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Realty Law Digest

Contracts—Statute of Frauds—Oral Contract for Purchase of Home Governed by General Obligations Law §5-703—Plaintiffs May Pursue Claim for Specific Performance Based on Part Performance Exception

This decision involved an action for a specific performance of a contract for the sale of real property. The plaintiffs appealed from a trial court order which, in so far as appealed from, granted those portions of the defendant’s motion pursuant to CPLR 3211(a)(5) to dismiss the first, third, fourth, and fifth causes of action and to cancel a notice of pendency. The Appellate Division (court) reversed and denied the defendant’s motion.

The complaint alleged that “A” owned a two-unit home in Brooklyn and that “A” lived in one unit and rented the other unit to the plaintiffs. Prior to “A’s” death, “A” and the plaintiffs “allegedly entered into an oral agreement whereby the plaintiffs would provide (“A”), who required substantial assistance with activities of daily living, with home care services for the duration of her lifetime. In exchange for such services, the plaintiffs allegedly were to receive an option to purchase the subject property from (“A’s”) estate for the agreed-upon price of $1.2 million.” It was undisputed that the plaintiffs provided “necessary care to (“A”) and maintained the property.”

Although “A” had allegedly taken “steps to memorialize the alleged oral agreement…and to include it in a revised will, she died prior to executing any document memorializing her intention.” Following “A’s” death, the defendant executor of “A’s” estate (defendant) “refused to honor the claimed oral agreement.”

The plaintiffs commenced the subject action asserting causes of action for specific performance of the alleged option to purchase, quantum meruit, declaration of an equitable ownership interest, injunctive relief barring the defendant from evicting them, constructive trust and unjust enrichment. The plaintiffs also filed a notice of pendency against the property.

The defendant moved, inter alia, pursuant to CPLR 3211(a)(5) to dismiss the complaint “on the ground that the oral agreement violated the statute of frauds (SOF), and to cancel the notice of pendency.” The trial court dismissed the causes of action pursuant to which the plaintiffs “sought to enforce the option and/or secure an interest in the property, and to cancel the notice of pendency.” The trial court denied the motion to dismiss the quantum meruit and unjust enrichment claims. Thus, the trial court limited the plaintiffs’ remedies, “if successful, to money damages.” The Appellate Division reversed.

The salient issue on appeal was whether “this action is governed by General Obligations Law (GOL) §5-701 or GOL §5-703.”

GOL §5-701, the general SOF provision which specifies which agreements “must be in writing, contains no explicit statutory authority for a court, exercising its equitable powers, to grant specific performance of an oral agreement insufficiently memorialized in writing so as to satisfy the (SOF).” The New York Court of Appeals had “clarified that New York has not adopted a judicially created-common law exception to (GOL) §5-701, which would permit a court to direct specific performance of an oral agreement in cases of part performance.”

In contrast, GOL §5-703, “the more specific (SOF) provision relating to contracts concerning real property, contains an explicit carve-out, which provides that ‘nothing contained in (GOL §5-703) abridges the powers of courts of equity to compel specific performance of agreements in cases of part performance’ (GOL §5-703[4]).”

The court explained that in essence, “A” and the plaintiffs had entered into a “contract to devise real property… or any interest therein or right with reference thereto ‘… and therefore, this action is governed by (GOL) §5-703….’” The court reasoned that “since the action is governed by (GOL) §5-703, the plaintiffs are not foreclosed, as a matter of law, from obtaining the remedy of specific performance.”

The court further noted that the action was not governed by GOL §5-701 “because the plaintiffs’ obligations under the alleged oral agreement to provide (“A”) with home care services could not ‘be completed before the end of a lifetime’ (GOL §5-701).” It emphasized that “[w]henever there is a general and a particular provision in the same statute, the general does not overrule the particular but applies only where the particular enactment is inapplicable.” Here, GOL §5-703, “the more particular provision governing agreements concerning real property, is the operative statute.”

The defendant had cited case law which did not involve agreements concerning real property. The court also noted that “concerns raised by the defendant regarding specific performance of contracts that cannot be completed before the end the of a lifetime are not implicated here, as the plaintiffs allege that they fully performed the home care services for (“A”), and the issue relates to the enforcement of (“A’s”) alleged promise to give the plaintiffs an option to purchase the subject property for a set price.”

Thus, the court held that the trial court should have denied the defense motion to dismiss the causes of action which asserted the plaintiffs’ right to enforce “the option and/or secure an interest in the property, and to cancel the notice of pendency.”

Comment: Jeffrey Metz of Adam Leitman Bailey, P.C., counsel for the plaintiffs, stated that “this is a case of first impression, created a new carve out to the Statute of Frauds, which now allows courts to compel specific performance on an oral contract for the sale of real property. Accordingly, going forward, parties must exert tremendous caution in negotiating for the purchase and sale of real property, as their oral communications may be found to be binding contracts that can be compelled by courts.”

In general, part performance is often a “challenge” to establish because part performance that is sufficient to overcome the Statute of Fraud’s requirement for a written agreement must be “unequivocally referable to the alleged oral contract.” Gural v. Drasner, 977 N.Y.S.2d 218, 223 (1st Dept. 2013). Thus, generally, oral agreements for the purchase/sale of real estate will not be enforced. The subject case highlights a possible exception. As with all alleged oral agreements, proponents of such agreements must overcome evidentiary issues.

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