The Statute of Frauds

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    1. The Statute of Frauds
      1. Definitions
        1. This statute requires that certain contracts must be in writing to be enforceable. Restatement 2d §110. These include in common law:
          1. Contracts to answer to a creditor for the debt of another
          2. Contracts made in consideration of marriage
          3. Contracts for the sale of land or affecting any interest in land (except short term leases)
          4. Contracts not to be performed within one year from their making
        2. The UCC handles the Statute slightly differently.
        3. The CISG has no statute of frauds. Article 11: A contract of sale need not be concluded in or evidenced by writing and is not subject to any other requirement as to form. It may be proved by any means, including witnesses.
      2. UCC §2-201
        1. Codifies the common law Statute, but adds that a contract for the sale of goods for the price of over $500 is not enforceable unless in writing and signed by the party against whom the enforcement is sought. (The new version set the limit at $5000.)
        2. §2-201(1) adds that a writing is not insufficient because it omits or incorrectly states a term agreed upon but the quantity of goods transferred cannot be enforced beyond what is actually written in the contract.
        3. §2-201(2) adds that between merchants, a confirmation in writing received in a reasonable amount of time when the party receiving it has reason to know its contents will satisfy the statute unless notice of objection is remitted within 10 days.
          1. Illustration: Two parties, S and B, agree over the telephone the purchase of goods. S sends B a memo confirming the order. That memo is good against S for breach. That memo is also good against B if he is a merchant. The reason is that it would be unfair to S that he be bound to his word, but not B. B would be able to play the market otherwise with impunity.
        4. §2-201(3) adds exceptions where the contract is enforceable even if it violates §2-201(1)
          1. if the goods are specially manufactured for the buyer that aren’t suitable for another buyer
          2. if the party against whom enforcement is sought admits that a contract for sale was made (limited to the actual quantity in the writing)
          3. if the payment has been made and accepted or received and accepted. (UCC §2-606)
      3. The One-Year Limit Rule
        1. The Restatement and UCC both declare that a contract must be in writing if it is not to be performed within one year from its making. The case below adds that the performance must be COMPLETED in a year, and that if there’s any chance that it won’t be completed in a year, it is bound by the Statute.
      4. C.R. Klewin, Inc. v. Flagship Properties, Inc.
        1. Facts: Π subcontracted for Δ to build at a site. The agreement was over dinner and unwritten. The agreement was publicized and videotaped. Also, Π and Δ ceremoniously signed a standard form without filling in any blanks. Construction began a year later. Δ became dissatisfied with Π’s work and replaced Π, breaking the contract.
        2. Analysis: Held, an oral contract that does not say, in express terms, that performance is to have a specific duration beyond one year is, as a matter of law, the functional equivalent of a contract of indefinite duration for the purposes of the statute of frauds. Like a contract of indefinite duration, such a contract is enforceable because it is outside the proscriptive force of the statute regardless of how long completion of performance will actually take.
          1. Finley, 1987: “Under the prevailing interpretation, the enforceability of a contract under the one-year provision does not turn on the actual course of subsequent events, nor on the expectations of the parties as to the probabilities. Contracts of uncertain duration are simply excluded [from the SOF]; the provision [of the SOF] covers only those contracts whose performance cannot possibly be completed within a year.”
            1. Court adopts this interpretation of the word “possibly:” Rule: That the critical test is whether ‘by its terms’ the agreement is not to be performed within a year, so that the SOF will NOT apply where “the agreement contains no provision which directly or indirectly regulates the time for performance.”
              1. A contract is not within the SOF unless its terms are so drawn that it cannot by any possibility be performed fully within one year.
          2. If the contract contemplates performance of greater than a year, but doesn’t specifically say it, the SOF will not apply (that’s certainly the reading of this court).
        3. Held: that “an oral contract that does not say, in express terms that performance is to have a specific duration beyond one year is, as a matter of law, the functional equivalent of a contract of indefinite duration for the purposes of the statute of frauds.”
      5. Migerobe, Inc. v. Certina USA, Inc.
        1. Facts: Π contracted to buy watches from Δ for an after-Thanksgiving sale. Δ later backed out, and Π sued for breach of the oral contract and won. On appeal, Δ argues that the Statute was violated.
        2. Analysis: The instant case is covered by the UCC Statute of Frauds, Sec. 2-201 (red book p. 30)
          1. Compare to Section 131 of the Restatement.
            1. What is the main difference between the two? 1) A lot more detail is required in the Rst. (the only detail required by the UCC is ‘quantity’); the common-law/Rst. details are more onerous to adhere to than the UCC’s requirements.
          2. Requirements of writing for SOF (Prof. points out these three key things for the writing requirement under the UCC): 1) writing must be “sufficient to indicate that a contract for sale has been made b/w the parties; 2) must be signed by the party against whom enforcement is sought; and 3) writing must specify a quantity.
            1. Prof points this out, that the key is for the writings to be integrated: Writing can be satisfied through the integration of several documents; separate writings, connected together by express reference to each other or internal evidence of their unity, connection or relation.
          3. D also argues that section 75-2-201(2) of the MS Commercial Code (adopted from the UCC) allowed D to reject P’s offer within ten days after it received a copy of the P’s purchase order (language of section on CB 221, top). Prof. points out this section.
            1. Court says the section does not apply: it provides merchants with a method of satisfying the SOF when an oral agreement has been formed, but the signature of the party to be charged is lacking; in the instant case, there are two signed writings and section 75-2-201(2) cannot be invoked to excuse a breach of that contract.
        3. Result: Court found that the integration of three documents, including two signed by Δ were adequate to prove a contract had been formed and the Statute was not violated.
        4. Note: Multiple Writings to Comply with the Statute
          1. A writing must be sufficient to indicate that a contract for sale has been made between the parties.
          2. The writing must be signed by the party against whom enforcement is sought
          3. The writing must specify a quantity.
          4. The writing must “state with reasonable certainty the essential terms of the unperformed promises in the contract.” Restatement 2d §131.
      6. Conagra, Inc. v. Nierenberg
        1. Facts: Δ agreed by phone to sell Π grain at a certain price to be delivered at a certain time. Π drafted a K to which Δ promised to sign, but Δ never signed the contract. Oral K’s make up the vast majority of Π’s K’s. When Δ sold the grain to another buyer (at a much higher price), Π had to cover, and sued for damages.
        2. Analysis: Under UCC 2-201(1), even if an oral agreement was formed by the parties, such a contract is not enforceable unless it is reduced to writing and signed by the party against whom enforcement is sought.
          1. HOWEVER, there are EXCEPTIONS TO THE RULE: UCC 2-201(3) (Prof. points this out) establishes three different ways in which a contract can be enforceable despite the absence of a record under subsections 1 & 2 (red book, p. 30).
            1. Also, UCC 2-201 (2) (Prof. points out this section): If both parties are “merchants” one party may send written confirmation of an oral contract to the other which, if rec’d w/in a “reasonable time,” provides that the receiving party has 10 days to object in writing. If the receiving party fails to object, he can’t assert an SOF defense.
          2. In the instant case, the court first establishes that the parties DID reach accord on the quantity of grain, as well as the price per bushel, during their April 9 phone call, which is sufficient for a U.C.C. sales contract to be formed.
            1. Court then holds it makes little sense to shorten what is “reasonable” under these circumstances to a term shorter than that offered the recipient under 201(2), which is ten days; thus, N rec’d confirmation w/in a “reasonable” period of time from C, did not object, and CANNOT assert SOF defense.
        3. Result: Because Π’s confirmation was received in a reasonable time, and Δ did not object, the Statute defense is not available.
        4. Note: Exceptions to the Writing Requirement
          1. If a party admits that an oral contract for sale was made by way of his pleadings, testimony, or otherwise in court, then he can no longer assert a Statute of Frauds defense.
          2. If both parties are “merchants,” one party may send written confirmation of an oral contract to the other which, if received within a “reasonable time,” provides that the receiving party has 10 days to object in writing. Should the receiving party subsequently fail to object as required, he too can no longer assert a Statute of Frauds defense.
      7. Lige Dickson Co. v. Union Oil Co. of California
        1. Facts: Π had a longstanding relationship with Δ to provide oil based products. Δ encouraged and assisted Π’s entering the asphalt business and Π purchased all its asphalt from Δ. When prices for asphalt went up during the oil crisis, Δ promised that they would only raise prices on new K’s with Π. Δ then raised prices anyway for existing K’s.
        2. Analysis: HELD, Promissory estoppel cannot be used to overcome the SOF contained in the UCC in a case which involves the sale of goods, since to adopt the 2nd Rst’s provision authorizing enforcement of a promise which induced action or forbearance by the promissee notwithstanding the SOF would allow parties to circumvent the UCC.
          1. Some courts say that promissory estoppel may be a basis to enforce a promise that would otherwise be within the statute of frauds; some, like in the instant case, do NOT support this premise. Even though there is a “uniform” law, we still have variances among jurisdictions.
            1. While promissory estoppel exists as a doctrine, remember that it is a disfavored doctrine. There is a sense that courts do not want to undermine one disfavored doctrine with an even MORE disfavored doctrine
          2. 2nd Rst., Sec. 139 (Prof. points this out, the estoppel section of the Rst.) authorizes enforcement of a promise which induced action or forbearance by a promisee notwithstanding the statute of frauds.
            1. However, it is not the Restatement provisions that should even be applied to the instant case, but the U.C.C., since the case involves the sale of goods
          3. Court considers whether 1-103 provides the authority for the use of promissory estoppel to defeat the statute of frauds (“Unless displaced by the particular provisions of this Act, the principles of law and equity, including…estoppel…shall supplement its provisions”). (Prof. points out 1-103)
            1. Court determines that 2-201 contains its own limiting language in that the statute of frauds applies “except as otherwise provided in this section.” The section makes no mention of estoppel. (Prof. also points this out)
          4. Although the Court notes “that the SOF, having been enacted for the purpose of preventing fraud, shall not be made the instrument of shielding or aiding the party who relies upon it in the perpetration of a fraud or in the consummation of a fraudulent scheme,” the Court points out that there is neither allegation nor proof of fraud or deceit in the instant case.”
        3. Result: Since the promise was not in writing, and the court will not allow promissory estoppel to trump the Statute, the court ruled for Δ.