Rudinsky v. Harris – 11/23/2012

December 4, 2012

Arizona Court of Appeals Division One Holds that Statute of Frauds Bars an Oral Contract Where It Is Clear That One Side of the Contract Could Not Have Completed Performance of the Contract Within One Year.

Helen Rudinsky was a real estate agent who took part in a referral scheme created by Green Light Real Estate (“Green Light”) in 2006 called the “Investor Ring.”  As part of this scheme, Rudinsky earned commissions by referring prospective buyers to real estate developers of Green Light.  Rudinsky left the Investor Ring in early 2007 and sued Green Light in 2008 for breach of an oral contract and for defamation.  Rudinsky claimed that “the parties had an oral, implied-in-fact contract concerning their real estate deals” such that Green Light would be obligated to work through Rudinsky on any subsequent deals with buyers referred by Rudinsky, and Rudinsky would be obligated to work through Green Light on any transactions with Green Light’s developers.  Rudinsky testified at deposition that the oral contract was valid indefinitely and would apply whenever any referred buyer was interested in buying a subject property.  Rudinsky further claimed that the contract continued in force after she left the Investor Ring and that she was owed commissions for all transactions occurring after her departure, and for commissions on all transactions for buyers who were referred by buyers whom she had already referred.  Green Light filed a motion for partial summary judgment arguing that Rudinsky’s contract claims were barred by the statute of frauds because the contract “was not in writing and could not be performed within one year.”  The trial court granted the motion and dismissed Rudinsky’s breach of contract claim.  Rudinsky appealed.

The Court of Appeals affirmed.  The Court explained that a contract is barred by the statute of frauds, A.R.S. § 44-101(5) when it is clear the contract will not be performed within one year.  “[A] bilateral oral contract is barred by the statute of frauds when it is clear that either side of the contract cannot fully perform within one year. . . . An oral contract creating a permanent arrangement in which the defendant’s liability necessarily extends beyond a one-year period, without any term that may end the contractual relationship, is not capable of being performed within one year and falls within the statute of frauds.”   Because “Green Light’s purported

obligation under the alleged contract was to continue indefinitely” and could not be terminated, the Court rejected Rudinsky’s arguments that performance under the contract could have been completed within one year if Rudinsky’s work had not resulted in further referrals from buyers or if several generations of transactions occurred within the space of one year.  The Court also held that the doctrine of part performance did not apply to Rudinsky’s claims because “the equitable doctrine of part performance is inapplicable in a suit where only money damages are sought.”

Judge Gemmill authored the opinion.  Judges Timmer and Downie concurred.