Apfel v. Prudential-Bache Sec., Inc. – Case Brief
Apfel v. Prudential-Bache Securities, Inc., 81 N.Y.2d 470, 600 N.Y.S.2d 433, 616 N.E.2d 1095 (N.Y. 1993).
Facts: Apfel (P), an investment banker, approached Prudential-Bache Securities, Inc. (D) and proposed a system for issuing municipal securities that eliminated paper certificates and made it possible for bonds to be sold, traded, and held exclusively via computerized book entries. The parties agreed to a contract whereby Prudential-Bache was to pay royalties for Apfel’s intellectual property even if the disclosed techniques became public knowledge.
Prudential-Bache was the sole underwriter using Apfel’s system for at least one year. After making payments according to the terms of the contract for three years Prudential-Bache refused to make further payments. Prudential-Bache contends that the ideas it had purchased from Apfel were in the public domain and therefore did not constitute valid consideration to support the contract.
Apfel brought suit against Prudential-Bache seeking $45 million in compensatory and punitive damages. Apfel asserted 17 causes of action based on theories of breach of contract, breach of a fiduciary duty, fraud, various torts arising from defendant’s failure to obtain patents, and unjust enrichment. The trial court dismissed all of Apfel’s claims except the breach of contract claim. The court also struck all of Prudential-Bache’s defenses and counterclaims except those relating to breach of contract and the partial defense of waiver.
On appeal Prudential-Bache contends that no contract existed because the contract lacked consideration because an idea cannot be legally sufficient consideration unless it is novel. Apfel insists that the system was indeed novel but that in any event novelty is not required to validate the contract.
Issue: Is a showing of novelty required to validate a contract for the sale of an idea?
Holding and Rule: No. A showing of novelty is not required to validate a contract for the sale of an idea. The decisive question is whether an idea has value, not whether it is novel.
Prudential-Bache received something of value as evidenced by its own conduct. It reviewed the transaction thoroughly before entering into the agreement and was the only underwriter using the book entry system for at least one year. It cannot now claim that the intellectual property had no value.
Prudential-Bache has failed to demonstrate that the contract was void or to even raise a triable issue of fact for lack of consideration. The issue of novelty does not address the idea itself but whether the idea in fact belonged to Apfel in the first place. In this case however there is no such concern regarding the issue of novelty. Prudential-Bache does not claim it was aware of the idea before Apfel’s disclosure. Because Prudential-Bache had full opportunity to examine the transaction and determined that the idea had value it cannot now claim that there was none.
Disposition: Order of the Appellate Division modified accordingly.