statute of frauds and posner and flaum and df

In the previous essay we saw how the interpretation of the SoF over the years went back and forth regarding the effect of a defendant's admission that a contract existed when the only records of it were the words of plaintiff and defendant. The UCC's position is that once the defendant admits the existence of the contract, s/he may not successfully interpose the defense of the SoF. But even if this is now "well settled," problems remain. A 7th Circuit case from 1988 shows us why.

DF Activities Corp. v. Brown, 851 F2d 920 (7th Cir 1988)

At issue in this case was whether a defendant's denial that a contract existed through appending an affiidavit to a motion to dismiss was subject to exploration by the plaintiff through deposition. Thus, while the UCC is clear that a defendant's admission would remove the defense of the SoF, the law says nothing about the finality of a defendant's unexplored, un-cross-examined (is this a word?) denial of an oral contract. And, as a brief factual recitation shows, there is reason to believe that defendant may not have been telling the truth.

Plaintiff contended that defendant agreed in a phone conversation with P on Nov. 26 to sell her very valuable "Willets Chair" to P for $60,000 to be paid in two equal installments. P followed up on Dec. 3 with a letter and a check of $30,000. D returned the check uncashed with a handwritten note: "Since I did not hear from you until Dec. and I spoke with you the middle of Nov., I have made other arrangements for the chair. It is no longer available for sale to you." Sometime later D sold the chair for $198,000. P sued for specific performance. D responded with a motion to dismiss. Attached to the motion was D's affidavit saying that she had never agreed to sell the chair to P. The affidavit also denied any recollection of a conversation with P on November 26. P argued that it should be permitted to conduct further discovery to show how the affidavit was in error, that in fact there was a conversation on November 26 (perhaps P would produce phone logs) and that they indeed had agreed to a sale of the chair.

The Decision

A split panel of the 7th Circuit held that P was not entitled to conduct further discovery and that therefore D's motion to dismiss must be granted. Writing for the 2-1 majority, Judge Posner wrote:

"We need not take sides in the conflict. When there is a bare motion to dismiss, or an answer, with no evidentiary materials, the possibility remains a live one that, if asked under oath whether a contract had been made, the defendant would admit it had been. The only way to test the proposition is for the plaintiff to take the defendant's deposition or, if there is no discovery, to call the defendant as an adverse witness at trial. But where as in this case the defendant swears in an affidavit that there was no contract, we see no point in keeping the lawsuit alive...With such possibilities for protraction [by moving to deposition and then trial], the statute of frauds becomes a defense of meager value. And yet it seems to us as it did to the framers of the UCC that the SoF serves an important purpose in a system such as ours that does not require that all contracts be in wriitng in order to be enforceable..."

The Dissent

Instead of contending in dissent that plaintiffs are automatically entitled to additional discovery in the face of defendant's sworn denial that an agreement was reached, Judge Flaum argued that the decision should be made on a case by case basis and that the facts of this case should have allowed the plaintiff to proceed further. Judge Flaum's major point is that if anyone could just append a one-page affidavit to a motion to dismiss and get the court to dismiss the claim, the broad words of the exception (where it speaks about admissions in 'pleadings, testimony or otherwise under oath') would be of no effect. Why would any defendant do anything else than issue an abrupt denial of the existence of a contract once it knew that the law was as Judge Posner laid out? A case by case determination would leave the system open to allow further exploration when it was seemingly warranted by the pleadings.

Conclusion

It seems that the two opinions in the DF case provide wonderful windows for us into the struggle over 300 years in interpreting the SoF. On the one hand, if you allow plaintiff to continue on what may be a laborious and costly "fishing expedition" against defendant, of what value really is the SoF? What incentive would plaintiffs have to put their contracts in writing if they can be given broad latitude to "prove" the contract at a trial? It would make the SoF a weak statute. But, on the other hand, if a bright-line rule is laid down as Posner lays it down, isn't the purpose of the statute called into question, because now defendants have an incentive to perjure themselves with impunity? If no further investigation of defendant's denial is possible, s/he can just heave a great sign of relief and, in this case, be glad that s/he has an extra $138,000. Thus, though the "modern" version of the SoF has taken sides on the issue of what legal effect a defendant's admission of the contract has on use of the SoF for a defense, it hasn't answered the question posed in the DF case. WWY(ou)D?

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