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Posted: January 26, 2018

Questions of Fact Precluded Dismissal on Summary Judgment of Action Based on Oral Contract Subject to Statute of Frauds

On January 11, 2018, Justice Knipel of the Kings County Commercial Division issued a decision in Toobian v. Golzad, 2018 NY Slip Op. 30068(U), holding that questions of fact precluded summary judgment in an action based on an oral contract subject to the statute of frauds, explaining:

In response to the defendants’ prima facie showing that enforcement of the alleged oral agreement is barred by the statute of frauds, the plaintiff raised triable issues of fact as to whether he partially performed in a manner unequivocally referable to its terms. The plaintiff points out that he contributed one-half of the down payment for the property (the other half was contributed by the defendant), contributed toward the balance of the purchase price at closing (the remainder was contributed by the defendant), assumed sole management responsibility of the property, collected and deposited rents in a bank account under his control, paid property expenses (mortgage and insurance) most of the time, caused a defaulting tenant to be evicted from the property, and had the resulting vacant space rented to another commercial tenant. Thus, there is evidence from which a trier of fact might conclude that the plaintiff’s conduct was extraordinary and explainable only by a reference to the oral agreement. This evidence, when viewed in the light most favorable to the plaintiff as the non-movant, raises a triable issue of fact as to part performance which precludes an award of summary judgment dismissing the first (declaratory judgment – the property) and the second (declaratory judgment – the LLC) causes of action, as well as precludes an award to the defendants of summary judgment on their third counterclaim for declaratory judgment and injunctive relief. It is well established that the statute of frauds does not preclude the recognition of a constructive trust affecting an interest in land where a confidential relationship would be abused if there were repudiation, without redress, of trust orally declared. In an action to impress a constructive trust on real property, the statute of frauds is not a defense because such a trust, by its very nature, does not require a writing. A constructive trust will be impressed when an unfulfilled promise to convey an interest in land induces another, in the context of a confidential or fiduciary relationship, to make a transfer resulting in unjust enrichment.

There is an issue of fact whether a constructive trust may be imposed under the circumstances presented here. The plaintiff and the defendant were long-term friends; they are each practicing medicine in their respective fields; they are each high net worth individuals; and they each speak the same foreign language (Farsi). The plaintiff served as a mentor to the defendant in financial matters. Each of them regularly transferred to the other substantial sums in the hundreds of thousands of dollars: the defendant transferred funds to the plaintiff by way of equipment leases and consulting agreements, as well as allowed the plaintiff to use his (the defendant’s) American Express card; concurrently, the plaintiff paid the defendant’s expenses (tuition for his son’s private school, child support, mortgage on one of the defendant’s Florida homes, among others), as well as contributed funds toward the purchase of the property. In sum, they did favors for each other, and one of those favors was the placement of the title to the property in the defendant’s owned LLC. Their friendship came to an end – and the dispute over the ownership of the property arose – when the equipment-lease and consulting deductions proposed by the plaintiff and implemented by the defendant and his former accountant without hesitation, failed to withstand the scrutiny of the defendant’s successor accountant, resulting in the defendant’s filing of the amended tax returns and the ensuing tax liabilities. Contrary to the defendants’ contention, the parties’ course of conduct furnished consideration for the parties’ oral agreement to re-vest title in the property in the plaintiff (either directly or through the LLC).

The trier of fact may infer that the absence of a written agreement was a consequence of the parties’ relationship. Summary judgment is inappropriate where, as here, triable issues of fact and credibility are raised that require a trial. Hence, the plaintiff’s third (breach of fiduciary duty), fourth (constructive trust – the property), fifth (constructive trust – the LLC), and sixth (unjust enrichment) causes of action survive the defendants’ motion and shall proceed to trial.

(Internal quotations and citations omitted).

Contract law–usually straightforward–has traps for the unwary, like the requirement that some contracts be in writing (the statute of frauds). And as this decision shows, sometimes there are ways to escape from those traps. Contact Schlam Stone & Dolan partner John Lundin at jlundin@schlamstone.com if you or a client face a situation where you are unsure how to enforce rights you believe you have under a contract.

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