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E-mails Confirming Material Terms of an Oral Agreement Satisfy the Statute of Frauds

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  • Posted on: Jul 12 2016

In today’s digital world, it is not uncommon for individuals and businesses to memorialize the terms of their oral agreements through email. But are such agreements enforceable?  The answer depends on a couple of factors, including whether there is a writing that memorializes the material terms of the agreement.

Oral agreements that cannot be performed within one year of the agreement must be in writing.  This broad rule, contained in the statute of frauds, is intended to “prevent a party from being held responsible, by oral, and perhaps false, testimony, for a contract that the party claims never to have made.”  73 Am. Jur. 2d Statute of Frauds § 403 (cited by William J. Jenack Estate Appraisers and Auctioneers, Inc. v. Rabizadeh, 22 N.Y.3d 470, 476 (2013)).  In New York, the statute of frauds is codified in New York in General Obligations Law § 5-701(a)(1).

Since oral contracts that cannot be performed within one year must be in writing, litigants have asked the courts to decide whether an email or other electronic media can satisfy the writing requirement of the statute of frauds.

In 2004, the Supreme Court, Kings County held that a party’s “act of typing his name” at the bottom of an email demonstrated his/her “intention to authenticate” for purposes GOL § 5-701(a).  Rosenfeld v. Zerneck, 4 Misc. 3d 193, 776 N.Y.S. 458 (Sup. Ct., Kings County 2004). In 2010, the Appellate Division, First Department ratified Rosenfeld, holding that “any uncertainty that existed in 1994 as to whether the record of an electronic communication satisfied the statute of frauds under New York state law has long since been resolved.” Naldi v. Grunberg, 80 A.D. 3d 1, 13 (1st Dep’t 2010). See also GOL § 5-703 (providing that “written text produced by … electronic signals…shall constitute a writing and any symbol executed or adopted by a party… to authenticate a writing shall constitute a signing.”).

Given the recognition of email as a writing for purposes of the statute of frauds, the question for the courts is whether the email communications contain the content required to form a contract? See Naldi, 80 A.D.3d at 13 (quoting Nimmer, Law of Computer Technology § 13:12).  Recently, the First Department addressed this question in Josephberg v. Crede Capital Group, LLC, 2016 NY Slip Op. 05086 (1st Dep’t June 28, 2016).

Josephberg involved a $4.8 million breach of contract action arising from the alleged wrongful termination of the plaintiff, a former salesman at the defendant Crede Capital Group LLC (“Crede”), and the failure to pay commissions to the plaintiff for securing deals while employed at the defendant’s predecessor, Socius Capital Group, LLC, (“Socius”).

The plaintiff claimed that the defendants failed to pay him a 15 percent commission on profits earned on deals generated by him with Cell Therapeutics Inc., Xcite Energy Ltd. and others, in violation of his oral agreement with Socius. Josephberg was never provided with, and did not sign, a written employment agreement.

The defendants moved to dismiss the complaint on several grounds, including that Josephberg’s contract claims were barred by the statute of frauds. The lower court dismissed the plaintiff’s breach of contract causes of action.  The First Department reversed, holding that the emails relied upon by Josephberg to evidence the terms of his employment agreement satisfied the statute of frauds:

Plaintiff alleges that defendant Socius orally agreed to provide him with 15% of the profits generated by financing transactions originated by him. The emails to which he points, authored by defendants Wachs and Peizer, equal partners in Socius, confirm the material elements of this alleged agreement and therefore satisfy the requirements of the statute of frauds (see Morris Cohon & Co. v Russell, 23 NY2d 569, 574­575 [1969]; see also General Obligations Law § 5­701[a][10]).

Takeaways:

The admonition that parties to an agreement should “put it writing” remains sound. Preferably, the agreement should be memorialized in a formal contract negotiated and drafted by counsel. However, as Josephberg teaches, electronic communications that confirm the existence of a contract by containing the material terms of the agreement can also suffice.

There is one other admonition worth noting. Agreement by email can be risky. The reason: during negotiations, a party can inadvertently enter into an agreement.  For this reason, parties often include language in their emails that expressly disclaims an enforceable contract until a formal, written agreement is prepared and executed. Of course, retaining counsel to negotiate and draft a written contract from the outset is the clearest way to avoid an inadvertent agreement.

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