New York's Requirements for Contractual Definiteness with Application to the Formation of Investment Vehicles
Capital Markets Law Journal, Volume 17, Issue 2 (scheduled) (2022)
45 Pages Posted: 18 Mar 2022 Last revised: 21 Mar 2022
A review of 82 modern New York cases reveals an unexpected frequency of authority requiring contractual definiteness as to what may reasonably appear to be minor terms.
Illustrative are cases holding inadequately definite ordinary ways preliminary agreements may express compensation on a percentage of net basis. Other unexpected authority (i) is less willing than expected to allow subsequent actions to provide sufficient definiteness to initially indefinite agreements and (ii) denies the enforceability of confidentiality provisions and a right of first refusal.
The survey includes some unexpected support for contracts specifying a plausibly material portion of the consideration with inadequate definiteness as also precluding recovery in restitution. That includes not giving effect to thoughtful drafting choices apparently designed to avoid that outcome.
The survey gives rise to unease whether a court will find fatally indefinite an LLC operating agreement that grants one partner unfettered discretion in choice of section 704(c) method, if built-in-gain property is to be contributed. There is not authority directly addressing this issue. But the pattern of requiring excess specificity, coupled with authority addressing discretionary choices addressing circumstances that are not comparable, creates concern for this author.
Keywords: contracts, contractual, definiteness, minor terms, 704(c), LLC
JEL Classification: K12
Suggested Citation: Suggested Citation