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Breach of Oral Partnership Agreement

Breach of Oral Partnership Agreement

The Supreme Court of Kings County (Brooklyn) recently heard the case of Chan v. Mui. This case took the form of a motion to dismiss a breach of contract claim, as well as related claims for fraud. The transaction at issue is a purported agreement between the parties involving the sale of a bakery in Chinatown, Manhattan, New York.

Background of the Case

Plaintiff bought, owned, and operated a bakery known as King Wah in Chinatown until about June 2008. At that time the bakery closed, underwent extensive modifications and renovations, and reopened with a new name known as M & W.

The parties’ dispute hinges on their exact relationship with each other in conjunction with the bakery. Plaintiff contends that a partnership existed between plaintiff and defendant, while defendant contends that no partnership existed.

Plaintiff’s allegation is that in 2007 an oral agreement (contract) was agreed upon between the parties. The terms of the agreement, as plaintiff alleges, were that the bakery would be valued at $200,000 and that the plaintiff would receive a 30% stake in it, in return for allowing the defendant to take over the premises of the bakery.

Defendant claims that the bakery was purchased outright from plaintiff for the purchase price of $50,000, paid in full, and that there was no other agreement as between the parties, except that the plaintiff was kept on as a manager in light of his past experience.

Pursuant to the procedural posture of defendant’s motion for summary judgment, there is one more important consideration. Defendant argues that plaintiff’s lawsuit should be dismissed because plaintiff’s purported oral contract involved a 5-year lease for the bakery. In New York, any contract with a duration of over 1 year must be in writing. Thus according to defendant, the five year period defeats any claim under an oral contract and summary judgment is appropriate.

Plaintiff counters that the agreement was for a partnership at-will, with no duration specified, and provides evidence that the 5-year lease was not ever part of the agreement. Under New York law, a freely terminable agreement does NOT run afoul of the statute of frauds, and thus under this set of facts, plaintiff’s breach of contract claim would be valid.

Analysis

The case turns on whether the oral contract was freely terminable, as plaintiff argues, or for a term of 5 years, as defendant suggests. Because of the procedural posture of the case, defendant’s motion to dismiss, the plaintiff is given every possible favorable inference to survive dismissal. Interestingly, since this is a dispute about the terms of an oral contract, there isn’t much, if any, evidence that clearly indicates in favor of either party. Thus, because of the judicial favoring of the non-movant to motions to dismiss, the court ruled that the case would move forward on the breach of contract claims.

Interestingly however, the court did dismiss the plaintiff’s cause of action for fraud. Plaintiff alleges that defendant fraudulently induced the sale by misrepresenting the willingness to give the plaintiff the stake in the company. The court found that this claim was duplicative of the breach of contract claim, which in New York is not allowed, because fraud claims must be relatively independent of breach of contract claims, according to Nagle v. Shearson Lehman Bros.

If you have questions about breach of contract, please don’t hesitate to contact our officefor a consultation.

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