New York Law Review

Tag: Finder’s Fee Agreement

  • Resources Investment Corp. v. Reliance Group, Inc., 45 N.Y.2d 970 (1978): Enforceability of Finder’s Fee Agreements Requiring Prior Written Consent

    Resources Investment Corp. v. Reliance Group, Inc., 45 N.Y.2d 970 (1978)

    A finder’s fee agreement requiring prior written consent before approaching third parties is enforceable, and failure to obtain such consent, especially after the potential purchaser was initially rejected, bars recovery of the fee, absent any additional services rendered.

    Summary

    Resources Investment Corp. sued Reliance Group, Inc. for a finder’s fee related to the sale of Reliance’s subsidiary. The agreement required Resources to obtain Reliance’s prior written consent before approaching potential buyers. Resources claimed it had provided the buyer’s name before the agreement, but Reliance withheld consent. The New York Court of Appeals held that Reliance was not liable for the finder’s fee because Resources failed to obtain the required consent after the agreement was signed and did not perform any additional services beyond providing the initial name. The court emphasized the importance of upholding the explicit terms of the contract and rejected the argument that Reliance could arbitrarily avoid paying the commission. Resources’ prior actions did not constitute valid waiver or substantial performance.

    Facts

    Resources Investment Corp. (“Resources”) and Reliance Group, Inc. (“Reliance”) entered into a letter agreement regarding the potential sale of Reliance’s subsidiary, Disclosure Incorporated.
    The agreement stipulated that Resources would receive a commission for services related to the sale.
    A key provision required Resources to obtain Reliance’s prior written consent before approaching any third parties regarding a potential sale. Reliance retained sole discretion to withhold consent.
    Resources claimed it had already given Reliance the name of the company that ultimately purchased Disclosure before the agreement was signed.
    Reliance had withheld its consent for Resources to approach this particular company and never gave consent thereafter.

    Procedural History

    Resources sued Reliance for the finder’s fee in the trial court.
    Reliance moved for summary judgment, which was initially denied.
    The Appellate Division reversed, granting summary judgment to Reliance.
    Resources appealed to the New York Court of Appeals.

    Issue(s)

    Whether Resources is entitled to a finder’s fee under the agreement when it failed to obtain Reliance’s prior written consent before approaching the ultimate purchaser, as required by the express terms of the agreement.

    Holding

    No, because the agreement explicitly required Resources to obtain prior written consent, which it failed to do after the agreement was in place; and because Resources did not perform any other services after the agreement was executed, simply furnishing the name of the potential buyer was insufficient to trigger liability for a finder’s fee. Furthermore, there was no valid waiver or substantial performance.

    Court’s Reasoning

    The court emphasized the importance of adhering to the clear and unambiguous terms of the agreement. The provision requiring prior written consent was a condition precedent to Reliance’s liability for a finder’s fee.

    The court rejected Resources’ argument that Reliance could avoid paying the commission by arbitrarily withholding consent. The court noted that Resources signed the agreement knowing that consent for the ultimate purchaser had already been withheld. This indicated that something more than merely furnishing a name was required for Resources to earn the fee.

    The agreement stated the commission was “in complete satisfaction of and as payment for any and all services rendered by Resources… whether as finder, broker, originator, consultant or otherwise.” This language indicated that Resources was obligated to do more than simply provide a name.

    The court dismissed Resources’ argument of prior waiver, stating that “the concept of prior waiver is legally anomalous.” By entering into the agreement with the consent requirement, Resources waived any rights it may have acquired by revealing the name prior to the agreement.

    The court also rejected Resources’ claim of substantial performance. The court cited the amendment to paragraph 10 of subdivision a of section 5-701 of the General Obligations Law, intended to prevent such arguments from circumventing the Statute of Frauds.

    The court concluded that there was no issue of fact to be decided and affirmed the Appellate Division’s grant of summary judgment to Reliance.

  • Simon v. Electrospace Corp., 28 N.Y.2d 136 (1971): Measuring Damages for Breach of a Finder’s Fee Agreement

    Simon v. Electrospace Corp., 28 N.Y.2d 136 (1971)

    The proper measure of damages for breach of contract is the loss sustained or gain prevented at the time and place of breach, and this rule applies to the non-delivery of shares of stock.

    Summary

    Simon, a finder of business opportunities, sued Electrospace Corp. for commissions due under a written agreement for arranging a merger. The key issues were whether the merger fell within the scope of the retainer agreement and whether Simon was responsible for the merger. The Court of Appeals affirmed liability, finding sufficient evidence of a continuing connection between Simon’s initial efforts and the eventual merger. However, the Court significantly reduced the damages award, holding that the damages should be measured by the value of the stock at the time of the breach, not at a later date reflecting increased value due to market fluctuations.

    Facts

    In 1964, Electrospace Corp. retained Simon via a letter agreement to arrange a sale of stock, assets, or a merger, promising a 5% commission on the gross value of the transaction. Simon introduced Electrospace to Taxin, a principal in Bobosonics. No deal materialized immediately. Later, Taxin and Wolf of Electrospace independently negotiated a merger between Bobosonics and Electrospace. The merger occurred in 1967. Electrospace merged into Bobosonics, which then changed its name to Electrospace. Simon was excluded from the later negotiations. Simon then sued Electrospace for his commission.

    Procedural History

    The trial court initially awarded Simon 5% of Electrospace’s net assets. The Appellate Division affirmed liability but overturned the damages award, applying a rule based on a conversion case and valuing the stock at the time of trial, resulting in a much larger award. The case then went through limited issue trials and another appeal to the Appellate Division. The defendant then appealed directly to the New York Court of Appeals from the final trial court judgment, bringing up for review the intermediate orders of the Appellate Division.

    Issue(s)

    1. Whether the merger between Electrospace and Bobosonics fell within the scope of the retainer agreement between Simon and Electrospace.

    2. Whether Simon was responsible for the merger, entitling him to a commission, despite being excluded from the final negotiations.

    3. What is the proper measure of damages for breach of the finder’s fee agreement, specifically regarding the valuation of stock that was to be paid as a commission?

    Holding

    1. Yes, because there was sufficient evidence to support the finding that the merger, though structured differently than initially contemplated, was within the scope of the retainer agreement.

    2. Yes, because Electrospace interfered with Simon’s opportunity to complete his services by excluding him from the final negotiations.

    3. The proper measure of damages is the value of the stock at the time of the breach (i.e., when the stock should have been delivered), not at a later date reflecting market fluctuations, because the stock was not unique and had a readily determinable market value.

    Court’s Reasoning

    The Court found that the evidence supported the conclusion that the merger was within the scope of the retainer, even though the final structure differed from initial discussions. The Court cited Seckendorff v. Halsey, Stuart & Co. Incorporated, stating, “The fact that a ‘ different ’ set-up from that originally discussed at the initial meetings finally eventuated is ‘ a matter of no materiality whatever.’” The Court also held that Electrospace could not avoid paying the commission by excluding Simon from the final negotiations. The Court applied the principle that “interference with the opportunity of a broker to complete his services does not bar his right to commissions.” Regarding damages, the Court criticized the Appellate Division’s reliance on Menzel v. List, a case involving the conversion of a unique painting, as inappropriate for valuing readily available stock. The Court emphasized that “the proper measure of damages for breach of contract is determined by the loss sustained or gain prevented at the time and place of breach.” Because Electrospace stock was traded on the public market, its value was readily determinable at the time of the breach ($10 per share). The Court rejected the notion that Simon was entitled to the increased value of the stock at the time of trial, stating that “plaintiff’s cause of action should not and may not be converted into carrying a market “call” or “warrant” to acquire the stock on demand if the price rose above its value as reflected in his cause of action.” The court calculated damages based on 5% of the stock issued to Electrospace shareholders at the time of the merger, valued at $10 per share.