Get It In Writing — Good Advice When Buying and Selling Coins!

Most people have heard that they should "get it in writing”, i.e., make a written record of any business transactions. This is good advice generally. But it is especially important when buying or selling coins.

The most important reason for a written contract is practical—the parties should have something besides their own memories to rely upon in remembering the terms of their agreement. But there is also a good legal reason to have a written agreement. Oral agreements to sell coins may not be enforceable in court, based on a very old principle of law called the Statute of Frauds, which is incorporated in most states’ laws through Section 2-201 of the Uniform Commercial Code (UCC). Contracts for the sale of goods over $500 are not enforceable unless they are in writing and signed by the party against whom someone is trying to enforce it. The purpose of this rule is to avoid “your word against mine” litigation over exactly what oral agreements might have been made between buyers and sellers. The document need not be formal. The official comment to UCC §2-201 states that “It may be written in lead pencil on a scratch pad,” and summarizes the writing requirements as follows:

First, it must evidence a contract for the sale of goods; second, it must be ‘signed’, a word which includes nay authentication which identifies the party to be charged; and third, it must specify a quantity.

The “contract for sale of goods” part is fairly simple—as long as the parties are talking about a sale, and not an appraisal or loan situation, you’re probably covered. But there always must be a written offer and acceptance which, taken together, constitute a writing satisfying the UCC, and both parties would be legally bound to complete the transaction. 

The second requirement is that the writing must be “signed”, through some “authentication which identifies the party to be charged.” There doesn’t have to be an original signature, and in most commercial contracts neither party actually signs the written documents. However, the use of a dealer’s invoice form, handwritten identification of the parties, or anything else clearly stating who is doing business with whom, will satisfy the UCC. In recent years, most states have enacted laws recognizing electronic signatures as the equivalent of handwritten ones, and at the federal level (where interstate or foreign commerce is involved), the ESIGN (Electronic Signatures in Global and National Commerce) Act, 15 U.S.C. §7001, does the same.

We’ve all gotten used to applying electronic signatures on legal documents we sign, and there seems no chance we’ll ever return to “wet” signatures for most types of agreements.

Keep in mind that the UCC does not require that both parties have signed the document, but only the one who is denying the existence of the contract. If the party who didn’t sign wants to perform the contract, the party who signed cannot refuse to perform on that basis. In other words, an unsigned contract is voidable on the part of the non-signing party, but is not void altogether.

The third §2-201 requirement is that the contract must state a “quantity.” With coin purchases and sales this is not a big issue, although it could be for the sale of bulk items such as bags of silver. The parties typically either sell a single item, or a group of items that are listed individually for purposes of the sale. It might seem odd that the UCC does not require that the written documents contain the contract price. The UCC drafters’ thinking, however, was that a court can insert a reasonable price into a contract using market information if the parties don’t agree on what price they agreed to. However, because the court cannot tell the parties how many of a particular item should be bought and sold, an enforceable writing must include an agreed quantity.

The Statute of Frauds is becoming less popular in the increasingly “paperless” business world of the 21st Century. Over the years, the UCC has adopted certain “exceptions”, i.e., situations where the existence of the contract can be proven without a written document. The most common such situation is where the contract has been acknowledged by the parties’ actual performance, such as where the seller has accepted payment for the goods and the goods have been accepted by the buyer. So, for example, a coin dealer cannot deny the contract of sale for a coin if he delivers the coin to the buyer and cashes the buyer’s check. However, keep in mind that without a written agreement, anything else that may have been agreed orally by the dealer—such as a return privilege or warranties regarding provenance and attribution—would be unenforceable because the oral agreements did not satisfy the UCC requirements.

Summary

A written contract for the purchase of any art or collectible item should include the following:

• the name, address, and telephone number of the seller
• the date of the transaction
• a full description of the item being sold
• the price, including applicable taxes
• the payment terms, if any
• shipment terms, if the item is being shipped
• any express warranties by the seller
• any disclaimers of implied warranties
• the seller’s repurchase policy, if here is one

I’ll be taking up many of the above items in future articles.
Happy collecting!