Want to Bring A Breach of Contract Action? Don’t Forget to Identify the Provision Alleged to Have been Breached and The Elements of Contract FormationPrint Article
- Posted on: Apr 13 2020
Too often, a plaintiff claiming breach of contract fails to identify the provision(s) of the contract alleged to have been breached, let alone that the fact that a contract was formed in the first place. While this seems elementary, the law reporters are brimming with cases where the plaintiff failed to do the foregoing. Indeed, this Blog recently wrote about case in which the plaintiff failed to identify the provision of the contract alleged to have been breached. (Here.)
In today’s post, we examine two breach of contract cases involving contract formation (Drone USA, Inc. v. Antonelos, 2020 N.Y. Slip Op. 30907(U) (Sup. Ct., N.Y. County Apr. 5, 2020) (here) and the failure to identify the provision(s) of the contract alleged to have been breached (Icon DE Holdings, LLC v. Mondani Handbags & Accessories, Inc., 2020 N.Y. Slip Op. 30904(U) (Sup. Ct., N.Y. County Apr. 2, 2020) (here).
Applicable Principles of Law
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 in order to avoid dismissal. See Bonamii v. Straight Arrow Publs., 133 A.D.2d 585 (1st Dept. 1987). A cause of action for breach of contract will be dismissed if it fails to allege the breach of a specific contractual provision. 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).
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).
Drone USA, Inc. v. Antonelos
Drone involved the enforcement of a settlement agreement.
On July 10, 2016, plaintiff, Drone USA, Inc. (“Drone”), and Paulo Ferro (“Ferro”) entered into an Employment Agreement (the “Agreement”), pursuant to which Drone hired Ferro as its Chief Strategy Officer. Under the Agreement, Ferro was to serve on Drone’s board of directors and receive an annual base salary of $400,000, in addition to a $100,000 signing bonus, and stocks. The Agreement provided for a three-year term of employment.
Prior to the execution of the Agreement, but around the same time, defendant, Dennis Antonelos (“Antonelos”), Drone’s former Chief Financial Officer and director, received the option to purchase 10 million additional shares of Drone stock. After exercising that option, Antonelos contacted plaintiff, Michael Bannon (“Bannon”), Drone’s President and Chief Executive Officer, and told him to hire Ferro. To induce Ferro to accept the offer, Antonelos and Bannon personally guaranteed Drone’s payment and performance obligations to Ferro for two years. In pertinent part, the “Corporate Guarantee” that Antonelos and Bannon executed stated that they “personally and unconditionally guarantee and promise to pay or perform any and all obligations listed above for two full years” and that they “will share the personal guarantee 50-50.” Drone unconditionally guaranteed and promised “to pay or perform any and all obligation[s] listed above for the remaining 3rd year.” When Ferro cashed in his stock, the personal guarantees would be reduced “dollar for dollar.”
On July 7, 2017, Drone terminated Ferro’s employment “for cause.” Drone claimed that Ferro refused to disclose the identities of the customers he had worked with during his employment. Ferro said that the identities and details of those customers belonged to him, and not to Drone.
On July 10, 2017, Antonelos resigned from the board of directors.
On July 12, 2017, Drone, Bannon, and TCA Global Credit Master Fund, LP (“TCA”), a hedge fund that provided Drone with financing, sued Ferro in California District Court (the “California Action”). On July 31, 2017, Ferro filed an answer and counterclaims. Ferro denied working against Drone’s interests. He said that the Company did not terminate him “for cause.” Instead, Ferro argued that Drone terminated him because he had refused to take a pay cut on Bannon’s insistence after Bannon failed to obtain outside investments, and, alternatively, had to take out interest loans from TCA. Ferro asserted counterclaims for breach of contract and intentional interference of the Agreement.
On November 27, 2018, Drone, Bannon, and Ferro settled the California Action for $600,000.00. Bannon paid Ferro $299,999.99. The balance of the sum was owed in monthly installments, through December 2019. Despite demands for payment, Antonelos refused to pay any portion of the settlement amount under the personal guarantee.
On February 11, 2019, Drone and Bannon brought action in New York Supreme Court for breach of contract against Antonelos for $300,000.00 – the remaining portion of the California Action settlement sum.
On March 28, 2019, Antonelos filed a motion to dismiss the complaint. On April 10, 2019, plaintiffs filed an amended complaint, rendering that motion moot. On April 29, 2019, Antonelos filed a motion to dismiss the first amended complaint. He argued that the “Corporate Guarantee” failed to specify consideration, or the nature of Antonelos’s obligations in writing, and was, therefore, unenforceable.
The Court rejected defendant’s argument, holding that it “misses the mark.” Slip Op. at *3. The Court explained that the guarantee, which “plaintiff and defendant both signed” and which required Antonelos and Bannon to “share the personal guarantee 50-50,” constituted “a contract in which defendant must split the costs paid under the guarantee.” Id. The Court rejected the notion that the Agreement lacked any consideration, holding that the “consideration lies in many things, including the benefits of Ferro’s work or avoiding a lawsuit.” Id.
Icon DE Holdings, LLC v. Mondani Handbags & Accessories, Inc.
Icon arose out of a contractual relationship between Icon DE Holdings, LLC (“plaintiff” or “Icon DE Holdings”) and Mondani Handbags and Accessories Inc. (“defendant” or “Mondani”). Around August 2007, Icon DE Holdings’ affiliate, IP Holdings LLC (“IP Holdings”), entered into a Handbag Agreement with Mondani (the “Agreement”). Pursuant to the Agreement, IP Holdings, which owned all right, title and interest in and to the trademark London Fog and Tower Design and certain variations thereof (the “Licensed Mark”), exclusively licensed the Licensed Mark to Mondani for use in connection with the design, manufacture, sale, marketing distribution, advertising and promotion of Handbags and Small Leather Goods in a specified geographic area for a specified period of time. The Agreement was subsequently amended in December 2010 (“First Amendment”), December 2016 (“Second Amendment”), and May 2018 (“Third Amendment”).
Following the execution of the Third Amendment, effective June 1, 2018, IP Holdings assigned the Agreement, as amended, and all rights and remedies thereunder, including the exclusive right to enforce the Agreement and its terms against Mondani, to Icon DE Holdings.
Plaintiff brought a breach of contract action against Mondani, alleging that Mondani was, and is, required to pay to Icon DE Holdings certain royalties under the Agreement. Plaintiff notified Mondani of its alleged default on March 6, 2019 and terminated the Agreement on June 24, 2019. Plaintiff sought $474,000 in damages, plus costs related to the prosecution of the action.
On October 28, 2019, defendant Mondani filed its answer and counterclaim. Plaintiff moved to dismiss defendant’s counterclaim.
The Court granted plaintiff’s motion because the counterclaim as “currently stated … lack[ed] specificity.” Slip Op. at *2. The Court explained that dismissal was appropriate because “[t]he Counterclaim [did] not indicate which specific provisions of the Agreement and/or Amendments plaintiff purportedly violated, nor [did] it provide dates of the alleged conduct.” Id. However, because defendant attempted “to supplement its pleadings with an affidavit based on personal knowledge,” the Court granted defendant leave to replead for “clarity” purposes, directing defendant to “identify[ ] specific provisions of the Agreement and/or Amendments plaintiff allegedly breached with dates and details such that the Court [could] make a determination on the merits.” Id. at *3.
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. Drone highlights this issue and shows that each element of contract formation must be pleaded. The next step for the plaintiff is to identify the specific terms of the contract that the defendant is alleged to have breached. As Icon DE Holdings shows, general allegations that the contract has been breached will not suffice. Kraus v. Visa Int’l Serv. Assoc., 304 A.D.2d 408 (1st Dept. 2003).