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Current Developments in the Commercial Divisions of the
New York State Courts by Schlam Stone & Dolan LLP
Posted: February 9, 2020

Promissory Estoppel Claim Can Survive Despite Statute of Frauds

On September 30, 2019, Justice Nowak of the Erie County Commercial Division issued a decision in Paramax Corp. v. VoIP Supply, LLC, 2019 NY Slip Op. 33839(U), holding that a promissory estoppel claim could survive dismissal despite the statute of frauds, explaining:

Paramax brought this cause of action in the alternative to the first cause of action, alleging that the parties agreed both orally and in writing to amend and modify the terms of the contract to provide that Paramax’s financial advisory services were sufficient to entitle Paramax to a success fee upon a closing of the Sangoma transaction. Defendants move to dismiss Paramax’s second cause of action, claiming that it is barred by the statute of frauds.

New York’s statute of frauds voids all agreements to pay compensation for services rendered in connection with the sale of a business that are not evidenced by a writing signed by the party to be charged. Paramax argues that defendants waived this defense by failing to raise it in its initial motion to dismiss. A party may move to dismiss on one or more of the grounds set forth in [CPLR 3211) subdivision (a), and no more than one such motion shall be permitted. Any objection or defense based upon a ground set forth in paragraphs one, three, four, five and six of subdivision (a) is waived unless raised either by such motion. The statute of frauds defense is set forth in paragraph five of CPLR 3211 (a). Therefore, the court agrees with Paramax that the statute of frauds defense has been waived.

. . .

The Appellate Division upheld Pararnax’s promissory estoppel cause of action, finding that it is based on alleged assurances made by defendants after the written contract was executed, which the written contract does not govern. The Appellate Division concluded that plaintiffs allegations that defendants represented to plaintiff that they would pay the success fee in order to induce plaintiff to continue to work on the deal, that plaintiff relied on defendants’ representations in performing the work, and that payment of the success fee was not made, are sufficient to state a cause of action for promissory estoppel. Defendants now claim that the promissory estoppel cause of action, like Paramax’s second cause of action, is barred by the statute of frauds. This court finds that defense similarly was waived pursuant to CPLR 3211(e).

Even if that defense had not been waived, the Appellate Division departments have unanimously recognized that promissory estoppel may preclude enforcement of the statute of frauds if application of the statute would result in unconscionability. Even if defendants had not waived the statute of frauds defense by failing to raise it in their initial motion to dismiss, the court finds that if Paramax is able to prove all of the elements alleged for promissory estoppel, dismissal of that claim would lead to an unconscionable result.

(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 an oral contract.

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Posted in Commercial, Contracts
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