It is a core concept of the law that oral contracts are mostly unenforceable. The law demands certainty and oral agreements usually don’t fit the bill unless an exception is available. Exceptions typically require partial performance of the contract in relation to some definitive contract provision. For example, “if you do this, I’ll give you that, but we’ll work out the details later.” These “agreements to agree” are generally unenforceable for lack of definitive contract terms. The recent decision in A. Brooke Christian v. Transperfect Global, Inc. et al., Case No. 17-cv-5554 (PKC), out of the Southern District of New York sheds some light on the enforceability of oral contracts.
In Christian, the two partners of the corporate defendants – who were involved in a personal dispute between them that threatened the continued viability of the corporation – promised the Plaintiff, a 20-year employee, a 10% equity share in the company “within a matter of months” if he continued his employment to help stave off the partners’ personal dispute. The promise was allegedly made on multiple occasions. In exchange for the promised equity, the plaintiff “remained in his roles at TPT from the January 2014 meeting until October 2016,” “took on additional management responsibilities during this period, “ “ensured the retention of senior employees and major clients despite the public nature of the dispute between” the partners, “because of the promise, he did not seek additional compensation for performing additional duties at TPT, “ and “the promise caused him to prioritize the company’s well-being over his commissions and to forfeit an opportunity to “cash out of the . . . phantom stock program.”
The Defendants’ motion to dismiss the breach of contract claim was denied. “In the case of a promise for equity in a business, the promise must convey the nature of the obligation, including the amount, the timing, and the source of payment.” Christian citing Scarpinato v. 1770 Inn, LLC, 13 cv 0955 (JS) (SIL), 2015 WL 4751656, at *4 (E.D.N.Y. Aug. 11, 2015) (Seybert, J.) and others. Here, the court held the “alleged promise conveyed: (i) the nature of the obligation: a 10% equity stake or its cash equivalent constituting 10% of shareholder value; (ii) the timing of the promise: within a matter of months, (ii) and the source of the payments: with equal contributions from” the two partners. In these circumstances, the court held the promise of a 10% equity stake was not unenforceable for indefiniteness.
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