Contracts play an essential role in managing business activities helping to determine and protect the rights of the parties involved. In general, the Statute of Frauds, in which the main goal is to prevent harm to innocent parties, denies enforceability to the contracts that do not meet its writing requirement (Clarkson et al., 2017). Nevertheless, some exceptions allow forgoing the written requirement in certain circumstances. The main exceptions are promissory estoppel, performance, and admission. Whether an oral contract is deemed enforceable depends on the circumstances of how it was formed, and its mutuality proved in court.
The case of Castellotti v. Free considers the oral agreement made between Peter Castellotti and his sister. It binds her as a promisor to act following his compliance with its special terms. Their mother, Madeline Castellotti, removed the son of her will in order to preserve his share from possible separation due to the ongoing divorce process with his then-wife Rea. Peter orally agreed with Lisa to pay the property taxes, whereas she promised to share half of the assets she received under the will following the mother’s death and when the divorce is final. The taxes were paid, their mother passed away, and the divorce process was over, but the sister revoked the deal.
Lisa Free opted to void the contract relying on the fact that this alleged oral agreement violates the Statute of Frauds. Generally, an oral contract, which consists of a particular promise to answer for the debt of another, should be in written form to be enforceable (Fried, 2015). However, when there is a new consideration that is beneficial and tangible for the promisor, the court can satisfy the exception. In that case, Peter’s complaint states that he promised to pay Madeline’s estate taxes using his share of her life insurance, while Lisa, in her turn, promised to transfer 50% of the assets to Castellotti. It means that the share of assets became the new consideration that is directly beneficial to the promisor. Although the action of this promise is barred under the Statute of Frauds, Peter’s promise seems to be a valid consideration.
The doctrine of promissory estoppel and performance are the most suitable legal theories that can be addressed by the court. It states that if one party relies on another’s promise to his/her detriment, the promisor may be prevented by the court decision to void the contract (Clarkson et al., 2017). In that case, the Statute of Frauds should be ignored, and oral promise can be enforceable. However, the reliance that is foreseeable for the promisor should be justified. In a particular case, the promisee successfully qualifies for its requirements.
The oral contract has the support of sufficient consideration and allegation that parties entered the agreement, which should be executed after the confirmation of Madeline’s passing. However, the life insurance provision that requires the defendant to make the plaintiff the beneficiary of a life insurance policy is violating the law and not severable. It means that the whole agreement becomes void because Peter failed to allege a valid agreement suitable to support his breach of contract claims; thus, the court should not enforce the promise.
If the court enforces the promise, the plaintiff’s former wife, Rea, should not receive her part of the assets that were allegedly “manipulated” by Peter’s family. Castellotti, during the matrimonial action, testified that he did not possess any actual interest in the assets. However, collateral and judicial estoppel do not preclude his breach of contract claims here because previous litigation just decided his marital status. It is not the subject of this complaint, and at the time of testimony, he has not yet had an ownership interest.
A Question of Ethics in Assignment and Delegation
Contracts are essential because they help to define the rights and duties of the parties involved. Modern business relations could not be imagined without the possibility to transfer the contract’s rights or duties to third parties. According to Clarkson et al. (2017), delegation is a transfer of the responsibility and authority to another party for fulfilling the contractual duty. In its turn, assignment occurs when a party designates rights to another party. In general, the parties to the contract are free to assign their rights and transfer obligations. Nevertheless, when the delegation alters the scope of the agreement, the contractual obligations cannot be assigned.
The case of Sunset Gold Realty v. Premier Building considers the listing agreement breach that was signed between Sunset Gold Realty, which had to find a tenant for commercial property, and Premier Building as a receiver of their service. The listing agreement contained a provision that it also binds their “assigns.” The new company that was established by Premier Building, Cobblestone, became the landlord after Sunset Gold found a tenant for their property. Nevertheless, the former refused to pay commission to the latter what caused a further dispute.
The assignment should not have a negative effect on the duties and rights of the other party to the contract. If Premier Building assigned the contract to Cobblestone, the privity between the latter and Sunset Gold would be established (Clarkson et al., 2017). In that case, the assignee would be obliged to pay the commission under the previous contract. It means that Cobblestone should pay commission (its duty) to Sunset Gold in order to enjoy the rights which were transferred to it.
Nevertheless, a delegation of duties usually does not relieve the delegator of the obligation to act under specific circumstances. In this particular case, it is a failure of the delegatee to fulfill the terms of the agreement. If Cobblestone is unable, or just refuses to make payment in favor of Sunset Gold it should be done by the party that initially conducted an agreement, what is Premier Building. This company remains secondary liable to the obligor as a guarantor or surety (O’Sullivan, 2018). However, the delegator loses its rights to the benefit of the delegatee.
Sunset Gold fulfilled its obligation that was stated in the listing contract, while Cobblestone fully enjoyed the rights by receiving tenant. Taking this fact into consideration, Cobblestone acted in an unethical way by refusing to pay the commission. There was no appropriate assignment or delegation process, so the company, from one hand, is not obliged to transfer money for this service. On the other hand, Cobblestone, as the “assign” of Premier Building, is also bound by the contract and compelled to compensate Sunset Realty under the listing agreement. Thus, the company’s position that obligation to pay was not validly assigned to Cobblestone by the court is at least not ethical. The substantial compliance with the requirements by Sunset Realty and the facts and circumstances of the case prove that it would be inequitable to deny the recovery.
To conclude, Premier Building, as the initial party of the agreement, and Cobblestone, as its assignee, both obliged to pay the commission. Cobblestone received rights to acquire a tenant that was found by the agent company together with duties to pay for its service. The decision to deny the commission could be deemed as unethical behavior. If the Cobblestone fails to transfer money according to the contract, Premier Building becomes liable for this payment.
References
Clarkson, K. W., Miller R. L., & Cross F. B. (2017). Business Law: Text and Cases (14th ed.). Cengage.
Fried, C. (2015). Contract as Promise: A theory of contractual obligation (2d ed.). Oxford University Press.
O’Sullivan, J. (2018). O’Sullivan & Hilliard’s the law of contract. (8th ed.). Oxford University Press.