Citation. 10 N.Y.2d 488, 225 N.Y.S.2d 34, 180 N.E.2d 425 (N.Y. 1962)
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Various corporate interests were to be merged into a single holding company. The parties entered into a written agreement containing one condition. Certain parties alleged that a second oral condition was also present.
Synopsis of Rule of Law.
Parol evidence is admissible to "prove a condition precedent to the legal effectiveness of a written agreement…if the condition does not contradict the express terms of the written agreement."
Facts.
On July 10, 1956, the Plaintiff, Frederick Hicks (the "Plaintiff"), along with Defendant No. 1, Michael Congero ("Defendant No. 1"), and Jack McGee ("Mr. McGee"), entered into a written agreement with certain other defendants, employees of the Clinton G. Bush Company ("Defendant No. 2"). The parties agreed to combine their various corporate interests into a single holding company. All the parties involved were required to subscribe to the stock of the new holding company within 25 days. If any of the subscriptions were not accepted within the requisite time, the obligations of all the parties were to be terminated. The Plaintiff promptly turned over the stock of his corporations, but Defendant No. 1 and Defendant No. 2 failed to do so. The Plaintiff brought suit alleging breach of contract and requesting an accounting and specific performance. Defendant No. 1 and Defendant No. 2, as an affirmative defense, alleged that the July 10, 1956 agreement was entered into "upon a parol condition". That condition being, no contract was formed until $672,500 in "equity expansion funds" were procured. These funds were never procured. The trial court admitted this oral understanding over the Plaintiff's objection and found that the oral agreement existed. The Plaintiff appealed.
Issue.
Did the court's "receipt of testimony tending to establish that the parties had orally agreed that the legal effectiveness of the written agreement should be subject to a stated condition precedent" violate the parol evidence rule?
Held.
No. Parol evidence is admissible to "prove a condition precedent to the legal effectiveness of a written agreement…if the condition does not contradict the express terms of the written agreement." The court recognizes that its responsibility was to determine whether there was a contradiction. The court observes "[t]here is here no direct or explicit contradiction between the oral condition and the writing; in fact, the parol agreement deals with a matter on which the written agreement, as in some of the cases cited … is silent." Further, that the oral condition was an independent condition added to the condition requiring "acceptance of stock subscriptions within 25 days", and not contradictory. The court concluded "it was the[ ] [parties'] desire and understanding that the merger was to be one of proposal only and that, even though the formal preliminary steps were to be taken, the writing was not to become operative as a contract or the merger effective until $672,500 was raised." Here, the President of Defendant No. 2 testified in a very colorful manner that "the writing was not to become operative as a binding contract until the specified equity expansion funds were obtained."
Discussion.
This case offers a very interesting discussion about how the parol evidence rule is applied by courts to determine whether an agreement is valid.
