Opinion
391-08.
Decided February 26, 2009.
Brian P. Neary, P.C., Huntington, New York, Attorney for the Plaintiff.
Barry Imports East Corp., Barry Freedberg, Defendant, Pro Se.
The plaintiff, Winter Bros. Recycling Corp., commenced this action pursuant to complaint dated October 8, 2008, seeking to recover $5,000 from the defendant, Barry Imports East Corp., for breach of a contract to provide solid waste carting services. The defendant has interposed the defense that he did not knowingly agree to any contractual terms other than he would pay $175 per month for garbage removal; and that even if he unintentionally did contract, that the plaintiff's contract is unenforceable as it was fraudulently obtained and/or is unconscionable.
Undisputed Facts
The undisputed relevant facts of this matter are that Barry Imports East Corp. previously maintained a carting contract with Island Waste Co. for its store location at 165 Oval Drive, Islandia, New York. Island Waste Co. was acquired by the plaintiff prior to September 2005. On or about September 20, 2005, an employee of the plaintiff, approached the defendant's proprietor, "Barry", advised him of the ownership change over and the need to execute a new service agreement which is self described as a "contract renewal". See Exhibit 1. The front page of the contract contains no terms and conditions other than the plaintiff will provide a 4 yard dumpster, which shall be emptied once a week for a monthly charge of $175 plus tax. Immediately prior to the defendant's signature line is a statement that "the terms and conditions on the reverse side are part of the agreement." Only after he signed the front page of the contract was the defendant given a carbon copy of the service agreement. On the back page are twelve (12) detailed terms and conditions in .08 type which provide the following in pertinent part: 5. PRICE AND PAYMENT: Customer shall pay all charges on a monthly basis, within fifteen (15) days of the date of Contractor's statement of charges. Customer shall pay interest on overdue payments at the rate of one-and-one-half percent (1 ½%) per month. Customer's paymentobligations are independent of any obligations on Contractor other than Contractor's duty to provide equipment and service as described above.
6. DEFAULT: If the customer defaults in any of the terms and conditions of this Agreement, Customer shall be liable for any and all collection charges or costs incurred by Contractor including reasonable attorney's fees. In the event of such default by the Customer, the Contractor shall have the right to discontinue service, remove the equipment and collect damages for the Customer's breach. During the period of any default, interest shall accrue at the rate of eighteen percent (18%) per annum on any monies due the Contractor.
7. CHANGES IN CONTRACT CHARGES: Contractors may increase the contract charges from time to time as follows:
(a) The service charge and equipment charge shall be increased automatically on an annual basis to adjust for any increase in the Consumer Price Index from that in effect at the Commencement of this Agreement.
(b) Any additional taxes or increase in taxes levied by any applicable government authority shall be added to the contract charges.
(c) Cost increase resulting from federal or state EPA regulations to be enacted in 1991regarding compulsary recycling or waste shall be added to the service charge.
(d)An increase in the service charge may be proposed by the Contractor and agreed
to by the Customer, provided that in the Customer does not object to such a proposed price increase within (15) days of notice thereof, this Agreement shall be deemed to be amended to reflect the increase in charges. In the event that the Customer does object to such a proposed price increase within the fifteen (15) day period, this Agreement shall continue without such proposed price increase but the Contractor may at any time thereafter terminate this Agreement by giving ten (10) days prior written notice to the Customer.
(e)The increase in landfill costs incurred by the Contractor in respect of the disposal of waste under this Agreement which the customer hereby agrees it shall pay; including but not limited to, relocation of a land fill site resulting in a longer hauling distance to the Contractor. The unit price of waste collection services shall also be subject to the increase in an amount equal to any equivalent unit increase in the cost of fuel and insurance to the Contractor.
(f)The Contractor's service and equipment charges are structured in relation to the amount of waste collected and disposed based upon a national average for commercial waste collection of 125 lbs. per cubic yard. The Customer agrees that any waste collected by Contractor under this Agreement, which when weighed, exceeds the national average of 125lbs. per cubic yard, the Customer shall then pay an additional 3 cents per lb. collected over125 lbs. per cubic yard on the existing service and equipment charge, or an additional$60.00 per ton, whichever is greater.
8. TERM: This Agreement shall be for a term of 7 years from its commencement date. In the event that the customer no longer requires Contractor's services due to the relocation of the business outside the area where the Contractor provides service, Customer may terminate this agreement upon ninety (90) days written notice (certified mail) given to the Contractor and payment of all amounts due Contractor.
9. FUTURE SERVICE: Customer grants to Contractor the right to accept the option to accept a bona fide offer which the Customer receives or intends to accept relating to the provision of non-hazardous solid waste disposal services and recycling services for the period after the termination of this Agreement. Customer shall notify Contractor forthwith in writing if the Customer receives or intends to accept any such bone fide offer, disclosing to Contractor all the terms and conditions thereof. Customer shall not accept or make such offer or enter into any Agreement for the period of 14 dys after notification to Contractor, and if Contractor, within 14days of such notification, submits its offer or acceptance of such terms and conditions. In the Event the Contractor fails to provide its notice of acceptance. Customer shall be relieved from the terms of this paragraph. In the event Contractor accepts the terms and conditions, Customer shall execute an agreement with Contractor in accordance with such terms and conditions. Nothing stated in this clause shall be interpreted as relieving the Customer of its obligation to comply strictly with the provisions of this Agreement until such time as this Agreement has been terminated in accordance with its terms.
11. ENTIRE AGREEMENT AMENDMENT: This Agreement constitutes the entire Agreement among the parties . Other than permitted charges in the contract charges, any alterations or deviation from the specification or terms of this Agreement will be effected only by a Written amendment executed by both parties.
12. SERVERABILITY: If any provision of this Agreement is found to be invalid or unenforceable, the enforceability or validity of the remaining provisions shall be unaffected.
(Note: This is .08 type)
No discussion was ever had between employees of the plaintiff and the defendant concerning the representations on the back page "terms and conditions". The defendant changed carting companies in June of 2008, which precipitated this action by the plaintiff to recover fifty (50) months of lost profit left upon the contract.
Issues Presented
1. Does New York Law enforce written contractual terms which are not discussed or read by the non-drafting party but which are identified as incorporated by reference on the face signature page?
2. Is the plaintiff's contract, which contains a 7 year term with a unilateral "future service option" to extend the term in perpetuity, and the unilateral right to increase the service charge and/or terminate the contract enforceable in a New York Court?
Discussion
New York Common Law recognizes a contract as involving two or more parties "offer and acceptance" sufficient to constitute a "meeting of the minds" as to the nature and extent of the agreement created. NY Jur. Contracts, § 46; 5(A) Am. Jur. Contracts, § 68:37. See also, Machinery Utility Co., Inc. v. Fry, 224 A.D. 392 (N.Y.A.D. 1st Dep't. 1928).However, it is well settled that "when a party to a written contract accepts it as a contract, he is bound by the stipulations and conditions expressed in it whether he reads them or not". Metzger v. Aetna Ins. Co., 227 NY 411 (NY 1920); Daniel Gale Assoc., Inc. v. Hillcrest Estates Inc., 283 AD2d 386 (N.Y.A.D. 2nd Dep't.2001). Guerra v. Astoria Gen. Co. , 8 AD3d 617 (N.Y.A.D. 2ND Dep't. 2004); Houters v. Schlengel, 51 NYS 2d 955 (NY Sup. 1944). A party who executes a contract is presumed to know its terms and agree to same. Moo Cheung v. Allstate Ins. Co., 283 A.D. 3rd 468 (N.Y.A.D. 2nd Dep't. 2001).
The issue of the enforceability of multi-page contracts wherein the fine print details of the agreement are contained after the signature of the non-drafting party, is not novel. The English Common Law and the laws of the State of New York have always recognized the enforceability of notes or memorandum of agreement. See, James v. M S Pattern, 6 NY9 (NY 1851). The general concept of the viability of unsigned memorandums of agreement was legislatively circumscribed by the enactment of the Statute of Frauds, which initially required a "signing" in certain circumstances during colonial times and which was thereafter amended to require a "subscription". The Court of Appeals has determined that to be "subscribed" is "to require the signing of the agreement at the end thereof by the party to be charged". Emphasis added. James v. M S Pattern, cite infra.
A review of Sec. 5-701indicates that solid waste disposal contracts (the leasing and emptying of dumpsters) are not covered. As the Statute of Frauds, which changed the common law, must be strictly construed; the Court must conclude that unsigned memorandums of agreement not mentioned in the statute of frauds are still generally enforceable. See, New York Statutes Sec. 311. Accordingly, carting contract reverse side terms and conditions are enforceable. This conclusion is however still constrained by the original premise of a contract that the parties came to a "meeting of the minds."
This Court has previously determined that the failure to provide a first page incorporating reference as to additional terms and conditions provided on a separate page, vitiates all representations after the signature page. Astoria Fed. Sav. Loan Assoc. v. McClusky, 13 Misc 3d 1209(A) (Suff. Co. Dist. Ct. 2006), citing to Dvoskin v. Levitz Furniture Co., 9 Misc. 3rd 1125 (A) (Dist.Ct. Suffolk 2005). Terms and conditions coming after a signature can be incorporated by reference as long as same is indicated on the signature page prior to the signature. Fleet Capital Leasing Co. v. Anguilli Motors, Inc., 15 A.D.
3rd 535 (N.Y.AD2d Dep't. 2005). At least one local Court has determined that the location of the incorporating reference on the signature page and the thoroughness of the acknowledgment of the incorporating reference are important elements for the Court to consider to decide whether an agreement was reached on significant terms on a post signature memoranda page. See, Colgate Construction Corp. v. Hill, 70 Misc 2d 646 (City Ct. Mt. Vernon 1972). While it is tempting to follow this path; this Court is reluctant to attempt to further erode the Appellate Division's general rule that incorporation by reference clauses are effective if inserted prior to the signature line.
Unconscionability
The defendant's alternative argument, synthesized down to its most basic level, is that he was duped by the defendant into signing a minimum seven year contract when he thought all he was doing was renewing an existing month to month contract. It is argued that the contract should not be enforced as it is unconscionable, and was obtained by deceit.
The State of New York has statutorily codified the concept of unconscionability via UCC Sec. 2-302 which provides:
(1) If the Court as a matter of law finds the contract or any clause of the contract to have been unconscionable at the time it was made, the Court may refuse to enforce the contract, or it may enforce the remainder of the contract without the unconscionable clause, or may so limit the application of any unconscionable clause as to avoid any unconscionable result.
The defendant's counsel adeptly argues that the New York U.C.C. is inapplicable in this instance, as his client leases and empties dumpsters and does not sell "goods" as is encompassed under the U.C.C. This argument is technically true, although there does exist precedent that the "liberal construction" language in NY U.C.C.-1-102(1) allows Courts to construe leases as goods since personal property leases were unknown at the time of enactment of the original U.C.C. See, Bank of New York v. Amoco Oil Co., 35 F 3d 643 (2nd Cir. 1994) construing New York law. However, this precedent involves an Article 7 claim, while the case at bar involves an Article 2 claim. This Court is unwilling to expand the Article 2 definition of "goods" in light of the fact that the state legislature seems to have made an effort to differentiate leases from goods by regulating leases under the Personal Property Law, and goods under the Uniform Commercial Code.
Absent a statutory definition, the Court will resort to a review of the common law doctrine of "unconscionability". The United States Supreme Court has recognized every Court's duty not to enforce unconscionable contracts, and established the common law test thereof to be:
A contract which no man in his senses, not under delusion, would make, on the one hand, and which no fair and honest man would accept on the other, nobody can doubt. Such a contract, whether founded on fraud, accident, mistake, folly or ignorance, is void at common law.' Hume v. United States, 132 U.S. 406 (1889).
The New York Court of Appeals recognizes the common law doctrine of unconscionability in addition to the U.C.C-2-302 consumer protection and has opined:
"As a general proposition, unconscionability, a flexible doctrine with roots in equity (see Chesterfield v. Janssen, 2 Ves. Sen. 125, 155-156; 28 Eng. Rep. 82, 100 (Ch. 1750); Hume v. United States, 132 U.S. 406, 411, 10 S. Ct. 134, 136, 33 L. Ed. 393), requires some showing of "an absence of meaningful choice on the part of one of the parties together with contract terms which are unreasonably favorable to the other party". State of New York v. Avco Financial Services of New York, 50 NY2d 383 (NY 1980).
Where the element of unconscionability is present at the time a contract is made, the contract should not be enforced. Williams v. Thomas Furniture Co., 350 F2d 445, 449 (U.S. App. D.C. 1965). It is hardly likely that consent and acceptance of important contract terms was obtained when they were hidden in a maze of fine print. Avenue Associates Inc. v. Buxbaum, 83 Misc 2d 134 (NY Civ. Ct. 1975) citing to Williams v. Thomas Furniture Inc. cite supra.
In the present case, the plaintiff asserts that long term contracts are common in the waste hauling industry. It is also advances precedent that the Court may not impute a negative "antitrust violation" inference to the industry standard long term contracts and that there exists a presumption of lack of unconscionability in a commercial transaction involving business people. Chrysler Credit Co. v. Rosal, 132 AD 2nd 686 (N.Y.AD2d Dep't 1987). See decision, Winter Bros. Recycling Corp. v. H. B. Millwork, Inc. J.S.C. Pastoressa No. 3106-08 dated February 17, 2009; South Shore Waste Corp. V. All Star Carts Vehicles Inc. J.S.C. Molia #27376-06 dated March 3, 2009. This Court agrees that the existence of an antitrust action cannot defeat a breach of contract claim. See, Kelly v. Kosuga, 358 U.S. 516 (1959). However, the defendant in this instance is not relying upon unconscionability as a sword, and has not sought to expand this dispute beyond his own contract. While the plaintiff is correct in asserting that the defendant cannot use collateral antitrust claims as a defense to this claim; the plaintiff likewise cannot use them as a shield to an alleged unconscionable contract.
It is the Court's opinion that no man in his right mind would knowingly agree to the subject contract. What is it about the manner of the plaintiff's removal of solid waste which would induce someone to agree to a minimum seven (7) years obligation which can be extended in perpetuity at the plaintiff's option should the obligor stay in business? The absence of such a justification when coupled with the other clauses which give the plaintiff free reign to unilaterally raise its prices and to charge attorney's fees and a potentially usurious interest rate (18%), gives rise to the obvious conclusion that the existence of a two party agreement can be asserted only as a matter of law and not fact. Absent the plaintiff's demonstration of the uniqueness of its service, such a contract could only have been created by either fraud, accident, mistake, folly, or ignorance. While it is perhaps legally possible to create such a one-sided contract, it is the plaintiff who must bear the burden of demonstrating a "meeting of the minds" on each of these significant terms either through discussion of each or the defacto reading of same by the party or his attorney prior to signing. That did not happen in this instance.
This Court's dockets reflect that this plaintiff has recently commenced sixty-three (63) breach of contract actions. The Court has conducted four trials involving this contract. The defendant's testimony in each of these trials was similar in that the plaintiff's employee arrived on site and advised the mom/pop business owner that Winter Bros. had taken an assignment of their contract and that a new agreement needed to be signed. The only discussion was of price and the defendant did not receive the back paper terms and conditions until after the front page was signed. The court notes that such a situation gives rise to a possible NY Gen. Bus. L. Sec. 349 Deceptive Acts claim. This issue will not be addressed in this action as the plaintiff was not on notice of same.
Accordingly, the court determines that all the terms and conditions on the back page of the signed contract are void and unenforceable. The plaintiff's complaint, asserting a breach of the contractual terms, is therefore dismissed as the front page terms of the subject contract provide only for a month to month term and the defendant was current when service was discontinued.