There's No Contract Without a "Meeting of the Minds"

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In order to sue someone for breach of contract, obviously there must be a contract between the parties. While an oral (unwritten) contract may be enforceable, there must still be proof of an agreement between the parties. Under New York law, there must be “mutual assent” between the parties. A mere conversation between the parties where they do not agree to “sufficiently definite” terms is not enough to create a binding contract.

For example, a federal judge on Long Island recentlydismissed a breach of contract case because the plaintiff could not prove her conversations with her former employer created a contract for partial ownership of his business. The plaintiff worked as a general manager for a restaurant in East Hampton. In 2002, the restaurant's owner decided to buy a second property with a group of partners. He invited the manager to assist with the renovation and design of the new restaurant. The manager claimed at one point, the employer told her she would be a “ten percent partner” in the new business, although she would not be required to buy in or assume responsibility for any losses.

The employer said he never promised to make the manager a co-owner; rather, he offered her 10% of the profits in exchange for her help in launching the new restaurant. In fact, the manager was not a party to the limited liability company formed by the employer and his partners, and she never participated in any partnership activities. The manager was paid, however, for her work at the second restaurant.

The restaurant itself was not profitable, losing nearly $3 million over a ten-year period. In order to wind down the business, the employer bought out the other partners in the LLC for $3.83 million. The plaintiff, who was no longer working for the employer at this point, subsequently filed a lawsuit, claiming she was entitled to 10% of the sale proceeds pursuant to the oral contract she made with the defendant 10 years earlier.

But as U.S. District Judge Joanna Seybert explained in an August 11 decision, the plaintiff and defendant never entered into a valid contract. Their unwritten conversations “lacked any specificity” regarding the alleged contract. Indeed, the plaintiff admitted when the defendant offered to make her a “ten percent partner,” she never asked whether that meant 10% of the profits—as the defendant claimed—or 10% equity in the business itself. “Because the alleged oral agreement at issue lacked any specificity regarding [the plaintiff's] compensation, an essential term,” Judge Seybert concluded, “the Court cannot find a meeting of the minds as to that term, and no contract therefore lies.”

Obviously, the best way to prove there has been a “meeting of the minds” is to write down the terms of any contract. Especially when dealing with a matter as complex as ownership of a business, it is important all parties understand their exact roles and responsibilities. If you need advice on any contract matter from an experienced New York business attorney, contact our offices today.