statute of frauds and atlas shoe company and by the seller

We spend most of our lives in confusion or in partial understanding of things. Sometimes when we learn one item, one little piece of data that no one else really knows, we can at least say that the knowledge part of our day has had some grace in it and that we understand a little bit of that grace. Such is the feeling I had when I understood one little piece of the history of the Statute of Frauds ("SoF"), which I will now introduce to you.* Let's first start with a comparison of a

[*For other essays on aspects of the Statute of Frauds, click here.]

small section of the SoF in the USA of 1906 with the UCC of the early 1950s. Sec. 4(2) of the USA speaks about the goods to which the provisions of the SoF applies, and then it says:

"but if the goods are to be manufactured by the seller especially for the buyer and are not suitable for sale to others in the ordinary course of the seller's business, the provisions of this section do not apply."

This is the "special goods" exception to the SoF, and it makes sense. If someone makes goods that are only appropriate for a particular customer, it makes good sense to believe not only that a contract (albeit oral) was made with the customer, but that the customer ought to be charged with the contract if he wants to weasel out of the deal.

Now, let's rush ahead to see how the UCC (2-201) deals with this aspect of the SoF. Sec. 2-201(3) groups the various exceptions to the writing requirement under this one head. It provides that a contract not satisfying the requirements of subsection (1) [to be in writing] is otherwise enforceable:

"(a) if the goods are to be specially manufactured for the buyer and are not suitable for sale to others in the ordinary course of the seller's business...."

Note that one thing has dropped out in the 50 or so years between the USA and the UCC. It is the requirement that the goods be manufactured by the seller. Is this an oversight or is it of importance? Actually, the absence of those three little words in the UCC version of the SoF masks a problem that emerged after the USA was finalized, and which had been a subject of academic comment and judicial disingenousness in the meantime. Let me show you what I mean.

Interpreting the USA--a Case from 1922

In Atlas Shoe Co. v. Rosenthal (242 MA 15, 136 NE 107 (1922)), the plaintiff, a seller (but not manufacturer) of shoes took an order for defendant to supply him with more than $1,000 of shoes. The seller farmed out the manufacturing of the shoes to a third source. Nothing was reduced to writing. The shoes were particularly for the defendant and couldn't be otherwise sold by the plaintiff in the normal course of his business. Plaintiff tendered the shoes as per the oral contract, but the defendant refused to accept them. At trial plaintiff was awarded a verdict of $1,120.98. Defendant appealed.

The ground of defendant's appeal was the wording of the SoF in the USA adopted by MA. Note that it says that the provisions of the section do not apply if the goods were manufactured by the seller. This would mean that an oral contract for specially-made goods manufactured by the seller would be upheld if testimony at trial convinced the jury that such a contract was in place. But if the words of the statute would be literally construed, and if the seller requirement was absolutely necessary, then the defendant would not be liable to pay for the specially-made shoes he ordered which were made by a third party, if the contract was not in writing. In the words of the court, "Confessedly that statute (sec 2 of the USA) is a complete defense unless the facts bring the case within the exception in (2) of the said setion of the statute..."

So, how did the court decide the case? It read the statute literally (a canon of reading statutes that is de rigueur today by the way).

"Manifestly [and be wary whenever a court uses the word 'manifestly' or the like], if this clause is to be construed according to the words, it does not apply to the transaction in question, because the goods were not to be 'manufactured by the seller' but were to be procured by the seller to be made by a manufacturer. It is elementary [another favorite word used by courts when a matter isn't elementary at all] in the interpretation of statutes that every word, clause and sentence shall be given some force and effect and shall be treated as not superfluous unless absolutely necessary in order to give a rational meaning to the act."

Conclusion

The court concluded that the defendant ought to have been granted a directed verdict. "The defense of the statute of frauds is decisive." Thus, the result is that the defendant who, for whatever reason, didn't want the shoes that plaintiff had manufactured for him, was let out of the contract. Plaintiff was left holding the bag, so to speak, as well as defendant's shoes. It is all in the language of the statute, after all.

The next essay shows the reaction to this reading of the statute.

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