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

United States Court of Appeals for the Second Circuit · 1977 · Contracts

Contractsparol evidencecollateral agreementintegrationwritten contractparol evidence ruleintegrationcollateral agreement

Facts

The Lees owned a 50% interest in Capitol City Liquor Company and agreed to the sale of Capitol City's assets to Seagram. The jury was permitted to find that before the sale Seagram orally agreed that, if the Lees agreed to sell their interest in Capitol City, Seagram would within a reasonable time provide them a Seagram distributorship requiring roughly the capital they received from the sale and in a location acceptable to them. That relocation promise was not included in the written asset-sale agreement, which contained no integration clause. After the sale closed, the Lees claimed Seagram failed to provide the promised distributorship and sued for breach.

Issue

Whether the parol evidence rule barred proof of the oral relocation agreement notwithstanding the written corporate asset-sale contract; whether the oral agreement was too vague or illusory to be enforceable; and whether the jury's damages award rested on speculative or incompetent proof.

Rule

Under New York law, the parol evidence inquiry turns on whether the parties intended the writing to be the complete and accurate integration of all mutual promises, judged in light of the type of transaction, the scope of the writing, the content of the oral agreement, and surrounding circumstances. A contemporaneous oral agreement may be proved if it is separate, independent, and complete, is not contradictory of the writing, and is not the sort of term the parties would ordinarily be expected to include in the written instrument. A contract is not unenforceable for indefiniteness if extrinsic evidence renders the parties' obligations reasonably definite, a reasonable-time term is acceptable, and any discretion is constrained by good faith; where breach makes exact proof difficult, lost profits may be recovered if supported by a reasonable basis.

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Redstone Beverage Group agreed in a written contract to buy all assets of Prairie Fork Distributors, Inc., a liquor wholesaler in Columbus, Ohio. Before signing, buyer executive Martin Sosa allegedly promised two minority shareholders, Nina Patel and Arjun Patel, that if they supported the sale, Redstone would within a reasonable time arrange a new distributorship for them in a city acceptable to them; the asset-sale contract had no integration clause and said nothing about the siblings personally.

If Nina and Arjun sue to enforce the oral promise, is evidence of that promise barred by the parol evidence rule as a matter of law?

Explanation. The majority held that the key question is objective intent as to integration, judged from the writing, the type of transaction, the scope of the writing, the content of the oral promise, and surrounding circumstances. A contemporaneous oral agreement may be proved if it is separate, independent, complete, noncontradictory, and not the sort of term parties would ordinarily expect to include in the writing. A personal relocation-type promise to individual shareholders can be collateral to a corporate asset-sale agreement, especially where the writing lacks an integration clause.