The New York Court of Appeals, in a decision by Judge Jenny Rivera, upheld a State Supreme Court's ruling that a trade can be deemed executed even if a formal agreement has not been signed, as long as the material terms and conditions are agreed on mutually in conversation or email correspondence.
Granting a motion for summary judgment by investment advisory firm Stonehill Capital Management ("Stonehill"), the Court of Appeals explained that to form a binding contract "there must be a meeting of the minds" resulting in a "manifestation of mutual assent sufficiently definite to assure that the parties are truly in agreement with respect to all material terms. . . . [O]bjective manifestations of the intent of the parties as gathered by their expressed words or deeds" are used to determine the nature of the contract's material terms and whether the parties intended to enter it. The Court of Appeals stated, "based on the totality of the parties' actions and communications, . . . they agreed to an enforceable contract, with express material terms and post-formation requirements."
The Court of Appeals clarified that the "totality of the parties' conduct and the 'objective manifestations' of their intent" are evidenced by the following:
- the inclusion by defendant Bank of the West ("BOTW") of "pre-negotiated auction terms in the Offering Memorandum";
- "BOTW's acceptance of Stonehill's bid in correspondence that communicated the terms of the purchase and the date and instructions for the closing";
- the "email exchanges between BOTW's counsel and Stonehill which indicated the sale was moving ahead and included references to documents necessary for closing the transaction"; and
- "BOTW's utter failure to identify or explain any objections to the [Loan Syndications and Trading Association] form prior to the May 18th correspondence announcing its withdrawal from the sale."
The Court of Appeals found that "BOTW reconsidered the sale – not because of the failure to execute a written agreement or because Stonehill had not tendered the 10% deposit, but because BOTW concluded it would make more money by reneging on the sale," a choice that was a "breach of its agreement with Stonehill."
Commentary / Steven Lofchie
The formation of contracts with respect to securities is governed by state law and not by federal securities law (although contracts that violate securities laws may be void). The decision in this case bodes well for market stability, since it lessens participants' uncertainty about the conditions under which a party may renege on an agreed-upon trade.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.