Apfel v. Prudential Bache Securities, Inc. Case Brief Summary | Law Case Explained

Apfel v. Prudential-Bache Securities, Inc. | 616 N.E.2d 1095 (N.Y. 1993)

To create a valid contract, there must be an exchange of consideration between the parties or an exchange of something of value, such as money, a promise to do something, or a promise not to do something. However, once it appears that there was an exchange of value, courts usually don’t inquire into the adequacy of the value given. In the 1993 case Apfel versus Prudential-Bache Securities, Incorporated, the New York Court of Appeals considered whether the disclosure of an idea could constitute sufficient consideration to support a contract.

Prudential-Bache Securities, Incorporated was an investment bank headquartered in New York City. Robert Apfel was an investment banker who created a new bond financing system that allowed bonds to be sold, traded, and held through computerized book entries. This system later became the industry standard for the issuance of nearly all government and corporate bonds.

In 1982, Apfel and his partner presented Prudential with a proposal for issuing municipal securities through the system. Following negotiations, the parties entered into a sale agreement under which Apfel and his partner agreed to convey their rights to the system in exchange for payments from Prudential based on use. In addition, Prudential agreed to make payments even if the system later became public knowledge, standard industry practice, or if its applications for patents and trademarks of the idea were denied.

From 1982 to 1985, Prudential implemented the system. But following a personnel change in 1985, Prudential refused to make any more payments to Apfel and his partner. Instead, it maintained that the idea had been in the public domain at the time of the agreement and therefore wasn’t theirs to sell. Further, Prudential failed in its attempts to patent and trademark the idea.

Subsequently, Apfel and his partner sued Prudential in New York Supreme Court, asserting multiple causes of action, including breach of contract. In response, Prudential asserted multiple defenses and counterclaims, including lack of consideration and waiver. Both parties moved for partial summary judgment, which the court denied. In addition, the court dismissed all the causes of action, except for breach of contract, and struck all the defenses and counterclaims, except for those relating to breach of contract and the defense of waiver. Both parties appealed, and the appellate division reinstated Prudential’s claim for lack of consideration, holding that novelty is required before an idea can constitute sufficient consideration for a contract, and whether an idea was novel is a question for a fact-finder. Prudential appealed to the New York Court of Appeals.




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