Question

The Statute of Frauds. Kendall Gardner agreed to buy from B&C Shavings, a specially built shaving mill to produce wood shavings for poultry processors. B&C faxed an invoice to Gardner reflecting a purchase price of $86,200, with a 30 percent down payment and the “balance due before shipment.” Gardner paid the down payment. B&C finished the mill and wrote Gardner a letter telling him to “pay the balance due or you will lose the down payment.” By then, Gardner had lost his customers for the wood shavings, could not pay the balance due, and asked for the return of his down payment. Did these parties have an enforceable contract under the Statute of Frauds? Explain. [Bowen v. Gardner, 2013 Ark.App. 52, __ S.W.3d __ (2013)] (See The Statute of Frauds.) What is the discussion and what is the legal reason?

Answer 1

A contract is a legally binding agreement between two or more parties wherein one party has promised an obligation and another party accepts that promise and in turn promises to fulfil his part of the obligations that arise on fulfilment of the promise by the first party, subject to terms and conditions as may be mentioned in the contract. In the above case, the liability is arising out of presentment of an Invoice. Is the Invoice a legally enforceable contract? Most definitely not under any law as it does not satisfy the basic requirements of a contract of acceptance by the second party, nor does it provide any proof of sale. It is just a description of the item, the quantity, price and the delivery schedule. It is not a bill and cannot prove evidence of title. The Statute of Frauds expressly states the six categories of contracts that have to be written down and one among those six is contracts for the sale of goods worth $500 or more.(Under U.C.C). Any kind of writing is accepted by the statute provided it satisfies the minimum requirement of a contract, that is, the names and details of the parties, the subject of the contract and the terms and conditions which bind it and make it enforceable, void or terminable. Most importantly it has to be signed by both parties as without acceptance a contract is not enforceable and cannot be said to exist as a contract becomes a contract only on acceptance.

A summary of the discussion in court was that an invoice did not constitute a legal contract and any further communication whether oral or in writing regarding the matter were not truly relevant. The court stated that both parties had violated the Statute of Frauds by entering into a transaction which necessitated a contract without an enforceable contract with clear terms and conditions. Hence, the court granted ruling in favour of Gardner's appeal of unjust enrichment against B&C. It based it's ruling on the fact that as no valid contract existed between the parties the question of breach of contract did not arise. The court decided the equitable thing would be for B&C to return Gardner's down payment amount after subtracting the amount spent on modifying the machine to suit the needs of another customer.

This case clearly proves the importance of a contract while transacting business of any kind. A breach of contract would have proved Gardner liable to lose his down payment provided that was clearly stated in the contract. Even though B&C spent an extra sum and managed to sell the machine to another client they would have won the judgement due to breach by Gardner in case of a contract being in place.