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Parma Tile Mosaic & Marble Co. v. Short, 87 N.Y.2d 524 (Feb. 20, 1996).

CONTRACTS - STATUTE OF FRAUDS - FACSIMILE TRANSMISSIONS

FAX MACHINE'S AUTOMATIC IMPRINT OF COMPANY NAME DOES NOT MEET SUBSCRIPTION REQUIREMENT UNDER NEW YORK'S STATUTE OF FRAUDS

[SUMMARY] | [ISSUE & DISPOSITION] | [AUTHORITIES CITED] | [COMMENTARY

SUMMARY

Parma Tile contacted general contractor MRLS Construction at the suggestion of subcontractor Sime Construction. Parma Tile hesitated to enter a contract with Sime absent a guaranty. MRLS faxed a document which Parma Tile contended was a valid guaranty. Parma then delivered ceramic tile to Sime Construction. The death of Sime's principal led Parma Tile to demand MRLS satisfy Sime's unpaid invoices. MRLS refused to pay and claimed the faxed document was not a valid guaranty. Parma instituted a lawuit against MRLS to recover the amount Sime owed Parma on the tile contract.

Parma contended that the faxed document MRLS sent was properly subscribed under N.Y. Gen. Oblig. Law § 5-701(a)(2) (McKinney 1989) because MRLS Construction's fax machine was programmed to automatically-imprint the company name, company telephone number, time, and date. This imprint appeared on the receiver's copy only. MRLS contended that the automatic imprint did not meet the New York Statute of Frauds' subscription requirement asserting that the fax was merely a proposal for a guaranty.

Both sides moved for and were denied summary judgment. After reargument, the trial court granted plaintiff's summary judgment motion on its third cause of action (alleging guaranty of payment). The court held that the automatically imprinted information demonstrated defendant's intent to be bound by the guaranty and met the subscription requirement under New York law. The court severed plaintiff's third cause of action and entered judgment against MRLS. The Appellate Division affirmed. The Court of Appeals granted defendant leave to appeal.

ANALYSIS

1.) Issue

Whether New York State's general Statute of Frauds' subscription requirement is satisfied by the automatic imprint of a sender's name at the top of each page transmitted by a fax machine.

2.) Disposition

The Court of Appeals reversed the Appellate Division's order, denied plaintiff's motion for summary judgment, granted defendant MRLS Construction Corporation's cross-motion for summary judgment, and dismissed the claim against MRLS Construction Corporation.

3.) Cases Cited:

Key

  • Henry L. Fox Co., Inc. v. William Kaufman Org., Ltd., 74 N.Y.2d 136 (N.Y. 1989).
  • Crabtree v. Elizabeth Arden Sales Corp., 305 N.Y. 48 (N.Y. 1952).
  • Mesibov, Glinert & Levy v. Cohen Bros. Mfg. Co., 245 N.Y. 305 (N.Y. 1927).
  • Pearlberg v. Levisohn, 182 N.Y.S. 615 (N.Y. App. Term. 1920).
  • Eugene L. Lezinsky Co. v. Hoffman, 181 N.Y.S. 732 (N.Y. App. Term. 1920).
  • La Mar Hosiery Mills, Inc. v. Credit and Commodity Corp., 216 N.Y.S.2d 186 (N.Y. City Ct. 1961).
  • National Coin Laundry, Inc. v. Solon Automated Servs., Inc., 933 F.2d 1009 (6th Cir. 1991).
  • Chuparkoff v. Associates Fin. Servs., No. 16355, 1994 WL 30526 (Ohio Ct. App. Feb. 2, 1994).

4.) Other Sources Cited:

5.) Commentary

1.) State of the Law Before Parma Tile.

Under New York State's Statute of Frauds, "Every agreement, promise or undertaking is void, unless it . . . [is] in writing, and subscribed by the party to be charged therewith, or by his lawful agent if such agreement, promise or undertaking is . . . a special promise to answer for the debt, default or miscarriage of another person." N.Y. Gen. Oblig. Law § 5-701(a)(2). The case law acknowledged that the subscription requirement need not be met by a handwritten signature. A printed name may suffice as a signature for purposes of the Statute of Frauds, but only if included with the intent, actual or apparent, to authenticate a writing. Mesibov, Glinert & Levy, Co. v. Cohen Bros. Mfg. Co., 245 N.Y. 305, 310 (N.Y. 1927). In Mesibov, the defendant-seller sent the plaintiff a partially completed order form with its company name pre-stamped on the top. The defendant left blank the dotted line underneath the word "accepted," which was intended for the signature of the acceptor. Given this omission, the court held that the pre-printed heading or "signature" was not inserted with the objective to authenticate the writing. The court inferred a lack of intent by examining the circumstances of the case. In essence, the "setting of the occasion [must] give fair warrant for the inference . . . " Id. See also, Crabtree v. Elizabeth Arden Sales Corp., 305 N.Y. 48 (N.Y. 1953) (reaffirming the intent requirement in an employment contract context).

Other than Mesibov, few cases deal with the contractually binding force of a pre-stamped name as a signature. In Pearlberg v. Levisohn, 182 N.Y.S. 615 (N.Y. App. Term. 1920) (holding that the header on an order form was a sufficient subscription because the form contained all the terms necessary to create a contract, such as price and quantity), the court determined the adequacy of the signature in context of the entire writing. The terms in the order form provided the evidence necessary to conclude that the printed name authenticated the writing. But see Eugene L. Lezinsky Co. v. Hoffman, 181 N.Y.S. 732 (N.Y. App. Term. 1920) (holding that the intent to engage in a contractual relationship could not be imputed to the defendant solely on the basis of plaintiff affixing his handwritten signature and purchase terms on a pad bearing the defendant's prestamped name).

2.) Effect of Parma Tile on Current Law.

In an obvious extension of precedent, Parma Tile holds that the automatic imprinting of MRLS's name on the fax transmittal is not sufficient to meet the requirements for a guarantee of payment. The automatic programming of the defendant's fax machine indicated a lack of intent to authenticate every document transmitted, and the court noted that each particular writing must be authenticated. Such a task would have required MRLS, at minimum, to have deliberately programmed the machine to place the company header on the specific writing in question.

Regardless, Parma Tile is limited to an analysis of the fax header, while Mesibov and Pearlberg raise the possibility of inferring an intent to authenticate a writing under other circumstances, for example, specification of price and quantity. Parma Tile did not analyze the language of the guarantee or address the existence of any markings or symbols to extrapolate the requisite intent to meet the Statute of Frauds. This lack of analysis may indicate that either such evidence did not exist or the deliberate placement of a prestamped signature on a fax transmittal must be determined as a threshold matter, before the court can discern an intent to authenticate.

3.) Questions Unanswered.

Parma Tile suggests writings transmitted through electronic mail, bearing no authenticating symbol other than an automatically-generated identification, do not satisfy the subscription requirement. Given the court's silence regarding the validity of a facsimile or electronic mail transmittal or a writing containing evidence of intent to authenticate the document, it is uncertain whether such evidence is relevant to determine validity.

The English Parliament passed the original Statute of Frauds in 1677 to ensure that certain contracts met specified minimum formal requirements. See Arthur Linton Corbin, Corbin on Contracts, § 275 (2d ed. 1950). In that era, the parties to a contract met and bargained face-to-face. Although New York's current version of the Statute of Frauds is very close to the original version in scope and application, see N.Y. Gen. Oblig. Law § 5-701(a) (McKinney 1989), the nature of many modern transactions is very different. In Parma Tile, the parties exchanged messages via facsimile. In many other modern transactions, the parties also do not have the opportunity to meet in person but rather rely on various technologies and conventions to document the scope of their respective obligations. Although Parma Tile apparently limited its holding to answering a relatively narrow question concerning the Statute of Frauds' subscription requirements in facsimile transmissions, whether the purported subscriptions or other acts of modern transactions will satisfy the Statute of Frauds is an open question.

First, the applicability of Parma Tile to certain financial transactions is not clear. In 1994, New York amended its Statute of Frauds to allow for the explicit enforceability of certain qualified financial contracts even though there is no formal writing that would otherwise meet the formal requirements of the State's historic Statute of Frauds. See N.Y. Gen. Oblig. Law § 5-701(b)(1) (McKinney Supp. 1996). Under New York's new law, any evidence of a confirmation in writing (e.g., written receipt), electronic communication (e.g., tape recording of a telephone call), or other writing can be sufficient to prove the existence of a contract satisfying the State's revised Statute of Frauds. N.Y. Gen. Oblig. Law § 5- 701(b)(3) (McKinney Supp. 1996). The amendment provided parties in many "swaps" transactions (a form of financial derivative) with certainty about the enforceability of their contracts even though many such swaps are for a duration of more than a year (i.e., would otherwise violate N.Y. Gen. Oblig. Law § 5-701(a)(1))(McKinney 1989). Current industry practice is not to use a writing for performance of certain swaps with a duration of more than a year. The swaps industry does, however, keep logs of the orders that caused the swap to be executed, and firms typically send confirmations by facsimile, and the revised statute provides for enforceability of such contracts formed in accord with industry practice.

Second, even after Parma Tile, the level of intent required to show that a party to a contract intended to be bound is a question that the Court of Appeals has left unanswered. Many transactions solely involving electronic communication (e.g., purchase of goods over the Internet) and many transactions involving the purchase of computer software do not provide each party with the traditional opportunity to consent to contractual terms. See generally Mark A. Lemley, Intellectual Property and Shrinkwrap Licenses, 68 U.S.C. L. Rev. 1239-92 (1995); Deborah L. Wilkerson, Electronic Commerce Under the U.C.C. Section 2-201 Statute of Frauds: Are Electronic Messages Enforceable?, 41 Kan. L. Rev. 403 (1992). In such cases, it remains unclear whethert either the terms of a shrinkwrap license agreement or the sending of electronic confirmation will always provide a court with sufficient evidence of intent to bind the purported subscriber.

4.) Other Jurisdictions

Few courts have ruled on the issue of fax machines' automatic-imprinting of the sender's name on facsimiles of proposed contracts. In Chuparkoff v. Associates Fin. Servs., No. 16355, 1994 WL 30526 (Ohio Ct. App. Feb. 2, 1994), the Ohio Court of.Appeals recently noted a similar issue arising from the trial court's finding that the facsimilies (regarding the disputed contract) were not signed. The Ohio court did not rule on the issue because the documents presented in the case did not contain the essential terms of the contract thereby violating the Statue of Frauds. The Ohio Court of Appeals recognized the potential for controversy caused by the signature requirement in the modern world of faxes.

A variation on the facts at hand is found in National Coin Laundry, Inc. v. Solon Automated Servs., Inc., 933 F.2d 1009 (6th Cir. 1991). The Sixth Circuit held that the a "fax cover letter" bearing the indentification of the sender does not satisfy the subscription requirement. The cover letter was offered into evidence by plaintiff-appellant to show that the Statute of Frauds should not have been applied because the writings were equivalent to a written and signed contract.

The uncertainty regarding the use of fax machines is due to the unresolved legal issues. Attempts to sort out the complex issues resulting from the increasing reliance of electronic media will surely result in courts looking outside of their own jurisdiction for guidance in this emerging area of law. See generally Benjamin Wright, Fax pacts: Contracting via fax machines could leave the user on shaky legal ground, Network World, Feb. 5, 1990, at 69.

Prepared By:

  • Kathryn W. Becker, '97
  • Rene M. Devlin,'97
  • Quentin C. Faust, '97
  • Melissa E. Hart, '97
  • James D. McCann, '97
  • Farah Mollo, '97
  • Charles A. Samuelson, '96