Commercial Division Blog

Posted: October 20, 2023 / Written by: Jeffrey M. Eilender, Samuel L. Butt, Seth D. Allen, Joshua Wurtzel, Channing J. Turner /

Contract Sufficiently Definite Despite Requiring Fees To Be “Mutually-Agreed Upon”

On September 6, 2023, Justice Joel M. Cohen of the New York County Commercial Division issued a decision in Daiwa Corporate Advisory LLC v. Katapult Group, Inc., Index No. 652164/2021, holding that a right of first refusal giving plaintiff the right to act as exclusive financial advisor to defendant was sufficiently definite so as to be enforceable, because even though the fees to be paid were to be “mutually-agreed upon,” these fees were also to be “customary and based upon similar transacrions and practices in the investment banking industry,” explaining:

In its First Cause of Action, Daiwa alleges that Katapult breached the Letter Agreement by refusing and/or failing to "extend [Daiwa] the opportunity to exercise its right of first refusal in connection with the 2020 Sale ... and the 2020 Private Financing" (id. at ,i 42). Section 4(c) of the Letter Agreement states,

"[Katapult] agrees that [Daiwa] shall have the right to act as exclusive financial advisor placement agent to [Katapult] with respect to Private Financing and exclusive financial advisor with respect to a Sale in the event [Katapult] retains or otherwise uses ( or seeks to retain or use) the services of an investment bank or financial advisor to pursue at any time during the term of this Agreement or within 24 months after the expiration or termination of this Agreement. If [Daiwa] agrees to participate in any such transaction, [Daiwa] shall be paid the Placement Fee in connection with any such Private Financing and, in the case of a Sale, mutually-agreed upon fees for its services that are customary and based upon similar transactions and practices in the investment banking industry. Notwithstanding the above or any oral representations made to the contrary, this Agreement does not constitute a commitment by [Daiwa] or its affiliates to participate in any such transactions and such a commitment will exist only upon the execution of a separate, written agreement or supplement or amendment to this Agreement, containing terms and conditions applicable to such transaction. (NYSCEF 93 at 4 [emphasis added]).

[U]nder New York law, "all the terms contemplated by [an] agreement need not be fixed with complete and perfect certainty for a contract to have legal efficacy" (Ko/chins v EvolutionMkts., Inc., 128 AD3d 47, 61 [I st Dept 2015], aff'd 31 NY3d 100 [2018]). The doctrine of definiteness "is to be sparingly used, as a last resort, and only when an agreement cannot be rendered reasonably certain by reference to an extrinsic standard that makes its meaning clear" (Cowen and Co., LLC v Fiserv, Inc., 141 AD3d 18, 21 [1st Dept 2016] [internal quotations omitted]). In fact, " [ w ]here at the time of agreement the parties have manifested their intent to be bound, a price term may be sufficiently definite if th amount can be determined objectively without the need for new expressions by the parties ... , for example ... by reference to an extrinsic event, commercial practice or trade usage" (Cobbl Hill Nursing Home, Inc. v Henry & Warren Corp., 74 NY2d 475, 483 [1989]).

Here, the Right of First Refusal is sufficiently definite to be enforceable. It set forth the types of transactions, the role Daiwa would assume, the scope ofDaiwa's services, and a means to determine Daiwa's compensation in accordance with commercial practice (see Cowen, 141 AD3d at 21 [contract enforceable where it included provision explicitly referencing "commercial practice, or trade usage New York courts routinely rely upon to render a price term sufficiently definite"] [internal quotation omitted]).

Contact the Commercial Division Blog Committee at commercialdivisionblog@schlamstone.com if you or a client have questions concerning whether a contract is sufficiently definite so as to be enforceable.