Statute of Frauds Under the UCC: Definition, Exceptions & Examples

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  • 0:05 UCC Statute of Frauds
  • 1:52 Sale of Goods
  • 3:55 Leases for Goods
  • 4:59 Agreements Creating a…
  • 6:06 Modifications
  • 7:01 Lesson Summary
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Lesson Transcript
Instructor: Ashley Dugger

Ashley has a JD degree and is an attorney. She has taught and written various law courses.

A statute of frauds is a state law that applies to certain oral contracts. The Uniform Commercial Code includes a model statute of frauds, requiring written contracts in only a few situations. This lesson explains the UCC's statute of frauds.

UCC Statute of Frauds

Many contracts are made orally, or between parties without memorializing the agreement in writing. Oral contracts have long been considered to be valid and enforceable. This even includes most commercial or business contracts.

The Uniform Commercial Code, or UCC, is a uniform act that covers sales and other commercial transactions. Keep in mind that the UCC is a model, or guide. This means that the UCC only becomes law when a state enacts a particular provision.

The UCC includes a model statute of frauds. A statute of frauds is a state law that generally requires certain contracts to be in writing and signed by the parties in order to be enforceable. Though every state has a statute of frauds, different states have enacted different versions of the law.

The UCC's statute of frauds is quite limited. The UCC suggests that most commercial agreements can be enforceable even when unwritten. However, the UCC requires contracts to be in writing in these limited situations:

  • Contracts for the sale of goods worth $500 or more
  • Leases for goods worth $1,000 or more
  • Agreements that create a security interest in goods and the goods aren't in the possession of the creditor

Let's take a closer look at these provisions.

Sale of Goods

The UCC's statute of frauds includes contracts for the sale of goods worth $500 or more. For example, let's say Henry owns Henry's Hammers. Harold owns Harold's Hardware. Harold contacts Henry because Harold wants to purchase 500 hammers to be sold in his hardware store.

Henry's hammers are priced at $2 apiece. This means the agreement will be for 500 hammers, at a total cost of $1,000. Under the UCC, this commercial contract will need to be in writing since the goods have a price of $500 or more.

Note that it's not necessary for both parties to sign the contract. The contract needs to be signed by the party against whom the contract is enforced. Let's say that Henry provides the hammers, but Harold refuses to pay Henry. Henry will seek enforcement of the contract against Harold. The contract won't be enforceable against Harold unless Harold signed the contract.

Also, note that the written contract doesn't have to be complete and detailed. Let's say that Henry draws up the contract but fails to include a delivery date or the price per hammer. Under the UCC, missing terms will be inferred. This means that courts will enforce the contract and add dates or amounts that are reasonable considering the circumstances.

Lastly, note that this provision has an important exception regarding specially manufactured goods. If Henry manufactures custom hammers for Harold's store, and those hammers aren't suitable to be sold to another store, then Harold will be obligated to pay for the hammers even if the contract isn't in writing or signed by Harold.

Leases for Goods

Next, the UCC's statute of frauds includes leases for goods worth $1,000 or more. Note this provision applies to goods, rather than real estate. Common commercial lease contracts include those for office equipment or machinery.

Let's say Henry's business also manufactures construction equipment. Harold wants to rent a large table saw to keep at his hardware store. Henry agrees to lease the saw to Harold for one year, with payment of $200 per month. Since the lease requires total payments of more than $1,000, this contract must be in writing.

Like the UCC's statute of frauds regarding the sale of goods, UCC lease contracts are enforceable even when missing certain terms. For example, the leased goods must be reasonably identified, but don't have to be described with detail.

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