Minichiello v. Royal Business Funds Corp., 18 N.Y.2d 521 (1966)

The Statute of Frauds, requiring a written agreement for compensation related to negotiating the sale of a business opportunity, applies to ‘finders’ who procure an introduction to a party, precluding recovery in quantum meruit for such services without a written contract.

Summary

Minichiello sued Royal Business Funds Corp. for compensation for finding a purchaser for convertible debentures owned by Royal. Royal moved to dismiss based on the Statute of Frauds, arguing there was no written agreement. The Court of Appeals addressed whether the Statute of Frauds applied to ‘finders’ and whether recovery was possible in quantum meruit. The court held that the Statute of Frauds did apply to finders and precluded recovery in quantum meruit, emphasizing the legislature’s intent to avoid unfounded claims and erroneous verdicts in business opportunity transactions. The court reversed the lower court’s decision, dismissing Minichiello’s claim.

Facts

Royal Business Funds Corp. owned convertible debentures of Colorama Features, Inc.
Angelo Minichiello claimed he was hired by Royal to find a purchaser for these debentures.
Minichiello found Jayark Films Corporation, who purchased the debentures from Royal.
Minichiello sought $25,000 for his services, but there was no written contract.

Procedural History

Minichiello sued Royal in Special Term, seeking compensation.
Royal moved to dismiss based on the Statute of Frauds.
Special Term denied the motion.
The Appellate Division affirmed.
Royal appealed to the New York Court of Appeals.

Issue(s)

1. Whether the Statute of Frauds (General Obligations Law § 5-701(a)(10)) applies to agreements to compensate a ‘finder’ who introduces parties in a business opportunity transaction, where the cause of action accrued before the 1964 amendment to the statute.
2. Whether recovery is permissible in quantum meruit for such services in the absence of a written agreement.
3. Whether the sale of less than a majority of voting stock falls within the statute’s purview.

Holding

1. Yes, because the legislature intended the Statute of Frauds to apply to finders to prevent unfounded claims and erroneous verdicts.
2. No, because allowing recovery in quantum meruit would defeat the purpose of the writing requirement in the Statute of Frauds.
3. Yes, because the phrase “including a majority of the voting stock interest” does not limit the application of the statute to only transactions involving the sale of a majority stock interest by a single seller.

Court’s Reasoning

The court analyzed the legislative intent behind the Statute of Frauds. The Law Revision Commission’s recommendation emphasized the “danger of erroneous verdicts” in cases involving claims for commissions in business opportunity sales, justifying the writing requirement. The court reasoned that including brokers but excluding finders would be illogical, as finders’ services often require less proof, making them more susceptible to fraudulent claims. The court stated, “The nature of the services rendered by business brokers and finders is such that a demand for payment is not usually made until they have completed their services. Thus, to allow recovery for the reasonable value of these services is to substantially defeat the writing requirement. We should not ascribe to the Legislature such a paradoxical purpose.” The court dismissed the argument that the statute only applied when a single seller owns a majority stock interest, stating it would be contrary to the intent of the Legislature and the plain meaning of the statute. The court relied on the purpose of the statute to prevent unfounded claims, which applied regardless of the percentage of stock sold by a single seller. The court concluded that the 1949 Legislature intended to include finders within the Statute of Frauds and preclude recovery in quantum meruit, reversing the lower court’s decision.