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Most Read Contributor in United States, August 2018
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.
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