Buyers / Sellers of Construction Materials: You may not have contract rights unless there is a second signed document stating the quality of the goods.
The subject of sales of goods is given an entire chapter of its own in the Florida Statutes. The title of the chapter is “Uniform Commercial Code—Sales”. Within that chapter is a section that provides a potentially powerful defense to a claim for breach of contract. The provision is known as the “Statute of Frauds”.
As the name implies, the purpose of the statute is to prevent fraud. It applies to sales of goods for a price of $500 or more. The statute says that a contract for the sale of goods is enforceable only if its existence is evidenced by a document signed by the other party to the transaction and the document shows the quantity of goods. There are some exceptions, of course.
Not all Contracts are Required to be in Writing
Contracts are typically enforced by a lawsuit for breach of contract and a subsequent judgment issued by a court. Unsurprisingly, to prove a claim for breach of contract, a claimant must prove the existence of a contract. The Statute of Frauds requires documentation to show that a contract actually existed. This is in contrast to many other types of transactions where the existence of a contract may be proven by testimony alone, without any documents.
For example, the law deems most construction contracts to be contracts for services, not for the sale of goods and, as such, construction contracts typically are not subject to the Statute of Frauds section of the Uniform Commercial Code. Therefore, these types of contract may be proven through testimony alone. On the other hand, contracts for the purchase of materials used in construction generally will be subject to the Statute of Frauds.
Statute of Frauds used to Defeat $4 Million Judgment
Although not a construction case, the power of the Statute of Frauds can be seen in Office Pavilion South Florida, Inc. v. ASAL Products, Inc., 849 So. 2d 367 (Fla. 4th DCA 2003). In that case, Office Pavilion (“Seller”) was a subsidiary of Herman Miller, Inc., a designer and manufacturer of popular office furniture. ASAL Products (“Buyer”) was a company formed for the purpose of purchasing Herman Miller furniture in the United States for resale in Europe. Seller and Buyer entered into a written two-year contract for the sale and purchase of Herman Miller keyboard trays. The contract required Buyer to purchase a minimum of 1,000 units per year and stated that unit pricing would be established by a separate document.
Buyer placed three orders for keyboards in quantities between 100 and 150 for each order. Buyer timely paid for these orders. Approximately one month after signing the contract, Buyer wanted to expand the scope of the contract to include office chairs that Seller offered. Seller provided pricing in writing for the chairs and stated that the existing two-year contract would apply to the chairs, except for the provisions regarding delivery times and quantities.
Buyer purchased several of the chairs and displayed them at a trade show. Buyer secured orders for 2,450 chairs. When Buyer submitted the order to Seller, Seller rejected it.
Buyer filed suit against Seller for breach of contract and claimed lost profits. At trial, Seller admitted the existence of the contract concerning the keyboards but argued that there was not an enforceable contract for the chairs because Buyer had failed to show a document containing the quantity of chairs Seller was allegedly supposed to sell. Thus, Seller asserted a Statute of Frauds defense. Despite this, the jury returned a verdict in favor of Buyer in the amount of $4,000,000.00. Seller appealed.
The appellate court reviewed the trial record and found that no document existed to show an agreement as to quantity of chairs to be supplied by Seller. The appellate court applied the rule that, “[t]he only term that must appear in a writing to support an enforceable contract for the sale of goods is the quantity term.” The appellate court found that Buyer had not complied with the requirements of the Statute of Frauds and reversed the jury verdict, directing judgment in favor of Seller. Thus, Seller succeeded in having the judgment against it for $4 million overturned.
There are Exceptions to the Requirement for a “Signed Contract Stating Quantity”
While the Office Pavilion case did not involve a construction project or construction materials, it demonstrates how the UCC’s Statute of Frauds can apply in an action to enforce a transaction between a material supplier and a subcontractor. If either the supplier selling the materials or the subcontractor purchasing the materials cannot produce a signed document showing the quantity of materials purchased, the other party might be able to defeat a breach of contract lawsuit using the Statute of Frauds defense. The phrase “might be” is in the previous sentence because there are important exceptions to the writing requirements of the Statute of Frauds.
For example, a document containing a quantity term is not necessary to the extent that payment was made and accepted or for goods received and accepted. Another example is where the goods are specially manufactured for the buyer so that they are unsuitable for sale to others in the seller’s ordinary course of business. In that case, there is no requirement for a signed writing containing a quantity term, so long as the seller, prior to any notice of repudiation from the buyer, has made a substantial beginning to manufacture the specially manufactured goods or made commitments to procure them.
Satisfying the Statute of Frauds does not Prove an Enforceable Contract
The Statute of Frauds does not require that all contract terms for the sale of goods be reduced to writing that is signed, although that is generally a good idea. Also, it is also important to note that having a signed document that contains a quantity term does not equate to conclusive proof of an enforceable contract. For example, if the price term cannot be proved, the claimant may not succeed in proving an enforceable contract. So, meeting the requirements of the Statute of Frauds is often necessary, but may not be sufficient.
For Further Information
Companies that sell or buy construction materials may gain advantages in their transactions by being aware of the relevant legal issues. If you have, or want to avoid, a legal dispute concerning the sale of construction materials, call the Law Office of Robert S. Tanner today.