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Apfel v. Prudential-Bache Sec., Inc. - 81 N.Y.2d 470, 600 N.Y.S.2d 433, 616 N.E.2d 1095 (1993)

Rule:

Under the traditional principles of contract law, the parties to a contract are free to make their bargain, even if the consideration exchanged is grossly unequal or of dubious value. Absent fraud or unconscionability, the adequacy of consideration is not a proper subject for judicial scrutiny. It is enough that something of real value in the eye of the law was exchanged. The fact that the sellers may not have had a property right in what they sold does not, by itself, render the contract void for lack of consideration.

Facts:

Plaintiffs approached defendant's predecessor with a proposal for issuing municipal securities through a system that eliminated paper certificates and allowed bonds to be sold, traded, and held exclusively by means of computerized "book entries". The parties signed a confidentiality agreement that allowed defendant to review the techniques. The parties entered into a sale agreement under which plaintiffs conveyed their rights to the techniques and certain trade names and defendant agreed to pay a stipulated rate based on its use of the techniques. Under the provisions of the contract, defendant's obligation to pay was to remain even if the techniques became public knowledge or standard practice in the industry and applications for patents and trademarks were denied. However, in 1985, following a change in personnel, defendant refused to make any further payments. It maintained that the ideas conveyed by plaintiffs had been in the public domain at the time of the sale agreement and that what plaintiffs sold had never been theirs to sell. The  Appellate Division of the Supreme Court in the First Judicial Department, New York modified an order of the lower court and reinstated a cause of action and the allegations of consideration in the answer and counterclaim, and struck plaintiffs' demand for punitive damages, in plaintiffs' cause of action for breach of contract.

Issue:

Was plaintiff’s idea a property right although the same was not novel?

Answer:

Yes

Conclusion:

The Court of Appeals of New York affirmed as modified the judgment of the appellate court. Manifestly, defendant received something of value; its own conduct established that. After signing the confidentiality agreement, defendant thoroughly reviewed plaintiffs' system before buying it. Having done so, it was in the best position to know whether the idea had value. It decided to enter into the sale agreement and aggressively market the system to potential bond issuers. Having obtained full disclosure of the system, used it in advance of competitors, and received the associated benefits of precluding its disclosure to others, defendant could hardly claim the idea had no value to its municipal securities business. Indeed, defendant acknowledged it made payments to plaintiffs under the sale agreement for more than two years, conduct that would belie any claim it might make that the idea was lacking in value or that it had actually been obtained from some other source before plaintiffs' disclosure. Defendant failed to demonstrate that the contract was void or to raise a triable issue of fact on lack of consideration.

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