goods are for the buyer and prior to the seller’s receipt of notification of contractual repudiation.” [Citation.] In applying this standard, “courts have traditionally looked to the goods themselves. The term ‘specially manufactured,’ therefore, refers to the nature of the particular goods in question and not to whether the goods were made in an unusual, as opposed to the regular, business operation or manufacturing process of the seller.” [Citations.] Printed material, particularly that, as in this case, names the buyer, has been deemed by both state and federal courts to fall within the exception set out for specially manufactured goods. [Citations.] It is inherent in the court’s findings that the printed materials in the present case were specially manufactured goods. The materials were printed specifically for Capri- lands. The materials included brochures and labels with the Caprilands name, as well as books that were written and designed by Simmons. The plaintiff testified that the books were printed, as Simmons had requested, in a rustic style with typed inserts and hand-drawn pictures. Therefore, none of these materials was suitable for sale to others. It is undisputed that, at the time of breach of the alleged contract, goods printed for Simmons already had been produced. We conclude that, in light of the nature of the goods at issue * * * this case falls within the exception for specially manufactured goods. To be enforceable, the agreement for their production was, therefore, not required to be in writing under §2-201 (3) (a). Accordingly, we affirm the judgment of the court. * * * [Citations.] 15-1h Modification or Rescission of Contracts within the Statute of Frauds Oral contracts modifying previously existing contracts are unenforceable if the resulting contract is within the statute of frauds. The reverse is also true: an oral modification of a prior contract is enforceable if the new contract is not within the statute of frauds. 15-2 COMPLIANCE WITH THE STATUTE OF FRAUDS A contract that is within the statute of frauds requires evidence of a sufficient writing or record, but does not require any specific form and does not have to be complete. 15-2a General Contracts Provisions The note or memorandum, which may be formal or informal, must: 1. specify the parties to the contract; 2. specify with reasonable certainty the subject matter and the essential terms of the unperformed promises; and 3. be signed by the party to be charged or by her agent (“signature” can be initials or name, typed or printed, anywhere on the page). CASE 15-4 DAHAN v. WEISS Supreme Court, Appellate Division, Second Department, New York, 2014 120 A.D.3d 540, 991 N.Y.S.2d 119 Eng, P. J. The defendant Michelle Weiss is the principal of the defendant Gateever, LLC. In August 2009, Gateever purchased seven properties in Far Rockaway, Queens, from the Alaska Group, Inc. The plaintiff [Sharon Dahan] he held a mortgage in the sum of $650,000 on the seven properties pursuant to an oral loan agreement with the Alaska Group. The plaintiff further claims that as part of the purchase price for the properties, the defendants orally agreed to assume the mortgage held by him and repay the debt within four months. The plaintiff demanded payment from the defendants. *** [When the defendants refused to pay, the plaintiff brought this action. The defendants then moved to dismiss the complaint asserting that the plaintiff’s claim to recover damages for breach of contract was barred by the statute of frauds. The plaintiff argued that handwritten statements from the closing and certain email messages, all of which had been attached to the complaint as exhibits, were sufficient evidence of a binding written agreement to satisfy the statute of frauds. The trial court denied the plaintiff’s motion and granted the defendants’ motion to dismiss. The plaintiff appealed.] To satisfy the statute of frauds, a memorandum, subscribed by the party to be charged, must designate the parties, identify and describe the subject matter, and state all of the essential terms of a complete agreement, [citations]. A writing is not a sufficient memorandum unless the “full intention of the parties can be ascertained from it alone, without recourse to parol evidence” [citations]. However, “the statutorily required writing need not be contained in one single document, but rather may be furnished by ‘piecing together other, related writings’” [citation]. *** to the extent that the allegations set forth in the complaint can be liberally construed to allege the existence of an agreement by which the defendants were to repay the Alaska Group’s debt to the plaintiff as part of the purchase price, it is *** barred by the statute of frauds because an agreement to answer for the debt of another must be in writing [citation]. Contrary to the plaintiff’s contention, the various writings attached to the complaint, taken together, were insufficient to memorialize the existence of an agreement by which the defendants were to repay the Alaska Group’s debt to the plaintiff. Indeed, an email message dated September 1, 2009, indicated that Weiss was not willing to guarantee repayment of the plaintiff’s $650,000 loan to the Alaska Group, and that the material terms of the agreement were not settled. The additional email messages submitted by the plaintiff also failed to express the full intention of the parties [citations]. The email messages, at best, showed that there were negotiations for an agreement [citation]. Accordingly, the [trial court] properly granted the defendants’ *** motion to dismiss the complaint. *** 15-2b Sale of Goods There is an even more lenient writing requirement under the UCC in the case of merchants: 1. Some writing or record sufficient to indicate that a contract has been made between the parties 2. specifying the quantity of the goods to be sold; and 3. signed by the party against whom enforcement is sought (or her authorized agent or broker). 15-3 EFFECT OF NONCOMPLIANCE If an oral contract that is within the statute does not comply with the statutory requirements, the contract is unenforceable. 15-3a Full Performance After all the promises of an oral contract have been performed, the statute of frauds no longer applies. 15-3b Restitution A party to a unenforceable contract who has acted in reliance upon the contract may recover in restitution the benefits he conferred upon the other in relying upon the unenforceable contract. 15-3c Promissory Estoppel Promissory estoppel can be used to enforce an oral contract if one party has reasonably relied upon a promise in such a way that injustice can be avoided only by enforcement of the promise. PAROL EVIDENCE RULE While drawing up a written contract, the parties often make offers or tentative agreements, which may be canceled or withdrawn in the give-and-take of negotiations. Ultimately, a final draft of the written contract is prepared and signed, declaring it to be the entire contract. The “parol evidence” rule prohibits the later introduction of evidence from negotiations to change the written agreement. *** Chapter Outcome *** Explain the parol evidence rule and identify the situations to which the rule does not apply. 15-4 THE RULE When a contract that is intended to be the complete agreement is expressed in writing, the parol evidence rule excludes prior oral or written negotiations or agreements that may vary, alter, or change the written contract. CASE 15-5 JENKINS v. ECKERD CORPORATION District Court of Appeal of Florida, First District, 2005 913 So.2d 43 http://scholar.google.com/scholar_case?case=12402686802007965629&hl=en&as_sdt=2&as_vis=1&oi=scholarr Van Nortwick, J. In January 1991, Sandhill and K & B Florida Corporation (K & B), a pharmaceutical retailer, entered into the subject lease (K & B Lease) providing for the rental of a parcel of real property located in the Gulf Breeze Shopping Center in Gulf Breeze, Florida. Shortly before the execution of the K & B Lease, Sandhill had leased space in the shopping center to Delchamps, Inc., a regional supermarket chain, as a so called “anchor” tenant in the shopping center. Article 2B of the K & B Lease referred to the Delchamps lease and provided, in pertinent part, as follows: Article 2 * * * B. Lessor represents to Lessee that Lessor has entered into leases with the following named concerns: with Delchamps, Inc. (Delchamps) for a minimum of 45,000 square feet for supermarket grocery store and that Lessor will construct and offer for lease individual retail shops for a minimum of 21,000 square feet for various retail uses, all located and dimensioned shown on the attached Plot Plan, ... Lessor further represents that said Delchamps lease is for leasing and paying rent by Delchamps as designated hereinabove in the Shopping Center, all as shown on the Plot Plan, Exhibit A”, * * * The continued leasing and payment of rent for their store in the Shopping Center by Delchamps is part of the consideration to induce Lessee to lease and pay rent for its store, as hereinafter described on the Leased Premises as a part of the Shopping Center. Accordingly, should Delchamps fail or cease to lease and pay rent for its store in the Shopping Center during the Lease Term as hereinafter set out, Lessee shall have the right and privilege of: (a) cancelling this Lease and of terminating all of its obligations hereunder at any time thereafter upon written notice by Lessee to Lessor, and such cancellation and termination shall be effective ninety (90) days after the mailing of such written notice; . It is specifically understood that Lessor shall be obligated to immediately notify Lessee in writing should Delchamps fail or cease to lease and pay rent for such a store in the Shopping Center during the primary term of this Lease, but any failure of Lessor to notify Lessee thereof shall in no way deprive Lessee of its privilege of cancelling this Lease and terminating all of its obligation hereunder. (Emphasis added [by court]). Article 29A of the K & B Lease contained an integration clause which provided that “[t]his lease contains all of the agreements made between the parties hereto and may not be modified orally or in any manner other than by an agreement in writing signed by the parties hereto or their heirs, legal representatives, successors, transferees, or assigns.” The Delchamps lease included an assignment provision which granted Delchamps “the right, at any time after the commencement of the term hereof, to assign this lease ...” In August 1997, Rite Aid, Incorporated (Rite Aid), another drugstore operator, acquired K & B and continued to operate the drugstore in the shopping center under the K & B Lease as a Rite Aid store. In September 1997, Jitney Jungle Stores of America, Inc. (Jitney Jungle), another grocery store operator, acquired the capital stock of Delchamps and continued the operation of the Delchamps grocery store in the shopping center. In 1998, Eckerd acquired certain drugstore properties from Rite Aid, including the drugstore in the shopping center. The K & B Lease was assigned to Eckerd, which began operating an Eckerd drugstore in the leased premises. In October 1999, Jitney Jungle, and its affiliates, including Delchamps, filed for bankruptcy protection under Chapter 11 of the United States Bankruptcy Code. Thereafter, an order was entered in the bankruptcy proceeding approving Delchamps’ assignment of its lease in the shopping center to Bruno’s Supermarkets, Inc. (Bruno’s). Since the assignment, Bruno’s has occupied the leased premises under the assigned Delchamps lease and has operated a Bruno’s grocery store there. Sandhill failed to provide notice to, or obtain consent from, Eckerd of this assignment. * * * On June 22, 2001, Eckerd notified Sandhill that, because Delchamps had ceased to lease and pay rent for its store in the shopping center, pursuant to article 2B of the K & B Lease, Eckerd was cancelling its lease effective September 20, 2001. Eckerd continued to pay rent due under the lease through October 2001. In December 2001, Sandhill filed suit against Eckerd for an alleged breach of the shopping center lease, * * * At trial, Sandhill sought to introduce testimony relating to its negotiations of the K & B Lease to explain the parties’ intent in drafting the allegedly ambiguous language of article 2B. [The district court prohibited the introduction of this evidence under the parol evidence rule.] * * * At the close of Sandhill’s case, Eckerd moved for, and the trial court granted, a directed verdict in favor of Eckerd. * * * The trial court also awarded Eckerd $16,026.04 in damages reflecting the amount of rent payments made by Eckerd for the period from September 20, 2001, to October 31, 2001. This appeal ensued. * * * It is a fundamental rule of contract interpretation that a contract which is clear, complete, and unambiguous does not require judicial construction. [Citations.] * * * In the case on appeal, the trial court concluded, and we agree, that article 2B of the K & B Lease clearly and unambiguously gave the lessee the option to cancel the lease if Delchamps ceased to lease and pay rent for the use of its store. As is clear from article 2B itself, the subject language was an inducement for the drugstore tenant to lease in the shopping center. * * * * * * Sandhill argues that the trial court erred in applying the parol evidence rule and refusing to allow the introduction of extrinsic evidence in interpreting article 2B of the K & B Lease. Sandhill correctly acknowledges that, if a contract provision is “clear and unambiguous,” a court may not consider extrinsic or “parol” evidence to change the plain meaning set forth in the contract. [Citation.] Sandhill contends that parol evidence was admissible below since the lease is incomplete and contains a latent ambiguity. [Citations.] A latent ambiguity arises when a contract on its face appears clear and unambiguous, but fails to specify the rights or duties of the parties in certain situations. [Citation.] Sandhill submits that, while the reference in article 2B of the K & B Lease to the Delchamps lease may be “unambiguous” when read literally, this reference was not “clear” or “complete” with regard to the operation of the lease should the Del- champs lease be assigned. We cannot agree. The operation of the parol evidence rule encourages parties to embody their complete agreement in a written contract and fosters reliance upon the written contract. “The parol evidence rule serves as a shield to protect a valid, complete and unambiguous written instrument from any verbal assault that would contradict, add to, or subtract from it, or affect its construction.” [Citation.] The parol evidence rule presumes that the written agreement that is sought to be modified or explained is an integrated agreement; that is, it represents the complete and exclusive instrument setting forth the parties’ intended agreement. [Citation.] The concept of integration is based on a presumption that the parties to a written contract intended that writing “to be the sole expositor of their agreement.” [Citation.] The terms of an integrated written contract can be varied by extrinsic evidence only to the extent that the terms are ambiguous and are given meaning by the extrinsic evidence. [Citation.] Here, * * * the K & B Lease contains a so-called merger or integration clause. Although the existence of a merger clause does not per se establish that the integration of the agreement is total, [citation], a merger clause is a highly persuasive statement that the parties intended the agreement to be totally integrated and generally works to prevent a party from introducing parol evidence to vary or contradict the written terms. * * * Here, we find that the K & B Lease is an integrated agreement complete in all essential terms. Further, Article 2B is not in the least unclear or incomplete. It contains no latent or patent ambiguity. Although article 2B does not mention assignment by Delchamps, it unambiguously grants the lessee the right to terminate the K & B Lease if Delchamps ceases to lease and pay rent for its store in the shopping center for any reason. * * * Accordingly, the trial court correctly ruled that it could not admit extrinsic evidence. * * * Affirmed. 15-5 SITUATIONS TO WHICH THE RULE DOES NOT APPLY 1. A contract that is partly written and partly oral; one in which the parties do not intend the writing to be their entire agreement. 2. A clerical or typographical error that obviously does not represent the agreement. 3. The lack of contractual capacity of one of the parties, through minority, intoxication, or mental incompetence, for instance. 4. A defense of fraud, misrepresentation, duress, undue influence, mistake, illegality, lack of consideration, or other invalidating cause. 5. A condition precedent to which the parties agreed orally at the time of the execution of the written agreement and to which the entire agreement was made subject. 6. A subsequent mutual rescission or modification of the written contract. 15-6 SUPPLEMENTAL EVIDENCE Although a written agreement cannot be contradicted, evidence of additional terms may be admissible to explain or supplement a written contract. Such evidence must be consistent and cannot contradict a provision in the contract. Under the U.C.C. and Restatement, course of dealing, usage of trade, and course of performance are often looked to for this type of evidence. NOTE: See Figure 15-1 for an illustration of the parol evidence rule. INTERPRETATION OF CONTRACTS *** Question to Discuss *** Discuss the rule that aids in the interpretation of a contract. If the meaning of the written words is ambiguous, the courts may clarify them by applying rules of interpretation and construction by using extrinsic (external) evidence where necessary. These rules assist the court in determining the intended purpose of the unclear terms, the specific meaning of ambiguous and technical words, and the intentions of the parties in light of previous transactions and course of dealings. The courts attempt to ensure that the contract being enforced is the one the parties made and that the intentions of the parties are carried out. NOTE: See the textbook for a complete listing of the rules of interpretation and construction. Chapter 16 THIRD PARTIES TO CONTRACTS Assignment of Rights [16-1] Law Governing Assignments [16-1a] Requirements of an Assignment [16-1b] Revocability of Assignments Partial Assignments Rights that Are Assignable [16-1c] Rights that Are Not Assignable [16-1d] Assignments That Materially Increase the Duty, Risk, or Burden Assignments of Personal Rights Express Prohibition against Assignment Assignments Prohibited by Law Rights of the Assignee [16-1e] Obtains Rights of Assignor Notice Implied Warranties of Assignor [16-1f] Express Warranties of Assignor [16-1g] Successive Assignments of the Same Right [16-1h] Delegation of Duties [16-2] Delegable Duties [16-2a] Duties of the Parties [16-2b] Third-Party Beneficiary Contracts [16-3] Intended Beneficiary [16-3a] Donee Beneficiary Creditor Beneficiary Rights of Intended Beneficiary Vesting of Rights Defenses Against Beneficiary Incidental Beneficiary [16-3b] Cases in This Chapter In Re Magness Aldana v. Colonial Palms Plaza, Inc. Mountain Peaks Financial Services, Inc. v. Roth-Steffen Federal Ins. Co. v. Winters Stine v. Stewart Chapter Outcomes After reading and studying this chapter, the student should be able to: • Distinguish between an assignment of rights and a delegation of duties. • Identify (1) the requirements of an assignment of contract rights and (2) those rights that are not assignable. • Identify those situations in which a delegation of duties is not permitted. • Distinguish between an intended beneficiary and an incidental beneficiary. • Explain when the rights of an intended beneficiary vest. TEACHING NOTES Third parties become involved with contracts due to: (1) an assignment of the rights of one party, (2) a delegation of the duties of one party, or (3) the express terms of a contract entered into for the benefit of a third person. *** Chapter Outcomes *** Distinguish between assignment of rights and delegation of duties. Identify the requirements of an assignment of contract rights and those rights that are not assignable. 16-1 ASSIGNMENT OF RIGHTS Voluntary transfer to a third party of the rights arising from the contract; the assignor transfers her rights to the assignee. The transfer may be by a gift or a sale. 16-1a Law Governing Assignments Comes primarily from the common law of contracts, Article 2 of the UCC (which applies to assignment of rights under a contract for a sale of goods), and Article 9 of the UCC (which applies to all assignments made to secure performance of an obligation and all assignments involving rights to payment of goods sold or leased or for services rendered). 16-1b Requirements of an Assignment There is no particular form required to effect an assignment; courts are more concerned with the intent of the assignor. Consideration is not necessary, but where it is given by the assignee the assignment cannot be revoked. Revocability of Assignments — An assignment unsupported by consideration may be revoked by the assignor or by operation of law if the assignor should die or become incapacitated, except where an effective delivery has been made of a deed or other document evidencing the transferred right. Partial Assignments — A transfer of a portion of contractual rights to one or more assignees. 16-1c Rights that Are Assignable Most contract rights, including rights under an option contract, are assignable, including the right to the payment of money and other property, such as land or goods. 16-1d Rights that Are Not Assignable In order to protect the obligor or the public interest, some contract rights are not assignable. Nonassignable contract rights include: 1. Assignments that Materially Increase the Duty, Risk, or Burden — An assignment is ineffective if it would significantly change the nature or extent of the obligor’s duty. 2. Assignments of Personal Rights — When the rights under a contract are highly personal, in that they are limited to the person of the obligee, such rights are not assignable. 3. Express Prohibition against Assignment — Most courts interpret a general prohibition against assignments as a mere promise not to assign. 4. Assignments Prohibited by Law — Various federal and state statutes, as well as public policy, prohibit or regulate the assignment of certain types of contract rights, such as assignments of future wages. CASE 16-1 IN RE MAGNESS United States Court of Appeals, Sixth Circuit, 1992 972 F.2d 689 Joiner, J. [The Dayton Country Club Company (the Club) offers many social activities to its members. The privilege to play golf at the Club, however, is reserved to a special membership category for which additional fees are charged. The Club chooses golfing memberships from a waiting list of members according to detailed rules, regulations, and procedures. Magness and Redman were golfing members of the Club. Upon their filing for bankruptcy, their trustee sought to assign by sale their golf rights to (1) other members on the waiting list, (2) other members not on the waiting list, or (3) the general public, provided the purchaser first acquired membership in the Club. The bankruptcy court found that the Club's rules governing golf membership were essentially anti-assignment provisions and therefore the estate could not assign rights contained in the membership agreement. On appeal to the district court, the bankruptcy court's ruling was affirmed. The district court added that this case was not a lease but rather a "non-commercial dispute over the possession of a valuable membership in a recreational and social club."] *** * * * [T]he contracts involve complex issues and multiple parties: the members of the club, in having an orderly procedure for the selection of full golfing members; the club itself, in demonstrating to all who would become members that there is a predictable and orderly method of filling vacancies in the golfing roster; and more particularly, persons on the waiting list who have deposited substantial sums of money based on an expectation and a developed procedure that in due course they, in turn, would become full golfing members. If the trustee is permitted to assume and assign the full golf membership, the club would be required to breach its agreement with the persons on the waiting list, each of whom has contractual rights with the club. It would require the club to accept performance from and render performance to a person other than the debtor. * * * *** The contracts creating the complex relationships among the parties and others are not in any way commercial. They create personal relationships among individuals who play golf, who are waiting to play golf, who eat together, swim and play together. They are personal contracts and Ohio law does not permit the assignment of personal contracts. [Citation.] So-called personal contracts, or contracts in which the personality of one of the parties is material, are not assignable. Whether the personality of one or both parties is material depends on the intention of the parties, as shown by the language which they have used, and upon the nature of the contract. *** Therefore, we believe that the trustee's motion to assign the full golf membership should be denied. We reach this conclusion because the arrangements for filling vacancies proscribe assignment, the club did not consent to the assignment and sale, and applicable law excuses the club from accepting performance from or rendering performance to a person other than the debtor. CASE 16-2 ALDANA v. COLONIAL PALMS PLAZA, INC. District Court of Appeal of Florida, Third District, 1991 591 So.2d 953, rehearing denied http://scholar.google.com/scholar_case?case=1977050164764776625&q=591+So.2d+953&hl=en&as_sdt=2,34 Per Curiam The appellant, Robert Aldana, appeals an adverse summary judgment in favor of appellee, Colonial Palms Plaza, Inc. and an order awarding Colonial Palms Plaza, Inc. attorney’s fees pursuant to the offer of judgment rule. We reverse. Colonial Palms Plaza, Inc. [Landlord], entered into a lease agreement with Abby’s Cakes On Dixie, Inc. [Tenant] for commercial space in a shopping center. The lease included a provision in which Landlord agreed to pay Tenant a construction allowance of up to $11,250 after Tenant satisfactorily completed certain improvements to the rented premises. Prior to the completion of the improvements, Tenant assigned its right to receive the first $8,000 of the construction allowance to Robert Aldana [Assignee]. In return, Assignee loaned Tenant $8,000 to finance the construction. Assignee recorded the assignment and sent notice to the assignment by certified mail to Landlord. When Tenant completed the improvements to the rented premises, Landlord ignored the assignment and paid Tenant the construction allowance. Assignee sued Landlord for the money due pursuant to the assignment. The trial court granted Landlord’s motion for summary judgment. The trial court also awarded Landlord attorney’s fees pursuant to the offer of judgment rule, [citation], and costs pursuant to [citation]. Landlord relies on an anti-assignment clause in the lease agreement to argue that the assignment was void and unenforceable. The clause states in part: TENANT agrees not to assign, mortgage, pledge, or encumber this Lease, in whole or in part, or to sublet the whole or any part of the DEMISED PREMISES, or to permit the use of the whole or any part of the DEMISED PREMISES by any licensee or concessionaire, without first obtaining the prior, specific written consent of LANDLORD at LANDLORD’S sole discretion. * * * Any such assignment, encumbrance or subletting without such consent shall be void and shall at LANDLORD’S option constitute a default. * * * Assignee argues * * * that under ordinary contract principles, the lease provision at issue here does not prevent the assignment of the right to receive contractual payments. We agree. So far as pertinent here, the lease provides that “TENANT agrees not to assign * * * this Lease, in whole or in part. * * *” Tenant did not assign the lease, but instead assigned a right to receive the construction allowance. The law in this area is summarized in Restatement (Second) of Contracts, §322(1), as follows: Unless the circumstances indicate the contrary, a contract term prohibiting assignment of “the contract” bars only the delegation to an assignee of the performance by the assignor of a duty or condition. As a rule of construction, in other words, a prohibition against assignment of the contract (or in this case, the lease) will prevent assignment of contractual duties, but does not prevent assignment of the right to receive payments due—unless the circumstances indicate the contrary. [Citations.] Landlord was given notice of the assignment. Delivery of the notice of the assignment to the debtor fixes accountability of the debtor to the assignee. [Citation.] Therefore, Landlord was bound by the assignment. [Citation.] The trial court improperly granted final summary judgment in favor of Landlord and the judgment must be reversed. Consequently, the trial court’s award of attorney’s fees and costs to Landlord must also be reversed. The cause is remanded for further proceedings consistent herewith. Reversed and remanded. 16-1e Rights of the Assignee Obtains Rights of Assignor — The assignee acquires the rights of the assignor, but no new or additional rights. The assignee takes the assigned rights with all of the defenses, defects, and infirmities that could be asserted against the assignor. Notice — To be valid, notice of an assignment does not have to be given to the obligor, though this is a recommended practice to avoid payment being made to the assignor. CASE 16-3 MOUNTAIN PEAKS FINANCIAL SERVICES, INC. v. ROTH-STEFFEN Court of Appeals of Minnesota, 2010 778 N.W.2D 380 http://scholar.google.com/scholar_case?q=778+N.W.2d+380&hl=en&as_sdt=2,34&case=11662901939297878943&scilh=0 Bjorkman, J. In May 1998, appellant Catherine Roth-Steffen graduated from law school with over $100,000 in school loans from more than a dozen lenders. Of this total, Roth-Steffen received $20,350 from the Missouri Higher Education Loan Authority (MOHELA) CASH Loan program through loans disbursed in 2005 and 2007. As of November 5, 1998, Roth-Steffen had incurred interest on these loans (MOHELA loan) in the amount of $3,043.28. Roth-Steffen listed the balance of $23,401.28 in a loan consolidation application she submitted in December 1998. She requested that the MOHELA loan not be consolidated with her other loans. In February 2003, MOHELA assigned ownership of the MOHELA loan to Guarantee National Insurance Company (GNIC), which, in turn, assigned the loan for collection to respondent Mountain Peaks Financial Services, Inc. (Mountain Peaks). [Mountain Peaks commenced a collection action claiming that it holds the MOHELA loan and that it is entitled to judgment in the amount of the outstanding balance, $23,120.52, and additional interest at the rate of 2.54% from July 19, 2007. In response, Roth-Steffen asserted that the action is barred by Minnesota’s six-year statute of limitations for collection on promissory notes. The district court granted summary judgment in favor of Mountain Peaks, determining that Mountain Peaks (1) owns Roth-Steffen’s loan, (2) is a valid assignee of MOHELA’s right, and (3) under the federal Higher Education Act is not to be subject to any state statutes of limitation.] Enacted in 1965, the Higher Education Act was the first comprehensive government program designed to provide scholarships, grants, work-study funding, and loans for students to attend college [and graduate school]. [Citations.] Pursuant to the act, the federal government makes loans and guarantees loans made by private lenders. [Citation.] In 1991, in response to rising loan defaults and an unfavorable legal ruling, Congress adopted the Higher Education Technical Amendments. [Citation.] The amendments eliminate all statutes of limitation on actions to recover on defaulted student loans for certain classes of lenders. [Citation.] These lenders are defined in section 1091a: * * * (B) a guaranty agency that has an agreement with the Secretary under section 1078(c) of this title that is seeking the repayment of the amount due from a borrower on a loan made under part B of this subchapter after such guaranty agency reimburses the previous holder of the loan for its loss on account of the default of the borrower; * * * [Citation.] For convenience, we refer to the entities described in this statute as “named lenders.” Mountain Peaks argues that it is exempt from Minnesota’s statutes of limitation because it is a valid assignee of MOHELA, a lender that has an agreement with the Secretary of Education under [section] 1091a(a)(2)(B). Roth-Steffen acknowledges that MOHELA is a named lender but argues that because Congress did not expressly identify assignees as named lenders, section 1091a does not preempt state statutes of limitation for claims asserted by assignees of named lenders. * * * Section 1091a does not, by its terms, extend its statutes-of-limitation exemption to assignees of named lenders. Nor does the statute expressly preclude application of the exemption to assignees. * * * * * * But courts interpreting federal statutes must also presume that Congress intended to preserve the common law * * * The common law of most states, including Minnesota, has long recognized that “[a]n assignment operates to place the assignee in the shoes of the assignor, and provides the assignee with the same legal rights as the assignor had before assignment.” [Citation]; see generally Restatement (Second) of Contracts § 317 (1981) (Assignment of a Right). Contractual rights and duties are generally assignable, including the rights to receive payment on debts, obtain nonmonetary performance, and recover damages. Restatement (Second) of Contracts § 316 (1981). But an assignor may not transfer rights that are personal, such as recovery for personal injuries or performance under contracts that involve personal trust or confidences. [Citation]; see generally Restatement (Second) of Contracts § 317 cmt. c. Under the common law, a contractual right to recover student-loan debt is assignable and does not fall within the personal-rights exclusion to the assignment rule. * * * * * * Because Congress legislated with a full knowledge of the common law of assignment, all contractual rights of the named lenders, including the protection from state statutes of limitations, should transfer to their assignees. * * * We conclude that section 1091a of the Higher Education Act applies to assignees of named lenders. Mountain Peaks is an assignee of a named lender, therefore this action is not time-barred by any Minnesota statute of limitations. 16-1f Implied Warranties of Assignor An implied warranty is an obligation imposed by law upon the transferor of property or contract rights. Usually an assignor who receives value makes the following implied warranties to the assignee with respect to the assigned right: 1. that he will do nothing to defeat or impair the assignment; 2. that the assigned right actually exists and is subject to no limitations or defenses other than those stated or apparent at the time of the assignment; 3. that any writing that evidences the right and that is delivered to the assignee or exhibited to him as an inducement to accept the assignment is genuine and what it purports to be; 4. and that the assignor has no knowledge of any fact that would impair the value of the assignment. 16-1g Express Warranties of Assignor An express warranty is an explicitly made contractual promise regarding the property or contract rights being transferred. The assignor is also bound by any express warranties he makes to the assignee regarding the right assigned. 16-1h Successive Assignments of the Same Right The owner of a right could conceivably make successive assignments of the same claim to different persons. Although morally and legally inappropriate, it raises the question of what rights successive assignees have. The majority rule is that the first assignee in point of time prevails over later assignees; the minority rule is that the first assignee to notify the obligor prevails. The Restatement adopts a third view: the first assignee is entitled to the right and its proceeds unless the assignment is revocable or voidable by the assignor. The later assignee may also take precedence if she, in good faith and without knowledge of the prior assignment, gives value and obtains one of the following: (1) payment of the obligor’s duty, (2) a judgment against the obligor, (3) a new contract with the obligor, or (4) possession of written evidence of the right assigned. *** Chapter Outcome *** Identify those situations in which a delegation of duties is not permitted. 16-2 DELEGATION OF DUTIES 16-2a Delegable Duties Most contract duties may be delegated except when: — the nature of the duties are personal in that the obligee has a substantial interest in having only the delegator perform the contract; — the performance is expressly made nondelegable; or — the delegation is prohibited by statute or public policy. CASE 16-4 PEPCO [Potomac Electric Power Company] is an electric utility serving the metropolitan Washington, D.C. area. Panda [Panda-Brandywine, L.P.] is a “qualified facility” (QF) under the Public Utility Regulatory Policies Act of 1978 [citation]. * * * FEDERAL INS. CO. v. WINTERS Supreme Court of Tennessee, 2011 354 S.W.3d 287 Wade, J. The defendant contractor [Winters Roofing Company] entered into a contract to replace a roof [on the home of Robert and Joanie Emerson]. When the newly installed roof developed leaks, [and without the knowledge of the Emersons,] the defendant hired an independent contractor [Bruce Jacobs] to make the necessary repairs. While performing the work, [Jacobs’ use of a propane torch] caused a fire, resulting in an $871,069.73 insurance claim by the homeowners. [After paying the Emersons’ claim, their insurer, Federal Insurance Company, acquired] the homeowners’ rights and claims arising out of the fire[.] [T]he plaintiff insurance company sued the defendant *** in contract. The defendant filed a motion for summary judgment, asserting that because he had subcontracted the work, he could not be liable. The trial court granted the motion ***. The Court of Appeals reversed, holding that the defendant had a non-delegable contractual duty to perform the roofing services in a careful, skillful, and workmanlike manner. This Court granted the defendant’s application for permission to appeal in order to determine the propriety of the claim under the theory of contract. In a breach of contract action, claimants must prove the existence of a valid and en¬forceable contract, a deficiency in the performance amounting to a breach, and damages caused by the breach. [Citation.] In addition to the explicit terms, contracts may be accompanied by implied duties, which can result in a breach. [Citations.] *** *** Here, the Plaintiff has alleged that the “[D]efendant breached its contractual duties by failing to complete the contract work ... skillfully, carefully, diligently, [and] in a workmanlike manner …” (Emphasis added). In our view, the contract placed upon the Defendant the implied duty to skillfully, carefully, and diligently install and repair the Emersons’ roof in a workmanlike manner. The question that remains is whether the duty of the Defendant to replace the roof skillfully, carefully, diligently, and in a workmanlike manner could be delegated to a subcontractor. That is, may a contractor who has such a duty escape liability by subcontracting with a third party who breaches these implied responsibilities? *** The Restatement (Second) of Contracts specifically addresses this issue, explaining that “neither delegation of performance nor a contract to assume the duty [under a contract] ... discharges any duty or liability of the delegating obligor.” Restatement (Second) of Contracts §318(3) (1981). *** *** To be clear, this principle does not mean that the performance of service contracts cannot be delegated. Generally, a contractor may delegate the performance of the contract, in whole or in part, to a third party. Restatement (Second) of Contracts §318(1) (1981). The delegation of performance, however, does not relieve the contractor from the duties implicit in the original contract. [Citation.] Stated definitively, “‘[o]ne who contracts to perform an undertaking is liable to his promise[e] for the [acts] of an independent contractor to whom he delegates performance.’” [Citation.] *** Here, the Emersons contracted with the Defendant for the installation of a roof. When it became apparent that the new roof leaked and required repairs, the Emer¬sons contacted the Defendant, who agreed to fix the problems. Without the knowledge of the Emersons, the Defendant hired a subcontractor to perform the repair work, whose use of a propane torch in repairing the roof resulted in a fire that caused substantial damage. Because the Defendant had the implied duty under contract to install the roof carefully, skillfully, diligently, and in a workmanlike manner, and, further, because the delegation of the responsibility to perform the services did not operate to release him from liability, the Defendant, based on his contract with the Emersons, may be held liable for the damages caused by the acts of Jacobs, the subcontractor.*** *** The judgment of the Court of Appeals is, therefore, affirmed, and the case is remanded for trial. *** 16-2b Duties of the Parties Delegatee — A delegation does not require performance by the delegator until the delegatee agrees to assume the duty. Delegator — The delegator is still liable (along with the delegatee) to the obligee for proper performance of the original contractual duty. In a novation, a new contract is formed by which the delegator is discharged of the duty and the delegatee becomes directly bound to the obligee. *** Chapter Outcomes *** Distinguish between an intended beneficiary and an incidental beneficiary. Explain when the rights of an intended beneficiary vest. 16-3 THIRD-PARTY BENEFICIARY CONTRACTS 16-3a Intended Beneficiary A third party intended by the two parties to the contract to receive a benefit from the performance of their agreement: Donee Beneficiary — A third party is an intended donee beneficiary if the promisee’s purpose in the agreement is to make a gift to the beneficiary. Creditor Beneficiary — A third person is an intended creditor beneficiary if she and the promisee already have an existing creditor-debtor relationship and if the promisee’s purpose in the agreement is to satisfy a legal duty owed to the beneficiary. CASE 16-5 STINE v. STEWART Supreme Court of Texas, 2002 80 S.W.3d 586, rehearing denied, 2002 http://scholar.google.com/scholar_case?q=80+S.W.3D+586&hl=en&as_sdt=2,34&case=11787409436171520113&scilh=0 Per Curiam On April 26, 1984, [Mary] Stine loaned her daughter [Mary Ellen Stewart] and son-in-law [William] Stewart $100,000 to purchase a home. In return, the Stewarts jointly executed a promissory note for $100,000, payable on demand to Stine. The note required interest payments at a floating rate adjusted every six months to one percent below the prime rate. It also required the Stewarts to pay the interest on the first of each month as it accrued on the unpaid principal. The Stewarts did not give a security interest or mortgage to secure the note. The Stewarts eventually paid $50,000 on the note, leaving $50,000, together with unpaid accrued interest, due. The Stewarts divorced on October 2, 1992. The couple executed an Agreement Incident to Divorce * * * which disposed of marital property, including the home the agreement identifies as the Lago Vista property. The agreement provides that Stewart could lease the house, but if Stewart sold it, he agreed that “any monies owing to [Stine] are to be paid in the current principal sum of $50,000.00.” The agreement further states: The parties agree that with regard to the note to Mary Nelle Stine, after application of the proceeds of the [Lago Vista property], if there are any amounts owing to [Stine] the remaining balance owing to her will be appropriated 50% to NANCY KAREN STEWART and 50% to WILLIAM DEAN STEWART, JR. and said 50% from each party will be due and payable upon the determination that the proceeds from the sale of said residence are not sufficient to repay said $50,000.00 in full. Stine did not sign the agreement. On November 17, 1995, Stewart sold the Lago Vista property for $125,000, leaving $6,820.21 in net proceeds. Stewart did not pay these proceeds to Stine and did not make any further payments on the $50,000 principal. Consequently, on July 27, 1998, Stine sued Stewart for breaching the agreement. * * * After a bench trial, the trial court concluded that Stine was an intended third-party beneficiary of the agreement and that Stewart breached the agreement when he refused to pay Stine as the agreement required. The trial court awarded Stine $28,410 in damages * * * from Stewart. The court of appeals reversed the judgment and rendered judgment for Stewart. [Citation.] The court of appeals concluded that, because the agreement does not show that the Stewarts intended to confer a gift to Stine, Stine was not an intended third-party donee beneficiary of the agreement. [Citation.] Additionally, the court of appeals concluded that Stine was not an intended third-party creditor beneficiary of the agreement. [Citation.] * * * A third party may recover on a contract made between other parties only if the parties intended to secure a benefit to that third party, and only if the contracting parties entered into the contract directly for the third party’s benefit. [Citation.] A third party does not have a right to enforce the contract if she received only an incidental benefit. [Citation.] “A court will not create a third-party beneficiary contract by implication.” [Citation.] Rather, an agreement must clearly and fully express an intent to confer a direct benefit to the third party. [Citation.] To determine the parties’ intent, courts must examine the entire agreement when interpreting a contract and give effect to all the contract’s provisions so that none are rendered meaningless. [Citation.] To qualify as an intended third-party beneficiary, a party must show that she is either a “donee” or “creditor” beneficiary of the contract. [Citation.] An agreement benefits a “donee” beneficiary if, under the contract, “the performance promised will, when rendered, come to him as a pure donation.” [Citation]; see also RESTATEMENT (SECOND) OF CONTRACTS §302(1)(b). In contrast, an agreement benefits a “creditor” beneficiary if, under the agreement, “that performance will come to him in satisfaction of a legal duty owed to him by the promisee.” [Citation]; see also RESTATEMENT (SECOND) OF CONTRACTS §302(1)(a). This duty may be an indebtedness, contractual obligation or other legally enforceable commitment owed to the third party. [Citation.] Stine contends that she has standing to sue for breach of the agreement as a third-party beneficiary, because the Stewarts intended to secure a benefit to her—that is, the payment of the remaining balance under the note. Stine also argues that whether or not limitations expired on enforcing the note, she was still a third-party creditor beneficiary because the debt remained an existing, legal obligation. Moreover, Stine contends, the agreement “acknowledges” the$50,000 debt owed to her because it recognizes that the note exists and requires the Stewarts to pay any amounts due under the note when Stewart sells the Lago Vista property. * * * Stewart responds that Stine does not have standing to sue under the agreement, because she is only an incidental beneficiary. Stewart argues that the agreement was not entered into directly and primarily for Stine’s benefit, and the agreement does not fully and clearly express the intent to confer a benefit to Stine. * * * Moreover, Stewart contends that the agreement does not acknowledge the original note, because it does not contain unequivocal language that revives the expired debt. * * * We agree with the court of appeals’ determination that Stine was not an intended third-party donee beneficiary of the agreement. [Citation.] But, we conclude that Stine is a third-party creditor beneficiary. The agreement expressly provides that the Stewarts intended to satisfy an obligation to repay Stine the $50,000 that the Stewarts owed her. Specifically, the agreement refers to the monies owed to Stine as “the current principal sum of $50,000.” Then, the agreement states that Stewart agreed to pay the property sale net proceeds “with regard to the note” to Stine. The agreement further provides that, if the property sale net proceeds did not cover the amount owed to Stine, the remainder would be immediately due and payable from the Stewarts, with each owing one half. Thus, the agreement expressly requires the Stewarts to satisfy their existing obligation to pay Stine. [Citation.] * * * Furthermore, contrary to Stewart’s argument, a third-party beneficiary does not have to show that the signatories executed the contract solely to benefit her as a non-contracting party. Rather, the focus is on whether the contracting parties intended, at least in part, to discharge an obligation owed to the third party. [Citation.] Here, the entire agreement is obviously not for Stine’s sole benefit. However, certain provisions in the agreement expressly state the Stewarts’ intent to pay Stine the money due to her. * * * The agreement’s language clearly shows that Stewart intended to secure a benefit to Stine as a third-party creditor beneficiary. The agreement also acknowledges the existence of a legal obligation owed to Stine and thus revives it as an enforceable obligation. Consequently, Stewart breached the agreement when he refused to pay Stine the money owed to her as the agreement requires. * * * Accordingly, we reverse the court of appeals’ judgment and remand this case to the trial court to render judgment consistent with this opinion. [Citation.] Rights of Intended Beneficiary — An intended donee beneficiary may take action against the promisor only, but an intended creditor beneficiary may sue either the promisor or the promisee. Vesting of Rights — Even though the states vary considerably, the Restatement states that if the contract provides that its terms may not be varied without the consent of the beneficiary, such a provision will be upheld. Defenses Against Beneficiary— In an action by the intended beneficiary of a third-party contract to enforce the promise, the promisor may assert any defense that would be available to her if the action had been brought by the promisee. The rights of the third party are based upon the promisor's contract with the promisee. Thus, the promisor may assert the absence of mutual assent or consideration, lack of capacity, fraud, mistake, and the like against the intended beneficiary. Once an intended beneficiary’s rights have vested, however, the promisor may not assert the defense of contractual modification or rescission. 16-3b Incidental Beneficiary An incidental third-party beneficiary is a person to whom the parties to a contract did not intend a benefit but who nevertheless would derive some benefit by its performance; she acquires no rights under the contract because no promise was made to her. Instructor Manual for Smith and Robersons Business Law Richard A. Mann, Barry S. Roberts 9781337094757, 9780357364000, 9780538473637

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