Fabri-Com, Inc. v. Tex-Fi Industries, Inc.
1999 N.Y. App. Div. LEXIS 10494, 696 N.Y.S.2d 447, 265 A.D.2d 206 (1999)
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Rule of Law:
An oral agreement for perpetual sales commissions, irrespective of continued service, falls within the Statute of Frauds, but an oral employment agreement for an indefinite duration that is terminable for cause does not.
Facts:
- In 1985, Fabri-Com, through its principal Robert Shapiro, became an outside sales representative for Stedman, a manufacturer and distributor of narrow fabrics.
- Fabri-Com initiated a project that led to Stedman developing and manufacturing a specific knit bandage for Johnson & Johnson.
- Fabri-Com claims it then entered into an oral agreement with Stedman for perpetual commissions on sales to accounts it “developed” for as long as Stedman continued to do business with those accounts.
- Stedman was acquired by Tex-Fi in 1987, becoming Elastex, Inc., and later merged into Tex-Fi in 1992.
- After Stedman's transfer to Elastex, Fabri-Com and Elastex renegotiated, agreeing to a 7% commission on sales to certain specified accounts, but did not reach a written agreement on all terms or on commissions for JJMI for subsequent years.
- Fabri-Com contended that the original oral promise for permanent representation and commissions remained in effect despite the renegotiation of other terms.
- On November 25, 1992, Tex-Fi terminated Fabri-Com as its sales representative without stating a cause.
Procedural Posture:
- Fabri-Com sued Tex-Fi Industries, Inc. in the Supreme Court, New York County (a trial court), alleging breach of contract.
- Tex-Fi Industries, Inc. moved for summary judgment, seeking to dismiss the complaint based on the Statute of Frauds.
- The Supreme Court, New York County, granted Tex-Fi's motion for summary judgment, dismissing Fabri-Com's complaint, including its breach of contract claim and quantum meruit claim.
- Fabri-Com appealed the dismissal of its claims to the Supreme Court, Appellate Division, First Department.
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Issue:
Does an oral agreement promising perpetual sales commissions, or an oral agreement to employ a sales representative indefinitely but terminable for specific causes, fall within the Statute of Frauds and thus require a writing to be enforceable?
Opinions:
Majority - Ellerin, P. J.
Yes, an oral agreement for perpetual commissions on sales to developed accounts, regardless of continued service, falls within the Statute of Frauds and is unenforceable without a writing. No, an oral employment agreement to maintain a sales representative indefinitely, but terminable for unsatisfactory performance, embarrassment to the firm, or non-viable products, does not violate the Statute of Frauds. The court affirmed the dismissal of Fabri-Com's claim for perpetual commissions, reasoning that such a promise is not capable of performance within one year and therefore requires a writing under the Statute of Frauds, citing Zupan v Blumberg and Guterman v RGA Accessories. The court found that the letters and memoranda exchanged between the parties did not constitute a sufficient writing to satisfy the Statute of Frauds, as they clearly indicated ongoing negotiations and a lack of agreement on crucial terms. However, the court modified the lower court's decision by denying Tex-Fi's motion to dismiss Fabri-Com's breach of contract claim regarding its termination without cause. The court reasoned that an alleged oral promise to maintain Fabri-Com as a sales representative, terminable only if performance was unsatisfactory, or the product was no longer viable, is considered capable of performance within a year because such conditions could arise and lead to termination within that period, thus not violating the Statute of Frauds (citing Murphy v American Home Prods. Corp. and Weiner v McGraw-Hill, Inc.). The court concluded that questions of fact remained regarding Fabri-Com's reliance on this promise and whether Tex-Fi had cause for termination. The court also affirmed the dismissal of Fabri-Com's quantum meruit claim due to a lack of evidence for additional compensation for work already performed.
Analysis:
This case provides crucial guidance on the application of the Statute of Frauds to oral agreements of indefinite duration, particularly in agency and employment contexts. It establishes a key distinction: while an oral promise for truly perpetual, unconditional payments (like commissions not tied to ongoing service) is likely unenforceable without a writing, an oral employment or agency agreement of indefinite duration is enforceable if it contains conditions for termination (e.g., unsatisfactory performance) that could foreseeably occur within one year. This decision encourages parties to clearly define termination clauses in oral agreements to avoid Statute of Frauds issues and highlights the importance of distinguishing between a contract's indefinite term and its potential for termination within a year.
