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In re Estate of Hennel

New York Court of Appeals

June 29, 2017

In the Matter of the Estate of Edmund Felix Hennel, Also Known as Edmund Hennel, Deceased. Gregory Hennel et al., Respondents; Hazel Hennel, as Executor of the Estate of Edmund Felix Hennel, Deceased, Appellant.

          Peter V. Coffey, for appellant.

          Robert L. Adams, for respondents.

          OPINION

          FAHEY, J.

         Petitioners seek to enforce an oral promise that would otherwise be void under the statute of frauds. They rely on the theories of promissory estoppel and unconscionability. We agree, as a general matter, that where the elements of promissory estoppel are satisfied and enforcement of the statute of frauds would inflict such an unjust and egregious result upon the party who detrimentally relied on the oral promise that the resulting injury would be unconscionable, the opposing party may be estopped from relying on the statute of frauds. Nevertheless, we conclude that petitioners cannot invoke that doctrine here because application of the statute of frauds would not inflict an unconscionable injury upon petitioners. Although the result may be unfair, it is not unconscionable.

         I.

         Decedent Edmund Felix Hennel was the owner of a four-unit apartment building (the property) located in Schenectady. Petitioners, decedent's grandsons, [1] assert that prior to 2006, they had assisted decedent with maintenance of the grounds and snow removal at the property, but had no responsibility for other maintenance duties or rental management. In the summer of 2006, decedent approached petitioners about taking ownership of the property and assuming all management and maintenance duties.

         The property was subject to a mortgage. In 2001, decedent had obtained a $100, 000 loan, secured by a mortgage on the property. Decedent used the loan proceeds to make cash gifts to six of his family members, including the two petitioners, all of whom were shareholders in the family-owned golf course business. These six shareholders in turn loaned their cash gifts to the golf course business to assist it with operations and provide it with additional working capital. After subsequent disagreements regarding business operations, the shareholders agreed that the company would redeem the shares of the four shareholders other than petitioners. The golf course business repaid those four shareholders for their loans in an amount totaling $63, 619.64, leaving petitioners as the sole shareholders of the business by May 2006. Petitioners assert that they explained to decedent that they did not wish to take ownership of the property subject to the mortgage because they believed they would be subsidizing the gifts to the four other former shareholders.

         According to petitioners, decedent, in response to their concerns, stated that it was not his intention that petitioners would become responsible for the mortgage. Specifically, decedent orally promised that he would direct his estate to satisfy the balance of the mortgage upon his death from the assets of his estate.

         To effectuate this oral bargain, petitioners and decedent met on September 22, 2006 in the office of a family attorney. They executed several documents at that meeting. One of those documents was a warranty deed, in which decedent granted ownership of the property to petitioners. The deed did not mention the mortgage, and it stated that the consideration for the transaction was one dollar. Decedent reserved to himself a life estate in the property. The deed further reserved to decedent the power to appoint the remainder interest to any of his issue other than petitioners during his lifetime. Decedent never exercised that power.

         At that same meeting, decedent also executed a will (the 2006 will). As relevant here, the 2006 will provided that the mortgage on the property, if any in existence at the time of decedent's death, be paid from the assets of his estate.

         After the September 2006 meeting, petitioners assumed all management and maintenance duties for the property. They managed income and expenses, handled tenant relations, and made improvements and necessary repairs. Petitioners assert that these activities occupied a significant amount of their time. Petitioners also began making the mortgage payments, which they were able to do entirely with the rental income generated by the property.

         In 2008, decedent executed a new will (the 2008 will), which revoked all prior wills and codicils. The 2008 will made no mention of satisfaction of the mortgage on the property upon decedent's death. Petitioners assert that decedent informed them that he had executed a new will but assured them that there had been "no change" in their agreement with respect to the property. Based on that assertion, petitioners continued to carry out their management and maintenance responsibilities at the property.

         Decedent died on December 1, 2010. Decedent's widow, respondent Hazel Hennel, was named as the executor of his estate in the 2008 will and sought probate. In anticipation of a contest, the 2008 will was admitted to probate and letters testamentary were issued to respondent with the limitation that no assets of the estate could be distributed absent a court order. After filing a claim pursuant to SCPA 1803, which respondent rejected, petitioners commenced the present proceeding pursuant to SCPA 1809 to determine the validity of their claim against decedent's estate. Their petition included four causes of action: breach of contract, breach of title warranty, promissory estoppel, and unjust enrichment. Respondent objected, asserting, as relevant here, that petitioners' claim was barred by the statute of frauds.

         Both parties subsequently moved for summary judgment. Petitioners supported their motion with, among other things, the deposition testimony of the family attorney, who confirmed the details of the meeting at his office on September 22, 2006, including decedent's execution of the 2006 will. The attorney testified that it was his understanding that the relevant provision in the 2006 will was designed to ensure that petitioners would own the property free of any mortgage upon decedent's death.

         In her cross motion for summary judgment, respondent did not dispute petitioners' factual allegations. In support of her cross motion, however, she relied in part upon a residential appraisal report of the property assessing market value for the property at the time of decedent's death at $235, 000. Petitioners stated in their notice of claim that the unpaid principal and interest on the mortgage was $88, 394.91. At the time of petitioners' summary judgment motion, their continued payments had reduced that balance to $82, 194.57.

         Surrogate's Court granted petitioners' motion for summary judgment and directed respondent to satisfy the outstanding balance of the mortgage and reimburse petitioners for the payments made since decedent's death. The court reasoned that petitioners' claim fell "squarely within that limited class of cases where promissory estoppel should be applied to remedy a ...


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