394 UNIT TWO: Contracts and E-Contracts CHAPTER 16: International Law in a Global Economy 395 Unit Two-Business Case Study with Dissenting Opinion to reject the offered terms or even to negotiate effectively. Indeed, the venture, there had been, at the time, neither a commitment of when the allegations are understood in the context of an ongoing funds nor even the emergence of a leading candidate to provide such attempt by John to salvage something from his dashed expectations, a commitment. Moreover, John, in addition to being an experienced the fact that he subsequently acceded to new and lesser terms should investment banker and financial consultant, was, by reason of his not justify holding * * * that he did not reasonably rely on his cousin's own prior professional involvement in oil and gas ventures and his Braddock v. Braddock alleged misrepresentations and false assurances, to his own severe extensive familial connections to the industry, particularly well aware detriment. of the risks such ventures entailed. * ** In these circumstances, * * * If all these interactions had been between strangers conducting no promise of high executive-level employment in the company * * * raudulent misrepresentation is one of the conditions that may cause a contract to lack an arm's length business transaction, strict reliance on the signed could reasonably have been viewed as an "assurance" or a "guaran- voluntary consent. For a misrepresentation to be fraudulent, it must misrepresent a written documents, to the exclusion of the parties' words and con- tee." * * * What he now terms "assurances" and "guarantees" could present, material fact. A representation, or prediction, of a future fact does not qualify. The duct, would be appropriate. But the expectation of the good faith of a have been reasonably understood as only expressions of expectation misrepresentation must be consciously false and intended to mislead an innocent party, family member in circumstances such as these may justify some reli- or intent, the realization of which would depend upon contingencies who must justifiably rely on it. When an innocent party is fraudulently induced to enter into ance on assurances that are not incorporated into written documents not within the power of the parties to foreseeably accommodate to a contract, the party can rescind the contract and be restored to her or his original position drafted and executed later. their stated objectives. or can enforce the contract and seek damages for injuries resulting from the fraud. * * * While he may have had a moral claim to rely upon his cousin In this Business Case Study with Dissenting Opinion, we present Braddock v. Braddock,' Here. . * * the issues of material misrepresentation and reason- even when objective circumstances counseled otherwise, there is no a case involving an individual who gave up his career and relocated his home and family able reliance are not subject to summary disposition [settlement]. legal right to recovery in fraud that may be vindicated upon such a based on his cousin's representations about a newly formed entrepreneurial venture. The and the fiduciary relationship between the parties, with its concomi- predicate. individual's position in the new enterprise was not what the cousin had told him it would tant [associated] mutual obligation to act in good faith, makes John's Accordingly, I would affirm the dismissal of plaintiffs' fraud cause be, however. Were the cousin's statements fraudulent? Or were they simply expressions of expectation-predictions of future possibilities-subject to contingencies that neither Is it fraudulent to offer a relative a great job, reliance on David's assurances all the more reasonable. of action requiring relocation, only to reduce substantially party could control? the quality of the promised job? * * * Defendants' motion to dismiss the complaint for failure to QUESTIONS FOR ANALYSIS state a cause of action * * *[is] denied * * * so as to reinstate the 1. Law. What did the majority conclude on the issue before the court in CASE BACKGROUND and intended to be relied on when made, and that there was justifiable [plaintiffs' fraud] cause of action. this case? What reasoning supported this conclusion? David Braddock wanted to form a company, Broad Oak Energy, Inc. reliance and resulting injury. The complaint here sufficiently sets forth DISSENTING OPINION 2. Law. On what important point did the dissent disagree with the (BOE), to tap oil and gas reserves in Louisiana and Texas. He asked his these elements. [Emphasis added.] LIPPMAN, P.J. [Presiding Judge], (DISSENTING). majority, and why? cousin John, an investment banker in New York, to find an investor to * * * * 3. Ethics. How do you view David's statements and john's actions? provide BOE with $75 to $150 million and also asked John to come [John's] allegations satisfy the particularity requirement for a * * * It is, in essence, alleged that John's entire course of conduct Did David take unethical advantage of his cousin, luring him in to work for BOE. David assured John that he would be BOE's chief fraud claim. in providing investment banking services for a discounted fee, giv- bad faith? Was john too willing to rely on assurances concerning financial officer (CFO) and land manager. He also told John that he ing up his lucrative New York employment as an investment banker events that he should have known from experience might not occur? would receive half as much stock in the company as would be issued * * * Since David and John are cousins, John's reliance on David's and advisor, moving to Texas and agreeing to take the non-executive Discuss to David, who would serve as the company's chief executive officer. good faith may be found to be reasonable even where it might not position with BOE from which he was eventually dismissed * * * was 4. Economic Dimensions. What does this case indicate about employ- john quit his job, agreed to accept a significantly reduced fee to find be reasonable in the context of an arm's length transaction with a induced by David's * * *assurances. ment and employment contracts? an investor for BOE, and moved his family to Texas. As a result of stranger. Family members stand in a fiduciary relationship [one of * * * * john's efforts, Warburg Pincus, LLC, agreed to provide $150 million trust] toward one another in a co-owned business venture. * * * * * At the time of David's nominal assurances, BOE was but 5. Implications for the Investor. Why would an investor like Warburg in start-up capital. Under the circumstances alleged here, John had reason to believe an unfunded shell requiring for its viability an enormous infusion Pincus not want someone like john in an executive role in an enter- Two weeks later, David told John that Warburg Pincus insisted that that David would treat him, in their interaction, with good faith and of capital. And, while john was confident of procuring financing for prise for which the investor was providing significant capital? John not be made CFO or land manager. Instead, David offered him a integrity. substantially reduced position, that of landman. Surprised, John nev- * * * ertheless cooperated. He signed "engagement agreements" to accept The situation presented here should be distinguished from cases the lesser position as an "employee at will," subject to discharge for in which a plaintiff who was involved in a business deal claims that, any reason at any time. Stress soon began to take a toll on his health, in the original discussions of the deal, misrepresentations were made Unit Two-Business Scenario and he was granted a conditional medical leave of absence. The next as to its terms but the falsity of those representations was revealed month, BOE terminated his employment. by the time the deal was executed. In such cases, the ultimate terms John filed a suit in a New York state court against David, asserting of the deal, if agreed upon, are all that the plaintiff is entitled to, and that these circumstances constituted fraud. The court dismissed the he will not be permitted to seek damages based upon the original Alberto Corelli offers to pay 1. Minors. Corelli is a minor when he purchases the painting. complaint. John appealed to a state intermediate appellate court. misrepresentations, because he did not rely on them in electing to go $2,500 to purchase a paint- Is the contract void? Is it voidable? What is the difference ing titled Moonrise from MAJORITY OPINION through with the deal. Here, in contrast, John's subsequent execution between these two conditions? A month after his eigh- Tara Shelley, an artist whose teenth birthday, Corelli decides that he would rather have SAXE, J. [Judge] of documents that fundamentally altered the originally promised * * * # terms of his position with the company was not merely an election to works have been causing a the $2,500 than the painting. He informs Shelley that he is stir in the art world. Shel- To plead a claim for [fraud], a plaintiff must assert the misrepresen- enter into the deal anyway. First of all, even before he executed * * * disaffirming the contract and requests that Shelley return tation of a material fact, which was known by the defendant to be false the agreements * * *, the deal was essentially under way, at least on ley accepts Corelli's offer. Assuming that the contract has met the $2,500 to him. When she refuses to do so, Corelli brings his part, in that he had already sacrificed his former life and under- all of the requirements for a valid contract, answer the following a court action to recover the $2,500. What will the court 1. 60 A.D.3d 84, 871 N.Y.S.2d 68 (1 Dept. 2009) taken tasks to forward the venture, and he was no longer in a position questions. likely decide in this situation? Why? Continues