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Integrity Material Handling Systems, Inc. v. Deluxe Corporation

317 N.J. Super. 406, 722 A.2d 552 (App. Div. 1999)

CONTRACTS; STATUTE OF FRAUDS; DEPOSITS—A check given by party but held by the other may be only a show of good faith and not part performance that would take an agreement out of the Statute of Frauds.

A warehousing company decided to close the distribution facility of a wholly owned subsidiary. To effectuate the closure, all stock had to be removed from the warehouse and all shelving and conveying systems had to be dismantled and removed. A dismantling contractor met with the warehousing company and made an oral offer to remove and purchase the equipment. Two days later, another meeting was held and the contractor wrote a purchase order for three major pieces of equipment. The purchase order did not list the total price but did state: “1/3 Dep. 1/3 Down 1/3 Out.” The contractor gave the warehouse company a $34,000 check which the warehousing company took but did not negotiate. Later that day, the contractor wrote a memo which it claimed confirmed the agreement. Two signature lines were placed on the document: one for the contractor’s signature; and, one for acceptance by the warehousing company. The memo was never signed by the warehousing company. The warehousing company claimed that it told the contractor that a written contract was needed which would not become binding until it was reviewed and approved by the warehousing company’s engineering and legal staffs. The contractor claimed that it was never told that the warehousing company’s legal department would have to approve the agreement. In addition, the contractor contended that its president shook hands with the warehousing company’s representative which signified its agreement to an oral contract. The warehousing company official denied shaking hands and claimed that there was no oral contract. The warehousing company’s official insisted that he accepted the check reluctantly, never cashed it, and considered it to be simply a show of good faith. Subsequently, the warehousing company’s home office decided that any agreement had to contain a significant penalty clause. Further negotiations between the warehousing company and the contractor ensued, but during the period of negotiation , the warehousing company received a higher bid from another contractor which agreed to the significant penalty provision. The warehousing company then called the first contractor, left a message that it had accepted the competing bid and asked whether the check should be returned or destroyed. The original contractor then sued for breach of contract and sought an order to show cause seeking to restrain the warehousing company from completing the project with the second contractor.

The initial contractor conceded that there was no writing to satisfy the Statute of Frauds. Nonetheless, it argued that the oral contract was valid because it fell within two exceptions to the Statute of Frauds: an admission of contract, and part performance. It also asserted that the agreement was a contract for the provision of services rather than for the sale of goods. If that were the case, then Article 2 of the UCC would not apply.

As a preliminary matter, the Appellate Division, rejected the contractor’s argument that the transaction between the parties was not governed by the UCC and specifically by its Statute of Frauds. In this mixed contract for goods and services, the Court needed to determine whether the sale or services aspect predominates. Here, it found that the dismantling service was tangential to the primary purpose of the transaction, acquisition of the shelving and conveyer system for resale by the contractor at a substantial profit. Having made that finding, the Court held that the UCC Statute of Frauds required a writing unless an exception had been found. In order for the contractor to avail itself of the first exception, it needed both to prove the existence of a valid oral contract and to demonstrate that the warehouse company admitted that a contract was reached. For purposes of reaching its decision, the Court assumed that the parties had reached agreement concerning most of the significant terms of the transaction. It concluded, however, the evidence would not allow a rational fact-finder to find that the warehouse company acknowledged the oral agreement. In the Court’s view, the purpose behind the admission exception to the writing requirement is that “[t]he statute of frauds was not designed to protect the party who made an oral contract, but rather to aid a party who did not make a contract, though one is claimed to have been made orally within.” Thus, when a party admits to making an oral contract, it should be held to its bargain. The Court also found that the partial performance exception to the Statute of Frauds was not available. Part performance by a buyer requires a delivery of something that is accepted by the seller. The Court found no evidence to support a conclusion that the warehouse company ever accepted a down payment. The check was never cashed. There was no evidence that the check was presented for negotiation. Of even greater significance was that the act of giving the check to the warehouse company’s employee, which, when viewed in context, allowed no other conclusion than the contractor submitted the check as a sign of its interest and ability to do the job. To the Court, the check was intended to show the good faith of the bidder. The contractor’s subsequent conduct of placing its offer in writing reinforced the conclusion that even the contractor believed more was required to close the deal.


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