Commercial Division Blog
Oral Agreement to Sell Securities Enforceable Even if it Cannot Be Performed Within a Year
On March 19, 2019, Justice Sherwood of the New York County Commercial Division issued a decision in Hill v. Full 360 Inc., 2019 NY Slip Op. 30718(U), holding that an oral agreement to sell securities was enforceable even if it could not be performed within a year, explaining:
Defendants' statute of frauds argument lacks merit. In arguing that a contract for the sale of securities must be in writing, defendants rely on case law citing to a former section 8-319 of the Uniform Commercial Code, which stated that a contract for the sale of securities is not enforceable unless there is some writing. That section was repealed, effective October 10, 1997, and was replaced by section 8-113, which provides: A contract or modification of a contract for the sale or purchase of a security is enforceable whether or not there is a writing signed or record authenticated by a party against whom enforcement is sought, even if the contract or modification is not capable of performance within one year of its making.
Here, the alleged agreement constitutes a contract for the sale or purchase of a security. Therefore, pursuant to UCC § 8-113, it is enforceable whether or not it is in writing.
Defendants also contend that General Obligations Law§ 5-701(a)(l) bars the enforcement of the alleged contract. That section provides that an agreement which by its terms is not to be performed within one year from the making thereof is not enforceable unless there is a written memorandum thereof signed by the party to be charged. However, UCC § 8-113 provides with respect to the sale of securities that such an agreement is enforceable whether or not it is in writing and even if it is not capable of performance within one year of its making.
Even assuming GOL, § 5-701 (a)(l) is applicable here, the Court of Appeals has long interpreted GOL, § 5-701 (a)(l) to encompass only those contracts which, by their terms, have absolutely no possibility in fact and law of full performance within one year. Here, the purported promise that Hill would be permitted to purchase a 30% equity stake in the company was capable of being fulfilled within one year. The purported agreement does not call for performance within any particular time span or schedule. Therefore, it is possible for the stocks to have been purchased/sold within one year.
In arguing that the promise is subject to the statute of frauds, defendants rely on D'Esposito v Gusrae, Kaplan & Bruno PLLC. In that case, the court found that plaintiffs causes of action for promissory estoppel, specific performance, and breach of contract, all based on a purported promise by defendants to make plaintiff a full partner/member of the defendant law firm, were barred by GOL, § 5-701 (a)(l). The court noted that irrespective of whether plaintiff might have become a partner within one year, he claimed that his right to a membership/partnership was to have continued indefinitely and even after he left the firm. The oral agreement he relied on thus called for performance of indefinite duration and was terminable within a year of its inception only by its breach and was thus barred by the statute of frauds. Defendants' reliance on D'Esposito is misplaced because that case does not involve a promise to create a partnership, but rather a purported promise that plaintiff would have the right to acquire 30% of the shares in a corporation.
(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. Contact Schlam Stone & Dolan partner John Lundin at email@example.com if you or a client face a situation where you are unsure how to enforce rights you believe you have under a contract.