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Letter Agreement Found Binding and Enforceable Notwithstanding Reference That It Was Subject to A More Formal Writing in The Future

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  • Posted on: Aug 29 2018

This Blog has previously written about the enforceability of informal agreements. (Here, here, here, and here.) In that regard, we have noted that an exchange of term sheets, memoranda of understanding, emails or correspondence may constitute an enforceable agreement if the writings include all the essential terms of an agreement. Sullivan v. Ruvoldt, 16 Civ. 583, 2017 WL 1157150 at *6 (S.D.N.Y. Mar. 27, 2017). Thus, if the informal writings contain the necessary elements of an enforceable contract, e.g., an offer, acceptance, consideration, mutual assent and intent to be bound, courts will enforce the writings as if they were a formal, written agreement.

On August 10, 2018, Justice Richard M. Platkin of the Supreme Court, Albany County, Commercial Division enforced a letter agreement notwithstanding the fact that the parties envisioned a more formal writing in the future. Vincent Crisafulli Testamentary Trust v. AAI Acquisition, LLC, 2018 N.Y. Slip Op. 51219(U) (Sup. Ct., Albany County Aug. 10, 2018). As discussed below, the decision turned on whether there was a meeting of the minds, or mutual assent, between the parties.

Background

Vincent Crisafulli concerned an alleged breach of contract involving a commercial lease of warehouse and distribution space (“Premises”). In 2009, about 40,000 square feet of the Premises were leased to Auburn Armature, Inc. (“AAI”). On May 19, 2017, AAI filed for Chapter 11 bankruptcy protection.

Within one week of its bankruptcy filing, AAI moved to sell all of its assets to the defendant, AAI Acquisition, LLC (“Acquisition”) and to have certain executory contracts, including AAI’s lease with the plaintiff, Vincent Crisafulli Testamentary Trust (“Trust”), assumed by, and assigned to, Acquisition (“Lease”).

On June 26, 2017, the Bankruptcy Court granted the motion and entered an order approving the asset purchase agreement. Shortly thereafter, Acquisition’s principal, Gerald J. DiCunzolo (“DiCunzolo”), sought to negotiate a more permanent arrangement with respect to the assumed leases, including the Lease with the Trust. Negotiations ensued between DiCunzolo and Frank J. Crisafulli, the Trustee of the Trust (“Crisafulli”).

The Trust and Acquisition entered into a letter agreement on July 11, 2017, which replaced the Lease with a new agreement (the “Letter Agreement”). The Letter Agreement, among other things, added two years to the lease term, modified the rental stream, and gave Acquisition a purchase option on the Premises. The Letter Agreement further provided that Acquisition’s lease obligations were to be “guaranteed by [Acquisition’s] affiliate United Electric Power, Inc.” The Letter Agreement stated that it was intended to “set forth the binding business terms of the agreement which will be supplemented by an appropriate set of legal documents approved by counsel for both parties to be fully executed within 30 days.” The Letter Agreement was signed by Crisafulli, as trustee of the Trust, and DiCunzolo, as president of Acquisition.

Acquisition then entered into possession of the Premises, and it made rent payments for July and August. However, on August 28, 2017, Acquisition advised the Trust that it intended to abandon the Premises, and it ultimately vacated the Premises in September 2017.

Acquisition paid the September rent, but has not made any payments thereafter pursuant to either the Lease or the Letter Agreement.

In an attempt to mitigate damages, the Trust found a replacement tenant who began paying rent effective November 1, 2017. Based on the differential in rent, however, the Trust claimed damages of $193,350 through July 2022, which is the extended lease term prescribed in the Letter Agreement.

The Trust commenced the action on October 17, 2017, alleging three contractual causes of action: (1) breach of the Letter Agreement; (2) breach of the guarantee provision of the Letter Agreement; and (3) breach of the assumed Lease. Following some paper discovery, the Trust moved for summary judgment. Acquisition opposed the motion.

Applicable Law

Under New York law, the existence of a binding contract is not dependent on the subjective intent of the parties to the agreement. Brown Bros. Elec. Contrs. v Beam Constr. Corp., 41 N.Y.2d 397, 399 (1977) (citations omitted). Instead, courts look to the “objective manifestations of the intent of the parties as gathered by their expressed words and deeds.” Id. (citations omitted). “In doing so, disproportionate emphasis is not to be put on any single act, phrase or other expression, but, instead, on the totality of all of these, given the attendant circumstances, the situation of the parties, and the objectives they were striving to attain.” Id. at 399-400 (citations omitted).

Courts will not enforce “a mere agreement to agree, in which a material term is left for future negotiations….” Joseph Martin, Jr., Delicatessen v. Schumacher, 52 N.Y.2d 105, 109 (1981). Moreover, courts will not enforce an agreement containing an “express reservation by either party of the right not to be bound until a more formal agreement is signed.” E.g., Bed Bath & Beyond Inc. v. IBEX Constr., LLC, 52 A.D.3d 413, 414 (1st Dept. 2008).

Thus, to demonstrate the formation of a valid contract, a party must demonstrate, through objective evidence, the parties’ mutual assent to the alleged agreement and their intention to be bound thereby. Kowalchuck v. Stroup, 61 A.D.3d 118, 121 (1st Dept. 2009).

The Court’s Holding

The Court granted the Trust’s motion, finding that the Letter Agreement was a valid and binding contract that was sufficiently definite in its material terms.

The Court found that “the plain language of the Letter Agreement evinces the parties’ intention that the writing sets forth ‘the binding business terms of the[ir] agreement.’” The Court noted that “[w]hile the parties did contemplate that these ‘binding business terms’ would ‘be supplemented by an appropriate set of legal documents approved by counsel for both parties to be fully executed within 30 days,’ there was no ‘express reservation by either party of the right not to be bound until a more formal agreement is signed.’” (Citations omitted.) Thus, the language of the Letter Agreement itself “expressed the parties’ intention to be bound thereby.” (Citation and internal quotation marks omitted.)

The Court also found that the Letter Agreement contained all the material terms of an enforceable agreement:

The Letter Agreement describes the demised Premises, states that the new lease would be on the same terms and conditions as the prior Lease, except as otherwise modified therein, and then sets forth the modified terms and conditions of the new lease. And while the parties contemplated supplementation of the Letter Agreement via formalized “legal documents approved by counsel”, the Letter Agreement sets forth all of the essential terms of a lease agreement, and defendants have not identified any missing terms that were material to the transaction. That the Letter Agreement “stated that a more formal contract was to be signed does not render [it] unenforceable.” [Citation and footnote omitted.]

Takeaway

Courts have repeatedly held that letters, faxes and other less formal written documents, such as emails and texts, can serve as an enforceable agreement. Documents containing words that evince an agreement, along with language demonstrating contract formation, will suffice to create an enforceable agreement.  Vincent Crisafulli illustrates these points.

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