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Franco v. 1138 Summit Avenue, LLC

A-5184-04T1 (N.J. Super. App. Div. 2006) (Unpublished)

DEEDS; STATUTE OF FRAUD — Under the New Jersey Statute of Frauds, oral agreements to transfer property could be enforceable when demonstrated by clear and convincing evidence and a court may also impose a constructive trust on property to avoid unjust enrichment even where the property is not gotten by wrongful or illegal conduct.

A property owner owned a single-family home and was also a member of a limited liability company (LLC) which owned several apartments. The property owner’s father-in-law alleged that the two of them had entered into an oral partnership for the purpose of purchasing and converting the single-family home to a two-family home. He also alleged that he had a fifty percent interest in the LLC. The father-in-law filed an action seeking to impose a constructive trust on the two properties which were the subject of the alleged business arrangement.

The property owner responded that he was the sole owner of the single-family home and that his father-in-law had not contributed anything of value to the property. As to the LLC, he acknowledged that his father-in-law assisted him in forming the company, but claimed that his father-in-law did not contribute anything to the apartments owned by the LLC. However, he admitted to letting his father-in-law use one of the apartments rent-free without providing any explanation for doing so.

In response, the father-in-law alleged that his son-in-law approached him seeking his expertise and inquired about a real estate investment. He also claimed that it was through his contact that they purchased the apartments and from his contact that he secured financing. The father-in-law also claimed that he signed the purchase note with his son-in-law as well as several other notes for construction financing. According to him, he lived in one apartment rent-free during the renovation of the apartments and actively supervised the renovation.

Meanwhile, the son-in-law controlled the all finances of the putative partnership. As for the single-family home, the father-in-law claimed that he and his son-in-law entered into an oral agreement and that they agreed that the son-in-law would hold legal title “‘[f]or the purpose of convenience and based upon [the son-in-law’s] assurances that he . . . could obtain private purchase money financing from the seller.’” Just as the father-in-law had claimed regarding the apartments, he claimed that both he and his son-in-law signed the promissory notes to finance conversion of the single-family home to a two-family home.

The lower court granted the son-in-law’s motion for summary judgment, first concluding that the father-in-law failed to demonstrate an ownership interest in either property. It also found that the son-in-law had not defaulted on any of the promissory notes, and was not unjustly enriched. As such, the lower court concluded that there was no evidence that the son-in-law jeopardized the father-in-law’s liability under the notes, which could have warranted imposing a constructive trust.

On appeal, the Appellate Division agreed with the lower court’s finding that there were no written agreements pertaining to either property and that the father-in-law’s name did not appear on any deed. However, the Court explained that, through a legislative amendment in 1996, the Statute of Frauds provided that oral agreements to transfer real property could be enforceable when demonstrated by clear and convincing evidence. It then proceeded to explain that a constructive trust is a remedy equitable in nature and may be imposed appropriately “to avoid unjust enrichment even though the property was not retained as the result of wrongful or illegal conduct.”

Based on the evidence, the Court found that there existed a semblance of a binding oral agreement as shown by the numerous promissory notes as well as the father-in-law’s living in the apartment rent-free, the many inconsistencies of facts proffered by the two litigants, and the LLC agreement. After thoroughly considering the record and the father-in-law’s arguments, the Court reversed and remanded the case because factual issues existed which precluded a summary judgment.

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