New York Law Review

Tag: Implied Contract Terms

  • Wieder v. Skala, 80 N.Y.2d 628 (1992): Ethical Obligations as Implied Contract Terms for Attorney Employment

    Wieder v. Skala, 80 N.Y.2d 628 (1992)

    In a law firm associate’s employment, there is an implied understanding that both the associate and the firm will conduct their practice in accordance with the ethical standards of the profession, and a discharge for adhering to those standards can constitute a breach of contract.

    Summary

    A law firm associate, Wieder, claimed wrongful discharge from the defendant law firm, Skala, due to his insistence on reporting professional misconduct by another associate as required by ethical rules. The New York Court of Appeals held that while the employment-at-will doctrine generally applies, an implied-in-law obligation exists within the attorney-law firm relationship that the firm will not impede the attorney’s ethical obligations. Terminating an associate for adhering to these mandatory ethical obligations constitutes a breach of contract. The court, however, declined to recognize a tort cause of action for abusive discharge.

    Facts

    Wieder, an attorney, was employed as a commercial litigation associate at the Skala law firm. He requested the firm represent him in a personal real estate transaction, and another associate, L.L., was assigned. L.L. neglected the matter and made false statements to conceal his neglect. Wieder reported this to senior partners, who admitted L.L. was a known liar. Wieder confronted L.L., who admitted to malpractice and fraud. Wieder insisted the firm report L.L.’s misconduct, as required by the Code of Professional Responsibility. The firm initially declined, then reported only after Wieder’s persistence. He was subsequently berated and ultimately fired shortly after filing motion papers in an important case he was handling.

    Procedural History

    Wieder sued Skala, alleging breach of contract and wrongful discharge. The Supreme Court dismissed the claims based on the employment-at-will doctrine. The Appellate Division affirmed. The Court of Appeals granted leave to appeal.

    Issue(s)

    1. Whether an implied-in-law obligation exists in the employment relationship between a law firm and an associate attorney, requiring both to adhere to the ethical standards of the legal profession, such that a termination for adhering to those standards constitutes a breach of contract.
    2. Whether the discharge of an attorney for insisting on compliance with the ethical rules constitutes a tort of abusive discharge violating public policy.

    Holding

    1. Yes, because the unique nature of the attorney-law firm relationship includes an implied understanding that both will conduct their practice ethically, and the firm will not impede the attorney’s compliance with those ethical standards.
    2. No, because significant alterations of employment relationships are best left to the Legislature.

    Court’s Reasoning

    The Court of Appeals distinguished this case from prior employment-at-will cases like Murphy v. American Home Products Corp. and Sabetay v. Sterling Drug, noting that those cases involved financial managers in large corporations, whereas Wieder’s role as an attorney was central to the firm’s purpose. The court emphasized that lawyers have a unique duty of self-regulation. DR 1-103(A) of the Code of Professional Responsibility places a duty on lawyers to report potential violations of disciplinary rules. The court stated, “[t]he reporting requirement is nothing less than essential to the survival of the profession”. The court reasoned that insisting Wieder disregard DR 1-103(A) forced him to choose between his employment and potential suspension or disbarment. The court found an implied agreement that the firm would not frustrate the legitimate purpose of the employment relationship by requiring unethical conduct. Quoting Patterson v. Meyerhofer, the court stated that “in every contract there is an implied undertaking on the part of each party that he will not intentionally and purposely do anything to prevent the other party from carrying out the agreement on his part”. The court refused to create a new tort of abusive discharge, deferring to the Legislature on such matters, citing Remba v. Federation Employment & Guidance Serv.

  • 407 East 61st Garage, Inc. v. Savoy Fifth Avenue Corporation, 23 N.Y.2d 275 (1968): Economic Hardship Does Not Excuse Contractual Performance

    407 East 61st Garage, Inc. v. Savoy Fifth Avenue Corporation, 23 N.Y.2d 275 (1968)

    Economic hardship, even to the point of insolvency, generally does not excuse a party from fulfilling its contractual obligations, unless the contract specifies otherwise.

    Summary

    407 East 61st Garage, Inc. sued Savoy Fifth Avenue Corporation for breach of contract after Savoy closed its hotel, the Savoy Hilton, prior to the expiration of a five-year agreement where the garage provided exclusive parking services to hotel guests in exchange for 10% of the gross transient storage charges. Savoy argued that its financial inability to continue operating the hotel excused its performance. The New York Court of Appeals held that Savoy’s economic hardship did not excuse it from its contractual obligations, emphasizing that the agreement may contain an implied promise that Savoy would remain in the hotel business for the duration of the contract, and that Savoy should have included a termination clause for such an eventuality. The court reversed the grant of summary judgment to Savoy, finding that a trial was needed to determine if there was an implied promise.

    Facts

    407 East 61st Garage, Inc. (Garage) and Savoy Fifth Avenue Corporation (Savoy) entered into a five-year agreement beginning October 1, 1963. The Garage was to provide parking services to guests of the Savoy Hilton Hotel. The Garage bore the responsibility for billing, collections, and any damage to vehicles. Savoy agreed to use reasonable efforts to give the Garage the exclusive right to store hotel guests’ vehicles. In exchange, the Garage paid Savoy 10% of the transient storage charges incurred by hotel guests. In late June 1965, Savoy ceased operating the hotel due to substantial financial losses, demolishing the building and erecting an office building on the site.

    Procedural History

    The Garage sued Savoy for breach of contract. The Supreme Court, New York County, denied the Garage’s motion for summary judgment and granted Savoy’s cross-motion for summary judgment, holding that the agreement was a requirements contract and Savoy ceased operations in good faith. The Appellate Division affirmed without opinion. The Garage appealed to the New York Court of Appeals.

    Issue(s)

    Whether Savoy’s closure of its hotel due to financial difficulties excused its performance under the contract with the Garage.

    Holding

    No, because economic hardship generally does not excuse contractual performance, and there was an issue of fact as to whether the agreement contained an implied condition that Savoy would remain in the hotel business for the contract’s duration.

    Court’s Reasoning

    The court reasoned that the agreement was not a "requirements" contract but more akin to a license or franchise. The critical issue was whether the agreement implied an obligation for Savoy to remain in the hotel business. The court cited precedent that a promise to remain in business can be implied, especially when the promisee has undertaken obligations in reliance on the promisor’s continued activity. The Garage may have incurred ongoing responsibilities based on the contract’s term. Savoy’s argument that the Garage was aware of the hotel’s financial difficulties before signing the agreement was not sufficient to conclude that the contract implied a conditional termination. The court also noted the absence of a termination clause related to the hotel’s closure. Regarding the defense of impossibility of performance, the court emphasized that financial difficulty or economic hardship does not excuse performance. The court stated, “Generally, however, the excuse of impossibility of performance is limited to the destruction of the means of performance by an act of God, vis major, or by law.” Since Savoy’s performance was possible, although unprofitable, the legal excuse of impossibility did not apply. The court also rejected the argument of frustration of purpose because the purpose of providing garage services to hotel guests was frustrated only because Savoy made a business decision to close the hotel. The court held that “the applicable rules do not permit a party to abrogate a contract, unilaterally, merely upon a showing that it would be financially disadvantageous to perform it; were the rules otherwise, they would place in jeopardy all commercial contracts.” The court modified the order by denying Savoy’s cross motion for summary judgment.