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Incorporated by Reference

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  • Posted on: Jul 12 2019

Frequently, important terms of a contract are intended to be incorporated by reference into other documents.  Litigation frequently arises when one party disputes whether the terms of extrinsic documents were indeed made part of the executed agreement.

The parties in Movado Group, Inc. v. Mozaffarian, 92 A.D.3d 431 (1st Dep’t 2012), entered into a credit agreement in which defendants “expressly acknowledged receipt of, and agreed to be bound by, terms and conditions contained in an extrinsic document, which defendants neither read nor requested a copy to read.”  Subsequent to credit approval, the defendants first saw the “terms and conditions,” which contained a New York forum selection clause.  The Movado plaintiff sued defendant in New York under the credit agreement.  Supreme court denied plaintiff’s motion for a default judgment and granted defendants’ motion to dismiss for lack of personal jurisdiction.

The First Department unanimously reversed supreme court and remanded the matter for a determination on the merits, holding:

Plaintiff proved by a preponderance of the evidence that the terms and conditions of the extrinsic document were incorporated into the credit agreement, and that defendants’ acknowledged receipt and agreed to be bound by the same. The credit agreement, which identified the terms and conditions as those contained on each invoice, was sufficient to put defendants on notice that there was an additional document of legal import to the contract they were executing. Defendants’ decision not to inquire as to the terms and conditions is one by which they are bound.

Movado, 92 A.D.3d at 431 – 32 (citations omitted).

One of the authorities on which the Movado Court relied in reaching its result was Shark Information Services Corp. v. Crum and Forster Commercial Ins., 222 A.D.2d 251 (1st Dep’t 1995).  The plaintiff in Shark made a claim under an insurance policy after its business was interrupted due to a storm.  Defendant insurer indicated that it would disclaim coverage under the policy despite the fact that the “policy as delivered to plaintiff plainly covered the claimed loss and contained no applicable exclusion….”  Shark, 222 A.D.2d at 251.  The insurer argued that the exclusion on which they otherwise would have relied to disclaim coverage “was inadvertently omitted from the policy and that its reliance upon the exclusion should not be precluded by the inadvertent error.”  Shark, 222 A.D.2d at 251.  Plaintiff sued the insurer for, inter alia, breach of the insurance contract.  In deciding summary judgment motions from both sides, supreme court “was apparently of the view that although the endorsement containing the claimed exclusion was concededly absent from the policy as issued, there was some factual question as to whether the exclusion might be viewed as incorporated in the policy by reference.”  Shark, 222 A.D.2d at 252.

The First Department in Shark, rejected the insurer’s “incorporation by reference” argument and stated:

In our view, defendants’ reliance upon the doctrine of incorporation by reference must, as a matter of law, be held ineffective to bring the claimed exclusion within the terms of subject policy. Incorporation by reference, of course, is appropriate only where the document to be incorporated is referred to and described in the instrument as issued so as to identify the referenced document beyond all reasonable doubt.  It is clear that none of the instant policy’s oblique references to an otherwise unidentified “Coverage Form” meet this exacting standard. Indeed, the policy as issued gives every appearance of being a complete statement of the terms, conditions, and limitations of coverage and makes no obvious reference to any unincluded endorsement, much less one containing so critically important an exclusion from coverage.

Shark, 222 A.D.2d at 252 (citations and quotation marks omitted).

On July 9, 2019, the Appellate Division, First Department, addressed the “incorporated by reference” issue in Eshaghpour v. Zespa Industries, Inc.  The parties in Eshaghpour entered into a contract pursuant to which defendant was to supply architectural woodwork in an apartment owned by plaintiff’s wife.  Plaintiff signed the front page of the agreement which stated that the “prices, specifications and conditions above and on the back of this proposal were satisfactory” (brackets omitted).  A dispute arose and plaintiff sued defendant in New York.  Relying on the North Carolina forum selection clause appearing as one of the “terms and conditions” purportedly printed on the reverse side of the proposal page, defendant moved to dismiss the New York action.

The First Department affirmed supreme court’s denial of defendant’s motion.  In so doing, the Court found that the “terms and conditions” section never appeared in the agreement that plaintiff reviewed and signed, and that plaintiff never saw the subject page.  Significantly, the lengthy contract “was paginated consecutively and signed on each page by both parties [and, accordingly,] contrary to defendants’ suggestions, plaintiff had no reason to ask for any other documents.”  The Court further explained:

Although documents may be incorporated by reference as part of an executed agreement, the doctrine of incorporation by reference is grounded on the premise that the material to be incorporated is so well known to the contracting parties that a mere reference to it is sufficient.  The referenced material must be described in the contract such that it is identifiable beyond all reasonable doubt. Here the agreement’s oblique reference to an otherwise unidentified Terms and Conditions page, which was never provided to plaintiff, is insufficient to meet this exacting standard.

(Citations and internal quotation marks omitted.)

TAKEAWAY

While it sounds silly to say, it is critically important to carefully read the agreements that you sign.  Further, if there is any mention of documents that are to be incorporated by reference, make sure that those documents are thoroughly reviewed attached to the final signed contract.  By proceeding in this manner there should be no confusion as to all of the terms and conditions of the parties’ agreement.

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