New York Law Review

Tag: oral contract

  • Ryan v. Kellogg Partners Institutional Services, 19 N.Y.3d 1 (2012): Enforceability of Oral Agreements for Bonuses

    19 N.Y.3d 1 (2012)

    An oral agreement for a guaranteed bonus is enforceable, even for an at-will employee, if the agreement is supported by consideration and capable of being performed within one year, and an employee can recover attorney fees if the unpaid bonus qualifies as “wages” under Labor Law § 190(1).

    Summary

    Daniel Ryan left his job at a brokerage firm to join Kellogg Partners, allegedly based on an oral promise of a $175,000 salary and a $175,000 guaranteed bonus. After joining, Ryan signed an employment application and received an employee handbook stating his employment was at-will and that benefits were not guaranteed. Kellogg failed to pay the bonus, and later fired Ryan. Ryan sued for breach of contract and violation of New York Labor Law. The jury found in favor of Ryan on the breach of contract claim. The Court of Appeals affirmed, holding that the oral agreement was enforceable because it was supported by consideration and capable of being performed within a year, and the bonus constituted “wages” under the Labor Law, entitling Ryan to attorney’s fees.

    Facts

    Daniel Ryan was recruited by Kellogg Partners, a new broker-dealer, in early 2003. Ryan stated he wanted a $350,000 package to change jobs. Kellogg’s managing partner allegedly agreed to a $175,000 salary and a $175,000 guaranteed bonus. Ryan accepted the offer and started on July 14, 2003. Prior to starting, on June 21, 2003, Ryan signed an employment application acknowledging his at-will employment status and lack of guaranteed compensation. On February 18, 2004, he signed a receipt for Kellogg’s employee handbook, reiterating the at-will nature of his employment. Kellogg did not pay the bonus. In February 2004, Kellogg’s managing partner allegedly asked Ryan to defer the bonus to 2004, which Ryan reluctantly agreed to. Ryan was fired on February 8, 2005, after rejecting a $20,000 bonus offer. Kellogg filed a negative U-5 form alleging Ryan was terminated for cause, namely insubordination and disparagement.

    Procedural History

    Ryan sued Kellogg for failure to pay wages and breach of contract. The Supreme Court held a jury trial, which found Kellogg had breached an oral agreement to pay Ryan a guaranteed bonus, but did not find that the failure to pay was willful. Kellogg moved for judgment notwithstanding the verdict or a new trial, arguing the oral agreement was unenforceable under the Statute of Frauds and related provisions of the General Obligations Law. Supreme Court denied Kellogg’s motion. The Appellate Division affirmed. Kellogg appealed to the Court of Appeals based on a two-Justice dissent.

    Issue(s)

    1. Whether the statements in the employment application and employee handbook negated Ryan’s expectation of, or entitlement to, a guaranteed bonus.

    2. Whether the oral agreements regarding the bonus were unenforceable because they were not in writing, as required by the General Obligations Law.

    3. Whether Ryan was entitled to attorney’s fees pursuant to Labor Law § 198(1-a).

    Holding

    1. No, because the employment application and employee handbook only confirmed Ryan’s at-will status and did not explicitly negate the possibility of a guaranteed bonus.

    2. No, because the oral agreements were supported by consideration and capable of being performed within one year, and therefore did not fall within the scope of the Statute of Frauds.

    3. Yes, because Ryan’s bonus was expressly linked to his labor, making it “wages” under Labor Law § 190(1), entitling him to attorney’s fees.

    Court’s Reasoning

    The Court reasoned that the employment application and employee handbook only addressed Ryan’s at-will status, not whether he was entitled to the promised bonus. The Court distinguished the case from others where written contracts or handbooks explicitly vested discretion in the employer regarding bonus amounts. The Court found that Ryan’s testimony, which the jury clearly believed, established that the bonus was a guaranteed part of his compensation package. As such, the signed documents did not bar Ryan’s recovery.

    The Court addressed Kellogg’s Statute of Frauds defense, noting that the oral agreement was supported by consideration (Ryan leaving his old job and continuing to work at Kellogg) and could be performed within one year. Therefore, the General Obligations Law sections requiring a signed writing did not apply. The court noted that “[a]s long as (an) agreement may be fairly and reasonably interpreted such that it may be performed within a year (of its making), the Statute of Frauds will not act as a bar however unexpected, unlikely, or even improbable that such performance will occur during that time frame”.

    Finally, regarding attorney’s fees, the Court distinguished Truelove v. Northeast Capital & Advisory, where the bonus was discretionary and not directly linked to the employee’s performance. Here, Ryan’s bonus was tied to his work as a floor broker, making it “wages” under the Labor Law. The court noted “[u]nlike the situation in Truelove, Ryan’s bonus was “expressly link[ed]” to his “labor or services personally rendered” namely, his work as a floor broker for Kellogg.” Thus, Kellogg’s failure to pay entitled Ryan to attorney’s fees.

  • Sheehy v. Clifford Chance Rogers & Wells, 3 N.Y.3d 585 (2004): Statute of Frauds and Oral Promises of Retirement Benefits

    3 N.Y.3d 585 (2004)

    An oral agreement to provide retirement benefits that extend beyond one year is unenforceable under the Statute of Frauds unless there is a written agreement subscribed by the party to be charged.

    Summary

    John Sheehy, a former partner at Rogers & Wells (later Clifford Chance Rogers & Wells), sued the firm for breach of contract, alleging he was wrongfully denied retirement benefits (SRPs) promised orally in exchange for early retirement. The firm argued the Statute of Frauds barred the claim because the agreement wasn’t in writing and performance extended beyond one year. The Court of Appeals held that the oral agreement was indeed barred by the Statute of Frauds, reversing the Appellate Division’s decision and reinstating the Supreme Court’s dismissal of the complaint because the firm’s obligation to make payments began five years after Sheehy’s retirement and extended until his death.

    Facts

    Sheehy was a partner at Rogers & Wells. The firm’s retirement plan provided different benefits for early (ages 60-64), normal (age 65), and mandatory (age 70) retirement. Early retirees received less, specifically no supplemental retirement payments (SRPs), unless the Executive Committee made a written exception. In December 1994, the firm asked Sheehy to resign, effective January 1, 1996. Sheehy claimed James Asher of the Executive Committee orally promised him the full retirement benefits, including SRPs, in exchange for his resignation. Sheehy, then 57, retired as senior counsel and received the four-year payout from 1996-1999, but the firm later refused to pay SRPs.

    Procedural History

    Sheehy sued for breach of contract, unjust enrichment, and breach of fiduciary duty. The firm raised the Statute of Frauds as a defense. Supreme Court granted the firm’s motion for summary judgment, dismissing the complaint. The Appellate Division modified, reinstating the breach of contract claim (except for future payments) and dismissing the firm’s Statute of Frauds defense. The Court of Appeals reversed the Appellate Division and reinstated the Supreme Court’s order dismissing the complaint.

    Issue(s)

    Whether an oral agreement promising retirement benefits, including supplemental retirement payments (SRPs) beginning five years after retirement, is barred by the Statute of Frauds where there is no written agreement authorizing such payments.

    Holding

    Yes, because the Statute of Frauds requires a written agreement for any contract that cannot be performed within one year. Here, the alleged oral agreement promised SRPs beginning five years after retirement and continuing for life, which is beyond the one-year limit.

    Court’s Reasoning

    The Statute of Frauds (General Obligations Law § 5-701(a)(1)) requires a written contract for agreements not performable within one year to prevent fraud. The court reasoned that Sheehy conceded no written agreement existed for SRPs and that payments wouldn’t begin until five years after his retirement. Sheehy’s reliance on Kane v. Rodgers, where an oral agency agreement was deemed enforceable despite stock transfers extending beyond one year, was misplaced. In Kane, the acts beyond a year concerned enforcing rights under a written agreement, not the oral agreement itself. Here, Sheehy had no right to SRPs under the written partnership documents. The court stated, “[U]nder the retirement plan, a partner taking early retirement is not entitled to receive SRPs unless the early retirement was made at the specific written request of the Executive Committee.” The oral promise to provide SRPs was a separate agreement, requiring a writing to be enforceable. The court rejected the Appellate Division’s theory that the parties could orally “deem” a written request to exist, finding no basis for this in the complaint or the agreement. The court concluded that absent a written agreement, the Statute of Frauds barred Sheehy’s claim.

  • Cron v. Hargro Fabrics, Inc., 91 N.Y.2d 362 (1998): Statute of Frauds and Bonus Agreements

    Cron v. Hargro Fabrics, Inc. 91 N.Y.2d 362 (1998)

    An oral agreement to pay a bonus based on a percentage of a company’s annual pre-tax profits is not automatically barred by the Statute of Frauds simply because the calculation occurs after one year, if the employment itself is terminable at will.

    Summary

    Cron sued Hargro Fabrics, alleging breach of an oral agreement for a bonus based on 20% of annual pre-tax profits, in addition to his base salary matching the president’s. Hargro moved to dismiss based on the Statute of Frauds, arguing the bonus calculation couldn’t be completed within one year. The Court of Appeals reversed the Appellate Division’s dismissal, holding that because Cron’s employment was at-will, the agreement could be performed within a year, even if the bonus calculation extended beyond that timeframe. The court reasoned that the key is whether the contractual relationship, not merely a calculation of compensation, necessarily extends beyond a year.

    Facts

    Cron was employed by Hargro Fabrics for 13 years until January 1996. He alleged an oral agreement with Hargro, stipulating that in addition to his annual salary, he would receive a bonus equal to 20% of Hargro’s annual pre-tax profits. Cron claimed that Hargro failed to pay him the proper share of the profits and that the company president received a much higher salary. The alleged agreement was reached through annual discussions where anticipated profits were estimated, and Cron received monthly payments toward the bonus based on these estimations. Cron affirmed his at-will employment status, stating that if his employment ended mid-year, his bonus would be calculated only up to his termination date.

    Procedural History

    The Supreme Court denied Hargro’s motion to dismiss. The Appellate Division reversed, granting the motion and dismissing the complaint, reasoning the amount owing was not ascertainable or payable before the year’s end and the contract imposed obligations exceeding one year, even if employment ended sooner. The Court of Appeals granted leave to appeal.

    Issue(s)

    Whether an oral agreement to pay a bonus based on a percentage of annual pre-tax profits, where the employment is at-will, falls within the Statute of Frauds and is unenforceable if the bonus calculation extends beyond one year from the agreement’s making.

    Holding

    No, because when the employment relationship is terminable within a year, and the compensation measure is fixed and earned within that period, the obligation to calculate that compensation does not bring the contract under the Statute of Frauds’ one-year proscription.

    Court’s Reasoning

    The Court of Appeals emphasized that the Statute of Frauds applies only to contracts that have absolutely no possibility of full performance within one year. Since Cron’s employment was at-will, it could be terminated by either party at any time. The court distinguished cases where the obligation to pay commissions extended indefinitely based on business relationships initiated during employment, as in Martocci v. Greater N.Y. Brewery, 301 N.Y. 57 (1950). The court cited Nat Nal Serv. Stas. v Wolf, 304 N.Y. 332 (1952), emphasizing that contracts terminable within a year do not fall under the Statute of Frauds. The Court found persuasive the reasoning in Rifkind v. Web IV Music, 67 Misc.2d 26 (1971), which held that the mere calculation of a bonus after termination relates to past performance and doesn’t create new obligations. The court acknowledged conflicting Appellate Division rulings but adopted the reasoning that the bonus calculation method does not determine the contract’s duration. The court reinforced the purpose of the Statute of Frauds, which is to prevent fraud, not to allow the evasion of just obligations. The court stated that “when the employment relationship is terminable within a year and the measure of compensation has become fixed and earned during the same period, the sole obligation to calculate such compensation will not bring the contract within the one-year proscription of the Statute of Frauds.” The court also noted that even if the Statute of Frauds were applicable, Cron’s allegations raise a factual question as to whether complete performance by all parties was possible within a year.

  • Ryan Ready Mixed Concrete Corp. v. Coons, 61 N.Y.2d 859 (1984): Statute of Frauds and Jury Instructions on Contract Terms

    Ryan Ready Mixed Concrete Corp. v. Coons, 61 N.Y.2d 859 (1984)

    A new trial is required when a trial court fails to properly instruct the jury on a potentially dispositive legal precept, such as the Statute of Frauds, regarding a disputed contract term.

    Summary

    Ryan Ready Mixed Concrete Corp. sued the Coons for breach of an oral contract for house construction. The core dispute involved a potential one-year warranty. The trial court’s jury instructions lacked guidance on the Statute of Frauds regarding this warranty. The jury found for Ryan, but the Court of Appeals reversed, holding that the failure to instruct the jury on the Statute of Frauds regarding the warranty provision necessitated a new trial. The court also emphasized the need for definitive jury instructions concerning the proper measure of damages.

    Facts

    Ryan and the Coons orally agreed on a $90,000 fee for house construction, a payment schedule, and a completion date. They also agreed on a cost-plus basis for payment. A key point of contention was whether they agreed to a one-year warranty as part of the contract. Also disputed was whether the $90,000 fee was contingent on Ryan completing the house and whether it represented overhead and profit or just net profit. Before construction began, the Coons hired another contractor.

    Procedural History

    Ryan sued the Coons for breach of contract and won at trial. The Appellate Division affirmed the trial court’s decision in a 3-2 decision. The Coons then appealed to the New York Court of Appeals as of right.

    Issue(s)

    1. Whether the trial court erred in failing to instruct the jury on the Statute of Frauds concerning the disputed one-year warranty provision.
    2. Whether the jury instructions on damages were sufficient, considering the cost-plus nature of the alleged contract and the potential overlap between the contract fee and overhead expenses.

    Holding

    1. Yes, because the trial court failed to apprise the jury of the legal precept of the Statute of Frauds, which could have determined the enforceability of the oral contract, particularly if the jury found that the parties agreed to a one-year warranty that could not be completed within one year.
    2. No, because the jury instructions lacked definitive guidance on calculating damages, especially concerning overhead and anticipated profit under the cost-plus contract, mandating that a new trial include precise instructions on this matter.

    Court’s Reasoning

    The Court of Appeals reasoned that the trial court must state the law relevant to the facts. The failure to instruct the jury on the Statute of Frauds, given the dispute over the warranty, was a critical error. If the jury had found a one-year warranty existed, the contract would have been unenforceable under the Statute of Frauds because it couldn’t be completed within one year. The court quoted Moore v. New York El. R. R. Co., 130 N.Y. 523 to emphasize the importance of complete and clear jury instructions. The court also addressed the damage calculation, stating that “plaintiff bears the burden of proving the extent of the harm suffered”. The court cited Berley Indus., v City of New York, 45 N.Y.2d 683, 686, and emphasized that while damages may be uncertain, there must be a reasonable connection between proof and the damage determination. The court referenced Rosen v. Equitable Paper Bag Co., 286 N.Y. 410, 418, to explain that the proper measure of damages for a contractor is expectancy damages. The court clarified that overhead expenses are recoverable only if they resulted from the breach. The court further explained that the jury should be instructed to only award the anticipated profit or full contract price less the cost of performance.

  • Weir Metro Ambu-Service, Inc. v. Turner, 57 N.Y.2d 911 (1982): Requirements for Pleading Fraud and Enforceability of Oral Contracts with Medical Facilities

    Weir Metro Ambu-Service, Inc. v. Turner, 57 N.Y.2d 911 (1982)

    To state a claim for fraud, a plaintiff must plead scienter and deceit; contracts with medical facilities that have operating certificates must be in writing; and punitive damages cannot be sought as a separate cause of action.

    Summary

    Weir Metro Ambu-Service sued Sophia Turner, alleging fraud, breach of an oral contract, and entitlement to punitive damages. The New York Court of Appeals affirmed the lower court’s dismissal of all claims. The court held that the fraud claim lacked the necessary elements of scienter and deceit, the oral contract was unenforceable under state regulations requiring written agreements for services to medical facilities, and punitive damages cannot be a standalone cause of action.

    Facts

    Weir Metro Ambu-Service, Inc. (plaintiff) provided ambulance services. They sued Sophia Turner (defendant) based on alleged fraud relating to an oral agreement. The specific details of the alleged fraudulent statements and the oral agreement are not provided in the memorandum opinion, but they form the basis of the plaintiff’s claims.

    Procedural History

    The lower court dismissed all three causes of action brought by Weir Metro Ambu-Service. The Appellate Division affirmed the lower court’s decision. The New York Court of Appeals reviewed the case and affirmed the Appellate Division’s order.

    Issue(s)

    1. Whether the plaintiff’s first cause of action sufficiently alleged the elements of scienter and deceit necessary to state a claim for fraud.

    2. Whether the plaintiff’s second cause of action, based on an oral agreement to perform services for a medical facility, is enforceable given the regulatory requirement for such contracts to be in writing.

    3. Whether punitive damages can be sought as a separate cause of action.

    Holding

    1. No, because the plaintiff failed to allege either the elements of scienter or deceit, both of which are essential to a cause of action for fraud.

    2. No, because the oral agreement contravened the requirement that contracts to perform services for a medical facility with an operating certificate be in writing.

    3. No, because punitive damages may not be sought as a separate cause of action.

    Court’s Reasoning

    The court’s reasoning for each holding is as follows:

    1. The court stated that a fraud claim requires the pleading of both scienter (knowledge of falsity) and deceit (intent to induce reliance). The plaintiff’s first cause of action failed to adequately allege these elements. The court cited 24 NY Jur, Fraud and Deceit, § 140, as authority for the required elements of fraud.

    2. The court emphasized that 10 NYCRR 400.4(a)(1) mandates that contracts for services to medical facilities with operating certificates be in writing. Because the plaintiff’s second cause of action was based on an oral agreement, it was unenforceable. The court cited Tooker v Inter-County Tit. Guar. & Mtge. Co., 295 N.Y. 386, as precedent, although the relevance of this case isn’t explicitly explained in the memorandum.

    3. The court held that punitive damages are not a standalone cause of action but are instead incidental to other causes of action. The court cited Trans-State Hay & Feed Corp. v Faberge, Inc., 42 AD2d 535, affd 35 N.Y.2d 669, as authority. The court provides no further elaboration.

  • Kornblum Metals Co. v. Intsel Corp., 38 N.Y.2d 376 (1975): Enforceability of Arbitration Clauses in Oral Contracts

    Kornblum Metals Co. v. Intsel Corp., 38 N.Y.2d 376 (1975)

    An arbitration clause included in a written purchase order can be enforced when the evidence supports a finding that the oral contract between the parties included an agreement to arbitrate.

    Summary

    Kornblum Metals Co. (seller) sought to stay arbitration demanded by Intsel Corp. (purchaser) regarding a zinc sales agreement. The dispute arose after the seller failed to deliver the zinc. The purchaser claimed the oral agreement included an arbitration clause detailed in a purchase order. The New York Court of Appeals held that there was sufficient evidence for the jury to find that the oral contract included the arbitration provision, emphasizing the parties’ prior dealings, industry custom, and the seller’s acknowledgment of the purchase order with the arbitration clause when requesting a payment modification. The court affirmed the denial of the stay of arbitration.

    Facts

    The seller and purchaser had a 15-year business relationship. On September 21, 1973, they orally agreed to the sale of 250 tons of zinc at 32 cents per pound. The purchaser sent a purchase order containing an arbitration clause to the seller. On September 24, the parties reaffirmed the agreement, and the seller requested a modification to the payment terms but made no objection to the arbitration provision. The seller later failed to deliver the zinc as agreed, leading the purchaser to initiate arbitration proceedings.

    Procedural History

    The seller initiated a proceeding in Supreme Court to stay arbitration and vacate the demand for arbitration. The Supreme Court ordered a trial on all issues. A jury found for the purchaser, denying the stay of arbitration. The Appellate Division affirmed the Supreme Court’s judgment. The seller then appealed to the New York Court of Appeals.

    Issue(s)

    Whether there was sufficient evidence to support the jury’s finding that the oral contract between the seller and purchaser included an agreement to submit disputes to arbitration.

    Holding

    Yes, because there was sufficient evidence for the jury to conclude that the arbitration provision in the purchase order was a term of the oral contract made by the parties.

    Court’s Reasoning

    The court held that the jury was entitled to find that the oral contract, confirmed on September 24, included the arbitration clause set forth in the purchase order. The court emphasized the parties’ prior course of dealing, where similar purchase orders containing arbitration provisions had been used. The seller’s confirmation of the agreement while having the purchase order, including the arbitration clause, in front of him, and only requesting a modification as to payment terms, suggested an acceptance of all other terms, including arbitration. The court stated, “This is not an instance in which it was sought, subsequent to the completion of the contract, to add an arbitration provision as an additional term to a pre-existing contract. The jury was certainly entitled on this record to conclude that the arbitration provision was one of the terms of the contract when initially made by the parties.” The court further noted that the seller’s requested jury instruction, that mere receipt of a purchase order with an arbitration clause is insufficient to establish an agreement to arbitrate, was an inaccurate analysis of the legal issues presented in this case, as it failed to account for the specific evidence and circumstances. Therefore, the court affirmed the order denying the stay of arbitration.

  • Tymon v. Linoki, 16 N.Y.2d 296 (1965): Oral Acceptance of Written Offer & Executor’s Deed Requirements

    Tymon v. Linoki, 16 N.Y.2d 296 (1965)

    An oral acceptance of a written offer to sell land can create a binding contract enforceable by specific performance, and when a vendor is acting as an executor, the vendor is only required to convey the land by an ordinary executor’s deed.

    Summary

    Tymon sued Linoki for specific performance of a land sale contract. Linoki sent Tymon a letter offering to sell land for $3,500. Tymon orally accepted the offer. Linoki later tried to sell to Hayes. The trial court ordered Linoki to convey the property via a “Full Covenant and Warranty Deed.” The Appellate Division modified this, ordering a deed free of encumbrances with specific statutory covenants. The Court of Appeals held that Tymon’s oral acceptance created a binding contract, but Linoki, acting as an executor, only needed to provide an ordinary executor’s deed.

    Facts

    Linoki sent a letter to Tymon on August 22, 1960, offering to sell three lots for $3,500.
    A virtually identical letter was sent to Ledogar, a broker.
    Tymon testified he orally accepted Linoki’s offer during a phone conversation shortly after receiving the letter.
    Linoki gave Tymon his attorney’s contact information to arrange a formal contract.
    Due to delays, Tymon sent a letter on September 10, 1960, reaffirming his acceptance and including a deposit check.
    Hayes accepted the offer made to Ledogar on September 9, sending a deposit check to Linoki’s attorney.
    Linoki’s attorney returned Tymon’s check on September 21, stating Linoki had a prior acceptance.
    Linoki and Hayes signed a formal written contract on September 24.

    Procedural History

    The trial court ruled in favor of Tymon, ordering specific performance with a “Full Covenant and Warranty Deed.”
    The Appellate Division modified the judgment, specifying a deed free of encumbrances with certain statutory covenants.
    Linoki appealed to the Court of Appeals.

    Issue(s)

    Whether an oral acceptance of a written offer to sell real property constitutes a binding contract enforceable through specific performance.
    Whether an executor selling property is required to provide more than an ordinary executor’s deed.

    Holding

    Yes, because a binding contract is formed by an oral acceptance of a satisfactory written offer, provided the writing contains all essential terms and the parties intend to be bound.
    No, because when acting as an executor, the seller is obligated only to provide a deed conveying the title the testator had at the time of death, which is satisfied by an ordinary executor’s deed.

    Court’s Reasoning

    The Court of Appeals found ample evidence to support that a binding contract was created when Tymon orally accepted Linoki’s written offer. The Court cited cases like Marat Corp. v. Abrams, 15 N.Y.2d 1002 (1965) which affirmed the validity of contracts formed by oral acceptance of written offers. The court distinguished other cases cited by the appellants, noting that in those cases, the parties did not intend to be bound until a formal contract was signed.
    Regarding the type of deed required, the court referenced Burwell v. Jackson, 9 N.Y. 535 (1854), clarifying that while an agreement to sell implies an understanding to provide good title, it doesn’t necessarily require specific warranties unless expressly stated. Citing Bostwick v. Beach, 103 N.Y. 414 (1886), the Court reasoned that when the seller acts as an executor, the obligation is only to convey the title the testator possessed at the time of death, thus requiring only an executor’s deed.
    The Court emphasized that its holding aligned with established precedent, ensuring executors are not unduly burdened with personal liability beyond the scope of their fiduciary duties. As such, “the order of the Appellate Division should be affirmed with the exception of a modification requiring that the property be conveyed to the plaintiff by an executor’s deed in the ordinary form.”