Business agreements often begin with informal discussions. Once you are prepared to enter into an actual business relationship, it is important to have a written contract. If the relationship turns bad and leads to civil litigation, a New York court will want to see more than an exchange of oral promises or emails.
Email, Verbal “Guarantee” Not Enough to Prove Existence of Valid Contract
In early 2014, the CEO of a New York-based merchant bank (the plaintiff in this case) met with the chairman of a Dutch company (the defendants) on the latter's yacht off the shore of the Virgin Islands. The two men discussed potential joint business opportunities around the world. According to the plaintiff, he and the defendant chairman verbally agreed to the “essential terms” of an ongoing collaboration.
Some time later, the plaintiff sent an email to the defendant chairman, proposing to open a subsidiary office of the defendant company in New York. The chairman replied with his own email, in which he “confirmed our agreed arrangement” to hire the plaintiff as a consultant for $700,000 per year to assist in establishing the New York office, plus an additional $300,000 per year to “hire additional people and of course this can be adjusted as need be.” The email further noted the agreement “is supposed to be for the next five years.”
The plaintiff claims that although he immediately began work after receiving this email, the defendant failed to hold up its end of the bargain. After failing to receive payment for several invoices, the plaintiff filed suit in Manhattan federal court, alleging breach of contract, both against the defendant company and the chairman individually. The plaintiff said the chairman had “personally guaranteed” the contract.
In February 2016, a federal judge dismissed the plaintiff's lawsuit. The judge said the plaintiff had failed to demonstrate the existence of a valid contract. For one thing, there was confusion over who the proper defendant was. The plaintiff claimed he had a contract with a Dutch company. But the defendants argued the contract, if it existed, was actually with the Dutch company's subsidiary in the United Kingdom. Nor was the Dutch company's chairman a proper party. A corporate officer, the judge explained, is ordinarily not personally liable for contracts he or she signs on behalf of the company.
The judge also said the email from the defendant chairman to the plaintiff was not enough to prove the existence of an enforceable contract under New York law. The email “fails to designate the parties to the contract” and makes no reference to the Dutch company. Nor does the chairman's “personal guarantee” matter. New York's Statute of Frauds requires any contract or guarantee of this sort to be in writing; an oral promise cannot be enforced in court.
The judge did grant the plaintiff leave to file an amended complaint, one which must name the proper company as a defendant and provide some additional written evidence beyond the email of a contract.