When confronted with an oral contract, savvy litigators have always tried to find a way to avoid the statute of frauds, which renders unenforceable oral contracts not capable of being performed within one year. New York decisions, especially in Manhattan, have been inconsistent on the issue of whether there should be an exception in those circumstances in which there has been partial performance of an oral contract even if it could not have been completed within one year. The applicability of the exception has turned on whether the partial performance is “unequivocably referable” to the oral contract. Recently, in Gural v. Drasner, 977 N.Y.S.2d 218 (Sup. Ct. NY County 2013), the Appellate Division, First Department, unanimously eliminated this exception, on the basis of its renewed analysis of the legislative intent behind New York’s statute of frauds, General Obligations Law § 5-701.
In 2001, Jeffrey Gural and Fred Drasner owned adjoining tracts of land in the heart of horse country in Millbrook, Dutchess County, New York. Gural wanted to use Drasner’s land for grazing his horses, and, as an enticement, offered to improve his neighbor’s land. They orally agreed that if Gural cleared, seeded, and fenced Drasner’s land, and constructed a horse shed on it, Drasner would allow Gural to use his (Drasner’s) land for his (Gural’s) horses and, upon its sale, would reimburse Gural for his expenses. Over the course of the next four years, Gural cleared the land and made the improvements, at a cost of $181,551.89. In 2005, Drasner informed Gural that he was selling the land and therefore Gural would have to remove his horses. Based on their handshake deal, Gural sought repayment from Drasner for his costs but Drasner refused to pay. Gural then filed an action for breach of contract and unjust enrichment.
Drasner moved for summary judgment, arguing that there was no enforceable contract pursuant to General Obligations Law § 5-701, since it would have been impossible to clear the land and prepare it for grazing within one year. As evidence, Drasner introduced Gural’s admission that it would take at least two years to clear and seed the fields. Finding that an issue of fact remained as to whether Gural’s part performance was unequivocably referable to the alleged oral contract and therefore took the contract out of the statute, the motion court denied Drasner’s motion.
On appeal, the First Department first explained that whether a contract can be performed within a year is a forward-looking question. “[T]he determination of whether an alleged oral contract can possibly be performed within one year of its making is not conducted by looking back at the actual performance; it requires analysis of what was possible, looking forward from the day the contract was entered into.” Id. at 221. The First Department disagreed with the motion court’s finding that a field could not be grazed within a year. It reasoned that if cost were not an issue, it would seem possible that a grazing field could be created within one year. However, given Gural’s admission, the First Department felt constrained to assume that the contract at issue was incapable of being performed in one year.
The First Department then addressed the central question whether part performance could make enforceable an oral contract incapable of being performed within a year. After reviewing New York’s statute of frauds, the First Department held that it was clear the Legislature did not intend to include a part performance exception for contracts that cannot be performed within one year. Turning to principles of statutory construction, the First Department noted that a court cannot amend a statute by inserting words that are not there, and that an inference must be drawn that what is omitted in a statute was intended to be omitted. With these principles in mind, the First Department concluded that the Legislature had not intended to authorize a part performance exception.
In so holding, the First Department rejected the reasoning of its previous cases that had accepted a part performance exception to General Obligations Law § 5-701. As if contracting parties and lawyers need to be reminded, and with apologies to Robert Frost, the First Department’s holding is again a lesson on the importance of memorializing agreements in writing if one wishes to enforce one’s rights.