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Current Developments in the Commercial Divisions of the
New York State Courts by Schlam Stone & Dolan LLP
Posted: June 22, 2018

Statute of Frauds Exception for Contract to Pay Lawyer for Negotiating Sale of Business Does Not Require Attorney-Client Relationship

On June 12, 2018, Justice Ostrager of the New York County Commercial Division issued a decision in Wiesen v. Potter, 2018 NY Slip Op. 31197(U), holding that the exception to the statute of frauds for contracts to pay a lawyer to negotiate the sale of a business does not require an attorney-client relationship, explaining:

To the extent that no written agreement can be found in the email communications between the parties, Wiesen asserts that an oral agreement was formed with Stoller on a January 25, 2012 telephone call. Defendants argue that such an oral agreement is barred by the Statute of Frauds. In particular, New York General Obligations Law§ 5-701(a)(IO) provides that every agreement is void unless it or some memorandum thereof be in writing in case of a contract to pay compensations for services rendered in negotiating sale of business, but that provisions shall not apply to a contract to pay compensation to an attorney at law.

Here, it is undisputed that Wiesen is an attorney admitted to practice in New York. The weight of precedent establishes that it makes no difference whether Wiesen has recently practiced law or whether he was acting in his capacity as an attorney for purposes of this sale of shares transaction. The New York Court of Appeals has declined to construe this exemption narrowly and has thus held that an attorney need not enjoy the attorney-client relationship with the parties from whom he seeks compensation in order to avail himself of the statutory exemption of § 5-701(a)(10). Absent some indication from the New York courts or legislature that a functional rather than literal interpretations is to be applied, we decline to read the words attorney at law to cover some members of the New York bar and not others. Thus, while Wiesen was not acting in his capacity as an attorney for purposes of the purported sale of shares transaction, his alleged oral agreement is, nevertheless, not barred by the Statute of Frauds. Therefore, Defendant Stoller’s motion to dismiss Plaintiff’s breach of contract claim is denied.

(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, sometimes there are ways to escape from those traps. 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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