Commercial Division Blog
Statute of Frauds Applies to Transfer of Stock in Entity Whose Only Asset is Real Property
On March 16, 2016, Justice Demarest of the Kings County Commercial Division issued a decision in Jeranek v. Gritzer, 2016 NY Slip Op. 50332(U), holding that the Statute of Frauds applies to the transfer of shares of an entity whose only asset is real property, explaining:
[P]laintiff's claim, as explained by her at her deposition, is that defendant breached an oral agreement to add her name to the deed to the Fifth Avenue property. As such, it is a claim to convey an interest in real property. The statute of frauds, as set forth in General Obligations Law § 5-703(a)(1), provides that an estate or interest in real property, other than a lease for a term not exceeding one year, or any trust or power, over or concerning real property, or in any manner relating thereto, cannot be created, granted, assigned, surrendered or declared, unless by act or operation of law, or by a deed or conveyance in writing, subscribed by the person creating, granting, assigning, surrendering or declaring the same, or by his or her lawful agent, thereunto authorized by writing. General Obligations Law § 5-703(a)(2) further provides that a contract for the leasing for a longer period than one year, or for the sale, of any real property, or an interest therein, is void unless the contract or some note or memorandum thereof, expressing the consideration, is in writing, subscribed by the party to be charged, or by his or her lawful agent thereunto authorized by writing. Since plaintiff's claim is for a creation or transfer of an interest in real property, it is subject to the statute of frauds.
(Internal quotations and citations omitted). The court went on to reject the plaintiff's argument that the statute of frauds did not apply because her agreement with the defendant was a joint venture agreement. It explained:
It is well established that where a claim involves the sale of stock of a corporation whose only asset is an interest in realty, the Statute of Frauds is applicable to any transfer of the stock, however, where, the alleged contract is not, as in the cited cases, for the direct purchase of the stock divesting the sellers of all interest in the real property, but as now alleged by plaintiff, is for the purchase of shares as the basis for property ownership as an ongoing joint business venture between partners, the statute of frauds does not apply. Specifically, the statute of frauds does not render void oral joint venture agreements to deal in real property, as the interest of each joint venturer in a joint venture is deemed personalty. The rationale underlying this rule is that a plaintiff who is a joint venturer is not seeking to acquire an interest in real property, but is asserting an interest in joint venture income and assets.
Plaintiff seeks to avoid the bar of the statute of frauds by characterizing her alleged oral agreement with defendant as a joint venture agreement. Plaintiff contends that the question of whether or not she and defendant mutually agreed to establish a joint venture and whether they, together, agreed to purchase the Fifth Avenue property presents a material question of fact, which precludes the granting of defendant's motion. In support of this contention, plaintiff relies upon her allegation, in paragraph 6 of her complaint, that she and defendant, together agreed to utilize monies from the TD Bank account to purchase shares in Heights Realty, Inc. whose assets include real property. She argues that this allegation in her complaint, although not specifically denominated a joint venture or alleging the elements thereof, describes an agreement to form a joint venture "to co-purchase 100% of the shares of Heights Realty.
However, plaintiff does not claim to have entered into joint venture to manage real property, but specifically claims that she was entitled to an ownership interest in title to the Fifth Avenue property. As discussed above, plaintiff, at her deposition, testified that the alleged oral agreement was that her name was to be added to the deed of the Fifth Avenue property. As such, it was an agreement to acquire an interest in real property. Plaintiff testified that she expected Heights Realty to be dissolved, as the explanation for her failure to act promptly to demand her 50% share of stock, belying her claim to have intended to co-purchase shares, the price of which she did not know.
(Internal quotations and citations omitted) (emphasis added).