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Wednesday, November 6, 2013

Declaratory Judgment and Sanctions(!) for Threatening Suit to Enforce a Gratuitous Promise

WeddingOver at The New York Law Journal, Joel Stashenko reports on Wu v. Xu, a case decided last month in the Rockland County Supreme Court.  The case involves an alleged promise by Mr. Wu to pay Ms. Xu $500,000.  The parties had a "relationship," about which the court refused to say much more except that Ms. Xu alleged that Mr. Wu had promised to divorce his wife and marry her.  The alleged promise was to serve two purposes.  Apparently, Mr. Wu felt bad about having hurt Ms. Xu in breaking off their friendship, and he wanted to make it up to her with the payments.  He also wanted to secure her silence about their relationship.  

Mr. Wu made payments in excess of $47,000, but when Ms. Xu's attorney sent a demand letter insisting on the enforceability of the promise to pay $500,000, Mr. Wu decided to seek a declaration that the promise was unenforceable as without consideration and in breach of public policy.  

The Court begins its analysis by quoting Platt v. Elias, a 1906 case, which stated:

[t]hat which one promises to give for an illegal or immoral consideration he cannot be compelled to give; and that which he has given on such consideration he cannot recover. The law will not afford relief to either party,in pari causa turpitudinis; but leaves them just where they have placed themselves.

 According to the Court, the application of this rule means that Mr. Wu cannot recover the money already paid, and Ms. Xu cannot enforce her alleged right to further payments.  

All well and good if this is an illegal contract, but is it?  The Court says that the alleged agreement violates public policy because it falls within the category of contracts that "tend to impair familial relationships."  The Court then quotes the Restatement Second to the effect that "[a] promise that tends to encourage divorce or separation is unenforceable on grounds of public policy," and concludes: 

Although the August 2012 letter is not an express agreement to marry or to encourage a divorce, it does involve the institution of marriage and the well-being of the familial relationship of Plaintiff and his wife to the extent that this Court finds is against public policy. As such, the Court finds that the letter is not a valid, enforceable contract.

So ends the discussion of the contract claim.  

The Court then proceeds to the discussion of whether an award of attorneys' fees is appropriate.  They are appropriate, the Court finds, because the legal claim was without merit and because it is extortionate to threaten to sue somebody based on a legal claim that is without merit.  Q.E.D.  The Court then approves a $2500 sanction of Defendant's counsel for frivolous conduct.

[JT]

ADDENDUM: I have striven for even-handedness in the post above, but the more I think about it, the more outrageous I find the court's opinion.   I do not think the promise is enforceable, because I think it is gratuitous, but there is an argument that consideration was given in the form of the defendant's silence.  As a result, I do not think the demand letter was frivolous.  What I do find frivolous is quoting 100 year old cases and the 30-year-old restatement on the sanctity of the institution of marriage when our public policy relating to marriage is in a state of violent flux.  Moreover, the quotations are not on point, because the demand letter was not about impairing familial relationships; it was about enforcing a promise.  Plaintiff had already done plenty of impairing on his own.

The Court's reasoning runs as follows:

1. The contract is unenforceable based on public policy and thus the demand letter was frivolous.

2. It is an act of extortion to threaten legal action based on a frivolous claim.

For the reasons given above, I think the demand letter was incorrect on the law but not frivolous.  This is especially so because a court's refusal to enforce a contract based on something as elusive as public policy is always fraught. That being the case, the threatened legal action is very far from extortion.   Defendant did not propose the arrangement.  She did not threaten to blab about the parties' relationship unless the Plaintiff paid.  The Plaintiff offered to pay and did pay two installments.  The award of attorneys' fees and the imposition of sanctions does not seem justified based on the law as laid out in the opinion.  There may be other sources of New York state law that relevant here, but the Supreme Court's opinion is not convincing.

[JT]

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As I read the opinion, the court was viewing this as a classic blackmail claim: "Plaintiff signed a letter, drafted by Defendant, apologizing to Defendant for hurting her and agreeing to pay a total of $500,000 to her over a period of time. In exchange, Defendant would refrain from disclosing their relationship to anyone, including Plaintiff's family." If the promise was made gratuitously, it is unenforceable; if it were made under threat of disclosing the facts to the man's family, it looks to me like garden variety blackmail. If that's the case then the lawyer's demand letter was part of a blackmail scheme, not a legitimate (through incorrect) assertion of a legal claim. This may not be what happens, but it looks to me like this is what the court is thinking.

Posted by: Frank Snyder | Nov 9, 2013 12:06:14 PM

Thanks, Frank. That helps make sense of the opinion, but here is the cause of my unease. The court is uncertain of the facts, and the litigation is not advanced to discovery from what I can tell. Plaintiff claims that there was a promise and that the letter memorializes the promise. Defendant tells a different story. If defendant's story is true, then yes, this is extortion. If plaintiff's story is true, the demand letter is a threat to sue to enforce a promise and as such is no more extortionate than any other threat to enforce a promise.

The fact that the defendant is allegedly paying plaintiff for her silence does not make the deal extortionate. Parites routinely settle out of court in order to avoid adverse publicity. To the extent that settlements are confidential such parties are paying for their adversaries' silence, but a suit to enforce such a settlement would not therefore be extortionate.

So I think you have helpfully explained the court's reading of the facts, but I wonder if such a reading is premature, since this seems to be a motion for judgment on the pleadings.

Posted by: Jeremy Telman | Nov 9, 2013 2:07:38 PM

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