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Statute of Frauds and the At-Will Joint Venture Agreement

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  • Posted on: Aug 26 2020

In our last post (here), we examined the Statute of Frauds – General Obligations Law § 5-701 through § 5-705 – in the context of employment at-will contracts. We noted that such contracts are capable of performance within one year – a requirement under GOL§ 5-701(a)(1). Cron v. Hargro Fabrics, 91 N.Y.2d 362, 367 (1998). As the Court of Appeals has explained, because an at-will employment relationship may be “freely terminated by either party at any time for any reason or even for no reason” (Murphy v. American Home Prods. Corp., 58 N.Y.2d 293, 300 (1983)), such a relationship “may usually be completed within a year and ordinarily would not require performance to extend beyond that time” (Cron, 91. N.Y.2d at 367). For this reason, the Court of Appeals has held that employment at-will agreements “are without the proscription of the Statute of Frauds concerning one-year performance.” Cron, 91 N.Y.2d at 367 (citations omitted).

What if the at-will employment agreement is breached? In that case, the courts consider the agreement to be “terminable within one year only [because of the] breach by one of the parties.” D&N Boening v. Kirsch Beverages, 63 N.Y.2d 449, 456 (1984). As the Court of Appeals noted, “termination is not performance, but rather the destruction of the contract where there is no provision authorizing either of the parties to terminate as a matter of right.” Id. at 456-57; see also Zupan v. Blumberg, 2 N.Y.2d 547, 552 (1957) (“The possibility of such wrongful termination is not, of course, the same as the possibility of performance within the statutory period.”).

The foregoing rules also apply to an oral agreement that forms a partnership or joint venture. F.S. Intertrade Off. Prods. V. Babina, 199 A.D.2d 95, 96 (1st Dept. 1993), lv denied, 83 N.Y.2d 757 (1994); Prince v O’Brien, 234 A.D.2d 12 (1st Dept. 1996); Rella v. McMahon, 169 A.D.2d 555 (1st Dept. 1991)). Like the oral employment agreement, an oral agreement to form a partnership or joint venture without a definite duration creates an at-will partnership or joint venture. As such, it may be dissolved, without liability for breach of contract, on a “moment’s notice”. Shandell v Katz, 95 A.D.2d 742, 743 (1st Dept. 1983); Alnwick v. European Micro Holdings, Inc., 281 F. Supp. 2d 629, 644 (E.D.N.Y. 2003) (“Where … there is no definite term of duration for the joint venture, it may be terminated at will”)).

With the foregoing principles in mind, we examine Eiji Ichimura v. Elkon, 2020 N.Y. Slip Op. 32722(U) (Sup. Ct., N.Y. County Aug. 21, 2020) (here), a case involving, among other things, an oral at-will joint venture agreement.

Eiji Ichimura is a world-renowned sushi chef. Ichimura alleged that he entered into an oral at-will employment relationship with defendants whereby he agreed to serve as the sushi chef at a restaurant to be operated by defendants in Manhattan. According to plaintiff, he gave defendants oral permission to use his name for the restaurant while he was working there. About four months later, Ichimura terminated his relationship with defendants.

Thereafter, plaintiff brought suit. 

In their answer, defendants denied the allegations and advanced five counterclaims: unjust enrichment, breach of employee loyalty, conversion, breach of contract, and defamation and disparagement of goods, based on alternative theories that plaintiff breached a joint venture agreement he had made with defendant Idan Elkon to open the restaurant, or that he breached his duty as an employee, and that in any event, he unjustly enriched himself by benefiting therefrom.

Plaintiff moved for summary judgment, claiming, inter alia, that the Statute of Frauds barred the breach of contract counterclaim. 

Defendants argued that the joint venture agreement could be performed within one year. They contended that the agreement was partly performed, thereby making the Statute of Frauds inapplicable to the parties’ agreement. Defendants claimed that plaintiff breached the oral agreement by failing to fully perform. 

In reply, plaintiff maintained that the Statute of Frauds was applicable to their relationship. Plaintiff claimed, among other things, that the alleged oral joint venture agreement was not capable of being performed within one year because, according to Elkon’s sworn interrogatory responses, plaintiff had committed to run the kitchen and sushi bar and serve as head chef “for years to come ….” Plaintiff also maintained that the parties did not partially perform the agreement nor were their actions unequivocally referable to the agreement. Rather, plaintiff claimed, the execution of the lease and building out of space were preparatory for the operation of the restaurant. 

The Court held that plaintiff “satisfie[d] his burden of demonstrating that the counterclaim for breach of contract ha[d] no factual or legal basis.…” Slip Op. at *5. The Court noted that the agreement had no definite term. “Thus,” reasoned the Court, “to the extent that the parties entered into a joint venture, it was at will, and plaintiff cannot be held liable for breaching it.” Id. “And,” said the Court, “even if the venture was not at will, the statute of frauds would bar a cause of action for breach of contract.” Id. (citing Massey v. Byrne, 112 A.D.3d 532, 533 (1st Dept. 2013) (absent evidence that parties’ oral agreement constituted joint venture or partnership, breach of contract claim barred by statute of frauds)).

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