No. CV 02 0468800S
April 17, 2003
MEMORANDUM OF DECISION RE MOTION TO STRIKE #104
Pursuant to Practice Book § 10-39, et seq., the defendants have filed a motion to strike the first ten counts of the plaintiff's eleven-count complaint dated August 15, 2002, claiming that the plaintiff's claims of an alleged contract are insufficient as a matter of law pursuant to the statute of frauds, General Statutes § 52-550 (a) (4), which provides that no civil action may be maintained upon any agreement for the sale of real property or any interest in or concerning real property unless the agreement, or some memorandum of the agreement, is made in writing and signed by the party to be charged. The defendant also argues that the first ten counts of the complaint are barred by § 52-550 (a) (5), which provides that no civil action may be maintained upon any agreement that is not to be performed within one year of the making thereof.
Sec. 52-550 (a) (4) states:
(a) No civil action may be maintained in the following cases unless the agreement, or a memorandum of the agreement, is made in writing and signed by the party, or the agent of the party, to be charged: . . . (4) upon any agreement for the sale of real property or any interest in or concerning real property . . .
Sec. 52-550 (a) (5) states:
(a) No civil action may be maintained in the following cases unless the agreement, or a memorandum of the agreement, is made in writing and signed by the party, or the agent of the party, to be charged: . . . (5) upon any agreement that is not to be performed within one year from the making thereof . . .
A review of the plaintiff's complaint indicates that the plaintiff has asserted claims against the defendant for breach of an express contract in the first count and breach of an implied contract in the second count. A breach of the implied covenant of good faith and fair dealing is alleged in the sixth count, and specific performance is alleged in the tenth count of the complaint. In addition to these contractual claims, the plaintiff has asserted non-contractual claims against the defendant arising from the same basic operative facts. The third count is based on promissory estoppel. The fourth and fifth counts are based on quantum meruit and unjust enrichment, respectively. The seventh, eighth and ninth counts sound in allegations regarding intentional, negligent and innocent misrepresentation, and in the eleventh count the plaintiff has asserted a claim against the defendant for slanderous statements made by the defendant. The motion to strike does not apply to the eleventh count.
The salient facts alleged in the plaintiff's complaint disclose that the subject real estate, Beecher Gardens, is an apartment complex located in New Haven, Connecticut. On or about August 1997, the defendant approached the plaintiff and asked whether the plaintiff would consider taking over management of Beecher Gardens. The plaintiff alleges that the defendant stated that he was the sole owner of Beecher Gardens and that the defendant felt that the plaintiff could improve the management of the complex, thereby increasing the value of this property asset. The defendant allegedly offered to pay the plaintiff a fee if the plaintiff would manage Beecher Gardens for a four-year term. If the plaintiff agreed to do so, the defendant would, at the end of the four-year term, transfer a 50% ownership of Beecher Gardens to the plaintiff for an agreed-upon purchase price of $450,000. The defendant, as part of this agreement, would loan the plaintiff the $450,000 purchase price, charging the plaintiff 6% interest and the loan would be amortized over a 20-year period. The plaintiff was to manage Beecher Gardens from October 1, 1997 through September 30, 2001.
Following discussions between the parties, the plaintiff alleges that the defendant, among other things, agreed that he would pay the plaintiff a monthly fee for managing Beecher Gardens in the amount of one-half of the gross income produced each month in excess of $18,000. At the end of the four-year period of management the defendant would transfer a 50% ownership interest of a limited liability company which would own Beecher Gardens, to the plaintiff at a price of $450,000 and would provide the above-described loan to the plaintiff. Additionally, if the normal operating expenses at Beecher Gardens, excluding capital improvements, were kept to less than $10,000 per month for the four-year period, the plaintiff would receive a credit on the purchase price of the difference between the sum of $480,000 and the amount of the actual operating expenses over the four-year period. The sum of $480,000 was a figure representing the $10,000 per month for the 48-month period of the alleged agreement.
The plaintiff commenced managing Beecher Gardens in October 1997, and claims to have fully performed all of his obligations under said agreement. The plaintiff further claims that the operating expenses for the apartment complex were kept substantially below a total of $480,000. In August 1997 or early September 1997, the plaintiff informed the defendant that he was ready to proceed to purchase the 50% ownership interest in Beecher Gardens, pursuant to the alleged agreement of the parties. The defendant requested that the purchase be postponed until January 1, 2002, for tax purposes, and requested that the plaintiff continue to manage the apartment complex under the same terms and conditions. The plaintiff agreed and continued to manage the complex until the end of June 2002. On or about July 1, 2002, the defendant terminated the plaintiff's management of Beecher Gardens. The plaintiff claims that despite repeated demands by the plaintiff, the defendant has failed to and refused to pay the plaintiff the full and correct amount of the monthly management fees owed to the plaintiff, and that the defendant has failed and refused to transfer to the plaintiff a 50% ownership interest in said Beecher Gardens, in accordance with the agreement of the parties.
The court first reviews the relevant standards of law regarding a motion to strike. "The purpose of a motion to strike is to contest the legal sufficiency of the allegations of any complaint . . . to state a claim upon which relief can be granted." Mingachos v. CBS, Inc., 196 Conn. 91, 108, 491 A.2d 368 (1985). A motion to strike shall be granted if "the plaintiff's complaint [does not] sufficiently [state] a cognizable cause of action as a matter of law." Mora v. Aetna Life and Casualty Ins. Co., 13 Conn. App. 208, 211, 535 A.2d 390 (1988).
A motion to strike "admits all facts well pleaded; it does not admit legal conclusions or the truth or accuracy of opinions stated in the pleadings." (Emphasis omitted.) Id. "A motion to strike is properly granted where a plaintiff's complaint alleges legal conclusions unsupported by facts." Id. "In ruling on a motion to strike, the court is limited to the facts alleged in the complaint." Gordon v. Bridgeport Housing Authority, 208 Conn. 161, 170, 544 A.2d 1185 (1988). A motion to strike "is to be tested by the allegations of the pleading demurred to, which cannot be enlarged by the assumption of any fact not therein alleged." (Internal quotation marks and citations omitted.) Alarm Applications Co. v. Simsbury Volunteer Fire Co., 179 Conn. 541-50, 427 A.2d 822 (1980).
Upon deciding a motion to strike, the trial court must construe the "plaintiff's complaint in [a] manner most favorable to sustaining its legal sufficiency." Bouchard v. People's Bank, 219 Conn. 465, 471, 594 A.2d 1 (1991). "The allegations of the pleading involved are entitled to the same favorable construction a trier would be required to give in admitting evidence under them and if the facts provable under its allegations would support a defense or a cause of action, the motion to strike must fail." Mingachos v. CBS, Inc., supra, 196 Conn. 108-09.
The defendant contends that the absence of any written agreement between the parties for the transfer of the real property known as Beecher Gardens is fatal to the first ten counts of the plaintiff's eleven-count complaint because of the statute of frauds, General Statutes § 52-550, which reads in relevant part:
(a) No civil action may be maintained in the following cases unless the agreement, or a memorandum of the agreement, is made in writing and signed by the party, or the agent of the party, to be charged . . . (4) upon any agreement for the sale of real property or any interest in or concerning real property; (5) upon any agreement that is not to be performed within one year from the making thereof; or (6) upon any agreement for a loan in an amount which exceeds fifty thousand dollars.
The plaintiff argues that the property to be conveyed by virtue of the parties' agreement, was not real property, but rather, was a 50% interest in a limited liability company which would own the real property known as Beecher Gardens. The plaintiff also points out, that although the parties' original agreement took place in late summer or early fall of 1997 for the four-year term of October 1, 1997 through September 2001, the parties made a subsequent oral agreement in August or September 2001, that the plaintiff would continue to manage the property until January 2002 when the 50% ownership interest in the limited liability company to the plaintiff would occur. The plaintiff argues that this subsequent agreement was to be performed within no more than six months from the making thereof, and therefore the subsequent agreement does not fall within the statute of frauds. Neither the plaintiff or the defendant have addressed any questions regarding an agreement to make a loan in an amount exceeding $50,000, and whether General Statutes § 52-550 (a) (6) is applicable.
Sec. 52-550. Statute of frauds; written agreement or memorandum.
(a) No civil action may be maintained in the following cases unless the agreement, or a memorandum of the agreement, is made in writing and signed by the party, or the agent of the party, to be charged: . . . or (6) upon any agreement for a loan in an amount which exceeds fifty thousand dollars.
The statute of frauds applies to interests in land and requires a written instrument for transfers of land. Foley v. Huntington Company, 42 Conn. App. 712, 735, 682 A.2d 1026 (1996). In addressing the defendant's claim that the transfer of a 50% interest in a proposed limited liability company to own Beecher Gardens was an interest in real estate and thus falls within the purview of the statute of frauds, our Supreme Court has concluded that "the statute contemplated only a `transfer of lands, or some interest in them.'" Jacobs v. Thomas, 26 Conn. App. 305, 600 A.2d 1378 (1991). It is undisputed that the proposed limited liability company's initial and possibly only asset was to be Beecher Gardens, a real estate asset.
If this was an agreement to transfer an ownership interest in a limited liability company, which owned real estate, it would not be an agreement for the sale of an interest in real estate. In Burns v. Gould, 172 Conn. 210, 374 A.2d 193 (1977), our Supreme Court decided that an agreement to transfer the stock of a corporation, which owned an interest in real estate was not an agreement to sell an interest in real estate. "In the eyes of the law, a corporation is a person, not the sum of its holdings." A contract by a corporation to buy or sell land is within the statute, and insofar as the purpose of the statute is to assure that contracts involving land are definite in their terms, that purpose is served. No similar purpose would be served in requiring that an agreement to transfer stock be in writing, as the real estate owned by the corporation is adequately identified by other documents. Id. at 219. However, the Supreme Court also stated in Burns v. Gould, "This contract would be covered by 52-550 if it concerned services in exchange for land . . ." (rather than stock)." It has never been held that contracts calling for land on one side and services on the other are outside the statute of frauds because they are contracts of "employment" rather than for the sale of land. Id. at 220; See also, Anderson v. Zweigbaum, 150 Conn. 478, 191 A.2d 133 (1963); Costello v. Costello, 134 Conn. 536, 59 A.2d 520 (1948). Therefore, the threshold question is whether an interest in a limited liability company, which didn't exist at the time of the alleged oral contract, is analogous to stock in a corporation, and thus is not governed by the statute of frauds, or rather is this a contract for employment concerning the exchange of services for land, placing it within the purview of the statute of frauds?
This court interprets the oral agreement between the plaintiff and the defendant to be one of employment for an exchange of land. The plaintiff by virtue of the parties' oral agreement was to manage the defendant's property at Beecher Gardens for four years and upon completion of satisfactory management over this period of time, the defendant would transfer the 50% interest to the plaintiff for a price of $450,000. This is a contract for employment concerning the exchange of services for land. While the plaintiff was collecting a management fee during the four-year period, he also had an agreement for an interest in the subject real estate at a price conditioned on his four-year employment by the defendant. The ultimate price for this 50% interest in the subject real estate could even be reduced from $450,000 if the plaintiff's management of Beecher Gardens over the four years resulted in cost savings for the defendant.
The plaintiff concedes that he was aware that title to the Beecher Gardens at the time of the oral agreement was in the defendant. In the plaintiff's Complaint dated August 15, 2002, the plaintiff has alleged that the defendant was the "sole owner" of Beecher Gardens, and that the defendant represented to the plaintiff that he was the "sole owner" of Beecher Gardens. While record title to Beecher Gardens was listed in the name of "Sahl and Taylor" a partnership, "any such partnership no longer exists, if in fact it ever existed," alleges the plaintiff. The defendant therefore, could not be said to be agreeing to a transfer of an interest in a limited liability company, which was non-existent at the time of the oral agreement between the parties. The defendant at the time of the oral contract only had the ability to transfer a 50% interest in the real estate known as the Beecher Gardens apartment complex.
Although this enterprise was one which contemplated and involved the management of real estate and a division of funds derived from its rental or possible future sale, it was, the real estate, not the funds, in which the plaintiff claims an interest by reason of the agreement. Faiola v. Faiola, 156 Conn. 12, 21, 238 A.2d 405 (1968). This court's conclusion is that the subject of the oral agreement was an interest in real estate rather than representing profits from a joint enterprise in the nature of a yet to be formed limited liability company. Jacobs v. Thomas, supra, 26 Conn. App. 310.
The court also finds that the contract was to be performed over a period of four years from 1997 to 2001. The plaintiff contends that the extension of time for the transfer of the 50% ownership to the defendant for an additional three to four months into early 2002, was an agreement to be performed within no more than six months from the making thereof, and therefore does not fall within the purview of the statute of frauds. By the allegations of the plaintiff's Complaint, the oral contract could not be performed within one year using the four-year time frame for performance, to wit, 1997 to 2001. Since performance was not to be performed within one year, the agreement would fall within the purview of the Statute of Frauds, General Statutes § 52-550. It is axiomatic that "[w]here the time for performance is definitely fixed at more than one year, the contract is, of course, within the statute." Burkle v. Superflow Mfg. Co., 137 Conn. 488, 492-93, 78 A.2d 698 (1951); see also, C.R. Klewin, Inc. v. Flagship Properties, Inc., 220 Conn. 569, 600 A.2d 772 (1991). The plaintiff under the terms of the original agreement could not claim his interest in the real estate after the first year, as the employment agreement as the manager of Beecher Gardens was for four years. The oral contract was conditioned on the management duties continuing for four years. The fact that the defendant refused to perform his obligations at the end of the fourth year and requested a delay of several months does not constitute a new contractual agreement to be performed within one year, excusing compliance with the statute of frauds.
Lastly, the plaintiff in alleging that he has fully performed the oral contract, argues that it has long been recognized in Connecticut that [f]ull performance by one party to a contract takes it out of the [Statute of Frauds]. Scribner v. O'Brien, Inc., 169 Conn. 389, 403 (1975); Stanley v. M.H. Rhodes, Inc., 140 Conn. 689, 695 (1954); Stang v. Witkowski, 138 Conn. 94, 99 (1951); Blakeslee v. Water Commissioners, 121 Conn. 163, 186, 183 A. 887 (1936); Pyskoty v. Sobusiak, 109 Conn. 593, 598, 145 A. 58 (1929); Harmonie Club, Inc. v. Smirnow, 106 Conn. 243, 247, 137 A. 769 (1927); Hausman v. Burnham, 59 Conn. 117, 133, 22 A. 1065 (1890); Hayden v. Denslow, 27 Conn. 335, 341 (1858); Eaton v. Whitaker, 18 Conn. 222, 230 (1846); Watrous v. Chalker, 7 Conn. 224, 226 (1828); Ives v. Gilbert, 1 Root 89, 90 (1789); 2 Corbin, Contracts 457; 2 Williston, Contracts (Rev. Ed.) p. 1471; note, 6 A.L.R.2d 1053, 1111 et seq.; see Restatement, 1 Contracts 198, comment a, illust. 9.
The plaintiff's complaint viewed in a favorable light for the purposes of this motion to strike alleges that the contract was fully performed by the plaintiff. It was now the defendant's obligation to form a limited liability company and transfer a 50% ownership interest in said company to the plaintiff for the agreed upon purchase price of $450,000. The defendant also was to loan the plaintiff the $450,000 purchase price, minus any performance credits due the plaintiff, at 6% interest, amortized over 20 years. Therefore, the plaintiff contends the only performance remaining was by the defendant, and thus, the contract was not within the Statute of Frauds. This court agrees with this argument of the plaintiff.
"The statute of frauds was never intended to be used to permit one relying on it to enrich himself at the expense of another or to aid in defrauding such other person. To permit a party to an oral contract to accept the benefits of such contract and then invoke the statute to avoid payment would be using the statute to perpetrate a fraud." Barrett Builders v. Miller, 215 Conn. 316, 330-31, 576 A.2d 455 (1990); quoting 73 Am.Jur.2d, Statute of Frauds 537; see also, 3 Restatement (Second), Contracts 375 (1981).
Even if full performance by the plaintiff is not found, under Connecticut law it has long been held that in some circumstances, part performance by a party seeking to enforce a contract will operate to remove a contract from the provisions of the statute of frauds, General Statutes 52-550. Caulkins v. Petrillo, 200 Conn. 713, 720, 513 A.2d 43 (1986); See, e.g., Breen v. Phelps, 186 Conn. 86, 439 A.2d 1066 (1982); Rutt v. Roche, 138 Conn. 605, 87 A.2d 805 (1952); see 1 Restatement (Second), Contracts 128 through 130, 145. "[A] contract is enforceable, despite the statute [of frauds], when, subsequent to the making of the contract, there has been conduct that amounts to part performance." Union Trust Company v. Jackson, 42 Conn. App. 413, 419, 679 A.2d 421 (1996); quoting Heyman v. CBS, Inc., 178 Conn. 215, 222, 423 A.2d 887 (1979).
"The statute of frauds requires contracts for the conveyance of realty to be in writing . . . We have repeatedly recognized that a contract is enforceable, despite the statute, when, subsequent to the making of the contract, there has been conduct that amounts to part performance . . . [T]he acts of part performance generally must be such as are done by the party seeking to enforce the contract, in pursuance of the contract, and with the design of carrying the same into execution, and must also be done with the assent, express or implied, or knowledge of the other party, and be such acts as alter the relations of the parties . . . The acts must also be of such a character that they can be naturally and reasonably accounted for in no other way than the existence of some contract in relation to the subject matter in dispute . . ." (Citations omitted; internal quotation marks omitted.) Levesque Builders, Inc. v. Hoerle, 49 Conn. App. 751, 756, 717 A.2d 252 (1998); quoting McNeil v. Riccio, 45 Conn. App. 466, 470, 696 A.2d 1050 (1997).
In Andrew v. Babcock, 63 Conn. 109, 120, 26 A. 715 (1893), the parole agreement was for the sale of land, and the Court stated: "The principle is undoubted; the only question relates to the acts which constitute sufficient part performance. Generally they must be such as are done by the party seeking to enforce the contract, in pursuance of the contract, and with the design of carrying the same into execution, and must also be done with the assent, express or implied, or knowledge of the other party, and must be such acts as alter the relations of the parties . . ."
Ubysz v. DiPietro, 185 Conn. 47, 53, 440 A.2d 830 (1981), held that acts on the part of the promisee may be sufficient to take a contract out of the statute if "they are such as clearly refer to some contract in relation to the matter in dispute." Rienzo v. Cohen, 112 Conn. 427, 429, 152 A. 394 (1930); see Padula v. Padula, 138 Conn. 102, 108, 82 A.2d 362 (1951). "The doctrine of part performance arose from the necessity of preventing the statute against frauds from becoming an engine of fraud." Harmonie Club, Inc. v. Smirnow, supra, 106 Conn. 249, "[T]he acts of part performance generally `must be such as are done by the party seeking to enforce the contract, in pursuance of the contract, and with the design of carrying the same into execution, and must also be done with the assent, express or implied, or knowledge of the other party, and be such acts as alter the relations of the parties.' Andrew v. Babcock, supra, 63 Conn. 120. The acts also must be of such a character that they can be naturally and reasonably accounted for in no other way than by the existence of some contract in relation to the subject matter in dispute . . ." Ubysz v. DiPietro, supra, 185 Conn. 53-54; Rutt v. Roche, supra, 138 Conn. 608; see DeLuca v. C.W. Blakeslee Sons, Inc., 174 Conn. 535, 545, 391 A.2d 170 (1978); Wolfe v. Wallingford Bank Trust Co., 124 Conn. 507, 513-16, 1 A.2d 146 (1938); 3 Williston, Contracts (1960).
"Contracts that would otherwise be unenforceable without a writing sufficient to comply with the Statute of Frauds, General Statutes 52-550, are nonetheless enforceable because of part performance if two separate but related criteria are satisfied. First, the contract alleged must satisfy the evidentiary function of the Statute of Frauds. To constitute part performance the conduct relied upon must be referable to and consistent with the oral agreement." Andrews v. New Britain National Bank, 113 Conn. 467, 474, 155 A. 838 (1931); Santoro v. Mack, 108 Conn. 683, 691, 145 A. 273 (1929). "Second, the conduct alleged to have been induced by reliance on the oral agreement must be of such character that repudiation of the contract by the other party would amount to the perpetration of a fraud." Ubysz v. DiPietro, supra; Santoro v. Mack, supra, 690.
The plaintiff's allegations, viewed in a light most favorable to the plaintiff, are sufficient to defeat the motion to strike the First, Second, Sixth and Tenth Counts of the plaintiff's Complaint. While the court has determined that the oral agreement of the parties was a contract for the sale of real estate normally placing it within the statute of frauds and requiring a written contract, the allegations of full performance of the contract by the plaintiff renders the contract enforceable.
The common law tort and other non-contractual claims asserted in the Third, Fourth, Fifth, Seventh, Eighth and Ninth Counts of the plaintiff's Complaint also do not fall within the purview of the statute of frauds.
In the Third Count, Fourth Count and Fifth Count of the Complaint the plaintiff alleges claims for promissory estoppel, quantum meruit and unjust enrichment, respectively. Under the doctrine of promissory estoppel, "[A] promise which the promisor should reasonably expect to induce action or forbearance on the part of the promisee or a third person and which does induce such action or forbearance is binding if injustice can be avoided only by enforcement of the promise. A fundamental element of promissory estoppel, therefore, is the existence of a clear and definite promise which a promisor could reasonably have expected to induce reliance." (Internal quotation marks omitted.) Brzezinek v. Covenant Ins. Co., 74 Conn. App. 1, 9, 810 A.2d 306 (2002); quoting Wellington Systems, Inc. v. Redding Group, Inc., 49 Conn. App. 152, 162, 714 A.2d 21, cert. denied, 247 Conn. 905, 720 A.2d 516 (1998). The plaintiff argues that he relied on the defendant's offer of a promise to transfer a 50% ownership of the limited liability company to the plaintiff upon the expiration of the four-year term during which the plaintiff agreed to manage Beecher Gardens. The defendant, it is alleged has failed to honor this promise, despite the fact that the defendant, in allowing the plaintiff to manage the complex for four years, and later in 2001, encouraging the plaintiff to continue his management of the complex until July 1, 2002, was aware that he had induced reliance by the plaintiff. In O'Sullivan v. Bergenty, 214 Conn. 641, 648-51, 573 A.2d 729 (1990) our Supreme Court held that the doctrine of equitable estoppel could excuse such noncompliance with the statute of frauds. A claim of equitable estoppel is not subject to the statute of frauds.
Claims of unjust enrichment and quantum meruit are forms of the equitable remedy of restitution by which a plaintiff may recover the benefit conferred on a defendant in situations where no express contract has been entered into by the parties. Burns v. Koellmer, 11 Conn. App. 375, 385 (1987). These claims are non-contractual claims, and they do not fall within the application of the statute of frauds. The statute of frauds only applies to counts of a civil action in which a party seeks to enforce the terms of a contract. Willow Funding Co., L.P. v. Grencom Assoc., 63 Conn. App. 832, 847-48, 779 A.2d 174 (2001). The plaintiff's causes of action are "based upon common law principles of restitution [and] are . . . noncontractual actions by which a party may recover despite the absence of a valid contract . . ." Sidney v. DeVries, 215 Conn. 351-52 n. 1, 575 A.2d 228 (1990).
The claims in the plaintiff's Complaint for the intentional, negligent and innocent misrepresentations made by the defendant that are asserted in the Seventh, Eighth and Ninth Counts of the Complaint are also not precluded by the statute of frauds. The statute of frauds cannot itself be allowed to serve as an engine of fraud. First Connecticut Small Business Investment Co. v. Arba, Inc., 170 Conn. 168, 174, 365 A.2d 100 (1976). "[T]he statute of frauds . . . does not operate as a bar to relief in [a] cause of action for fraud." Terracino v. Platano, Superior Court, judicial district of Waterbury, No. CV 01-0341944 (September 25, 2001) (Holden, J.), 2001 Ct. Sup. 13389, 30 Conn.L.Rptr. 424.
Accordingly, the motion to strike the Third, Fourth, Fifth, Seventh, Eighth and Ninth Counts of the plaintiff's Complaint is hereby denied.
For the reasons set forth herein the defendant's motion to strike is hereby denied in its entirety.
THE COURT CT Page 4973
by Arnold, J.