Is Your Contract a Binding One

Not all agreements are contracts. A contract is an agreement between at least two parties, where one party promises to do something and, in return the other person provides a benefit. The benefit can be anything the receiving party finds valuable, but it is usually money. Not all valid contracts are binding at the time of creation. The point at which a contract becomes binding depends on the language in the contract.

In the New York case of Sony Music Entertainment, Inc. v. Werre, et al, Sony Music Entertainment, Inc, (“Sony”) sued Ronn Were (“Werre”) for breach of contract, fraud and breach of the duty of good faith and fair dealing. Sony also sued Werre’s employer, EMI Music North America (“EMI”) for tortiously interfering with Sony’s contract with Werre. Sony approached Werre for a high level position within its company. After some negotiation, the parties signed a Letter Agreement titled “Employment contract as of April 1, 2010”. At the time the agreement was signed, Werre was employed by EMI, but he expected his contract to end on March 31, 2010. In the time between the Letter Agreement was signed and the intended start date, Werre extended his contract with EMI, making him unavailable to work for Sony.

The key to this case is whether Werre actually breached his contract with Sony. The additional claims against Werre, fraud and breach of the duty of good faith and fair dealing, are based on the same circumstances as the breach. The claim against EMI can only apply if there is a valid, binding contract between Werre and Sony. Therefore, if the court finds there has not been a breach of the contract, the other claims must also fail.

The court ultimately decided that the Letter Agreement was not binding, causing Sony to lose the case. The court focused on the terms used in one clause of the entire contract, as the basis of its decision. In describing the conditions of Werre’s employment, Sony does not list a specific start date but states “as of the commencement of your employment with Sony”, where the term ‘your’ refers to Werre. By using this phrase, the court found that the contract did not become enforceable and binding on April 1, 2010 as Sony expected. Instead, the court found that the contract would not become binding until Werre actually began his employment with Sony. Since Werre was ultimately never employed by Sony, the contract never went into effect. Because the contract never went into effect, the court found that Werre could not have breached it.

Clarity and precision are important when creating a contract. There may be multiple ways to declare your intent, but the clearest description can vary depending on the purpose of the contract. In some instances a phrase, such as “when items are received” makes much more sense than a specific date. The help of an attorney can be useful at various points in business, potentially saving you time and money later. If you have any contract questions, consider calling our Long Island business lawyer for assistance.

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