Brief Fact Summary.
Lipsit (Plaintiff) sued his former employer (Leonard) under an employment arrangement that consisted of a series of annual letter agreements and, according to Plaintiff, a number of specific oral promises promising the Plaintiff future partial ownership.
Synopsis of Rule of Law.
New York allows an action to be maintained and parol evidence to be introduced, although the promise itself cannot be enforced, where the relief sought is rescission or restitution.
New York also clearly allows an action for tort money damages based upon oral fraudulent promises and misrepresentations which induced the written agreement and permits parol evidence to establish the same.
In actions for money damages for fraud in the inducement, the measure of money damages is indemnity for the actual money loss sustained. Therefore, the contract with the addition of the oral promises cannot be enforced in a tort action in fraud for money damages.
For a fraud claim, the true measure of damages is indemnity for the actual pecuniary loss sustained as a direct result of the wrong or what is known as the out-of-pocket rule.View Full Point of Law
The Plaintiff worked for the Defendant for nearly eight years under a series of annual letter agreements, which provided for a “more permanent relationship including partial ownership” if the relationship was mutually satisfactory. However, nothing was done to augment the relationship until Defendant made a proposal in 1968 that Plaintiff found fiscally impossible to accept.
Plaintiff’s employment was terminated in 1969, and he alleged breach of oral contractual promises, as well as a tort claim based on fraud. Plaintiff claimed that Defendant never intended to keep his oral promises at the time he made them, which amounted to misrepresentation of an existing fact, and fraud in the inducement to enter into several employment agreements.
Defendant moved for summary judgment upon the entire complaint. Summary judgment was granted by the Law Division and affirmed by the Appellate Division.
Could the action be maintained when the promise itself could not be enforced under the parol evidence rule?
The trial court should not have granted summary judgment on the tort cause of action in fraud.
· While the Plaintiff may have a difficult time not only in establishing out of pocket damages specifically enough, but in proving sufficiently precise oral promises of equity ownership in the business in light of the written agreements, he is entitled to try if he wishes.
The Plaintiff was not seeking to enforce the contract, under which the parol evidence rule would have barred the introduction of his oral agreements with the Defendant. Rather, the Plaintiff was seeking to introduce the oral evidence to establish fraud in the inducement of the employment contract. The New York rule on the available relief and proper measure of damages in an action grounded upon fraud in the inducement allows introduction of evidence regarding oral promises.