Reliance on Emails Not Enough to Avoid Dismissal Under Statute of Frauds

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Posted on: Jan 17 2023

The statute of frauds provides that “[a] contract for the . . . 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 lawful agent thereunto authorized by writing.”¹ “To satisfy the statue of frauds, a memorandum evidencing a contract and subscribed by the party to be charged must designate the parties, identify and describe the subject matter, and state all of the essential terms of a complete agreement.”² The memorandum may be informal – it can be a series of emails – and therefore in compliance with the statute of frauds “where it identifies the parties, [and] describes the subject property, [and] recites all essential terms of a complete [real estate] agreement.”³ “If the contract does not contain all the necessary terms, the law presumes that the parties have not reached an agreement as to such terms and, therefore the agreement is fatally flawed and unenforceable.”⁴ In that instance, or if “it is necessary to resort to parol evidence to ascertain what was agreed to, the remedy of specific performance is not available.”⁵

Notably, an agreement as to price only is insufficient to create an enforceable real estate contract.⁶ Instead, the agreement must also include “those terms customarily encountered in transactions of this nature, such as … [the deposit or down payment to be made on signing,] the time and terms of payment, the required financing, the closing date, the quality of title to be conveyed, the risk of loss during the sale period, adjustments for taxes and utilities, etc.”⁷

In Levinson v. 77 Perry Realty Corp., 2023 N.Y. Slip Op. 00160 (1st Dept. Jan. 12, 2023) (here), the Appellate Division, First Department addressed the foregoing issues and held that the alleged agreement violated the statute of frauds.

[Ed. Note: this Blog examined the enforceability of emails under the statute of frauds here and here.]

Levinson involved a dispute between the owners of shares in a cooperative building and the board of directors (the “Board”) of the corporation (“Corporation”).

[Ed. Note: the background discussion that follows comes from the motion court’s decision.]

Plaintiffs owned two apartments (collectively the “Apartments”) in the cooperative apartment building owned by defendant (“Co-op”). Plaintiffs planned to combine the Apartments into a duplex and renovate the roof space above the Apartments.

The roof space was valued at $ 98,000 or 104 shares of stock in the Co-op. Plaintiffs offered more than $127,000 to the Corporation for 122 shares of stock allocated to the roof space. Plaintiffs claimed that the Board accepted their offer via email through the Corporation’s managing agent.

Plaintiffs maintained that all material terms of the transaction were set forth in the e-mail exchange, including: a) price; b) allocation of shares of stock; c) plaintiffs’ agreement to obtain approval from the New York City Landmarks Preservation Commission; d) plaintiffs’ agreement to file the appropriate documents with the New York City Department of Buildings; and e) plaintiffs’ agreement to amend the certificate of occupancy for the building. After the e-mail exchange with the managing agent, defendant emailed the Corporation’s shareholders to explain the basis for its agreement to sell the roof space to plaintiffs.

In December 2013, the members of the Board who allegedly agreed to the sale of the roof space lost their bid for re-election. Shortly thereafter, the newly constituted Board refused to provide plaintiffs with a formal contract for the roof space and advised plaintiffs that defendant would not be moving forward with the sale.

Thereafter, plaintiffs commenced the action to enforce their purported contractual rights to purchase the roof space. Among other causes of action, plaintiffs alleged that the Board breached the contract that was formed by the parties’ emails.

The motion court denied plaintiffs’ motion for summary judgment on their breach of contract and specific performance claims and granted defendant’s motion for summary judgment dismissing the breach of contract and specific performance claims.

On appeal, the First Department unanimously affirmed the motion court’s order.

The Court held that the email exchange relied upon by plaintiffs “did not contain all material terms of the contract to satisfy the statute of frauds”.⁸ Although the email exchange included the price and the “specific number of shares being issued to plaintiffs”, it did not include any other terms, such as “financing, terms of payment, or a closing date”, explained the Court.⁹ “Moreover,” said the Court, the “communications that followed indicated that the parties were negotiating additional material terms concerning the sale of the roof space, including additional maintenance fees, responsibility for maintaining the roof deck, and other issues surrounding aspects of the roof structure”.¹⁰ Finally, the Court found that “the parties’ communications show[ed] that they anticipated entering into a formal contract and that the board would not make a final decision on the sale until the annual shareholders’ meeting”.¹¹ The Court concluded that “[t]he totality of the parties’ communications thus show[ed] that the early emails relied upon by plaintiff did not constitute a binding contract”.¹²

Takeaway

The emails relied upon by the plaintiffs in Levinson to establish the alleged agreement to purchase the roof space were insufficient to satisfy the statute of frauds, as they left for future negotiations essential terms of the contemplated contract, such as “financing, terms of payment, [and] a closing date”, as well as “additional maintenance fees, responsibility for maintaining the roof deck, and other issues surrounding aspects of the roof structure”.¹³ The “essential terms” that courts look for in determining whether informal writings, like email exchanges, are enforceable “include those terms customarily encountered in transactions of this nature”,¹⁴ such as “the purchase price, the time and terms of payment, the required financing, the closing date, the quality of title to be conveyed, the risk of loss during the sale period, adjustments for taxes and utilities, etc.”¹⁵ As noted, the email exchange in Levinson did not include any of these terms. And, since the parties in Levinson expressly anticipated the execution of a formal contract, which would include more terms of the transaction, there was no binding contract between the parties sufficient to satisfy the statute of frauds.

Footnotes

New York General Obligations Law § 5-703(2).
Nesbitt v. Penalver, 40 A.D.3d 596, 598 (2d Dept. 2007) (citation and quotation omitted).
O’Brien v. West, 199 A.D.2d 369, 370 (2d Dept. 1993).
3-32 Warren’s Weed New York Property § 32.10.
Nesbitt, 40 A.D.3d at 598 (citation and internal quotation marks omitted).
See, e.g., DeMartin v. Farina, 205 A.D.2d 659, 660 (2d Dept. 1994) (quotation omitted).
Nesbitt, 40 A.D.3d at 598 (citation and internal quotation marks omitted).
Slip Op. at *1 (citing, Argent Acquisitions, LLC v. First Church of Religious Science, 118 A.D.3d 441, 444-445 (1st Dept 2014)).
Id.
Id.
Id.
Id. at *1-*2 (citation omitted).
Id. at *1.
O’Brien, 199 A.D.2d at 370.
Saul v. Vidokle, 151 A.D.3d 780, 781 (2d Dept. 2017).

Jeffrey M. Haber is a partner and co-founder of Freiberger Haber LLP.

This article is for informational purposes and is not intended to be and should not be taken as legal advice.