statute of frauds and 2-201 and merchant exception and decatur cooperative and urban and partial performance

The Statute of Frauds ("SOF") was first enacted in England in 1677. It was passed to preclude people from improperly claiming that they had oral contracts with others for large amounts of money that could lead to nasty and possibly unjust results. For example, if someone was trying to sell you a valuable item and claimed that you offered him $20,000 for the item (when you did not), without a statute of frauds you just might end up with a contract--depending on how a judge/jury weighed the credibility of each party. But, on the other hand, the SOF will sometimes give a party a defense in situations where witnesses saw parties shake hands and agree to a deal, but where the party wants to get out of the deal because no writing memorializes the transaction.

The Decatur case (p. 58) is a perfect example of the latter. The facts of the case reek of defendant's wanting to get out of an oral contract for sale of wheat to the cooperative principally because the price of wheat rose in the summer of 1973 and that he could get a better price from holding on to the wheat. Thus, he used the SOF as a defense against the enforceabilty of the contract to win at trial. The KS Supreme Court threw Urban a curve ball, however, by invoking the doctrine of estoppel to override the SOF. Its holding, which you should know, is on p. 64.

Most scholars see the SOF as probably a net loser as a statute. As a result of this, England actually dispensed with the SOF in 1954. However, 1954 was just when Article 2 was being drafted and the drafters did not want to engage in the sort of long ruminations that had occupied England for years before getting rid of the SOF. Thus, they "held their noses," so to speak, and put it in Article 2. The 2003 amendments to Article 2 would have increased the limit to $5,000 in 2-201(1), and some states have adopted that figure. However, the SOF, like the poor in Jesus' parable, is seemingly always with us. So, we turn to it now.

2-201

I plan to give several examples in class of the operation of the SOF. Here is the law. The basic principle is in 2-201(1):

"Except as otherwise provided in this section a contract for the sale of goods for the price of $500 or more is not enforceable by way of action or defense unless there is some writing sufficient to indicate that a contract for sale has been made between the parties and signed by the party against whom enforcement is sought or by his authorized agent or broker."

Thus, the general rule is that there needs to be a some kind of written memorandum of any transaction in goods over $500. Cmt 1, last paragraph, states the three requirements for this memo: "First, it must evidence a contract for the sale of goods; second it must be "signed" [see def. in new 1-201(37) with comment thereto], a word which includes any authentication which identifies the party to be charted; and third, it must specify a quantity."

Note the language of the statute. The contract doesn't have to be reduced to writing. It suffices if there a writing that indicates a contract has been made. What might that include? Most often this means handwritten notes, signed by the buyer or seller or on his/her stationery. Also, note that while quantity may not have to be specified for contract formation, it needs to be specified if we have a SOF problem. Cmt. 6 gives guidance on whether the writing that memorializes the transaction needs to be delivered to anyone.

2-201(2)

We will get to the definition of who is a merchant next week, but the Decatur case gives you a good three-point definition (p.62). The central point of this section is that the signature requirement from 2-201(1) is relaxed when the transaction is between merchants. Thus, if a writing is sent in confirmation of an oral agreement by party A to party B, and B receives it [we will look at the definition of "receive" in new 1-202(e)], it satisfies the requirements of 2-201(1) unless the recipient objects in writing within 10 days after receipt. Thus, if you are dealing with merchants as clients, be sure to tell them not to just stash away "in the file" memoranda of alleged purchases unless you know they actually are your purchases. If you didn't make those purchases, you only have 10 days to object in writing. There are nightmare scenarios that can emerge here...

2-201(3)

We don't get to the exceptions to the SOF until this last section. The Code lists three. The SOF defense will not be recognized: (1) where the goods under consideration are "specially manufactured goods," (2) where the "party against whom enforcement is sought admits in pleading, testimony or otherwise in court that a contract for sale was made (2-201(3)(b))," or (3) when payment or goods have been accepted and good are paid for. In contrast to the CLC where partial payment would take the entire contract out of the SOF, Article 2 allows "partial performance" only for the "goods which have been accepted or for which payment has been made or accepted." Thus, if A says (without written confirmation) she wants to buy 500 widgets from B at $20 per widget and tenders a check for $1,000 to A with delivery in the future, and then A later wants to interpose SOF as a defense against enforcement of the contract, B would only have an action for 50 widgets (50 x $20).

Conclusion

Thus, the SOF may be interposed primarily as a defense against enforceability of a contract. Check your local statutes to see what the dollar limit is in order to trigger the SOF. Realize the policy reasons behind it, and recognize that the weight of opinion now is that it isn't necessarily a good thing. But we have it. Realize, finally, that courts can sometimes impose other doctrines, like promissory or equitable estoppel, to limit its use.