Commercial Division Blog
Posted: July 19, 2014 / Categories Commercial, Contracts
Agreement Lacking Formula for Computing Compensation not Void for Indefiniteness
On July 9, 2014, Justice Scarpulla of the New York County Commercial Division issued a decision in Basu v. Alphabet Management LLC, 2014 NY Slip Op. 31807(U), holding that an alleged oral employment agreement was not unenforceably vague because it lacked a formula for calculating the plaintiff's compensation.
In Basu, the defendant moved to dismiss the plaintiff's claim for breach of contract on multiple grounds, including that it was void for indefiniteness. The trial court denied the motion, explaining:
The defendants also argue that the oral contract, even if it existed, is void for indefiniteness because no formula was agreed upon on how to calculate the percentage of profits allegedly owed to [the plaintiff]. However, issues of fact remain as to the terms of the alleged oral contract, and those terms may have been sufficiently definite to be enforceable. A price term is not necessarily indefinite because it contains no computational formula. On the contrary, a price term may be considered sufficiently definite if it can be ascertained by reference to an extrinsic event, commercial practice, or trade usage. The calculation of profits, and [the plaintiff's] share of the profits, may be ascertainable by reference to the hedge fund's own practice of calculating the profits owed to its traders, or by commercial practice in the industry. At his deposition, Adler testified that the profits and losses for all traders were calculated independently by the firm's administrator, and that it was common for traders to receive a set percentage of the profits. Because the
calculation of profits may be obtainable by reference to an objective standard, the alleged contract may not be void for indefiniteness. Before rejecting an agreement as indefinite, a court must be satisfied that the agreement cannot be rendered reasonably certain by reference to an extrinsic standard that makes its meaning clear. The conclusion that a party's promise should be ignored as meaningless is at best a last resort.
(Internal quotations and citations omitted) (emphasis added).