liibulletin: Messner Vetere Berger Mcnamee Schmetterer Euro RSCG Inc., v. Aegis

Messner Vetere Berger Mcnamee Schmetterer Euro RSCG Inc., v. Aegis Group PLC, 1999 N.Y. Int. 0032 (Mar. 25, 1999).

CONTRACTS - STATUTE OF FRAUDS - PART PERFORMANCE EXCEPTION

ISSUE & DISPOSITION

Issues

1. Whether, at the pleadings stage, Plaintiff can successfully invoke the part performance exception to the Statute of Frauds by claiming that he "took no action" with respect to a pre-existing written agreement, in reliance on an oral promise Defendant allegedly made to Plaintiff that Defendant would fulfill all of Plaintiff's obligations under the written agreement.

2. Whether Plaintiff's allegation of part performance by Defendant alone states a claim under the part performance doctrine.

Disposition

1. No. Plaintiff's failure to act on the written agreement, after the oral promise Defendant allegedly made, is insufficient to invoke the equitable doctrine of part performance. Furthermore, Plaintiff failed to prove the necessary element of detrimental reliance on the oral promise by defendant, and the oral agreement, performed by Defendant for several years, probably benefitted Plaintiff.

2. No. Because Defendant is the party who partially performed, Plaintiff did not rely to his detriment on the alleged oral agreement and therefore cannot avail himself of the doctrine of part performance.

SUMMARY

In 1979, Creamer Inc. entered into a 20-year written lease agreement for office space at 1633 Broadway in New York City. In July 1986, Defendant Aegis purchased all of Creamer's stock, making Creamer its wholly-owned subsidiary. In 1987, after merging Creamer with DFM, Aegis moved all of Creamer's operations into another building, and occupied the vacated space. No sublease agreement or written assignment of the lease was ever executed. Between 1988 and 1992, Aegis sold to Plaintiff its entire interest in DFM. While Creamer, and subsequently DFM, remained the named parties of the lease, Aegis continued to assume Creamer's obligations to the lease. In 1995, Aegis notified Plaintiff that it was terminating its involvement with the lease.

Plaintiff then filed action against Aegis in federal district court seeking damages for breach of contract and a declaratory judgment that Aegis assumed all obligations under the lease. Plaintiff's complaint alleges that although DFM remained the named tenant on the lease, Aegis orally agreed with Plaintiff to assume all obligations under the lease. Aegis moved to dismiss on the ground that Plaintiff was barred from recovery by the New York Statute of Frauds. General Obligations Law §§ 5-701, 5-703. Plaintiff claimed that equitable doctrine of part performance nullified Defendant's Statute of Frauds defense. The district court dismissed the complaint, holding that Aegis' conduct was not "unequivocally referable" to the oral agreement and that Plaintiff failed to state a sufficient claim to invoke the part performance exception. Furthermore, the court concluded that Plaintiff's claim for damages sounded in law rather than equity, and could not be redressed by New York's equitable doctrine of part performance. Plaintiff appealed, and the U.S. Court of Appeals certified two questions to the New York Court of Appeals.

To qualify as part performance, Plaintiff's inaction would have to be pleaded as a term of the oral agreement, be "unequivocally referable" to the oral agreement, and be coupled with an element of detrimental reliance. According to the Court, Plaintiff's inaction was insufficient to invoke the equitable doctrine of part performance because it was not the result of any effort to satisfy the terms of the alleged oral agreement. Furthermore, there was no detrimental reliance by the Plaintiff. Actually, the Court found that Aegis' payment of rent between 1992 and 1995 worked to the benefit of Plaintiff. The Court further rejected Plaintiff's claim by holding that only the party that performed on the oral agreement can bring a claim based on the equitable principle of part performance. This is consistent with the purpose of the doctrine of equitable performance, which prevents one party, insisting on the Statute of Frauds, from escaping performance after permitting the other party, acting in reliance, to substantially perform.

Prepared by the liibulletin-ny Editorial Board.