New York law requires that certain contracts must be in writing to be enforceable. The law, known as the Statute of Frauds, also has several well-recognized exceptions. In a recent decision, the New York Court of Appeals officially adopted the promissory estoppel exception, but made clear it only applies in limited circumstances. As a result, individuals and businesses that don’t insist on written contracts still take a big risk that they won’t be able to enforce their agreements.
When you need a written contract
Under the Statute of Frauds, New York requires that several types of contracts must be in writing, including the following:
- Contracts which cannot be completed within 1 year
- Contracts involving real property
- Contracts assuming responsibility for the financial obligations of another individual or entity
- Contracts for testamentary disposition.
Promissory estoppel exception
While New York’s four Appellate Divisions have previously recognized promissory estoppel as an exception to the Statute of Frauds, this exception was finally adopted by the New York Court of Appeals in its June 29, 2017 decision in Estate of Hennel. Promissory estoppel applies if the party trying to enforce an oral agreement can show a clear and unambiguous promise; reasonable and foreseeable reliance on the promise; and an injury – i.e., the party must have taken some action in reliance on the promise. In Hennel, the Court of Appeals held that even where these elements exist, promissory estoppel will only allow a party to avoid the writing requirement of the Statute of Frauds where nonenforcement of the promise would be unconscionable; not merely unjust or unfair.
The Hennel case involved a decedent who owned a four unit apartment building, but had two grandsons assisting with the property. The decedent wanted the grandsons to take ownership of and maintain the property. The grandsons agreed to do so, but did not want to be responsible for a $100,000 mortgage on the property. The decedent promised his grandsons he would provide for payment of the mortgage in his will, but he failed to do so.
The Court of Appeals found that the decedent’s promise could qualify for an exception to the Statute of Frauds, but refused to do so because the result was not sufficiently unconscionable. The Court looked to the fact that during the decedent’s life, the grandsons had always used the property’s rental income to pay the mortgage and did not contribute their personal funds. In addition, the value of the property at the date of death was $230,000, while the mortgage balance was approximately $80,000. The Court found that receiving property with a net equity of $150,000 when you expected to get property with equity of $230,000 was insufficient to satisfy the unconscionability standards.
The exceptions to the Statute of Frauds are narrow. As a result:
- In any type of business relationship, get your contracts in writing. Don’t rely on promissory estoppel because you have to show that you would suffer an unconscionable result if the contract wasn’t enforced. Just losing some money may not be enough.
- Don’t take actions based on someone’s representation regarding your inclusion in a will. Wills can be changed at any time.
- If you are going to rely on someone naming you in a will, enter into a written contract. If properly drafted, you can sue the estate if the person does not in fact name you in their will.
If you need assistance with drafting or enforcing a contract, contact a qualified attorney about ensuring your rights are protected.
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