Breach of Contract, Oral Agreements, Statute of Frauds, UCC
In the middle of the 48th anniversary of the Woodstock music festival, we pause to remember legendary guitarist Jimi Hendrix – and a recent lawsuit involving a dispute over ownership of two of Jimi’s guitars. The outcome of the suit is a reminder that when you loan out $400,000 worth of Jimi Hendrix guitars, you really should have a written agreement.
In Aleem v. Experience Hendrix, L.L.C., 16 cv 9206, 2017 WL 3105870 (S.D.N.Y. Jul. 20, 2017), plaintiffs alleged that, in Fall 1968, Jimi Hendrix gifted two guitars to the twin Aleem brothers, who occasionally performed and recorded with Hendrix. By 1995, the Aleem brothers needed money and agreed to sell one of the guitars, valued at $200,000, at auction. The Estate of Jimi Hendrix became aware of the potential sale and approached the Aleem brothers about allowing the Estate to display the guitars at the Rock and Roll Hall of Fame. The parties allegedly orally agreed that in exchange for $30,000, the Aleem brothers would license both guitars to the Estate for public display and upon repayment of the $30,000, the Estate would return the guitars to plaintiffs. In 2015, the Aleem brothers said they would repay the $30,000 and demanded the Estate return the guitars. The Estate never responded and plaintiffs filed suit.
The Estate asked the Federal Court sitting in Manhattan to dismiss the lawsuit, arguing that the New York Uniform Commercial Code (“UCC”), which governs many commercial transactions, barred enforcement of the alleged oral agreement, regardless of whether it was a license agreement or an agreement for the sale of goods. Under the UCC, both a license agreement for personal property worth $5,000 or more and an agreement to actually sell goods worth $500 or more require a signed writing indicating that the parties agreed to a contract. UCC section 1-207 also requires that a license agreement state the price and define the subject matter, while UCC section 2-201 requires that a sale agreement specify the quantity of goods. The Court agreed with the Estate and dismissed the suit, holding that plaintiffs did not allege the Estate signed a writing indicating the parties agreed to a contract.
Whatever their reasons, the Aleem brothers neglected to get a signed writing from the Estate memorializing their agreement. Now, instead of jointly owning one Jimi Hendrix guitar and splitting the potential $200,000 proceeds from the auction of the other guitar, the Aleem brothers are left with no guitars and a brief mention of their names on a Rock and Roll Hall of Fame plaque.
If you have any questions about an oral or partially documented agreement, please do not hesitate to contact us.
Finders, Oral Agreements, Statute of Frauds
It is not uncommon for a person to act as a finder and receive compensation for presenting a business opportunity to a businessperson. The two might agree the finder will receive a cash fee or perhaps a percentage of revenue derived from the opportunity. Sounds great! The businessperson has a chance to make money from an opportunity she would not have otherwise had, and the finder is compensated for passing along the opportunity. And it is great – as long as the two parties write down their agreement that the finder will be compensated.
Many people might know that a contract to sell a house in New York is not enforceable unless a signed writing memorializes the terms. Fewer people likely realize that the same New York statute requires a writing to enforce most agreements for compensation in connection with negotiating or finding a business opportunity. The New York Statute of Frauds requires a writing to pay a finder for negotiating “the purchase, sale, exchange, renting or leasing … of a business opportunity, business, its good will, inventory, fixtures, or an interest” in a business. The Statute of Frauds even applies where a person is not directly negotiating, but uses her “connections, ability and knowledge” to arrange meetings between appropriate people and procure contracts.
Acting as a finder of a business opportunity without a written agreement can lead to a situation where the finder’s efforts go entirely unrewarded, while the businessperson legally reaps and keeps all the benefits. Recent New York plaintiffs learned this lesson the hard way. In Vanacore v. Vanco Sales LLC, No. 16-CV-1969 (CS), 2017 WL 2790549 (S.D.N.Y. Jun. 27, 2017), the plaintiff presented his cousin with a potential contract to deliver pharmaceutical drugs for a major drug company. The plaintiff apparently lacked the capital to start the business. The parties allegedly orally agreed that the cousin would fund the capital to set up the business and pay plaintiff a commission of 15% of revenues for finding the deal and putting it together. The cousin paid the plaintiff a total of $300,000 over 12 years and then stopped. Plaintiff sued and defendant moved to dismiss the complaint, arguing that the New York Statute of Frauds bars the alleged oral agreement to pay plaintiff for his role in finding the delivery contract.
The court agreed and dismissed the plaintiff’s claim as barred by the Statute of Frauds. The court found the plaintiff alleged he acted only as a “finder” by negotiating the business opportunity and securing a delivery contract, while the cousin put up the capital and managed the business. Without a writing, the Statute of Frauds voided the alleged oral agreement to compensate plaintiff for his efforts as a finder.
If you have an issue with an agreement for compensation relating to finding or sharing a business opportunity, please do not hesitate to contact us.
