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Contracts for Sale of Goods: Definition & Explanation

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  • 0:05 Statute of Frauds
  • 1:49 Statute of Frauds Requirements
  • 3:59 The Uniform Commercial Code
  • 5:16 Exceptions
  • 7:39 Goods and Services
  • 8:35 Lesson Summary
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Lesson Transcript
Instructor: Ashley Dugger

Ashley is an attorney. She has taught and written various introductory law courses.

A sale of goods worth over $500 is usually covered by a state's statute of frauds. This means that certain requirements must be met before these contracts can be enforced. This lesson explores contracts for the sale of goods and a typical statute of frauds.

Statute of Frauds

Let's say that you come into my t-shirt store and order 1,000 printed purple t-shirts for $2 each. We speak in person and don't write a formal contract. After I print the t-shirts, you refuse to pick them up and pay for them. You say that you never actually ordered the t-shirts. Instead, you were just getting a quote. Can I enforce this contract against you?

The answer will depend on the statute of frauds in our state. A statute of frauds is a state law. Different states have different statutes of frauds, but all statutes of frauds apply only to particular categories of oral contracts. This includes certain contracts for the sale of goods. Goods are any tangible thing that is moveable.

There are usually six main categories affected by a state's statute of frauds:

  1. Promises that involve marriage as consideration
  2. Contracts that can't be performed within one year
  3. Contracts that involve the sale or transfer of land
  4. Contracts that involve promises by executors to pay estate debts
  5. Contracts that involve a promise to act as a guarantor or surety
  6. Contracts that involve the sale of goods worth more than $500

Statute of Frauds Requirements

A statute of frauds typically means that contracts in these categories are unenforceable unless they meet these two requirements:

  1. There must be a written memorandum of the contract. A memorandum of the oral contract can be any writing that proves the agreement.
  2. The written memorandum must be signed by the party that disputes the contract.

In order to satisfy a statute of frauds, a person must have a written memorandum that proves that an oral contract was made and proves any material terms of that contract. For a sales contract, material terms will include items like the quantity sold and the agreed-upon price.

Note that the written memorandum doesn't have to be complete. If the memorandum omits or incorrectly states a material term, the oral contract can still be enforced. However, the contract won't be enforced beyond the quantity of goods shown in writing.

For example, let's say that we orally agree that I'll sell you 1,000 t-shirts. I jotted a few notes on a piece of paper while we were talking, but I only wrote down a quote for you based on 500 t-shirts. I can only enforce the contract for 500 t-shirts if that's all I can prove through this memorandum.

Also note that it's not necessary for both people to sign the memorandum. Only the person that disputes the contract needs to have signed the memorandum.

If I want to enforce this oral contract against you and collect payment, then I need to prove that you ordered 1,000 printed purple t-shirts. There must be a written memorandum of our contract, like an order form or an invoice, and you must have signed the memorandum.

Uniform Commercial Code

The Uniform Commercial Code, or UCC, is a uniform act that covers sales and other commercial transactions. The UCC is meant to encourage uniformity, or consistency, between state laws. All 50 states have adopted at least a part of the UCC, although different states use different versions. This means that the state laws regarding sales aren't exactly uniform, but they are usually somewhat similar.

The UCC's statute of frauds can be found in section 2-201. The UCC says that 'a contract for the sale of goods for $5,000 or more is not enforceable...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...'

Notice that the UCC uses $5,000 for its threshold. This is a new revision to the UCC. Most states continue to use the $500 amount.

Exceptions

There are three main exceptions to a statute of frauds involving the sale of goods. First, the oral contract will be enforceable if the buyer received and accepted the goods.

Let's say that you came by my store and picked up your order but later refused to pay the bill. Our oral contract is enforceable even if I don't have your signature on a written memorandum.

Now let's say you picked up half of your order, or 500 t-shirts. Our oral contract is enforceable as to those goods that you received and accepted. You will have to pay for half of the t-shirts, regardless of whether I have your signature on a written memorandum. However, you won't have to accept or pay for the other half of the t-shirts.

The second exception involves payment. The oral contract will be enforceable if the buyer makes a partial payment for the goods.

Let's say that you paid for half of the t-shirts. This means you're obligated to accept half of the t-shirts. You won't have to accept or pay for the other half of the t-shirts. The oral contract is enforceable as to those goods for which you've paid.

The third exception involves special orders. The oral contract will be enforceable if the buyer ordered specialized goods that aren't suitable for sale to others and the seller made a substantial beginning in producing those goods.

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