In order to sue someone for breach of contract, you have to establish four elements. First, you must prove a contract existed, either orally or (preferably) in writing. Second, you must demonstrate your performance under the contract; that is, you held up your end of the bargain. Third, you must prove the other party failed to perform its obligations under the contract. Finally, you must show you suffered damages as a result of the other party's failure to perform.
All of this may sound simple enough. But many times, a breach of contract claim turns on how each party understands their rights and obligations under the agreement. If a contract uses ambiguous or unclear terms, it may fall to a judge to interpret such ambiguities in light of the entire agreement. But it is important to understand that a contract is not ambiguous simply because the parties may later disagree over the definition of certain terms.
Frei v. Stargate Apparel, Inc.
Here is a recent example. This was a case involving a company and a former employee. The company hired the employee in 2004 to work as its chief financial officer. The employee and the company's president subsequently exchanged a series of emails between 2005 and 2012 concerning the terms of employment. Among other subjects, the emails discussed the employee's potential annual bonus payments. In one email, the president emphasized “this agreement is totally at my discretion” and he would review any bonus payments twice a year. Later on, the employee suggested an alternative bonus structure, which the president accepted with the caveat he still retained sole discretion over such payments.
The company fired the employee in 2013. The employee then sued his former employer in Manhattan Supreme Court, claiming he was entitled to a bonus payment for the last year he worked.
On June 18, Judge Barbara Jaffe dismissed the employee's lawsuit. She agreed with the company that the ex-employee failed to present a viable breach of contract claim. Under New York law, a fired employee may sue to recover back “wages” owed him, but that does not include discretionary bonus payments. Here, the ex-employee argued the bonuses were actually part of his total compensation package, which the president agreed to orally. He further claimed the emails' references to the president's discretion over “bonus structure” only applied to the calculation of amounts, not the overall entitlement to such payments.
Judge Jaffe said the plaintiff was attempting to manufacture an ambiguity where none existed. “In the context of the entire agreement,” she concluded, “and the clear reference to the president's discretion in distributing bonuses per the 2005 emails, the parties unambiguously agreed that defendant had and would continue to have complete discretion over plaintiff's entitlement to bonuses, both their method of calculation and their distribution.”
Speak Up Before It's Too Late
Clarity is always important when negotiating or signing any contract. If you have any concerns about the meaning of certain words, the time to speak up is before you sign, not after the contract falls apart and you end up in court. If you need advice from an experienced New York business attorney on any contract matter, contact our offices right away.