Real Property Law

Constructive Trust Claim Survives Dismissal

Kunkel v. Kunkel

NYLJ 4/15/09, p. 29., col. 3

Supreme Ct., Nassau Cty.

(LaMarca, J.)

In son's action against his father to impose a constructive trust on real property, father moved for dismissal of the complaint. The court denied the motion, holding that son's allegations of an oral promise, together with the son's reliance on that promise, were sufficient to state a claim for imposition of a constructive trust.

Father and his first wife acquired the subject premises in 1961. In 1985, they converted the second floor into a separate unit so that the building would be a legal two-family home. Son has lived in the building for his entire life. His complaint alleges that in 1986, when he married, father promised to transfer the entire house to him if he remained in the upstairs apartment. That transfer was not to take place before Dec. 31, 1999. Son further alleges that in reliance on his father's promises, he made payments of $800 to $1,000 per month in order to build equity in the house, and he also contends that he made substantial improvements. He contends that in July 2008, father, influenced by a new and younger wife, demanded that he vacate the premises and refused to recognize son's interest in the premises. Son brought this action for imposition of a constructive trust, breach of contract, fraud, conversion, and partition. Father moved to dismiss.

In denying father's motion to dismiss, the court held that son's complaint stated a cause of action for imposition of a constructive trust. The court noted that the complaint alleged that over 23 years, the son paid $300,000 to the father in reliance on the father's promise to convey title, and that failure to enforce the father's promise would now leave the son and his wife without their own home and burdened by the necessity of paying a mortgage well into retirement. The court held that these allegations were sufficient to avoid dismissal of the complain. The court did, however, dismiss the breach of contract claim based on the statute of frauds, and refused to apply the part performance exception to the statute of frauds because the parties' behavior was consistent with a landlord-tenant relationship as well as with the alleged oral contract. Because the only fraud alleged was breach of the contract, the court dismissed the fraud claim. Finally, the court held that son's alleged equitable interest was insufficient to sustain a claim for partition.

COMMENT

Although the statute of frauds ordinarily prevents enforcement of oral agreements to convey land, a promise may invoke constructive trust doctrine or part performance doctrine to avoid the statute of frauds. Constructive trust doctrine is most helpful to a promise when the parties have been engaged in a confidential relationship which explains that absence of a written contract and triggers equitable considerations. For example, in Sharp v. Kosmalski, 40 N.Y.2d 119, a dairy farmer developed a close relationship with a younger woman, asked her to marry him, provided her with access to his bank accounts, and transferred his dairy farm to her. She responded by ordering the dairy farmer to move out of his home and vacate the farm. Although the transfer was made without an explicit promise or understanding, the Court of Appeals held that an agreement should be implied from the circumstances, and that a constructive trust in favor of the farmer should be imposed if, on a review of the facts, the courts below concluded that the woman had been unjustly enriched.

Where no confidential relationship exists, a promisee may rely on General Obligations Law ' 5-703(4), which provides an exception to the statute of frauds where there is part performance that is unequivocally referable to an oral agreement. The part performance exception pre-dates the statutory exception. Thus, in Walter v. Hoffman, 267 N.Y. 365, the Court of Appeals applied the doctrine to hold a vendee bound to an oral agreement to buy a home.. Pursuant to the agreement vendee would pay vendor profits realized from a joint business venture and vendor would retain the executed deed until such payments were made in full. In reliance on this agreement vendee took possession of the premises, paid part of the purchase price, and made alterations and improvements. The court held that vendee's performance pointed unequivocally to the existence of a oral contract binding on both parties.

Part performance may only be invoked if a party's actions cannot be explained without reference to the oral agreement. It is not sufficient that the oral agreement merely give significance to a party's actions. In Anosario v. Vicinanzo, 59 N.Y.2d 662, plaintiff alleged an oral agreement whereby plaintiff and defendant would hold equal shares of a corporation formed to hold title to a commercial building. The court held that plaintiff's signing of the purchase agreement and bank note and assigning his interest to the corporation was not unequivocally referable to the oral agreement. Although the oral agreement may have been a possible motivation for plaintiff's actions, the plaintiff's performance could also reasonably be explained as consideration for compensation other than (or in addition to) an equity interest in the corporation or even as steps taken in pursuit of a future agreement.

Statute of Limitations Bars Rescission Claim

Prand Corp. v. County of Suffolk

NYLJ 5/12/09, p. 40., col. 1

AppDiv, Second Dept.

(memorandum opinion)

In an action by seller to rescind a contract for the sale of real property, seller appealed from Supreme Court's dismissal of the complaint. The Appellate Division affirmed, holding that the claims advanced by seller were either barred by the statute of limitations or not ripe for review.

In 2000, seller contracted to sell the disputed parcel to the County of Suffolk for $5 million. The sale closed about two weeks later, and the purchase price was paid. In 2002, the state Attorney General brought an action against seller and others, contending that improper actions by seller's principal and by county officials resulted in an inflated purchase price. The Attorney General sought to recoup part of the purchase price; that action is still pending. In 2006, seller brought this action against the county seeking to rescind the contract based on mutual mistake, fraudulent inducement, failure of consideration, and equitable rescission. The Supreme Court granted the county's motion to dismiss, and seller appealed.

In affirming, the Appellate Division first held that the claim based on rescission for mutual mistake was barred by the six-year statute of limitations. The action was brought six years from the date of closing, but the court held that the rescission claims ripened on the date the contract was signed ' more than six years before the action was brought. The court then held that the discovery rule did not save the fraud claim, because the Attorney General's 2002 action triggered a duty to inquire about potential fraud, and more than two years expired between the Attorney General's action and commencement of this action. The court then turned to seller's other claims, which were predicated on the possibility that the Attorney General would recoup part of the purchase price received by seller. The court concluded that those claims ' for failure of consideration and for equitable rescission ' created no present controversy because the Attorney General's action has not yet been resolved. As a result, the court concluded that those claims were not ripe for review.

Constructive Trust Claim Survives Dismissal

Kunkel v. Kunkel

NYLJ 4/15/09, p. 29., col. 3

Supreme Ct., Nassau Cty.

(LaMarca, J.)

In son's action against his father to impose a constructive trust on real property, father moved for dismissal of the complaint. The court denied the motion, holding that son's allegations of an oral promise, together with the son's reliance on that promise, were sufficient to state a claim for imposition of a constructive trust.

Father and his first wife acquired the subject premises in 1961. In 1985, they converted the second floor into a separate unit so that the building would be a legal two-family home. Son has lived in the building for his entire life. His complaint alleges that in 1986, when he married, father promised to transfer the entire house to him if he remained in the upstairs apartment. That transfer was not to take place before Dec. 31, 1999. Son further alleges that in reliance on his father's promises, he made payments of $800 to $1,000 per month in order to build equity in the house, and he also contends that he made substantial improvements. He contends that in July 2008, father, influenced by a new and younger wife, demanded that he vacate the premises and refused to recognize son's interest in the premises. Son brought this action for imposition of a constructive trust, breach of contract, fraud, conversion, and partition. Father moved to dismiss.

In denying father's motion to dismiss, the court held that son's complaint stated a cause of action for imposition of a constructive trust. The court noted that the complaint alleged that over 23 years, the son paid $300,000 to the father in reliance on the father's promise to convey title, and that failure to enforce the father's promise would now leave the son and his wife without their own home and burdened by the necessity of paying a mortgage well into retirement. The court held that these allegations were sufficient to avoid dismissal of the complain. The court did, however, dismiss the breach of contract claim based on the statute of frauds, and refused to apply the part performance exception to the statute of frauds because the parties' behavior was consistent with a landlord-tenant relationship as well as with the alleged oral contract. Because the only fraud alleged was breach of the contract, the court dismissed the fraud claim. Finally, the court held that son's alleged equitable interest was insufficient to sustain a claim for partition.

COMMENT

Although the statute of frauds ordinarily prevents enforcement of oral agreements to convey land, a promise may invoke constructive trust doctrine or part performance doctrine to avoid the statute of frauds. Constructive trust doctrine is most helpful to a promise when the parties have been engaged in a confidential relationship which explains that absence of a written contract and triggers equitable considerations. For example, in Sharp v. Kosmalski, 40 N.Y.2d 119, a dairy farmer developed a close relationship with a younger woman, asked her to marry him, provided her with access to his bank accounts, and transferred his dairy farm to her. She responded by ordering the dairy farmer to move out of his home and vacate the farm. Although the transfer was made without an explicit promise or understanding, the Court of Appeals held that an agreement should be implied from the circumstances, and that a constructive trust in favor of the farmer should be imposed if, on a review of the facts, the courts below concluded that the woman had been unjustly enriched.

Where no confidential relationship exists, a promisee may rely on General Obligations Law ' 5-703(4), which provides an exception to the statute of frauds where there is part performance that is unequivocally referable to an oral agreement. The part performance exception pre-dates the statutory exception. Thus, in Walter v. Hoffman, 267 N.Y. 365, the Court of Appeals applied the doctrine to hold a vendee bound to an oral agreement to buy a home.. Pursuant to the agreement vendee would pay vendor profits realized from a joint business venture and vendor would retain the executed deed until such payments were made in full. In reliance on this agreement vendee took possession of the premises, paid part of the purchase price, and made alterations and improvements. The court held that vendee's performance pointed unequivocally to the existence of a oral contract binding on both parties.

Part performance may only be invoked if a party's actions cannot be explained without reference to the oral agreement. It is not sufficient that the oral agreement merely give significance to a party's actions. In Anosario v. Vicinanzo , 59 N.Y.2d 662, plaintiff alleged an oral agreement whereby plaintiff and defendant would hold equal shares of a corporation formed to hold title to a commercial building. The court held that plaintiff's signing of the purchase agreement and bank note and assigning his interest to the corporation was not unequivocally referable to the oral agreement. Although the oral agreement may have been a possible motivation for plaintiff's actions, the plaintiff's performance could also reasonably be explained as consideration for compensation other than (or in addition to) an equity interest in the corporation or even as steps taken in pursuit of a future agreement.

Statute of Limitations Bars Rescission Claim

Prand Corp. v. County of Suffolk

NYLJ 5/12/09, p. 40., col. 1

AppDiv, Second Dept.

(memorandum opinion)

In an action by seller to rescind a contract for the sale of real property, seller appealed from Supreme Court's dismissal of the complaint. The Appellate Division affirmed, holding that the claims advanced by seller were either barred by the statute of limitations or not ripe for review.

In 2000, seller contracted to sell the disputed parcel to the County of Suffolk for $5 million. The sale closed about two weeks later, and the purchase price was paid. In 2002, the state Attorney General brought an action against seller and others, contending that improper actions by seller's principal and by county officials resulted in an inflated purchase price. The Attorney General sought to recoup part of the purchase price; that action is still pending. In 2006, seller brought this action against the county seeking to rescind the contract based on mutual mistake, fraudulent inducement, failure of consideration, and equitable rescission. The Supreme Court granted the county's motion to dismiss, and seller appealed.

In affirming, the Appellate Division first held that the claim based on rescission for mutual mistake was barred by the six-year statute of limitations. The action was brought six years from the date of closing, but the court held that the rescission claims ripened on the date the contract was signed ' more than six years before the action was brought. The court then held that the discovery rule did not save the fraud claim, because the Attorney General's 2002 action triggered a duty to inquire about potential fraud, and more than two years expired between the Attorney General's action and commencement of this action. The court then turned to seller's other claims, which were predicated on the possibility that the Attorney General would recoup part of the purchase price received by seller. The court concluded that those claims ' for failure of consideration and for equitable rescission ' created no present controversy because the Attorney General's action has not yet been resolved. As a result, the court concluded that those claims were not ripe for review.