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Current Developments in the Commercial Divisions of the
New York State Courts by Schlam Stone & Dolan LLP
Posted: August 6, 2020

Statute of Frauds Does Not Bar Claim Based on Alleged Oral Partnership Agreement

On July 27, 2020, Justice Borrok of the New York County Commercial Division issued a decision in Babani v. Royal Chain, Inc., 2020 NY Slip Op. 32468(U), holding that the statute of frauds does not bar a claim based on an alleged oral partnership agreement, explaining:

Pursuant to General Obligations Law § 5-701(a)(1), an agreement must be in writing where the agreement, by its terms, cannot be performed within one year. If, however, it is possible to perform an agreement within one year, in whatever manner and however impractical, the purported oral agreement need not be written and General Obligations Law § 5-701 will not bar such an agreement. In other words, General Obligations Law § 5-701(a)(1) should only be applied to contracts that have absolutely no possibility in fact and law of full performance within one year. Further, General Obligations Law § 5-701 (a)(l) is generally inapplicable to an agreement to create a partnership because absent a definite term of duration, an oral agreement to form a partnership for an indefinite period creates a partnership at will.

Inasmuch as the Partnership Agreement allegedly provided that Mr. Babani would pay his employee’s salary for the first year, he would reinvest his share of gross profits for up to three years, and that he would guarantee vendor deposits and customer credit for the first five years, there is no provision that expressly regulates the time for performance of the Partnership Agreement as a whole. Instead, the differing timeframes of certain obligations in the Partnership Agreement merely reflect minimum obligations to be met, but do not preclude performance of the Partnership Agreement within one year. Further, there is simply no identifiable termination date in the Partnership Agreement as alleged, which would indicate that that this was a partnership at will that also falls outside the scope of General Obligations Law § 5-701(a)(l). As the Partnership Agreement is capable of being performed within one year and contains no definite term of duration, it is not barred by GBL § 5-701 (a)(l).

(Internal quotations and citations omitted) (emphasis added).

New York contract law–usually straightforward–has traps for the unwary, like the requirement that some contracts be in writing (the statute of frauds). 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 an oral contract.

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Posted in Commercial, Contracts
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