Lee v. Joseph E. Seagram & Sons, Inc.
552 F.2d 447 (1977)
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Rule of Law:
The parol evidence rule does not bar proof of a separate, collateral oral agreement that does not contradict the terms of a related written contract, particularly when the circumstances suggest the parties would not ordinarily be expected to include the oral promise in the written document.
Facts:
- Harold S. Lee and his two sons, Lester and Eric ('the Lees'), owned a 50% interest in Capitol City Liquor Company, Inc., a wholesale liquor distributorship in Washington, D.C.
- Joseph E. Seagram & Sons, Inc. ('Seagram'), a major distiller, supplied many of the brands sold by Capitol City.
- In May 1970, Harold Lee met with Jack Yogman, an executive vice president at Seagram and a long-time friend, to discuss the sale of Capitol City.
- Lee offered to sell Capitol City's business on the condition that Seagram would agree to relocate him and his sons into a new distributorship of their own in a different city.
- Seagram agreed to purchase the assets of Capitol City on behalf of a new distributor.
- On September 30, 1970, the sale of Capitol City's assets was finalized through a formal written agreement.
- Seagram's promise to relocate the Lees in a new distributorship was not included in the written sales contract.
Procedural Posture:
- The Lees (plaintiffs) sued Seagram (defendant) in the U.S. District Court for the Southern District of New York for breach of an oral contract.
- The trial court denied Seagram's motion for summary judgment.
- After a trial, the jury returned a verdict in favor of the Lees, awarding them $407,850 in damages.
- The trial court denied Seagram's post-trial motion for judgment notwithstanding the verdict.
- Seagram, as appellant, appealed the judgment to the United States Court of Appeals for the Second Circuit.
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Issue:
Does the parol evidence rule bar proof of an oral agreement to provide a new business distributorship to the individual selling shareholders when that agreement was made as a condition of a written contract for the corporate sale of assets?
Opinions:
Majority - Gurfein, J.
No. The parol evidence rule does not bar proof of the oral agreement because it was a collateral agreement that would not ordinarily be expected to be included in the written contract for the sale of corporate assets. The court determines whether parties intended a written agreement to be a complete integration of all their promises by examining the writing in light of the surrounding circumstances. Here, the oral agreement was collateral and not barred for several reasons: 1) The parties to the agreements were different; the written contract was for a corporate sale of assets by Capitol City, whereas the oral agreement was a personal promise to the Lees, who were only 50% shareholders. 2) The long-standing relationship of friendship and trust between Harold Lee and Seagram's executive, Jack Yogman, made a separate oral 'handshake' agreement plausible. 3) The negotiators of the written sales agreement were different Seagram representatives than Yogman, who made the oral promise. 4) The written contract lacked a standard integration clause, which weakens the presumption that it was the complete agreement. Finally, the oral promise did not contradict any terms of the written sales contract, as it concerned a separate obligation to the individuals, not the consideration flowing to the corporation for its assets.
Analysis:
This case provides a flexible, context-sensitive application of the parol evidence rule's collateral agreement exception. It reinforces that the determination of whether parties would 'ordinarily' be expected to include an oral promise in a written contract is not a rigid inquiry. The decision establishes that factors like differing parties (corporate vs. individual), distinct subject matters, pre-existing personal relationships, and the absence of an integration clause are all critical in finding an oral agreement to be separate and admissible. This ruling serves as a strong precedent for allowing parol evidence in complex business transactions where personal undertakings are made in conjunction with formal corporate agreements.
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