Fundamentals of Business Law, 10E: Roger Leroy Miller

FUNDAMENTALS OF
BUSINESS LAW, 10E

ROGER LEROY MILLER
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DEFENSES TO CONTRACT
ENFORCEABILITY
CHAPTER 11
LEARNING OBJECTIVES
1. In what types of situations might

voluntary consent to a contract’s
terms be lacking?
2. What are the elements of fraudulent
misrepresentation?
3. If it is possible for a contract to be
performed within one year, must it be
in writing?
LEARNING OBJECTIVES (CONT’D)
4. If a written contract is required, what

terms must it contain?
5. What is parol evidence? When is it
admissible to clarify the terms of a
written contract?
INTRODUCTION
• An otherwise valid contract may still be

unenforceable if the parties have not
genuinely agreed to its terms.
• In this chapter, we examine defenses to
contract enforceability, such as lack of
voluntary consent and improper form.
• We examine the kinds of contracts that are
required to be in writing.
• We also discuss the parol evidence rule.
VOLUNTARY CONSENT
• Voluntary consent may be lacking

because of mistake, fraudulent
misrepresentation, undue influence, or
duress.
• Mistakes
• Mistakes of fact occur in two forms—
unilateral and bilateral; illustrated in Exhibit
11.1.
EXHIBIT 11.1
VOLUNTARY CONSENT
• Unilateral mistake—Only one party is

mistaken as to a material fact.
• Bilateral (mutual) mistake—When both
parties are mistaken about the same
material fact, such as identity, either party
can avoid the contract.
VOLUNTARY CONSENT
• Fraudulent Misrepresentation
• When fraud occurs, usually the innocent
party can enforce or avoid the contract.
• Generally, fraudulent misrepresentation is
consciously false and intended to mislead
another.
VOLUNTARY CONSENT
• The following elements are necessary to

establish fraud:
• A misrepresentation of a material fact must occur.
• There must be an intent to deceive.
• The innocent party must justifiably rely on the
misrepresentation.
VOLUNTARY CONSENT
• Undue Influence and Duress

• Undue influence—The party being taken
advantage of does not exercise free will in
entering into a contract.
• Arises from a special relationship, such as
an elderly person who enters into a
contract that benefits the guardian.
VOLUNTARY CONSENT
• Duress— The use of threats to force a party

to enter into a contract constitutes duress.
• For example, a party is forced to enter a
contract under the threat of violence or
serious economic loss.
THE STATUTE OF FRAUDS—
WRITING REQUIREMENT
• The name of the Statute of Frauds is
misleading because it does not apply
to fraud. It refers to the state statutes
designed to prevent fraud by requiring
that certain types of contracts be in
writing or be evidenced by a written
memorandum or electronic record.
WRITING REQUIREMENT
Applicability—The following types of
contracts fall under the Statute of
Frauds and must be in writing to be
enforceable:
•Contracts Involving Interests in Land
• The statute applies to any contract for an
interest in realty, such as a sale, a lease, or
a mortgage.
WRITING REQUIREMENT
• The One-Year Rule
• Contracts that cannot by their terms be
performed within one year must be in
writing to be enforceable.
• Time period starts the day after the
contract is made.
• Exhibit 11.2 illustrates the one-year rule.
EXHIBIT 11.2
WRITING REQUIREMENT
• Collateral Promises
• A collateral promise is one made by a
third party to assume the debts or
obligations of a primary party to a
contract if that party does not perform.
WRITING REQUIREMENT
• Promises Made in Consideration of
Marriage
• The statute applies to promises to make a
monetary payment or give property in
consideration of a promise to marry and to
prenuptial agreements made in
consideration of marriage.
WRITING REQUIREMENT
• Contracts for the Sale of Goods
• Contracts for the sale of goods priced at
$500 or more must be in writing.
WRITING REQUIREMENT
• Exceptions to the Statute of Frauds
• Exceptions to the applicability of the
Statute of Frauds are partial performance,
admissions, and promissory estoppel:
• Partial performance—Contract only partially performed
• Admissions—The party against whom enforcement of an
oral contract is sought admits that an oral contract for
sale was made.
• Promissory estoppel—An oral promise can be
enforceable if the promisee has justifiably relied on it to
her or his detriment.
EXHIBIT 11.3
THE SUFFICIENCY OF THE WRITING
• What Constitutes a Writing?

• A written contract will satisfy the writing
requirement of the Statute of Frauds. Also
satisfying the requirement are:
• A signed written or electronic memorandum
• A confirmation, invoice, sales slip, check, fax, or e-mail
THE SUFFICIENCY OF THE WRITING
• What Must Be Contained in the

Writing?
• Under the Statute of Frauds, a writing must:
• Be signed by the party against whom enforcement is sought
• Name the parties
• Identify the subject matter
• State with reasonable certainty the essential terms of the contract
• Under the Uniform Commercial Code (UCC), a

contract for a sale of goods is not enforceable
beyond the quantity of goods shown in the
contract.
THE PAROL EVIDENCE RULE
• Sometimes, a written contract does

not include—or contradicts—an oral
understanding.
• Under the parol evidence rule, a party
cannot introduce in court evidence of
the parties’ prior negotiations,
agreements, or oral agreements if that
evidence varies the terms of the
parties’ written contract.
• Exceptions to the Parol Evidence Rule

• Contracts subsequently modified
• Voidable or void contracts
• Contracts containing ambiguous terms
• Incomplete contracts
• Prior dealing, course of performance, or
usage of trade
• Integrated Contracts
• An integrated contract is a complete and
final statement of the terms of the
agreement.
• Any evidence from outside the contract is
excluded.
• Exhibit 11.4 illustrates the relationship
between integrated contracts and the
parol evidence rule.
EXHIBIT 11.4

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FUNDAMENTALS OF

BUSINESS LAW, 10E

1. In what types of situations might

4. If a written contract is required, what

• An otherwise valid contract may still be

• Voluntary consent may be lacking

• Unilateral mistake—Only one party is

• The following elements are necessary to

• Undue Influence and Duress

• Duress— The use of threats to force a party

• What Constitutes a Writing?

• What Must Be Contained in the

• Under the Uniform Commercial Code (UCC), a

• Sometimes, a written contract does

• Exceptions to the Parol Evidence Rule

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