Farash v. Sykes Datatronics, Inc., 59 N.Y.2d 500 (1983)

A party may recover the fair and reasonable value of partial performance rendered at the request of another party, even if the underlying agreement is unenforceable due to the Statute of Frauds, based on reliance and quasi-contractual principles.

Summary

Farash sued Sykes Datatronics to recover the value of renovations he made to a building at Sykes’s request, anticipating a lease agreement that never materialized. The Court of Appeals held that while the oral lease and agreement to enter into a lease were barred by the Statute of Frauds, Farash could recover for the work performed in reliance on Sykes’s statements. This recovery is not based on enforcing the void contract, but on the principle that Farash should be compensated for the detriment he suffered by improving the property at Sykes’s urging, regardless of whether Sykes directly benefitted. The court emphasized placing the plaintiff in the position they were in before the unenforceable agreement.

Facts

Plaintiff Farash owned a building and alleged an oral agreement with Defendant Sykes Datatronics to lease the building, contingent on Farash renovating it and making modifications on an expedited basis.
Sykes never signed a lease or occupied the building.
Farash completed work on the building based on Sykes’s representations.

Procedural History

Farash sued Sykes, alleging breach of the oral lease, breach of an agreement to enter a lease, and a claim for the value of work performed.
Sykes moved to dismiss for failure to state a cause of action; the motion was denied at the trial level.
The Appellate Division reversed, dismissing all causes of action.
Farash appealed to the New York Court of Appeals.

Issue(s)

Whether a party can recover the value of work performed on a property in anticipation of a lease agreement when the lease is unenforceable under the Statute of Frauds, even if the other party did not directly benefit from the work.

Holding

Yes, because even though the oral lease and agreement to enter a lease are barred by the Statute of Frauds, a party can recover for the value of work performed in reliance on the other party’s statements and request, based on principles of quasi-contract and reliance.

Court’s Reasoning

The court reasoned that the first and third causes of action, seeking to enforce an oral lease or an agreement to enter into a lease, were clearly barred by the Statute of Frauds (General Obligations Law, § 5-703, subd 2).
However, the second cause of action, seeking to recover for the value of work performed in reliance on Sykes’s statements, was not an attempt to enforce the void contract but to disaffirm it.
The court cited Baldwin v Palmer, 10 NY 232, 235, stating this action can be maintained.
That Sykes did not benefit directly from Farash’s work was not a bar to recovery. Farash could recover for those efforts to his detriment, worsening his position. The court referenced Kearns v Andree, 107 Conn 181.
As the court noted, “The contract being void and incapable of enforcement in a court of law, the party * * * rendering the services in pursuance thereof, may treat it as a nullity, and recover * * * the value of the services” (Erben v Lorillard, 19 NY 299, 302).
The court also quoted the Restatement, Contracts 2d, § 349, noting the injured party has a right to damages based on his reliance interest, including expenditures made in preparation for performance or in performance.
The court rejected the dissent’s argument that the second cause of action was equivalent to the third and thus barred by the Statute of Frauds. It emphasized that the claim was not based on enforcing the contract, but on quasi-contractual principles to prevent unjust enrichment.