Commercial Division Blog
Oral Agreement to Create a Joint Venture not Barred by Statute of Fraud
On December 2, 2015, Justice Scarpulla of the New York County Commercial Division issued a decision in Lebedev v. Blavatnik, 2015 NY Slip Op 51770(U), ruling that the statute of frauds did not bar an oral agreement to create a joint venture or an oral investment agreement establishing the plaintiff's interest in the joint venture. As the court explained, the purpose of the statute of frauds – codified in New York in General Obligations Law § 5-701 – "is to prevent a party from being held responsible, by oral, and perhaps false, testimony, for a contract that the party claims never to have made." At issue in Lebedev was Section 5-701(a)(1) of the statute, which provides that an agreement that "'is not to be performed within one year from the making' must be in writing. An oral contract is deemed to be incapable of performance within one year if the contract has absolutely no possibility in fact and law of full performance within one year."
Although the alleged oral contracts at issue in the case were of potentially indefinite duration, each were subject to an earlier termination at any time. Therefore, Justice Scarpulla found the contracts were potentially capable of performance within a year and were not precluded by the statute of frauds. The court explained:
The defendants argue that the alleged oral agreement is incapable of being performed within one year because it provided that payments would be made to Lebedev for an indefinite period of time. While the alleged agreement contemplated that payments on the promissory note could be made to Lebedev beyond one year, it is entirely possible that the contract could be fully performed and terminated within one year. The agreement granted each of the parties the right to buy out any other party at any time, and therefore the agreement does not fall within the Statute of Frauds because it is capable of performance within one year.
The defendants further rely on the Statute of Frauds in arguing that the joint venture claim should be dismissed. However, the statute of frauds is generally inapplicable to an agreement to create a joint venture. This is because, absent any definite term of duration, an oral agreement to form a partnership or joint venture for an indefinite period creates a partnership or joint venture at will. Lebedev's joint venture claim is not barred by the Statute of Frauds, nor is the fiduciary duty claim which is predicated on the existence of a joint venture between the parties.