Oral Agreements and Contract Formation

• Posted on: Nov 28 2022

By: Jeffrey M. Haber

It should go without saying that a plaintiff claiming breach of contract should demonstrate that the parties formed a contract that has been breached. In fact, as discussed below, contract formation is the first element of a breach of contract claim. 

Typically, when there is a written agreement, issues of contract formation do not arise. Instead, the issue often arises in the context of an oral agreement, the exchange of emails, letters of intent, and term sheets.

In Kamel v. Ahgelian, 2022 N.Y. Slip Op. 06697 (2d Dept. Nov. 23, 2022) (here), the Appellate Division, Second Department examined the issue of contract formation in the context of an alleged oral joint venture agreement. 

Contract Formation

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.¹ All the elements must be pleaded in order to avoid dismissal.² A cause of action for breach of contract will be dismissed if it fails to allege the breach of a specific contractual provision.³ 

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.⁴ 

“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.”⁵ Acceptance of an offer is effective if it clearly, unambiguously and unequivocally complies with the terms of the offer.⁶ 

“[T]o constitute consideration, a performance or a return promise must be bargained for.”⁷ 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.⁸ 

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.⁹ A “mere agreement to agree, in which a material term is left for future negotiations, is unenforceable.”¹⁰ If the alleged contract “is not reasonably certain in its material terms, there can be no legally enforceable contract.”¹¹ 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.¹² 

In determining whether there is a binding contract, the subjective intent of the parties is not dispositive.¹³ Instead, a court must look to “the objective manifestations of the intent of the parties as gathered by their expressed words and deeds”.¹⁴ It should not place “disproportionate emphasis” “on any single act, phrase or other expression, but should instead look to “the totality of all of these, given the attendant circumstances, the situation of the parties, and the objectives they were striving to attain”.¹⁵

Kamel v. Ahgelian

Kamel was an action for, inter alia, specific performance of an alleged oral joint venture agreement between plaintiff and defendant and/or for damages from the breach thereof. In essence, Plaintiff claimed that he and defendant agreed to purchase certain property as equal partners, with title to be taken by an LLC to be formed for that purpose, that he worked to bring the acquisition to fruition, and that defendant undercut him by purchasing the property without him, in his name, and that he then transferred it to another LLC (co-defendant 1233 Dean Street, LLC) which was solely owned and operated by defendant.

Defendants moved for summary judgment dismissing the complaint on the ground that the suit was barred by the Statute of Frauds (N.Y. General Obligations Law § 5-703), as there was no written agreement between the parties. The motion court denied the motion holding that the Statute of Frauds did not apply to render void oral partnership or joint venture agreements to deal in real property. The court further noted that defendants failed to argue that there was no oral agreement in existence. Additionally, the motion court found that there were numerous issues of fact that warranted denial of the motion.

Following party depositions, defendants moved for renewal of their prior motion for summary judgment. Defendants argued that, based upon evidence that was unavailable prior to the completion of discovery, it was clear that there was no oral agreement between the parties. Defendants also reiterated their previous (and alternative) legal argument that the Statute of Frauds barred plaintiff’s claims because the oral agreement plaintiff alleged they made was unenforceable.

Plaintiff opposed the motion, arguing that there was an enforceable agreement between the parties.

The motion court granted the motion to renew and upon renewal reaffirmed its prior ruling that there were issues of fact preventing the grant of summary judgment.

The motion court held that the purported “new” evidence derived from the depositions created more factual issues than it resolved. In particular, the court noted that the parties’ conflicting versions of the events precluded the grant of summary judgment. As to the issue of contract formation, the motion court held that there were issues of fact as to whether there was a meeting a minds between the parties:

These parties, who are cousins, have submitted a large number of text messages between them about this transaction, most of which the court found were inadmissible in the prior decision. But there were certainly discussions between them, and text messages, and whether they are sufficient to constitute a meeting of the minds sufficient to constitute an enforceable oral agreement is not a question for the court. 

On appeal, the Appellate Division, Second Department affirmed. In a pithy (one sentence) decision, the Court affirmed, holding: “the evidence submitted by the defendants failed to eliminate triable issues of fact regarding whether there was a meeting of the minds sufficient to give rise to a binding contract.…”¹⁶ 

Takeaway

In claiming a breach of contract (i.e., enforcing or attempting to enforce a contract), the first step for a plaintiff is to plead the existence of a valid contract. In that regard, the plaintiff must demonstrate that the parties created a contract. Kamel highlights this issue and shows that sometimes it is not so easy to make that determination. Indeed, while it is the responsibility of the court to interpret written instruments, where a finding of whether a contract has been formed is dependent on myriad evidence from which differing inferences may be drawn, courts will often find a question of fact sufficient to preclude the grant of summary judgment.¹⁷

Footnotes

1. E.g., Furia v. Furia, 116 A.D.2d 694 (2d Dept. 1986).
2. See Bonamii v. Straight Arrow Publs., 133 A.D.2d 585 (1st Dept. 1987).
3. E.g., Kraus v. Visa Intl. Serv. Assn., 304 A.D.2d 408 (1st Dept. 2003); Lebow v. Kakalios, 156 A.D.2d 301 (1st Dept. 1989).
4. 22 N.Y. Jur. 2d, Contracts Section 9.
5. Restatement (Second) of Contracts § 24.
6. 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)).
7. See Restatement (Second) of Contracts §71.
8. Kolchins v. Evolution Markets, Inc., 128 A.D.3d 47, 59-60 (1st Dept. 2015).
9. 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).
10. Joseph Martin, Jr., Delicatessen, 52 N.Y.2d at 109.
11. Edelman v. Poster, 72 A.D.3d 182, 184 (1st Dept. 2010).
12. 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).
13. Brown Bros. Elec. Contrs. V. Beam Constr. Corp., 41 NY2d 397, 399 (1977).
14. Id. at 399-400.
15. Id.
16. Slip Op. at *1-*2 (citing, Agosta v. Fast Sys. Corp., 136 A.D.3d 694, 694 (2d Dept. 2016)).
17. Flores v. Lower E. Side Serv. Ctr., Inc., 4 N.Y.3d at 368-369 (2005). 

Jeffrey M. Haber is a partner and co-founder of Freiberger Haber LLP.

This article is for informational purposes and is not intended to be and should not be taken as legal advice.