Case ID: ny-2d_59/html/0500-01.html
Source: Caselaw Access Project
Author: {"author": "Chief Judge Cooke. Jasen, J.", "license": "Public Domain", "url": "https://static.case.law/"}
Date Created: 2024-08-24T03:29:51.129683

Max M. Farash, Appellant, v Sykes Datatronics, Inc., Respondent.
    Argued May 31, 1983;
    decided July 12, 1983
    
      POINTS OF COUNSEL
    
      Edward H. Fox and Edward P. Wright for appellant.
    I. Notwithstanding the Statute of Frauds, plaintiff is entitled to recover the money expended for the benefit of defendant and in anticipation of defendant becoming a tenant. (Baldwin v Palmer, 10 NY 232; Dung v Parker, 52 NY 494; Moody v Smith, 70 NY 598; Wilson v La Van, 22 NY2d 131; Tibbetts Contr. Corp. v O & E Contr. Co., 21 AD2d 915, 15 NY2d 324; Allegheny Coll. v National Chautauqua Bank of Jamestown, 246 NY 369.) II. Notwithstanding the Statute of Frauds, plaintiff is entitled to the payments due under the lease agreement. (McKinley v Hessen, 202 NY 24.) III. The completeness of the oral agreement and the degree of partial performance are issues of fact precluding the granting of summary judgment to defendant. (Club Chain of Manhattan v Christopher & Seventh Gourmet, 74 AD2d 277.) IV. Plaintiff’s partial performance is unequivocally referrable to the oral lease which is therefore enforceable notwithstanding the Statute of Frauds. (Burns v McCormick, 233 NY 230; Neverman v Neverman, 254 NY 496; Grade Sq. Realty Corp. v Choice Realty Corp., 305 NY 271; Wilson v La Van, 22 NY2d 131; Jonestown Place Corp. v 153 West 33rd St. Corp., 53 NY2d 847; Walter v Hoffman, 267 NY 365.)
    
      John M. Wilson, II, for respondent.
    I. Upon the undisputed facts, or appellant’s version of those that are controverted, the parties to the abortive lease negotiations failed to reach even oral agreement upon all terms and conditions of a rental agreement. Even absent the Statute of Frauds, this fundamental failure to agree precludes suit. (Aceste v Wiebusch, 74 AD2d 810; Willmott v Giarraputo, 5 NY2d 250; Brause v Goldman, 10 AD2d 328, 9 NY2d 620; Yorktown Sq. Assoc. v Union Dime Sav. Bank, 79 AD2d 1040; S.S.I. Investors v Korea Tungsten Min. Co., 80 AD2d 155, 55 NY2d 934; Martin Delicatessen v Schumacher, 52 NY2d 105; Read v Henzel, 67 AD2d 186; 219 Broadway Corp. v Alexander's, Inc., 46 NY2d 506; Matter of Meledandri, 108 Misc 2d 972.) II. The Statute of Frauds is a complete bar to the action. (Burns v McCormick, 233 NY 230; Neverman v Neverman, 254 NY 496; Grade Sq. Realty Corp. v Choice Realty Corp., 305 NY 271; Wilson v La Van, 22 NY2d 131; Geraci v Jenrette, 41 NY2d 660; Jonestown Place Corp. v 153 West 33rd St. Corp., 53 NY2d 847; King v Bowdy, 77 AD2d 726; Genesee Mgt. v Del Bello, 60 AD2d 779; Pollard v Meyer, 61 AD2d 766; Haskins v Loeb Rhoades & Co., 76 AD2d 751, 52 NY2d 523.) III. Appellant cannot maintain an action to recover money damages for breach of an oral contract which is within the Statute of Frauds. (Milhalko v Blood, 86 AD2d 723; Raoul v Olde Vil. Hall, 76 AD2d 319; Baldwin v Palmer, 10 NY 232; Longo v Shaker Hgts. Dev., 11 Misc 2d 278, 10 AD2d 784; Rice v Dylan, 39 AD2d 809; Matter of Ditson, 177 Misc 648; McKinley v Hessen, 202 NY 24.) IV. If appellant’s action upon the oral agreement is barred by the Statute of Frauds, he may not circumvent that statute by alleging alternative causes of action. (Dung v Parker, 52 NY 494; Club Chain of Manhattan v Christopher & Seventh Gourmet, 74 AD2d 277, 53 NY2d 703; Redlark Realty Corp. v Minkin, 306 NY 762; Roberts v Champion Int., 52 AD2d 773, 40 NY2d 918; Subirana v Munds, 257 App Div 956, 282 NY 726; Intercontinental Planning v Daystrom, Inc., 30 AD2d 519, 24 NY2d 372; Rogoff v San Juan Racing Assn., 77 AD2d 831, 54 NY2d 883; Breed v Insurance Co. of North Amer., 81 AD2d 675, 54 NY2d 604; Tibbetts Contr. Corp. v O & E Contr. Co., 21 AD2d 915, 15 NY2d 324; Wilson v La Van, 22 NY2d 131.)
   OPINION OF THE COURT

Chief Judge Cooke.

Plaintiff claims that he and defendant entered an agreement whereby defendant would lease a building owned by plaintiff, who was to complete its renovation and make certain modifications on an expedited basis. Defendant, however, never signed any contract and never occupied the building. Plaintiff commenced this litigation, and defendant unsuccessfully moved to dismiss for failure to state a cause of action. On appeal, the Appellate Division reversed, with two Justices dissenting in part. For the reasons that follow, we now modify.

Plaintiff pleaded three causes of action in his complaint. The first was to enforce an oral lease for a term longer than one year. This is clearly barred by the Statute of Frauds (General Obligations Law, § 5-703, subd 2). The third cause of action is premised on the theory that the parties contracted by exchanging promises that plaintiff would perform certain work in his building and defendant would enter into a lease for a term longer than one year. This is nothing more than a contract to enter into a lease; it is also subject to the Statute of Frauds (see Geraci v Jenrette, 41 NY2d 660, 664). Hence, the third cause of action was properly dismissed.

Plaintiff’s second cause of action, however, is not barred by the Statute of Frauds. It merely seeks to recover for the value of the work performed by plaintiff in reliance on statements by and at the request of defendant. This is not an attempt to enforce an oral lease or an oral agreement to enter a lease, but is in disaffirmance of the void contract and so may be maintained (see Baldwin v Palmer, 10 NY 232, 235). That defendant did not benefit from plaintiff’s efforts does not require dismissal; plaintiff may recover for those efforts that were to his detriment and that thereby placed him in a worse position (see Kearns v Andree, 107 Conn 181; 5 Corbin, Contracts, § 1107; 12 Williston, Contracts [3d ed], § 1480). “The contract being void and incapable of enforcement in a court of law, the party * * * rendering the services in pursuance thereof, may treat it as a nullity, and recover * * * the value of the services” (Erben v Lorillard, 19 NY 299, 302; accord Day v New York Cent. R. R. Co., 51 NY 583, 590).

The dissent’s primary argument is that the second cause of action is equivalent to the third, and so is also barred by the Statute of Frauds. It is true that plaintiff attempts to take the contract outside the statute’s scope and render it enforceable by arguing that the work done was unequivocally referable to the oral agreement. This should not operate to prevent recovery under a theory of quasi contract as a contract implied by law, which “is not a contract at all but an obligation imposed by law to do justice even though it is clear that no promise was ever made or intended” (Calamari and Perillo, Contracts [2d ed], § 1-12, p 19). Obviously, the party who seeks both to enforce the contract that is unenforceable by virtue of the Statute of Frauds and to recover under a contract implied in law will present contradictory characterizations. This, however, is proper in our courts where pleading alternative theories of relief is accepted. Moreover, the existence of any real promise is unnecessary; plaintiff’s attempt to make his acts directly referable to the unenforceable contract simply is irrelevant.

The authorities all recognize that a promisee should be able to recover in the present situation. “[I]f the improvements made by the plaintiff are on land that is not owned by the defendant and in no respect add to his wealth, the plaintiff will not be given judgment for restitution of their value, even though he may have made such improvements in reliance upon the contract that the defendant has broken. For such expenditures as these in reliance on a contract, the plaintiff can get judgment only in the form of damages for consequential injury” (5 Corbin, Contracts, p 578 [n omitted]). Thus, plaintiff may recover for those expenditures he made in reliance on defendant’s representations (see id., §§ 998, 1011) and that he otherwise would not have made. The Restatement provides that an injured party who has not conferred a benefit may not obtain restitution, but he or she may “have an action for damages, including one for recovery based on * * * reliance” (Restatement, Contracts 2d, § 370, Comment a). “[T]he injured party has a right to damages based on his reliance interest, including expenditures made in preparation for performance or in performance, less any loss that the party in breach can prove with reasonable certainty the injured party would have suffered had the contract been performed” (Restatement, Contracts 2d, § 349). The Restatement recognizes an action such as is involved here (see Restatement, Contracts 2d, §§ 139, 349, Comment b).

The dissent relies on Bradkin v Leverton (26 NY2d 192) and Miller v Schloss (218 NY 400) for the proposition that plaintiff can recover only if there is an actual benefit to the defendant. Those cases do not state that there can be no recovery for work performed in the absence of any real benefit to defendant. As stated by Professor Williston (12 Williston, Contracts [3d ed], pp 282-284, 286-287 [nn omitted]):

“Again, even though the defendant’s liability is imposed by law irrespective of the agreement of the parties, and may, therefore, be called quasi contractual, where the defendant is a wrongdoer the plaintiff may well be preferred, and if a complete restoration of the status quo or its equivalent is impossible the plaintiff should at least be replaced in as good a position as he originally was in, although the defendant is thereby compelled to pay more than the amount which the plaintiff’s performance has benefited him.

***

“That is, the law should impose on the wrongdoing defendant a duty to restore the plaintiff’s former status, not merely to surrender any enrichment or benefit that he may unjustly hold or have received; although if the market value or, in the absence of a market value, the benefit to the defendant of what has been furnished exceeds the cost or value to the plaintiff, there is no reason why recovery of this excess should not be allowed.

“These different possible situations, as has been said, have often been confused with one another, because the form of action in each of them was identical at common law — general assumpsit on a quantum meruit or quantum valebat count; and this tended to induce courts and others to inquire what is the rule of damages under such counts — a question not susceptible of a single answer.”

A lesson in this area can be taken from Professors Calamari and Perillo: “The basic aim of restitution is to place the plaintiff in the same economic position as he enjoyed prior to contracting. Thus, unless specific restitution is obtained in Equity, the plaintiff’s recovery is for the reasonable value of services rendered, goods delivered, or property conveyed less the reasonable value of any counter-performance received by him. The plaintiff recovers the reasonable value of his performance whether or not the defendant in any economic sense benefitted from the performance. The quasi-contractual concept of benefit continues to be recognized by the rule that the defendant must have received the plaintiff’s performance; acts merely preparatory to performance will not justify an action for restitution. ‘Receipt,’ however, is a legal concept rather than a description of physical fact. If what the plaintiff has done is part of the agreed exchange, it is deemed to be ‘received’ by the defendant.” (Calamari and Perillo, Contracts [2d ed], § 15-4, p 574 [nn omitted]; see, also, id., § 19-44; Perillo, Restitution in a Contractual Context, 73 Col L Rev 1208, 1219-1225).

We should not be distracted by the manner in which a theory of recovery is titled. On careful consideration, it becomes clear that the commentators do not disagree in result, but only in nomenclature. Whether denominated “acting in reliance” or “restitution,” all concur that a promisee who partially performs (e.g., by doing work in a building or at an accelerated pace) at a promisor’s request should be allowed to recover the fair and reasonable value of the performance rendered, regardless of the enforceability of the original agreement.

Accordingly, the order of the Appellate Division should be modified, with costs to appellant, by reinstating plaintiff’s second cause of action and, as so modified, affirmed.

Jasen, J.

(dissenting). Plaintiff’s second cause of action alleges that “[p]laintiff, in reliance on statements made [by] the defendant and at its request, performed work, provided labor and material to the defendant” and that “[defendant has failed to compensate the plaintiff for monies and other expenses incurred by the plaintiff in preparing the property at 49 East Avenue to the defendants’ needs”, causing damage to the defendant in the amount of $400,000.

The majority hold that this cause of action is not barred by the Statute of Frauds as it “merely seeks to recover for the value of the work performed by plaintiff in reliance on statements by and at the request of defendant” and does not “attempt to enforce an oral lease or an oral agreement to enter [into] a lease.” Inasmuch as the record before us on this motion for summary judgment clearly demonstrates that this cause of action is barred by the Statute of Frauds, I must dissent.

Plaintiff alleges that “in reliance on statements made [by] the defendant”, he performed certain work and provided labor and material to the defendant. In his affidavit in support of this claim, he sets forth the substance of those statements — “Timing is critical and we would like to have you go ahead with the work. Don’t worry about the lease, it will be signed and the work should not wait for the actual signing of the lease” and “We need two floors for immediate occupancy on June 1. We will pay rent for the entire building as soon as we move in and then you can proceed with the other floors after the first two floors are ready.” Plaintiff’s own affidavits, therefore, conclusively establish that the work he performed was done in reliance on defendant’s oral agreement to enter into a lease and not in reliance on defendant’s promise, express or implied, to compensate plaintiff monetarily for the work performed separate and apart from entering into a leasehold. Nowhere, in any of the exhibits and affidavits offered by plaintiff in opposition to defendant’s motion for summary judgment does plaintiff even allege that defendant agreed to pay for plaintiff’s renovation work or that plaintiff expected any such compensation. Indeed, in summing up the contents of his own evidentiary support, plaintiff states that “[c]learly our performance of the obligation to renovate the Neisner Building is unequivocally referable to the oral agreement entered into on March 16, 1981 [whereby defendant allegedly agreed to lease the building for two years]”. It is abundantly clear, therefore, that plaintiff, in asserting a right to recover damages under his second cause of action, based solely upon defendant’s failure to honor its oral promise to enter into a two-year lease, is merely engaging in a blatant attempt to circumvent the proscriptions .of the Statute of Frauds. The only claim plaintiff has alleged and supported with evidentiary facts is that he performed work in reliance on defendant’s alleged promise to enter into a two-year lease of the Neisner Building and suffered damages when defendant subsequently refused to rent the premises. However his claim is worded, it should be beyond dispute that plaintiff is seeking damages for defendant’s breach of an oral contract to enter into a two-year lease. Since this type of contract is barred by the Statute of Frauds, plaintiff should not be allowed to do indirectly what he cannot do directly.. (See Dung v Parker, 52 NY 494, 497; Roberts v Champion Int., 52 AD2d 773, mot for lv to app dsmd 40 NY2d 918.)

It is noteworthy that the amount of damages sought in plaintiff’s second cause of action is identical to that sought in his third cause of action, indicating that the same theory of recovery is asserted in both. Since as the majority concedes, the third cause of action alleges nothing more than a contract to enter into a lease and must, therefore, be dismissed, there is no reason why the second cause of action should not be treated similarly. Furthermore, the amount of damages sought, $400,000, happens to be the annual rental price allegedly agreed upon by the defendant, which further demonstrates that plaintiff is seeking relief solely on the theory that defendant wrongfully refused to lease the premises. It is also noteworthy that, prior to the issue being raised by the dissent at the Appellate Division, plaintiff did not argue in his brief or orally before that court that he expected monetary compensation from the defendant or that the defendant expressly or impliedly agreed to pay same. Indeed, it seems clear that the plaintiff himself never intended his complaint to be construed as the majority does today. From all of this, there should be little doubt that plaintiff’s second cause of action was intended to and does merely seek damages for defendant’s alleged breach of an oral contract to enter into a two-year lease and cannot, therefore, be maintained.

Assuming, arguendo, that the majority is correct in holding that plaintiff’s second cause of action alleges his entitlement to monetary compensation and that his affidavits support his allegations, the plaintiff, would, nevertheless, not be entitled to relief.

The majority fails to specify the theory of recovery upon which it bases its conclusion that “plaintiff may recover for those efforts that were to his detriment and that thereby placed him in a worse position”. Insofar as this conclusion is based upon quasi contract, it is incorrect for the well-established rule in this State is that in order for a plaintiff to recover under such a cause of action, he must demonstrate 'that the defendant was unjustly enriched by his efforts. The rule has been clearly set forth by this court and consistently followed: “ ‘[a] quasi or constructive contract rests upon the equitable principle that a person shall not be allowed to enrich himself unjustly at the expense of another. In truth it is not a contract or promise at all. It is an obligation which the law creates, in the absence of any agreement, when and because the acts of the parties or others have placed in the possession of one person money, or its equivalent, under such circumstances that in equity and good conscience he ought not to retain it, and which ex aequo et bono belongs to another.’ ” (Bradkin v Leverton, 26 NY2d 192, 197, quoting Miller v Schloss, 218 NY 400, 407.) (See, also, Shapira v United Med. Servs., 15 NY2d 200, 216; Pink v Title Guar. & Trust Co., 274 NY 167, 173; D’Angelo v Hastings Oldsmobile, 89 AD2d 785, 786, affd 59 NY2d 773; Matter of James v State of New York, 90 AD3d 342, 346-347; 50 NY Jur, Restitution and Implied Contracts, § 74, p 339; cf. Smith v Kirkpatrick, 305 NY 66, 72, 73.) Since, as the majority correctly points out, defendant did not benefit from plaintiff’s efforts, no recovery under quasi contract may be had. (See 5 Corbin, Contracts, § 1107, p 578.)

The “lesson” provided by Professors Calamari and Perillo, cited by the majority, is inapposite to the case before us because section 15-4 of their text deals exclusively with actions based on breach while plaintiff does not allege in his second cause of action that defendant breached any agreement. Additionally, I note that insofar as this statement would allow recovery by the plaintiff under a theory of restitution, even though the defendant has not been benefited by any of plaintiff’s efforts, such is not the law in New York. (See Bradkin v Leverton, 26 NY2d 192, 197, supra.) The majority itself concedes this point in stating, “an injured party who has not conferred a benefit may not obtain restitution” (at p 504). Moreover, assuming arguendo the accuracy of the legal principle stated by Calamari and Perillo, this principle does not accord relief to the plaintiff in the instant appeal. As the two professors correctly note, “the defendant must have received the plaintiff’s performance; acts merely preparatory to performance will not justify an action for restitution.” First, defendant received nothing from the plaintiff, as the majority accurately points out. Second, plaintiff’s acts in renovating his building were “merely preparatory to performance” of the alleged oral contract whereby plaintiff and defendant agreed to enter into a two-year lease. Thus, even if section 15-4 were applicable, plaintiff would not be entitled to the relief which the majority is offering.

I also fail to see how sections 998 and 1011 of Corbin’s treatise and sections 349 and 370 of the Restatement of Contracts, Second, support the majority’s position. Corbin’s discussion of reliance damages in sections 998 and 1011 (like Calamari and Perillo’s) is concerned solely with a remedy available to a plaintiff injured by a defendant who has breached a contract. Since there was no such contract entered into by the parties here, and accordingly no breach thereof, those sections of Corbin’s text do not even address the issue involved here.

Similarly, the Restatement lends no support to the majority’s view. While it is true that section 370 would allow a party to maintain “an action for damages, including one for recovery based on * * * reliance”, a reading of the entire section, including its cite to section 349 as the sole authority for this proposition, makes clear that such an action is based strictly on a theory of promissory estoppel, a theory which, as is discussed more fully below, has never been asserted by the parties and which this court has heretofore declined to adopt.

The majority also mistakenly relies on a quote from section 349 of the Restatement of Contracts, Second — “[T]he injured party has a right to damages based on his reliance interest, including expenditures made in preparation for performance or in performance, less any loss that the party in breach can prove with reasonable certainty the injured party would have suffered had the contract been performed” (emphasis supplied) (at p 504). This passage, by its very terms, deals solely with remedies available where a party has breached an existing contract. Plaintiff, however, does not allege in his second cause of action the existence of any contract. Nor does he allege that defendant committed any breach. In the majority’s view, plaintiff’s second cause of action is not based upon breach of contract, but, rather, “is in disaffirmance of the void contract”. (At p 503.) Thus, section 349 of the Restatement does not address the situation presented on this appeal and, accordingly, provides no support for the majority’s position.

It appears that the majority, in holding that plaintiff can recover the value of his efforts expended in reliance on defendant’s alleged statements, is recognizing a cause of action sounding in promissory estoppel. This is implicit in its reference to the Restatement of Contracts, Second, section 139 and section 349, Comment b, as support for its conclusion that “[t]he Restatement recognizes an action such as is involved here”. Section 139 is quite simply one of the estoppel sections of the Restatement. (See Restatement, Contracts 2d, § 139, Comment a.) Moreover, Comment b to section 349 sets forth the instances in which damages may be based on plaintiff’s reliance interest. Those instances are spelled out in sections 87 (option contract), 89 (modification of executory contract), 90 (promissory estoppel) and 139 (promissory estoppel). Since this appeal does not involve option or executory contracts, the ineluctable conclusion to be drawn is that the majority has recognized, sub silentio, a cause of action in promissory estoppel.

While the doctrine of promissory estoppel has been recognized and applied in certain cases, to do so here, where the issue has not been pleaded or addressed in the parties’ affidavits and has neither been argued nor briefed, is ill-advised. Moreover, it is difficult to understand why the majority, in discussing plaintiff’s reliance damages, ignores the fact made abundantly clear by plaintiff’s own affidavits and his conduct during the early stages of his litigation, that plaintiff has merely alleged, in all three causes of action, that he is entitled to monetary damages from defendant because he relied on defendant’s alleged promise to enter into a two-year lease — a promise unenforceable under the Statute of Frauds. This is all the more puzzling because we are not presented here with an inexperienced or unsophisticated plaintiff who is unable to protect his own financial interests. To the contrary, Max Farash is a “prominent and successful [real estate] developer” (see Farash v Smith, 59 NY2d 952, 955) who owns thousands of residential housing units in Monroe County and at least eight commercial buildings in downtown Rochester. In light of this, it is incredible that the majority would construe plaintiff’s complaint and affidavits in a way that even the plaintiff never intended and then adopt a novel legal doctrine solely for the purpose of extending equitable relief to the plaintiff where it would previously have been unavailable. Surely a sophisticated businessman such as Max Farash knew that he could have easily insured that defendant would pay for the extensive renovation work plaintiff performed on his own building merely by obtaining defendant’s promise to that effect. Plaintiff’s failure to obtain such a promise leads inevitably to the conclusion that defendant never intended to pay for such renovation and, thus, never agreed to do so. Nevertheless, the majority unnecessarily provides plaintiff with an opportunity to go before a jury and request that the defendant, who received nothing from the plaintiff, be ordered to pay for the improvements made on plaintiff’s own building. Nothing in logic or existing law supports such a result.

In the absence of either a contract requiring defendant to pay for plaintiff’s renovation or some evidence that defendant was unjustly enriched, thus allowing plaintiff to recover under a cause of action sounding in quasi contract, defendant should not be held potentially liable to plaintiff for such renovation costs. Accordingly, I would affirm the order of the Appellate Division.

Judges Jones, Wachtler and Meyer concur with Chief Judge Cooke; Judge Jasen dissents and votes to affirm in a separate opinion in which Judge Simons concurs.

Order modified, with costs to appellant, in accordance with the opinion herein and, as so modified, affirmed.