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Enforceability of Notes, Emails and Oral Agreements

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  • Posted on: Oct 14 2020

Attorneys are often asked whether an agreement that is not formally reduced to writing or not in writing at all is enforceable. Most will say that the answer depends on the surrounding facts and circumstances. 

Since the question often arises in the context of a contract dispute, it is helpful to examine the legal principles that guide the determination of contract enforceability.

The elements of a cause of action for breach of contract are (1) the formation of an agreement, (2) performance of the agreement by one party, (3) breach by the other party, and (4) damages. E.g., Furia v. Furia, 116 A.D.2d 694 (2d Dept. 1986). All the elements must be pleaded to avoid dismissal. See Bonamii v. Straight Arrow Publs., 133 A.D.2d 585 (1st Dept. 1987). 

With regard to the first element of a breach of contract claim (i.e., the formation of a contract), the plaintiff must establish an offer, acceptance of the offer, consideration, mutual assent and an intent to be bound. 22 N.Y. Jur. 2d, Contracts Section 9. 

“An offer is the manifestation of willingness to enter into a bargain, so made as to justify another person in understanding that his assent to that bargain is invited and will conclude it.” Restatement (Second) of Contracts § 24. Acceptance of an offer is effective if it clearly, unambiguously and unequivocally complies with the terms of the offer. King v. King, 208 A.D.2d 1143, 1143-1144 (3d Dept. 1994) (citing 21 N.Y. Jur. 2d, Contracts § 53 at 470 (1982), and 2 Williston on Contracts § 6:10 at 68 (4th ed. 1990)). 

“[T]o constitute consideration, a performance or a return promise must be bargained for.” See Restatement (Second) of Contracts §71. Thus, the plaintiff must demonstrate some performance or a return promise that was bargained for by the defendant’s promise to fulfill the terms of the agreement. Kolchins v. Evolution Markets, Inc., 128 A.D.3d 47, 59-60 (1st Dept. 2015).

Mutual assent requires an agreement as to the essential terms and conditions of the agreement, and intent to be bound requires that such assent be sufficiently definite to assure that the parties are truly in agreement with respect to all material terms. Joseph Martin, Jr., Delicatessen v. Schumacher, 52 N.Y.2d 105, 109 (1981); Matter of Express Indus. & Term. Corp. v. New York State Dept. of Transp., 93 N.Y.2d 584, 589 (1999). A “mere agreement to agree, in which a material term is left for future negotiations, is unenforceable.” Joseph Martin, Jr., Delicatessen, 52 N.Y.2d at 109. If the alleged contract “is not reasonably certain in its material terms, there can be no legally enforceable contract.” Edelman v. Poster, 72 A.D.3d 182, 184 (1st Dept. 2010). 

In addition, under the doctrine of definiteness, the court must be able to determine what, in fact, the parties agreed to in order to enforce a contract. Matter of 166 Mamaroneck Ave. Corp. v. 151 E. Post Rd. Corp., 78 N.Y.2d 88, 91 (1991); Korff v. Corbett, 18 A.D.3d 248, 250 (1st Dept. 2005) (agreement language indicated meeting of minds, refers to consideration, specifies amount clearly agreed to). Application of the doctrine has not been applied rigidly. As the Court of Appeals noted, “[c]ontracting parties are often imprecise in their use of language, which is, after all, fluid and often susceptible to different and equally plausible interpretations. Imperfect expression does not necessarily indicate that the parties to an agreement did not intend to form a binding contract. A strict application of the definiteness doctrine could actually defeat the underlying expectations of the contracting parties.” Matter of 166 Mamaroneck Ave. Corp., 78 N.Y.2d at 91 (citation omitted). Thus, “where it is clear from the language of an agreement that the parties intended to be bound and there exists an objective method for supplying a missing term, the court should endeavor to hold the parties to their bargain.” Id. (citing 1 Williston, Contracts § 46, at 152-153 (3d ed)). “Striking down a contract as indefinite and in essence meaningless ‘is at best a last resort.’” Id. (quoting Cohen & Son v. Lurie Woolen Co., 232 N.Y. 112, 114)).

Finally, where the agreement is not in writing, the agreement must satisfy the statute of frauds. In New York, the statute of frauds is found in General Obligations Law § 5-701 through 5-705. These provisions require a signed writing for certain types of agreements, including, but not limited to: (1) agreements that by their terms are “not to be performed within one year from the making thereof”; (2) the conveyance of real property; (3) contracts for the payment of finder’s fees; (4) agreements for “goods sold at public auction”; (5) contracts to pay compensation for services rendered in negotiating a business opportunity; and (6) modifications to written agreements which state that they cannot be changed orally.

Notably, “[p]artial performance of an alleged oral contract will be deemed sufficient to take such contract out of the statute of frauds only if it can be demonstrated that the acts constituting partial performance are unequivocally referable to said contract.” Bowers v. Hurley, 134 A.D.3d 1191, 1193 (3d Dept. 2015) (citations and quotation marks omitted).

On October 13, 2020, the Appellate Division, First Department issued two decisions that addressed one or more of the foregoing principles. Weisenfeld v. Iskander, 2020 N.Y. Slip Op. 05710 (1st Dept. Oct. 13, 2020), and Streit v. Bombart, 2020 N.Y. Slip Op. 05706 (1st Dept. Oct. 13, 2020).

Weisenfeld v. Iskander

Weisenfeld claimed that during the course of a dinner meeting, her father, Kenneth Stark (“Stark”), an attorney (now deceased), entered into an agreement with defendants Iskander and Bishay, his clients, whereby Stark was promised the right to receive 20% of all income, profits, and gains earned by the general partner of a real estate partnership that he was going to create for his client, defendant Iskay Limited Partnership (“Iskay”). The promise was evidenced by handwritten notes the three initialed.

The Notes had two sections. The upper section outlined partnership financial and other business terms (the proposed payment waterfall) relating to Iskay. The lower section, appearing below a  line drawn in the middle of the page, had the subject heading “Mngmt” (management), and consisted of three separately numbered items: (1) “6 % of rents collected-1/6 to me,” referring to rental income the as yet unidentified general partner would be receiving for managing and operating the buildings; (2) “10% of construction … [not exceeding] $10,000 … ,” referring to additional monies sought by Stark that he would bill the partnership, in the guise of legal fees, in the event there was other than “CPC” (Community Preservation Corp.) construction activity undertaken and supervised by the partnership management; and (3) “20% of GP inc to me”. There was no definition for the term “inc” or “20% of GP inc” in the notes. Stark, Iskander, and Bishay initialed the notes on March 22, 1994. 

The Notes did not refer to any consideration or other promise by Stark for the benefit of Iskander, Bishay, or the “GP.” They did not include the words “agree” or “agreement”, and there was no proof that the original copy of the notes were ever delivered to Iskander or Bishay.

Weisenfeld claimed, based on conversations that she says she had with her father, that the consideration provided by Stark consisted of his agreement to help find investors to provide the equity necessary to buy the properties contemplated. There was no written documentation of such a promise. Weisenfeld also asserted that the words “20% of GP inc to me” meant that she was entitled to 20% of the taxable income realized by the general partner, over all the years involved. 

The motion court found that the notes did not indicate a present intent to be bound. The court explained that there was nothing in the notes “to show the parties agreed to the material terms, including the identity of the party or parties to be bound.” The court further noted that the notes were “too vague to ascertain what was promised” and, therefore, the alleged agreement “fail[ed] for lack of definiteness.”

The First Department affirmed, holding the notes were too indefinite to create an enforceable agreement. Slip Op. at *1 (“At issue are the terms of the handwritten notes taken at the initial meeting, plaintiff claiming that one of the provisions therein, under the heading ‘Mgmt’ and stating ‘20% of G P inc to me,’ entitled Stark, and later his assignees, to 20% of the proceeds of the sale of the buildings to which the general partner would be entitled. The handwritten notes at issue are too indefinite to enforce as sought by plaintiff.”) (citing Glanzer v. Keilin & Bloom, 281 A.D.2d 371, 372 (1st Dept. 2001)).

The Court also found that “[t]he alleged agreement … fail[ed] for a lack of consideration.” Slip Op. at *1 (quoting ACE Fire Underwriters Ins. Co. v. ITT Indus., Inc., 84 A.D.3d 688, 689 (1st Dept. 2011)). The Court explained that “Plaintiff’s claim that her father told her that he would help locate other investors as part of the agreement [was] inadmissible hearsay.…” Since “she offer[ed] no other admissible evidence to support her assertions,” she could not demonstrate the exchange of consideration. Id. (citing Candela v. City of New York, 8 AD3d 45, 47 (1st Dept. 2004)).

Streit v. Bombart

In Streit, plaintiff sought a declaration that an enforceable oral agreement existed with nonparty Louis Bombart (“Bombart”) pursuant to which plaintiff would acquire Bombart’s 75% interest in Tiny Fiesta LLC (“Tiny Fiesta”), which allegedly owned and managed an apartment building in the Bronx, New York. In exchange, plaintiff allegedly agreed, among other things, to refinance or buy out the mortgage on the property, which was held by defendant Madison Realty Capital Advisors, LLC (“Madison”). 

Plaintiff alleged that, pursuant to the oral agreement, he spent five months attempting to work out a deal with Madison for the refinancing or buyout of the mortgage, only to be told, in October 2015, that Madison had decided not to enter into any deal with plaintiff and to deal instead with Bombart, who held the other 25% interest in Tiny Fiesta. 

During the next few months, plaintiff tried to get Bombart to memorialize in writing the terms of their alleged oral agreement, which, the complaint alleged, required plaintiff, in exchange for Bombart’s 75% interest, to pay $8 million in addition to paying off the mortgage and liens on the property. Bombart died in June 2016 without signing the agreement. In probate proceedings in Florida, Bombart’s interest was treated as part of his estate, and was sold, with the court’s approval, to Jonathan Bombart.

The First Department held that the “complaint and supporting materials fail[ed] to allege the existence of an enforceable oral agreement, because the terms of the agreement [were] not definite.” Slip Op. at *1 (citation omitted). The Court explained that the “consideration owed to [Bombart was] described inconsistently, and the arrangement between plaintiff and [Bombart] [was] described in emails among plaintiff, [Bombart] and Madison in different ways, including a partnership to own and manage the property.” Id. 

Moreover, said the Court, the agreement was uneneforceable because it violated the statute of frauds: “In any event, as the complaint makes clear that Tiny Fiesta’s only significant asset was the real property and income generated from it, pursuant to the statute of frauds, the agreement between plaintiff and [Bombart] was required to be in writing.” Slip Op. at *1 (citing General Obligations Law § 5-703 (1); Bergman v. Krausz, 19 A.D.3d 186 (1st Dept. 2005); Pritsker v. Kazan, 132 A.D.2d 507 (1st Dept. 1987)).

The Court also rejected plaintiff’s “reliance on the doctrine of part performance in an attempt to evade the statute of frauds.” Id. (citation omitted). The Court found that plaintiff failed to allege any “conduct on his part that was unequivocally referable to the alleged oral agreement, i.e., conduct that was ‘permitted or induced by [defendants], such as possession of the premises, payment of rent or significant improvements to the premises.’” Id. (Yenom Corp. v. 155 Wooster St. Inc., 33 A.D.3d 67, 72 (1st Dept. 2006)). Instead, observed the Court, “[h]e allege[d] only that he engaged in months of fruitless negotiations with Madison and placed an unspecified amount of money in escrow to fund legal costs.” Id.

Takeaway

Although the definiteness doctrine is not to be rigidly applied, Weisenfeld and Streit show that courts do not give too much flexibility lest it renders the doctrine meaningless. There must be a showing indicating the parties intended to enter into an agreement and be bound by its terms. See, e.g., Joseph Martin, Jr., Delicatessen, 52 N.Y.2d at 110 (stating that there are two ways in which the requirement of definiteness can be satisfied in the absence of an explicit contract term: (1) an agreement could contain “a methodology for determining the [missing term] within the four corners of the writing (such as notes, emails and texts); or (2) an agreement could “invite[] recourse to an objective extrinsic event, condition or standard on which the amount was made to depend.”).

In addition, both Weisenfeld and Streit show the consequences of not establishing the exchange of consideration. To do so, these cases show that the allegations and/or proof must be consistent and admissible.

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