978-1285860381 Chapter 16 Solution Manual Part 2

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The UCC’s Statute of Frauds

The UCC requires a writing for the sale of goods priced $500 or more. The Code’s requirements are

easier to meet than those of the common law. UCC §2-201, the statute of frauds section, has three

important elements:

1. The basic rule

2. The merchants’ exception

3. Special circumstances

UCC §2-201(1)—THE BASIC RULE

A contract for the sale of goods worth $500 or more is not enforceable unless there is some writing,

signed by the defendant, indicating that the parties reached an agreement. The key difference between

the common law rule and the UCC rule is that the Code does not require all of the terms of the

agreement to be in writing. The Code looks for something simpler: an indication that the parties

reached an agreement.

William J. Jenack Estate Appraisers and Auctioneers, Inc. v. Albert Rabizadeh

2013 NY Slip Op 08373

Court of Appeals of New York, 2013

Facts: William J. Jenack Estate Appraisers and Auctioneers, Inc. sold fine art and antiques at

public auctions. Albert Rabizadeh wanted to buy a nineteenth-century Russian silver and

enamel box, with an estimated value of $4,000, that was to be sold at one of Jenack’s auctions.

Rabizadeh could not attend the auction, so he submitted an “absentee bidder form,” in

accordance with Jenack’s online and telephone bidder policy. Rabizadeh signed the form and

listed his name, email address, telephone numbers, fax number, address, credit card number, and

the items that he intended to bid on. Jenack assigned Rabizadeh bidder number 305.

The rare Russian box garnered much excitement from collectors who believed it was worth

much more than its initially appraised value of $4,000. During the frenzied auction, Rabizadeh

beat out many other bidders with a telephone bid of $400,000. (Yes, that is two zeros more than

$4,000—it was quite a box.). Jenack recorded Rabizadeh’s winning bid on an official “clerking

sheet,” along with the item, its description, and bidder number 305. When he received Jenack’s

invoice, Rabizadeh decided he did not want it anymore and refused to pay.

Jenack sued Rabizadeh for breach of contract. Rabizadeh claimed that there was no contract

because the sale was not in a signed writing, as required by the UCC for goods over $500.

Jenack argued that the clerking sheet and related documents satisfied the writing requirement,

because they contained all the necessary terms. The trial court agreed with Jenack and awarded

it $402,398. A New York appeals court reversed the decision. Jenack appealed to New York’s

highest court.

Issue: Did the clerking sheet and the absentee bidder form satisfy the Statute of Frauds?

Excerpts from Judge Rivera’s Decision

In general, a contract for the sale of goods at a price of $500 or more must comply with the

signed writing requirement of the UCC. In the case of a public auction, a bid may satisfy the

[UCC’s] Statute of Frauds where there exists an appropriate writing “signed by the party

against whom enforcement is sought to be charged” (see UCC 2-201). [New York law also

permits] a memorandum specifying the nature and price of the item, the terms of sale, and the

names of the parties.

It is well established that the writing need not be contained in one single document, but

rather may be furnished by piecing together other, related writings. Therefore, a court may look

to documents relevant to the bidding and the auction.

The clerking sheet, in isolation, does not satisfy the New York law because it requires

the disclosure of the name of the buyer. We are unpersuaded by Jenack’s arguments that this

requirement can be satisfied by Jenack’s insertion of numbers in place of those names. To allow

for numbers, rather than names, would undermine the purpose of the Statute by increasing the

possibility of fraud.

We must consider whether there are “related writings” that supply the required names,

and which may be read, along with the clerking sheet, to provide the information necessary to

constitute a memorandum. The absentee bidder form, along with the clerking sheet, provide the

necessary information to establish the name of Rabizadeh as the buyer. This conclusion is

inescapable given that each of the documents contained information pertaining to the terms of

the sale. Both contain the item number, the bidder number, the auctioneer, and a detailed

description of the item.

The Statute of Frauds was not enacted to afford persons a means of evading just obligations.

[That] is precisely what Rabizadeh attempts to do here, but the law and the facts foreclose him

from doing so. Rabizadeh took affirmative steps to participate in Jenack’s auction, including

executing an absentee bidder form with the required personal information. He then successfully

won the bidding, closing out other interested bidders, with his $400,000 bid. He cannot seek to

avoid the consequences of his actions by ignoring the existence of a documentary trail leading

to him.

Question: Why wasn’t the clerking sheet alone sufficient to satisfy the Statute of Frauds?

Question: Why doesn’t UCC Section 2-201(2), the Merchant’s Exception, apply in this case?

Question: What is the purpose of the Statute of Frauds? Was it being utilized for this purpose

by Rabizadeh?

Answer: To provide a court with the best possible evidence of whether the parties intended to

Sale of Goods Distinguished from Other Contracts

Under UCC §2-201(1), a contract for the sale of goods worth $500 or more is not enforceable unless

there is some writing, signed by the defendant, indicating that the parties reached an agreement. The

common law requires that all terms of the agreement be in writing; the UCC does not. It requires

writing containing an indication that the parties reached an agreement, and a statement of the quantity

of goods being sold.

For example, suppose Antonia has just made two excellent business deals on the phone. In the first

she agreed to buy Natalie’s condominium in Fort Myers, Florida. In the second she ordered 1,000 tons

of gravel from Butch’s Gravel Co.

Natalie faxes this memo to Antonia:

Dear Antonia–This will confirm our agreement that you will buy my condo in Ft. Myers, Florida

[Signed] Natalie.

Butch faxes this memo to Antonia:

Toni–This confirms I’m selling 1,000 tons of Grade 3 gravel.

[Signed] Butch.

Question: What is missing from each fax?

Answer: Natalie’s fax omits the price, a description of the unit, the time, and place of performance,

Question: Natalie and Butch both refuse to go through with their agreements, and Antonia sues both.

Who will win her suit against Natalie?

Answer: Natalie wins. The agreement is in writing and signed by the defendant–Natalie–but it is not

Question: Who will win Antonia’s suit against Butch?

Answer: Antonia wins. Butch’s fax is no more specific than Natalie’s, but the UCC does not demand

UCC §2-201(2)—The Merchants’ Exception

When both parties are “merchants,” that is, business people who routinely deal in the goods being sold,

the Code will accept an even more informal writing. Within a reasonable time of making an oral

contract, if a merchant sends a written confirmation to another, and if the confirmation is definite

enough to bind the sender herself, then the merchant who receives the confirmation will also be bound

by it unless he objects in writing within 10 days.

UCC §2-201(3)—SPECIAL CIRCUMSTANCES

An oral contract may be enforceable, even without a written memorandum, if:

• The seller is specially manufacturing the goods for the buyer, or

• The defendant admits in court proceedings that there was a contract, or

• The goods have been delivered or they have been paid for.

Parol Evidence

The parol evidence rule: When two parties make an integrated contract, neither one may use parol

evidence to contradict, vary, or add to its terms.

If a court determines that a written contract is incomplete or ambiguous, it will permit parol

evidence.

A court will permit parol evidence of fraud, misrepresentation, or duress.

Case: Mayo v North Carolina State University,1

Facts: Dr. Robert Mayo was a tenured faculty member of the engineering department at North

Carolina State University (NCSU), and director of the school’s nuclear engineering program. In July,

he informed his department chair, Dr. Paul Turinsky, that he was leaving NCSU effective September 1.

In October, after Mayo had departed, the university’s payroll coordinator informed him that he had

been overpaid because for employees who worked 9 months but were paid over 12 months, the salary

checks for July and August were prepayments for the period beginning that September. Because Mayo

had not worked that September he was not entitled to the money. Mayo refused to refund the money.

1 2005 WL 350567 North Carolina Court of Appeals, 2005

At an internal hearing on the University’s claim for the money Turinsky and the university’s payroll

director, explained that the “pre-payment” rule was a basic part of every employee’s contract. This rule

was not stated in any of the documents that formed Mayo’s contract and these officials used other

evidence to establish the prepayment policy. Based on the additional evidence, the hearing ruled that

NCSU was entitled to its money. Mayo appealed the agency’s decision to court and the trial judge

declared that he owed nothing because the university was not permitted to rely on parol evidence to

establish its policy. The University appealed.

Issue: May NCSU rely on parol evidence to establish it pre-payment rule?

Excerpts from Judge Bryant’s Decision: Judgment for Mayo affirmed. Excerpts from the court’s

opinion:

Here, the language of the employment agreement is clear and unambiguous-petitioner is to be paid

in twelve monthly installments for his service as a nine-month, academic year, tenured faculty

member. Dr. Turinsky testified that petitioner’s written employment agreement is comprised of

terms found in petitioner’s appointment letter, annual salary letter, and written policies adopted and

amended by the UNC Board of Governors and the NCSU Board of Trustees. However, none of

these documents forming the employment agreement set forth the compensation policies upon

which NCSU bases its claim. The payroll director admitted at the agency hearing that the policies

were “not stated anywhere specifically.” Dr. Turinsky testified he did not know of the existence of

the terms until September, after petitioner left his employment with NCSU. The parol evidence

rule prohibits the admission of parol evidence to vary, add to, or contradict a written instrument

intended to be the final integration of the transaction.

Question: What does the parol evidence state?

Question: What is an integrated contract?

Question: What is the source of this dispute?

Answer: Mayo voluntarily left his tenured position at the University effective September 1. After

Question: Why?

Answer: The University relied on its “prepayment” rule, under which salary received in July and

Question: Was this rule part of Mayo’s employment agreement with the University?

Question: How does the parol evidence rule arise in this case?

Question: Did the court agree?

Note: The court affirmed in part, ruling that Mayo owed the university nothing, and reversed in

part, declaring that Mayo was also entitled to his tax refund.

Multiple Choice Questions

1. CPA QUESTION Two individuals signed a contract that was intended to be their entire

agreement. The parol evidence rule will prevent the admission of evidence offered to:

(a) Explain the meaning of an ambiguity in the written contract

(b) Establish that fraud had been committed in the formation of the contract

(d) Prove the existence of a subsequent oral agreement modifying the contract

2. Raul wants to plant a garden, and he agrees to buy a small piece of land for $300. Later, he agrees

to buy a table for $300. Neither agreement is put in writing. The agreement to buy the land ____

enforceable, and the agreement to buy the table ____ enforceable.

(a) is; is

(b) is; is not

(d) is not; is not

3. The common law statute of frauds requires that to be “in writing,” an agreement must be signed by

____.

(a) the plaintiff

(b) the defendant

(d) none of the above.

4. Mandy verbally tells a motorcycle dealer that she will make her son’s motorcycle payments if he

falls behind on them. Will Mandy be legally required to live up to this agreement?

(a) Yes, absolutely.

(b) Yes, if her son is under 18.

(d) Yes, if the motorcycle is worth less than $500.

(e) No, absolutely not.

5. In December 2012, Eric hires a band to play at a huge graduation party he is planning to hold in

May, 2014. The deal is never put into writing. In January 2014, if he wanted to cancel the job,

Eric ____ be able to do so. If he does not cancel, and if the band shows up and plays at the party in

May, 2014. Eric ____ have to pay them.

(a) will; will

(b) will; will not

(d) will not; will not

Case Questions

1. Richard Griffin and three other men owned a grain company called Bearhouse, Inc., which needed

to borrow money. First National Bank was willing to loan $490,000, but insisted that the four men

sign personal guaranties on the loan, committing themselves to repaying up to 25 percent of the

loan each if Bearhouse defaulted. Bearhouse went bankrupt. The bank was able to collect some of

its money from Bearhouse’s assets, but it sued Griffin for the balance. At trial, Griffin wanted to

testify that before he signed his guaranty, a bank officer assured him that he would only owe 25

percent of whatever balance was unpaid, not 25 percent of the total loan. How will the court decide

whether Griffin is entitled to testify about the conversation?

Answer: Under the parol evidence rule, if the parties intended the guaranty to be integrated, which

they almost certainly did, Griffin may testify only if the writing is ambiguous or incomplete. The

2. When Deana Byers married Steven Byers, she was pregnant with another man’s child. Shortly after

the marriage Deana gave birth. The marriage lasted only two months, and the couple separated. In

divorce proceedings, Deana sought child support. She claimed that Steven had orally promised to

support the child if Deana would marry him. Steven claims he never made the promise. Comment

on the outcome.

Answer: It makes no difference whether he said it or not. An oral promise in consideration of

3. Lonnie Hippen moved to Long Island, Kansas, to work in an insurance company owned by Griffiths.

After he moved there, Griffiths offered to sell Hippen a house he owned, and Hippen agreed in

writing to buy it. He did buy the house and moved in, but two years later Hippen left the insurance

company. He then claimed that at the time of the sale, Griffiths had orally promised to buy back his

house at the selling price if Hippen should happen to leave the company. Griffiths defended based

on the statute of frauds. Hippen argued that the statute of frauds did not apply because the

repurchase of the house was essentially part of his employment with Griffiths. Comment.

Answer: Hippen’s claim fails. The purchase–or repurchase–of a house is the classic interest in

4. Landlord owned a clothing store and agreed in writing to lease the store’s basement to another

retailer. The written lease, which both parties signed, (1) described the premises exactly, (2)

identified the parties, and (3) stated the monthly rent clearly. But an appeals court held that the

lease did not satisfy the statute of frauds. Why not?

Answer: The writing must contain all essential terms. This lease said nothing about duration, an

5. You Be the Judge: WRITING PROBLEM Because of his success in a big case, a

lawyer named Melbourne promised his assistant, Barbara . a large bonus. After the case settled,

Melbourne met with Barbara to discuss when and how much he would pay her. In the conversation

that she secretly recorded, Melbourne agreed to pay Barbara $1 million, plus $65,000 for a luxury

automobile. Payments were to be made in monthly installments of $10,000, for 10 years.

Melbourne also agreed to sign a document confirming his promise. Barbara’s lawyer drafted the

writing, but Melbourne never signed it. He did pay nine monthly installments, along with an extra

payment of $100,000. Did Melbourne and Barbara have a valid contract? Argument for Barbara:

The Statute of Frauds exists to prevent fraud. The fear that a plaintiff would lie about a contract is

not an issue here. We know what Melbourne agreed to do because we heard him. Argument for

Melbourne: If there was an agreement, it could not have been performed in one year because it had

10 years’ worth of instalment payments.

Answer: Because the terms of the agreement and the parties’ intentions demonstrate it

Discussion Questions

1. ETHICS Jacob Deutsch owned commercial property. He orally agreed to rent it for six years to

Budget Rent-A-Car. Budget took possession, began paying monthly rent, and over a period of

several months expended about $6,000 in upgrading the property. Deutsch was aware of the

repairs. After a year, Deutsch attempted to evict Budget. Budget claimed it had a six-year oral

lease, but Deutsch claimed that such a lease was worthless. Please rule. Is it ethical for Deutsch to

use the statute of frauds in attempting to defeat the lease? Assume that, as landlord, you had orally

agreed to rent premises to a tenant, but then for business reasons preferred not to carry out the

deal. Would you evict a tenant if you thought the statute of frauds would enable you to do so? How

should you analyze the problem? What values are most important to you?

Answer: Normally a long-term oral lease is worthless, but here the tenant took possession and

made expensive improvements, to the landlord’s knowledge. This is part performance, considered

2. Mast Industries and Bazak International were two textile firms. Mast orally offered to sell certain

textiles to Bazak for $103,000. Mast promised to send documents confirming the agreement, but

never did. Finally, Bazak sent a memorandum to Mast confirming the agreement, describing the

goods, and specifying their quantity and the price. Bazak’s officer signed the memo. Mast received

the memo but never agreed to it in writing. When Mast failed to deliver the goods, Bazak sued.

Who will win? Why?

Answer: Bazak. This contract is for the sale of goods and thus is governed by UCC §2-201. Both

parties are merchants. Under the merchants’ exception, UCC §2-201 (2), when Bazak sent a signed

3. A disc jockey named Z-Trip made a remix of a Beastie Boys song with the hip-hop group’s

permission. Monster Energy (ME), an energy drink company, wanted to use the remix as part of a

video promotion. Monster Energy sent an email asking Z-Trip to approve the video. In an email,

Z-Trip responded “Dope!” When the Beastie Boys sued ME for copyright infringement, ME

claimed that Z-Trip’s reply was a contract granting it approval to use the remix. Is there an

enforceable contract between Z-Trip and ME?

Answer: Based on Beastie Boys v. Monster Energy Company (S.D.N.Y. 2013), Generally, email

contracts are valid, as are electronic signatures. While courts view these transactions liberally, the

4. Does the coverage of the statute of frauds make sense as it currently stands? Would it be better to

expand the law and require that all contract be in writing? Or should the law be done away with

altogether?

5. Compare the common law statute of frauds to the UCC version. What are the specific differences?

Which is more reasonable? Why?