Zell v. American Seating Co.

• Decision Date: 04 November 1943
• Docket Number: No. 30.,30.
• Citation: 138 F.2d 641
• Parties: ZELL v. AMERICAN SEATING CO.
• Court: U.S. Court of Appeals — Second Circuit

138 F.2d 641 (1943)

ZELL v. AMERICAN SEATING CO.

No. 30.

Circuit Court of Appeals, Second Circuit.

November 4, 1943.

Donovan, Leisure, Newton & Lumbard, of New York City (J. Edward Lumbard, Jr., Theodore S. Hope, Jr., and Phillips S. Trenbath, all of New York City, of counsel), for plaintiff-appellant.

Cravath, de Gersdorff, Swaine & Wood, of New York City (Albert R. Connelly and Harold R. Medina, Jr., both of New York City, of counsel), for defendant-appellee.

Before L. HAND, SWAN, and FRANK, Circuit Judges.

FRANK, Circuit Judge.

On defendant's motion for summary judgment, the trial court, after considering the pleadings and affidavits, entered judgment dismissing the action. From that judgment, plaintiff appeals.

On a motion for summary judgment, where the facts are in dispute, a judgment can properly be entered against the plaintiff only if, on the undisputed facts, he has no valid claim; if, then, any fact asserted by the plaintiff is contradicted by the defendant, the facts as stated by the plaintiff must, on such a motion, be taken as true. Accordingly for the purpose of our decision here, we take the facts as follows:

Plaintiff, by a letter addressed to defendant company dated October 17, 1941, offered to make efforts to procure for defendant contracts for manufacturing products for national defense or war purposes, in consideration of defendant's agreement to pay him $1,000 per month for a three months' period if he were unsuccessful in his efforts, but, if he were successful, to pay him a further sum in an amount not to be less than 3% nor more than 8% of the "purchase price of said contracts." On October 31, 1941, at a meeting in Grand Rapids, Michigan, between plaintiff and defendant's President, the latter, on behalf of his company, orally made an agreement with plaintiff substantially on the terms set forth in plaintiff's letter, one of the terms being that mentioned in plaintiff's letter as to commissions; it was orally agreed that the exact amount within the two percentages was to be later determined by the parties. After this agreement was made, the parties executed, in Grand Rapids, a written instrument dated October 31, 1941, appearing on its face to embody a complete agreement between them; but that writing omitted the provision of their agreement that plaintiff, if successful, was to receive a bonus varying from three to eight per cent; instead, there was inserted in the writing a clause that the $1,000 per month "will be full compensation, but the company may, if it desires, pay you something in the nature of a bonus." However, at the time when they executed this writing, the parties orally agreed that the previous oral agreement was still their actual contract, that the writing was deliberately erroneous with respect to plaintiff's commissions, and that the misstatement in that writing was made solely in order to "avoid any possible stigma which might result" from putting such a provision "in writing," the defendant's President stating that "his fears were based upon the criticism of contingent fee contracts." Nothing in the record discloses whose criticism the defendant feared; but plaintiff, in his brief, says that defendant was apprehensive because adverse comments had been made in Congress of such contingent-fee arrangements in connection with war contracts. The parties subsequently executed further writings extending, for two three-month periods, their "agreement under date of October 31, 1941." Through plaintiff's efforts and expenditures of large sums for traveling expenses, defendant, within this extended period, procured contracts between it and companies supplying aircraft to the government for war purposes, the aggregate purchase price named in said contracts being $5,950,000. The defendant has refused to pay the plaintiff commissions thereon in the agreed amount (i.e., not less than three percent) but has paid him merely $8,950 (at the rate of $1,000 a month) and has offered him, by way of settlement, an additional sum of $9,000 which he has refused to accept as full payment.

Defendant argues that the summary judgment was proper on the ground that, under the parol evidence rule, the court could not properly consider as relevant anything except the writing of October 31, 1941, which appears on its face to set forth a complete and unambiguous agreement between the parties. If defendant on this point is in error, then, if the plaintiff at a trial proves the facts as alleged by him, and no other defenses are successfully interposed, he will be entitled to a sum equal to 3% of $5,950,000.

Were the parol evidence rule a rule of evidence, we could decide this question without reference to state court decisions.¹ But the federal courts have held, in line with what has become the customary doctrine in most states, that it is a rule of substantive law, i.e., the extrinsic proof is excluded because no claim or defense can be founded upon it.² The acid test of whether the rule is substantive or procedural would seem to be whether, if extrinsic evidence is received without objection, it can be regarded as material and made the basis of the court's decision;³ if it can, then, presumably the rule is like the hearsay rule. But in Higgs v. De Maziroff, 263 N.Y. 473, 189 N.E. 555, 92 A.L.R. 807, the court said that if extrinsic evidence is thus received and if the attention of the trial court is not otherwise called to the parol evidence rule, that evidence becomes relevant and that no complaint because of the reception of that evidence can be raised on appeal.⁴ It might therefore be argued that, in New York, the parol evidence rule is procedural, with the consequence that, although the contract was made in Michigan, the New York parol evidence decisions would govern.⁵ But the court, in Higgs v. De Maziroff, explicitly stated that the rule creates a substantive defense and, in effect, held that, like many other substantive defenses, it is "waived" if not properly raised in the trial court; in other words, "waivability" is not a unique quality of procedural errors. The substantive character of the rule, although perhaps shadowy, still exists in New York. It seems clear then that, for purposes of conflict of laws, New York would consider that rule as not procedural. Consequently, we must here apply the law of Michigan.⁶

It is not surprising that confusion results from a rule called "the parol evidence rule" which is not a rule of evidence, which relates to extrinsic proof whether written or parol,⁷ and which has been said to be virtually no rule at all.⁸ As Thayer said of it, "Few things are darker than this, or fuller of subtle difficulties."⁹ The rule is often loosely and confusingly stated as if, once the evidence establishes that the parties executed a writing containing what appears to be a complete and unambiguous agreement, then no evidence may be received of previous or contemporaneous oral understandings which contradict or vary its terms. But, under the parol evidence rule correctly stated, such a writing does not acquire that dominating position if it has been proved by extrinsic evidence that the parties did not intend it to be an exclusive authoritative memorial of their agreement. If they did intend it to occupy that position, their secret mutual intentions as to the terms of the contract or its meaning are usually irrelevant, so that parties who exchange promises may be bound, at least "at law" as distinguished from "equity," in a way which neither intended, since their so-called "objective" intent governs. When, however, they have previously agreed that their written promises are not to bind them, that agreement controls and no legal obligations flow from the writing.¹⁰ It has been held virtually everywhere, when the question has arisen that (certainly in the absence of any fraudulent or illegal purpose) a purported written agreement, which the parties designed as a mere sham, lacks legal efficacy, and that extrinsic parol or other extrinsic evidence will always be received on that issue. So the highest court of Michigan has several times held.¹¹ It has gone further: In Woodard v. Walker, 192 Mich. 188, 158 N.W. 846, that court specifically enforced against the seller an oral agreement for the sale of land which had been followed by a sham written agreement, for sale of the same land at a higher price, intended to deceive the seller's children who were jealous of the buyer.¹²

We need not here consider cases where third persons have relied on the delusive agreement to their detriment¹³ or cases in other jurisdictions (we find none in Michigan) where the mutual purpose of the deception was fraudulent or illegal.¹⁴ For the instant case involves no such elements. As noted above, the pleadings and affidavits are silent as to the matter of whom the parties here intended to mislead, and we cannot infer a fraudulent or illegal purpose. Even the explanation contained in plaintiff's brief discloses no fraud or illegality: No law existed rendering illegal the commission provision of the oral agreement which the parties here omitted from the sham writing; while it may be undesirable that citizens should prepare documents so contrived as to spoil the scent of legislators bent on proposing new legislation, yet such conduct is surely not unlawful and does not deserve judicial castigation as immoral or fraudulent; the courts should not erect standards of morality so far above the customary. Woodard v. Walker leaves no doubt that the Michigan courts would hold the parol evidence rule inapplicable to the facts as we have interpreted them.

Candor compels the admission that, were we enthusiastic devotees of that rule, we might so construe the record as to bring this case within the rule's scope; we could dwell on the fact that plaintiff, in his complaint, states that the acceptance of his offer "was partly oral and partly contained" in the October 31 writing, and could then hold...