Was Oral Agreement to Develop Property Unenforceable?

This was originally published on the SGR Blog.

Claim Stated for Unjust Enrichment or Other Relief?

The Statute of Frauds may bar the enforcement of an oral agreement to develop real property. But, as a recent case illustrates, the “breach” may support a claim for unjust enrichment.

Clean Robins sued Wenn, Ltd. (Wenn) over a dispute with respect to the property known as 166 Williams Street, also known as 41-43 Beekman Street, owned by Wenn.

Robins alleged that, in 2016, he and Wenn entered into an agreement to convert the property into a 7-story building with occupancy for short-term rentals on floors 2-7 with the existing restaurant to remain on the first floor. They agreed to form an operating company that would lease but not pay rent to the building, and would not pay Robins for the design of the building, supervision of construction, including but not limited to the management of the intended business. The operating company was to issue 25% interest to the Robins and 75% interest to Wenn. Robins would receive yearly 25% of the net income and Wenn 75% of the net income. Robins spent three years undertaking the conversion, which included, but was not limited to, design, layout of the building, retention of attorneys, architects, engineers, asbestos testing, building expediters, code consult, elevator consult, contractors, insurance brokers, preparation of financial projection, and securing of a mortgage for conversion. Robins had complied with the initial agreement of the parties.

Robins alleged that, on August 21, 2019, Wenn wrongfully terminated the agreement. Robins sued. Wenn moved to dismiss the complaint and to vacate the notice of pendency.

Robins alleged a breach of an oral agreement between the parties, but the promise to convey an interest in land, i.e., to lease the property for a term of more than one year to a yet to be formed operating company, was unenforceable under the Statute of Frauds (General Obligations Law § 5-703).

Because Robins did not allege the formation of any operating corporation, the oral agreement to convey a lease to such entity was likewise unenforceable as an “agreement to agree.” What’s more, Robins admitted that delays of the New York City Building Departments, which were out of their control, and thus made no factual allegations that the contract could be performed within one year. Therefore, the Court agreed with Wenn that such agreement was also unenforceable under Statute of Frauds provision General Obligations Law § 5-701.

The second cause of action for breach of implied covenant of good faith and fair dealing lacked merit, as such claim was intrinsically tied to the damages allegedly resulting from a breach of contract. Because the cause of action for breach of contract failed, the breach of implied covenant claim also failed.

But all was not lost. Robins’ complaint adequately asserted, as its fourth cause of action, unjust enrichment, the elements of which are: defendant was enriched; at plaintiff’s expense; such that it was against equity and good conscience to permit defendant to retain what was sought to be recovered.

However, the fourth cause of action did not state a meritorious claim for breach of fiduciary duty. Such a relationship, necessarily fact specific, is grounded in a higher level of trust than normally present in the marketplace between those involved in arm’s length business transactions.

Robins did not adequately allege a cause of action (equitable estoppel) sounding in tort. The complaint failed to allege any violation of a legal duty independent, i.e., “separate and apart,” from any contractual obligation. Robins merely duplicated the inadequately asserted breach of contract claim. Because there was no enforceable oral agreement for Wenn to perform, Robins could not allege that Wenn misrepresented its intention to perform. Thus, the equitable estoppel cause of action did not sufficiently state a claim sounding in misrepresentation.

Because Robins did not have a legitimate claim to an interest in the property, he was not entitled to the notice of pendency. Indeed, Robins alleged in his complaint that Wenn owned the property. Thus, Robins’ filing of the lis pendens was baseless. Wenn was entitled to recover costs. A showing of bad faith on Robins’ part was not a prerequisite for such an award.

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