The Supreme Court of New York, Suffolk County, recently held that the statute of frauds bars an oral modification to an asset sale agreement when the parties dispute the terms of the oral modification, even if they both acknowledge an oral modification occurred.  See Castle Restoration, LLC v. Castle Restoration & Constr., Inc., 159 N.Y.S.3d 829 (Sup. Ct. 2022).  In the case, a plaintiff and defendant entered into an asset sale agreement whereby defendant sold its equipment, customer list, and other assets to plaintiff.  Plaintiff signed a promissory note to defendant for $1.1 million.  Plaintiff then defaulted on the first payment, and defendant filed a motion for summary judgment in lieu of complaint.  Plaintiff argued that it was not delinquent under the note because the parties had a subsequent oral agreement whereby plaintiff would provide labor and materials to defendant to help complete defendant’s remaining contracts, the value of which would offset plaintiff’s payment obligations.  The trial court denied defendant’s motion for summary judgment, but the Second Department reversed, holding that a breach of a related contract cannot defeat a motion for summary judgment on an instrument for the payment of money only unless the two are “inextricably intertwined,” and further that the alleged oral agreement and the note were not “inextricably intertwined.”  Plaintiff then brought this action, alleging breach of contract against defendant relating to both the asset purchase agreement and the oral agreement.

The Court ruled for defendant, finding that any alleged oral agreement was prohibited by the statute of frauds, and that plaintiff failed to prove defendant breached the written agreement.  First, the Court held that the parties’ asset sale agreement included a no-oral-modification provision.  Although the parties agreed that there was a subsequent oral agreement that said plaintiff would complete defendant’s remaining projects in exchange for some offset of the amounts owed under the note, they disagreed on how the offset would be calculated.  The Court accordingly ruled for defendant, holding that “[t]he statute of fraud applies when, as here, the parties acknowledge an oral agreement, but dispute its terms and conditions.”  With regard to the written agreement, the Court found that “a party is relieved of its duty to perform under a contract when the other party has committed a material breach.”  Here, plaintiff breached almost immediately by failing to make the required payments, which discharged defendant of its duty to perform.  Accordingly, plaintiff’s claims were dismissed.

For a copy of the decision, please contact Michael O’Donnell at modonnell@riker.com, Desiree McDonald at dmcdonald@riker.com, or Kevin Hakansson at khakansson@riker.com.