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Royce de R Barondes, New York’s requirements for contractual definiteness with application to the formation of investment vehicles, Capital Markets Law Journal, Volume 17, Issue 2, April 2022, Pages 167–195, https://doi.org/10.1093/cmlj/kmac006
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1. Introduction
As part of a wider research project, 82 recent opinions addressing the required definiteness for an obligation to be enforceable in contract, in state and federal courts in New York, were reviewed. This article examines some implications of the cases reviewed in that survey having particular application to the formation of investment vehicles under New York law.
A number of factors can contribute to participants opting to draft arrangements that may be at material risk for being unenforceable. For example, multiple members of the management team to be formed may be promised equity interests. But the details of the equity interests may depend on the details of the complete capital structure of the venture. And that capital structure may be subject to revision and full documentation until all the initial investors are signed-up.
This combination of circumstances gives rise to a pattern, not unique to investment vehicles, where key employees are brought onboard with vague promises of equity interests that may be unenforceable. This circumstance creates opportunities for opportunism if initial promises, having only the level of detail that can be practicably included at the time key employees are brought onboard, are considered unenforceable. A review of the litigated cases reveals this type of opportunism.
