North Shore Bottling Co. v. C. Schmidt & Sons, Inc.
239 N.E.2d 189, 22 N.Y.2d 171, 292 N.Y.S.2d 86 (1968)
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Rule of Law:
An oral agreement of indefinite duration is not subject to the Statute of Frauds' one-year provision if it contains a contingency, within one party's control, that could lead to its termination within one year, as such termination constitutes performance under the contract.
Facts:
- In October 1960, North Shore Bottling Company entered into an oral agreement with C. Schmidt and Sons, a beer manufacturer.
- Under this agreement, North Shore became the exclusive wholesale distributor of Schmidt beer in Queens County for as long as Schmidt sold beer in the New York metropolitan area.
- Before this agreement, there was practically no sale of Schmidt beer in Queens County.
- At Schmidt's special request and in reliance on its promises, North Shore diligently worked and spent considerable sums to develop the sale of Schmidt beer in Queens County.
- Within a year, North Shore achieved approximately a 100% increase in its sales of Schmidt beer.
- In June 1962, Schmidt designated Midway Beverage Corporation as its distributor in Queens County, replacing North Shore.
Procedural Posture:
- North Shore Bottling Co. brought a lawsuit against Schmidt and Sons (and others) in Special Term (the trial court of first instance) for breach of contract (first cause of action) and conspiracy (third cause of action).
- Defendant Schmidt moved at Special Term for summary judgment to dismiss the first and third causes of action, arguing the agreement was void under the Statute of Frauds, and also moved to dismiss the third cause of action for failure to state a cause of action.
- Special Term granted Schmidt's motions, dismissing both the first and third causes of action.
- North Shore Bottling Co. appealed Special Term's decision to the Appellate Division (an intermediate appellate court).
- The Appellate Division modified Special Term's order, denying Schmidt's motion for summary judgment on the first cause of action, concluding the agreement was outside the Statute of Frauds.
- The Appellate Division upheld the dismissal of the third cause of action but granted North Shore leave to serve an amended complaint for a tort action against Schmidt.
- The Appellate Division then certified a question to the New York Court of Appeals (the highest court in New York).
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Issue:
Does an oral agreement fall within the Statute of Frauds' one-year provision if it explicitly includes a contingency, within one party's control, that could result in its termination within a year, even if the parties expected the agreement to continue for a longer, indefinite period?
Opinions:
Majority - Chief Judge Fuld
No, an oral agreement does not fall within the Statute of Frauds' one-year provision if it includes a contingency, within one party's control, that could lead to its termination within a year. The Statute of Frauds only requires agreements to be in writing if they are, by their terms, not to be performed within one year. This rule does not apply to agreements capable of performance within a year, or those whose performance depends on a contingency that may or may not happen within a year. Performance includes carrying out the contract by doing what it requires or permits, including termination if the contract itself creates the power to terminate. Here, the agreement contemplated termination if Schmidt discontinued beer sales in the New York area, an action entirely within Schmidt's control and performable within a year. Such an occurrence is a permitted performance under the contract, advancing the period of fulfillment. The court distinguished this from 'service contracts' involving commissions in perpetuity, where the plaintiff's performance is a 'one-shot' affair and termination is not contemplated by either contracting party, or where performance depends on a third party's will.
Dissenting - Judge Scileppi
Judge Scileppi dissented, voting to modify the Appellate Division's order based on the opinion at Special Term, which had found the agreement void under the Statute of Frauds.
Analysis:
This case significantly clarifies the application of the Statute of Frauds' one-year provision in New York, particularly for oral contracts with indefinite terms that include specific termination events. It reaffirms the principle that 'performance' for Statute of Frauds purposes includes termination if that termination is an event specifically contemplated and allowed by the contract itself, rather than a breach. This precedent offers greater flexibility for businesses to enter into oral agreements for distributorships or similar arrangements, provided a clear, lawful termination mechanism within a year is integrated into the agreement. However, it also highlights the critical distinction between contractual termination and seeking commissions in perpetuity based on a 'one-shot' service, which remains within the statute.
