Sunday, May 31, 2015

Another Case on Contract Architecture and a Signature Not at the Bottom of the Writing

Another Case on Contract Architecture and a Signature Not at the Bottom of the Writing

      In a decision rendered on May 1, 2015, the Kentucky Court of Appeals considered the enforceability of an agreement that was signed not at the end but above the final provisions of the agreement. See C.A.R.S. Protection Plus, Inc. v. Mamrak, No. 2014-CA-000470-MR (Ky. App. May 1, 2015) (not to be published).
      Mamrak bought a used car and, in connection therewith, bought a vehicle service agreement from C.A.R.S. Protection Plus, Inc. (“CARS”).  At the time he bought the car, a used BMW, the odometer read 130,269 miles. CARS issued a “warranty coverage card” reciting (a) the coverage would begin on October 20, 2011 (nine days after the car was acquired) and end on January 20, 2012, and (b) identifying the mileage range for which coverage was provided as between 130,269 and 134,769. Essentially, the coverage period was the lesser of six months or 4,500 miles.
      The day after the car was purchased, it exhibited trouble which was, at least temporarily, resolved by a new thermostat. However, problems again arose, and the thermostat was replaced again, as was the water pump. When problems continued the vehicle was towed to a garage, where Mamrak was told that the motor would have to be replaced. Mamrak incurred cost of $7,785.93, of which CARS paid $63.48. CARS defended any additional liability on the basis that the engine problems manifested themselves on October 12, 2011, the day after the vehicle was purchased but before the service contract’s effective date of October 20. Further, CARS would rely upon the terms of the service agreement which provided: “component failures that occur before [CARS] approves this limited warranty application are not covered.” Mamrak noted that this language appeared in the contract below his signature line, and therefore the limitation did not constitute part of the agreement. In response thereto:

CARS argued that the location of Mamrak's signature on the application was irrelevant to the operation of the vehicle service contract. It contended that even if Mamrak's signature had been required to make an enforceable contract, language sufficient to incorporate all the terms of the agreement was immediately proximate or adjacent to his signature. Finally, CARS contended that if Mamrak’s position were accepted, and only those terms found above his signature are part of the agreement, then the service contract is utterly meaningless since all of the operative terms (including the coverage description) are included below his signature on the application. It argued that no agreement could exist under the circumstances.

      Initially, the Oldham Circuit Court issue partial summary judgment in Mamrak’s favor to the effect of the language under his signature was not part of the agreement. This determination was based upon KRS § 446.060(1), which requires, inter alia, that any signature on a document appear at close to the end of the document when the contract is otherwise required by law to be signed by a party thereto. In response to a second motion for summary judgment, and here limited by the prior determination striking the language below Mamrak’s signature, “CARS argued the no valid contract had been created. It claimed that the document--as redacted by the Court--lacked definite and essential terms and did not reflect any actual agreement between the parties. CARS sought summary judgment on the basis that no contract had been formed between the parties.” In turn the trial court determined that the language above Mamrak’s signature was sufficient to create a contract. After further fact-finding based on affidavits, CARS was ordered to pay $5,519.61 towards the powertrain repairs.
      In my view, unfortunately, the Court of Appeals essentially sidestepped the interrelationship of Kentucky's rules as to the formation of the contract, including as set forth in Cinelli, and the treatment of the language below a signature as being excluded from the contract. Rather, resolving the question “without reference to the location of the signature line and [the] dispute over terms appearing above or below it,” the Court found that the agreement was binding on October 20, 2011, that the car was still operating on that date and that “the bulk of the necessary repairs occurred on October 25 and again in November 2011.” From there the Court was able to determine that “[T]he vehicle service agreement standing alone was in effect and covered the cost of repairs.” Presumably this last clause was meant to apply as of the date the repair costs were incurred.
      In addition, albeit without analysis, the Court of Appeals determined that the service contract is enforceable under the Magnuson-Moss Warranty-Federal Trade Commission Improvement Act, it being simply stated that “Mamrak is entitled to enforcement of a vehicle service contract under both the spirit and the letter of the Act.”

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