Hicks v. Bush
180 N.E.2d 425 (N.Y. 1962)
In this action for specific
performance of a written agreement, we granted the plaintiff leave to appeal to
consider whether the parol evidence rule was violated by the 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.
On July 10, 1956, the plaintiff
Frederick Hicks, together with defendant Michael Congero and one Jack McGee,
executed a written agreement with the individual defendants, members of
defendant Clinton G. Bush Company, whereby the parties were to merge their
various corporate interests into a single "holding" company in order to achieve
more efficient operation and greater financial strength. The document recited,
among other things, that the plaintiff would subscribe for some 425,000 shares
of stock in the new holding corporation, known as Bush-Hicks Enterprises, Inc.,
and that the defendants comprising the Bush Company would subscribe for more
than a million shares. The other parties to the agreement were to subscribe for
a total of less than 50,000 shares. The principal consideration for the
subscription was the transfer to the holding company of stock in the operating
corporations which the several parties owned.
The written agreement provided
expressly that the subscriptions for the stock in Bush-Hicks Enterprises were to
be made "within five days after the date of this Agreement" and that, "If within
twenty-five days after the date hereof Bush-Hicks shall have failed to accept
any of said subscriptions delivered to it * * * then and in any such event the
obligations of all of the parties hereto shall be terminated and cancelled." The
subscriptions were promptly made and accepted and, although the plaintiff turned
over the stock of his corporations, the defendants did not transfer the stock of
their companies to Bush-Hicks Enterprises. In consequence, the plaintiff never
received the Bush-Hicks stock as provided in the agreement and the merger never
eventuated.
Alleging a breach of contract, the
plaintiff brought this suit for specific performance and for an accounting. In
their answer, the defendants urged, as an affirmative defense, that the written
agreement was executed "upon a parol condition" that it "was not to operate" as
a contract and that the contemplated merger was not "to become effective" until
so-called "equity expansion funds", amounting to $672,500, were first procured.
And, to support that allegation, the defendants upon the trial offered evidence
of such an oral understanding. The court admitted the evidence, over the
plaintiff's objection that it varied and contradicted the terms of the writing,
and, finding that the oral condition asserted had actually been agreed on by the
parties, rendered judgment in favor of the defendants.
A reading of the record
unquestionably supports the decision of the courts below that the parties,
having concluded that $672,500 was essential to successful operation of the
proposed merger, agreed that the entire merger deal was to be subject to the
condition precedent that that sum be raised. Thus, one witness, the president of
the defendant Bush Company, declared that everyone "understood" that the writing
was not to become operative as a binding contract until the specified equity
expansion funds were obtained. Indeed, his expressive and colorful testimony
leaves no doubt as to the nature of the agreement arrived at: "I used the
Chinese slang phrase of 'No tickie, no shirtie.' Let's get signed so we would be
ready. I said, 'You all know what that means, that if we do not get the funds,
this document [the written agreement] does not become operative * * *.' * * *
There is only one understanding, verbal understanding that we have had. That
speaks of 'Get the money or no deal.'"
The expansion capital of $672,500,
which the parties hoped would be procured by December 31, 1956, was never
raised.
The applicable law is clear, the relevant principles settled. Parol testimony is
admissible to prove a condition precedent to the legal effectiveness of a
written agreement (see Saltzman v. Barson, 239 N. Y. 332, 337; Grannis v.
Stevens, 216 N. Y. 583, 587; Reynolds v. Robinson, 110 N. Y. 654; see, also, 4
Williston, Contracts [3d ed., 1961], §634, p. 1021; 3 Corbin, Contracts [1960
ed.], §589, p. 530 et seq.), if the condition does not contradict the express
terms of such written agreement. (See Fadex Foreign Trading Corp. v. Crown Steel
Corp., 297 N. Y. 903, affg. 272 App. Div. 273, 274-276; see, also, Restatement,
Contracts, §241.) A certain disparity is inevitable, of course, whenever a
written promise is, by oral agreement of the parties, made conditional upon an
event not expressed in the writing. Quite obviously, though, the parol evidence
rule does not bar proof of every orally established condition precedent, but
only of those which in a real sense contradict the terms of the written
agreement. (See, e.g., Illustration to Restatement, Contracts, §241.) Upon the
present appeal, our problem is to determine whether there is such a
contradiction.
The Fadex case (297 N. Y. 903, supra)
is illustrative. The plaintiff, seeking damages for nondelivery of certain
goods, relied upon written agreements which specifically provided that the goods
were "Ready now" and that the time of delivery was to be "Prompt" and "Within 4
to 6 weeks, if possible earlier." Despite these express recitals, plus the
further explicit notation that no oral arrangement or modification was to be
binding upon the parties, the defendant sought to show a contemporaneous oral
agreement that the sales were conditioned upon its ability to obtain the goods
within a month. In connection with a motion for partial summary judgment, this
court decided that an oral condition precedent to the formation of a contract
could be established when not contradictory of the written agreement itself, but
concluded that the condition attempted to be proved by the defendant Crown Steel
Corporation would, if ruled operative, actually annul the express terms of the
writing.
The present case differs materially
from Fadex. There 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 (supra, p. 491), is
silent. The plaintiff, however, contends that, since the written agreement
provides in terms that the obligations of the parties were to be terminated if
the merged corporation failed to accept any of their stock subscriptions within
25 days, the additional oral condition -- that the writing "was [not] to become
operative" and that the merger was "not to become effective" until the expansion
funds had been raised -- is irreconcilable with the written agreement.
As already indicated, and analysis
confirms it, the two conditions may stand side by side. The oral requirement
that the writing was not to take effect as a contract until the equity expansion
funds were obtained is simply a further condition -- a condition added to that
requiring the acceptance of stock subscriptions within 25 days -- and not one
which is contradictory. If both provisions had been contained in the written
agreement, it is clear that the defendants would not have been under immediate
legal duty to transfer the stock in their companies to Bush-Hicks Enterprises
until both conditions had been fulfilled and satisfied. And it is equally clear
that evidence of an oral condition is not to be excluded as contradictory or
"inconsistent" merely because the written agreement contains other conditions
precedent. . . .
In short, the parties in the case
before us intended that their respective rights and duties with respect to the
contemplated transfers of stock in the operating companies to the holding
company be subject to two conditions, each independent of the other -- the
acceptance of the stock subscription within a specified period and the procuring
of expansion funds of $672,500. As the courts below found, the parties did not
contemplate performance of the written agreement until such funds were first
received. In other words, it was their 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. It is certainly not improbable
that parties contracting in these circumstances would make the asserted oral
agreement; the condition precedent at hand is the sort of condition which
parties would not be inclined to incorporate into a written agreement intended
for public consumption. The challenged evidencewas, therefore, admissible and,
since there was ample proof attesting to the making of the oral agreement, the
trial court was fully warranted in holding that no operative or binding contract
ever came into existence.
The judgment appealed from should be
affirmed, with costs.
Judgment affirmed.