Jack H. Brown & Co., Inc. v. Toys ""R'' Us, Inc., 89-1143

• Decision Date: 20 July 1990
• Docket Number: No. 89-1143,89-1143
• Parties: Page 169 906 F.2d 169 JACK H. BROWN & COMPANY, INC., d/b/a Signgraphics, Plaintiff-Appellee, v. TOYS "R" US, INC., Defendant-Appellant. United States Court of Appeals, Fifth Circuit
• Court: U.S. Court of Appeals — Fifth Circuit

Page 169

906 F.2d 169

JACK H. BROWN & COMPANY, INC., d/b/a Signgraphics, Plaintiff-Appellee v TOYS "R" US, INC., Defendant-Appellant.

No. 89-1143.

United States Court of Appeals Fifth Circuit.

July 20, 1990.

Brian J. Hurst, William C. Scott, Jenkins & Gilchrist, Dallas, Tex., for defendant-appellant.

Durwood D. Crawford, Goins, Underkofler, Crawford & Langdon, Dallas, Tex., for plaintiff-appellee.

Appeal from the United States District Court for the Northern District of Texas.

Before GOLDBERG, GARWOOD and DAVIS, Circuit Judges.

GOLDBERG, Circuit Judge:

Jack H. Brown & Co., Inc., d/b/a Signgraphics ("Signgraphics"), brought this diversity action against Toys "R" Us, Inc. ("Toys") to recover damages for breach of contracts to purchase signs and mansards. Toys' defense relied on a written settlement agreement with Signgraphics ("the settlement agreement") that allegedly released Toys from liability under the sign and mansard contracts. At trial, Signgraphics introduced parol evidence to show that Toys failed to perform certain obligations, not contained in the written settlement agreement executed by the parties, that purportedly were part of that agreement. We find that parol evidence was admitted in error. We reverse.

FACTS

For eight or nine years prior to 1985, Signgraphics supplied custom signs for Toys "R" Us retail stores. Typically, Signgraphics and Toys entered into annual contracts under which Signgraphics agreed to build and supervise installation of the signs Toys needed for any new stores opened during the year. After 1983, Toys also began contracting with Signgraphics for the construction of prefabricated "mansards," which are false-front, built-up roofs upon which the signs are mounted.

In 1985 Toys and Signgraphics had two agreements in effect: one for the construction of ten mansards ("the 1984 contract") and one for signs ("the 1985 contract"). Early in 1985, a dispute arose between Signgraphics and Toys over late payment of invoices. Sometime in March, Toys requested shipment of one of the completed mansards, but Signgraphics refused to ship the mansard until Toys made some payment on the disputed invoices. In response to Signgraphics' refusal to ship the mansard Toys cancelled both the 1984 and 1985 contracts via telegram on April 1, 1985.

In a letter dated April 16, 1985, Signgraphics acknowledged the cancellation and demanded payment from Toys of all money owed under the contracts and for lost profits. Signgraphics also filed a lawsuit in the Northern District of Texas on April 22, 1985, alleging that Toys breached the 1984 and 1985 contracts, and seeking damages for all outstanding amounts owed on completed work plus lost profits from work that would have been performed had the contracts not been cancelled. On April 23, 1985, James Markham, Director of Industrial Buying for Toys, along with several other Toys representatives, travelled to Dallas to meet with representatives from On April 29, 1985, Markham sent Brown a letter summarizing the agreement reached during the April 23 meeting. ¹ Among other things, the letter indicated that Signgraphics would continue as the sign vendor for ten Toys "R" Us stores. The letter stated that except for these ten stores, the remainder of the 1985 contract Brown received the letter, signed and dated a copy as of April 30, 1985, and returned the copy to Markham along with an addendum. ² The addendum generally referred to the parties' understanding about the disposition of stored materials, shipping costs and procedures, and miscellaneous service and repair work. The addendum made no reference to the release, or to any other agreements between the parties other than their "past practice" with regard to services and repairs. Both parties performed in accordance with the terms set out in the April 29, 1985 letter from Markham, as supplemented by Brown's April 30, 1985 addendum, for the remainder of the year.

                Signgraphics.  Markham met individually with Jack R. Brown, Signgraphics' owner and president, in an attempt to resolve the conflict between the two parties.  As a result of this meeting, Markham and Brown reached an agreement on the various disputes that existed between their respective companies
                was "terminated with no further liability on the part of either party."    Markham's letter also indicated that Signgraphics had been paid in full for four mansards, and that any contract for additional mansards was "terminated with no further liability to either party."    In closing, Markham wrote, "I trust you will agree that the foregoing accurately reflects our understanding."
                

In November, 1985, Signgraphics submitted bids for Toys' 1986 sign program. The bids were unsuccessful. Brown wrote to Markham expressing surprise over the fact that Signgraphics had not been selected as a sign vendor for 1986. According to Brown, the April, 1985 settlement agreement was "based on [Markham's] representation that [Signgraphics] would be a supplier in 1986." Specifically, Brown asserted that in exchange for releasing Toys from Signgraphics' lost profits claim, Markham "promised" at the April 23 meeting that Signgraphics "would be a major sign vendor for Toys R Us in 1986, so that [Signgraphics] could recoup these claims in that manner." Because Toys did not select Signgraphics as a sign vendor for 1986, Brown reasserted his earlier claim for lost profits.

In a letter dated March 4, 1986, Markham denied making "any promises, representations or agreements, orally or in writing, that [Signgraphics] would be 'a major sign vendor' or do any sign work for Toys "R" Us in 1986." Maintaining that the April 29, 1985 settlement agreement effectively released Toys from further liability under the 1984 and 1985 contracts, Markham rejected Signgraphics' demand for payment of lost profits.

PROCEEDINGS BELOW

Signgraphics filed a diversity action in the Northern District of Texas, seeking $135,000 in lost profits from Toys' alleged breach of the 1984 and 1985 contracts. Additionally, Signgraphics sought to recover $4,950 for work it performed in accordance with the terms of the written settlement agreement. Toys admitted liability for this latter amount and the judgment entered upon it is not a subject of this appeal.

Toys' generally denied Signgraphics' claims, but did not dispute that it had cancelled the 1984 and 1985 contracts. Instead, Toys pleaded affirmative defenses of compromise and settlement, waiver, accord and satisfaction, and release. Toys' defenses relied primarily on the language of the written settlement agreement, which, Toys maintains, released it from any liability under the 1984 and 1985 contracts.

Signgraphics argued that the written settlement agreement did not contain all terms agreed to by the parties during their April 23, 1985 meeting. Furthermore, Signgraphics claimed that it only released Toys from liability under the 1984 and 1985 contracts in exchange for Toys' oral promise to make Signgraphics a "major sign vendor" in 1986. Signgraphics argued that Toys' breach of the alleged oral promise At trial, Toys filed a Motion in Limine to prohibit Signgraphics from introducing parol evidence of the alleged oral promise. The district court denied the motion. The court also overruled Toys' objection to the introduction of parol evidence during the trial, and admitted Brown's testimony of the oral promise, allegedly made by Markham during the April 23 meeting, that Signgraphics would be a "major sign vendor" in 1986.

entitled Signgraphics to sue for and recover its lost profits under the original contracts cancelled by Toys.

The jury returned a verdict in Signgraphics' favor of $123,054 on the issue of lost profits. In response to specific interrogatories, the jury found that Markham's April 29 letter, as amended by Brown's April 30 addendum, did not contain all material terms of the settlement agreement reached by the parties during the April 23, 1985 meeting. The jury also found that the writings did not release Toys from liability for lost profits based on the terminated 1984 and 1985 contracts. The district court entered judgment on the verdict, and denied Toys' motion for a judgment n.o.v., or in the alternative, for a new trial.

ISSUES

On appeal, Toys claims that the district court erred in admitting parol evidence of the alleged oral promise to vary the unambiguous terms of the written settlement agreement. Alternatively, Toys argues that the district court erred in denying the motion for a judgment n.o.v. because Signgraphics' claim was based on an oral promise for the sale of goods, and thus barred by the statute of frauds. Toys further contends that it was entitled to a judgment n.o.v. because the alleged oral promise was too indefinite, as a matter of law, for the district court to enforce. Finally, Toys claims that there was insufficient evidence to support the jury's finding that Signgraphics' claim was not barred by compromise and settlement, waiver, accord and satisfaction, and release.

We agree that the district court improperly admitted parol evidence of the alleged oral promise. We also agree that the written settlement agreement unambiguously released Toys from liability for damages under the 1984 and 1985 contracts, and that no evidence in the record other than the improperly admitted parol evidence can support the jury's finding to the contrary. Because evidence of Toys' alleged oral promise is barred by the parol evidence rule, we need not determine whether it is also barred by the statute of frauds, or whether the promise was too indefinite to be enforced.

DISCUSSION

I. Parol Evidence

We are bound in this diversity case to apply the parol evidence rule as a Texas court would. Harville Rose Svc. v. Kellogg Co., 448 F.2d 1346, 1349 (5th Cir.1971) cert. denied 405 U.S. 987, 92 S.Ct. 1248, 31 L.Ed.2d 453 (1972). In Hubacek v. Ennis State Bank ³, the Texas Supreme Court stated that "[w]hen parties have concluded...