What constitutes a contract? Under the New York Statute of Frauds, a contract must be “in writing,” but that does not necessarily mean a lengthy, formal document. An exchange of emails may suffice, provided they contain a complete agreement between the parties. A federal appeals court in New York recently addressed a situation where emails alone did not suffice to create a binding contract because the exchange failed to include agreement on a key term.
KJ Roberts & Co. v. MDC Partners, Inc.
This case involves a business consulting relationship gone bad. The defendant contacted the plaintiff about providing consulting services. The parties verbally agreed the consultant's fee would be $30,000 per month. About six months later, the consultant proposed modifying its fee to include a “success fee based on improvement in defendant's businesses.” This led to several months of negotiations between the parties. The defendant and the consultant exchanged multiple emails discussing the precise terms of the proposed bonus payments. No formal agreement was ever signed, and eventually the defendant terminated its business relationship with the consultant.
The consultant never received any bonus payments, which subsequently led to litigation for breach of contract. In March 2014, U.S. District Judge Lorna Schofield granted summary judgment to the defendant. Judge Schofield determined no legally enforceable contract ever existed between the consultant and the defendant regarding bonus payments. The consultant argued an email containing a detailed schedule of bonus payments, together with a spreadsheet prepared by the defendant, created a binding contract. Judge Schofield disagreed. She said the parties never settled on certain “adjustments” to the proposed bonus payments. The spreadsheet was only “an attempt at finalizing the adjustments,” and even when read together with the email submitted by the consultant, they did not form a “complete agreement” on the subject of the bonus payments.
Under New York law, Judge Schofield explained, “a mere agreement to agree, in which a material term is left for future negotiations, is unenforceable.” Here, the parties never agreed upon the adjustments, and therefore never formed a binding contract. While a contract may be enforceable even if it is missing some terms, Judge Schofield said the courts cannot enforce a contract to pay a bonus when the parties failed to agree on an objective methodology for calculating said bonus. Otherwise the court would simply be substituting its judgment for that of the parties in deciding how to calculate the bonus payments.
The U.S. Second Circuit Court of Appeals upheld Judge Schofield's decision in a March 14, 2014, order. The appeals court agreed there was no agreement here, only a “mere agreement to agree.” The court rejected several additional arguments from the consultant, including a claim the defendant was “unjustly enriched” by failing to pay any bonus.
Do Not Rely On Email
It is always best to draft any contract with the assistance of an experienced New York business attorney. While email negotiations between parties can be useful in establishing the parameters of an agreement, they should not be a substitute for signing a written agreement. Contact our office today if you need to speak with an attorney.