Statute of Frauds Bars Claim for Fee in Connection with Finding a Business Opportunity

On March 27, 2019, the Second Department issued a decision in Best Global Alternative, Ltd. v. FCIC Constr. Servs., Inc., 2019 NY Slip Op. 02308, holding that the Statute of Frauds barred a claim for a fee in connection with finding a business opportunity, explaining:

Pursuant to General Obligations Law § 5-701(a)(10), an agreement or some note or memorandum thereof must be in writing and subscribed by the party to be charged therewith, where the agreement is to pay compensation for services rendered in negotiating a loan, or in negotiating the purchase, sale, exchange, renting or leasing of any real estate or interest therein, or of a business opportunity, business, its good will, inventory, fixtures or an interest therein. The statute defines negotiating to include the act of procuring an introduction to a party to the transaction or assisting in the negotiation or consummation of the transaction.

Here, the defendants established, prima facie, that the purported agreements were for the negotiation of a business opportunity. Accordingly, the agreement was required to be in writing and subscribed by the party to be charged. The defendants established that the alleged agreements failed to comply with these requirements.

In opposition, the plaintiff failed to raise a triable issue of fact. Contrary to the plaintiff's contention, the exception to the statute of frauds for part performance has not been extended to General Obligations Law § 5-701. Therefore, any evidence tending to show partial performance would not obviate the requirement of a written agreement. The plaintiff also argues that the agreement was for a joint venture. The plaintiff improperly raises this contention for the first time on appeal. Contrary to the further contention of the plaintiff, the record does not show that the defendants made an admission to the existence of the purported agreement so as to take the agreement out of the statute of frauds.

The plaintiff failed to raise a triable issue of fact as to whether the alleged agreements satisfied the requirements of General Obligations Law § 5-701(a)(10). To satisfy the statute of frauds, a memorandum, subscribed by the party to be charged, must designate the parties, identify and describe the subject matter, and state all the essential terms of a complete agreement. Here, the plaintiff submitted a handwritten memorandum by Cristo. That memorandum merely set forth a list of payments or prospective payments to be made by the hospital to FCIC, on certain dates; the memorandum did not refer to any agreement between the plaintiff and FCIC, and the memorandum was not subscribed by Cristo or any representative of FCIC. The plaintiff also submitted a certain $50,000 check issued to it by FCIC. However, that check contained no notation referring to the subject project or purported agreement, and the mere fact that this check may have been issued after a payment was made by the hospital to FCIC does not demonstrate the existence of an agreement. Taken together, the handwritten memorandum and check fail to raise a triable issue of fact as to the existence of writings that would satisfy the statute of frauds.

(Internal quotations and citations omitted).

Contract law--usually straightforward--has traps for the unwary, like the requirement that some contracts be in writing (the statute of frauds). And as this decision shows, there are ways to escape from those traps, but the exceptions are narrow and, as shown here, difficult to meet. Contact Schlam Stone & Dolan partner John Lundin at jlundin@schlamstone.com if you or a client face a situation where you are unsure how to enforce rights you believe you have under a contract.