Statute of Frauds II
Bill Long 12/7/05
Exploring the Sale v. Service Problem
The service v. sales distinction with respect to the statute of frauds may be simply stated: is the action contemplated in the (oral) contract to be understood as a sale of goods, and thus needing to satisfy the requirements of the statute in order to be an enforceable contract, or is it simply the rendition of services, and therefore not at all affected by the statute of frauds? I would like to explore this issue by focusing on a leading case, Goddard v. Binney, from MA (115 MA 450 (1874)).
To recite the facts of the case. In April 1872, A agreed orally to build a buggy for B for $675. A said it would take him about 4 months to complete the project. B gave directions as to the style and finish of the buggy, and it was built in compliance with his directions, and marked with his monogram. Near the end of August, before the buggy was finished, B called to see it, and in response to an inquiry of A, asking if he might sell the buggy, B replied that he would keep it. A needed it to stay in his building for a few more weeks for the final coat of varnish to be applied. The buggy was finished on September 15, and a bill was sent to B on October 15 telling him it was ready for delivery. B never actually paid for the buggy, for it was destroyed in a fire early in November 1874 (maybe B "planned" it that way; the case is "mum" on that one).
At trial A argued that the buggy was completed, and that delivery was made to B according to the contract, and that therefore B owed him the $675. The contract was not for the sale of goods, since A had to assemble the buggy from scratch, and therefore didn't come within the statute of frauds. B claimed that the contract was for the sale of goods and therefore came within the provisions of the MA statute of frauds. As such, since it was over the statutory amount, a written contract was necessary and, because no such contract had been written, no enforceable contract existed.
Parsing the Issue
In deciding whether this case of service and sales was within the statute of frauds, the court reviewed three leading approaches of the day to the question: the NY rule, the English rule and the MA rule. The case also betrays the frustration which must have attended litigation on this issue throughout the 19th century. Older (going back to 1838) MA precedent, which would be consistent with the New York rule (Mixer v. Howarth, 21 Pick. 205) had held that the distinction of importance was between an executed and executory contract. If the goods ordered/bought had not yet been made (i.e., an executory contract), then the transaction would be taken out of the statute of frauds because of the labor needed to make the goods. However, more recent English precedent had considered the issue differently. In Lee v. Griffin (1861), the English court was confronted with the issue of whether dentures prepared for an elderly woman pursuant to an oral agreement but never paid for by her because of her death after the dentures were finished and before she could pick them up, was a sale within the statute of frauds. The court concluded that what made something a "sale" and not a "service" was the ultimate goal of the process.
"If the contract be such that, when carried out, it would result in the sale of a chattel, the party cannot sue for work and labor; but if the result of the contract is that the party has done work and labor which ends in nothing that can become the subject of a sale, the party cannot sue for goods sold and delivered."
New York courts dealt with the issue in a different way altogther. As the court says, "According to a long course of decisions in New York, and in some other states of the Union, an agreement for the sale of any commodity not in existence at the time, but which the vendor is to manufacture or put in a condition to be delivered, (such as flour from wheat not yet ground, or nails to be made from iron in the vendor's hands), is not a contract of sale within the meaning of the statute." This would have been consistent with the Mixer decision from MA in 1838. But now that the Lee decision had been handed down in the meantime, the MA court changed its approach from the Mixer case, focusing not so much on the nature of the contract (executory or executed) but on the nature of the goods produced.
"The effect of these decisions (in MA between the 1861 Lee decision and 1874) we understand to be this, namely, that a contract for the sale of articles then existing, or such as the vendor in the ordinary course of his business manufactures or procures for the general market, whether on hand at the time or not, is a contract for the sale of goods, to which the statute applies. But on the other hand, if the goods are to be manufactured especially for the purchaser, and upon his special and not for the general market, the case is not within the statute" (115 MA at 454-55).
Since, in this case the carriage was not only "built for the defendant, but in conformity in some respects with his directions, and at his request was marked with his initials, it was neither intended nor adapted for the general market." The holding follws: "the statue of frauds does not apply to the contract which the plaintiff is seeking to enforce in this action."
The decision seems intuitively correct even though the reasoning is murky at best. In fact, at trial, A admitted that he would have been able to sell the buggy to someone else if B hadn't wanted it--a fact that goes directly against the court's holding. And, their breaking things down into what is specially made and what is not i is already present in the statute (see Sect. 4 (2) here), though I don't know if MA had adopted this part of the statute of frauds. Thus, the law of the case not only is suspect, but it muddies further the water of what constitutes a sale or a service under the statute of frauds. The only consolation we can draw from the case is that the issue is still unsettled today, even though most jurisdictions have accepted a "predominant part" test. But that is enough on this issue.
Copyright © 2004-2008 William R.Long