Contracts II, Pages 756–762

Lee v. Joseph E. Seagram & Sons, Inc.

United States Court of Appeals for the Second Circuit, March 15, 1977

Facts:

Plaintiffs owned a 50% interest in Capitol City Liquor Company. The other 50% was owned by their cousin and uncle. Defendant is a distiller, whose alcoholic beverages comprised a large portion of Capitol City's sales. Plaintiffs father, a former long-time employee of defendant's, discussed selling the business to Yogman, then the vice president of defendant, conditional on defendant relocating him and plaintiffs to a new distributorship of their own in a different city.

A month later, Barth, another officer of defendant's and assistant to Yogman, visited plaintiffs and their co-owners to negotiate the purchase of the assets of Capitol City by defendant on behalf of another distributor. This purchase was accepted and signed, but the promise to relocate plaintiffs and their father was not written down.

Fifteen months later, plaintiffs sued for a breach of the oral agreement to relocate them as agreed under the separate oral contract.

Procedural History:

The jury found for the plaintiffs in the amount of $407,850.

Issues:

  • Is plaintiffs' proof of the alleged oral agreement barred by the parol evidence rule?

  • Would the promise to the plaintiffs be an expected term of the contract?

Defendant's Argument:

The oral agreement was either an inducing cause or part of the consideration for the sale. Either way, its exclusion from the written contract bars its admission under the parol evidence rule.

Rule:

An oral agreement may not be barred by the parol evidence rule if such a term would not be expected be included in the written contract anyway.

Reasoning:

  • The agreement to sell Capitol City affected all four owners of the business. Although it would have been possible to include a clause granting a benefit to 50% of the shareholders, it was a corporate sale of assets by its nature. Collateral deals for specific shareholders are often done in separate agreements afterwards.

  • The first agreement was negotiated by Yogman, a long-time friend of plaintiffs' father. Barth and the other two representatives who conducted the second deal may not have integrated the two transactions in their minds when drafting the contract.

  • The contract does not contain an integration clause, despite having other boilerplate terms.

Holding:

The promise would not have been expected in the contract, so plaintiffs' proof of the oral agreement is not barred by the parol evidence rule. Affirmed.

Dropbox – Your stuff, anywhere – Try it free