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Reports Corp. v. Technical Publishing Co.

May 22, 1969


Hastings, Senior Circuit Judge and Swygert and Fairchild, Circuit Judges.

Author: Swygert

SWYGERT, Circuit Judge.

This is a diversity action brought by Reports Corporation, a New Jersey corporation, against Technical Publishing Company, an Illinois corporation. The plaintiff seeks damages for breach of an oral agreement. The district court found in favor of the plaintiff, awarded $30,150 damages, and entered judgment in that amount against the defendant. Both parties have appealed from the judgment.

In its appeal, Technical, as defendant-appellant, presents two questions: (1) whether the finding of the district court that Technical made an oral promise to Reports is supported by the evidence and is not clearly erroneous, and (2) whether the parol evidence rule was violated by the enforcement of the oral agreement against Technical.

In its cross-appeal, Reports, as plaintiff-appellant, presents the single question whether the district court erred in not awarding prejudgment interest on the amount of recovery.

No useful purpose, we believe, could be served by a long narration of the many details giving rise to this lawsuit. We think it sufficient to outline the essential findings of the district court.

In August 1956 Reports purchased eighty per cent of the capital stock of Petroleum Equipment Publishing Co., Inc., whose sole business was the publishing of a trade magazine, Petroleum Equipment. The stock was acquired from Arthur D. Youmans, president of Petroleum and its sole shareholder. As part of the transaction Reports promised to carry out certain unaccrued obligations due Youmans arising out of an agreement, dated July 1, 1956, between him and Petroleum. This obligation specifically required Reports to pay Youmans $1,050 per month from July 1, 1956 to August 31, 1961 in return for Youmans' supplying certain advice and consultation to Petroleum. Reports executed a written guarantee of Petroleum's obligation to Youmans under their July 1, 1956 agreement.

Reports' investment in Petroleum proved to be a financial failure. In April 1958 George Stewart, president of Reports, and Youmans met with Kingsley L. Rice, president of Technical, and entered into a discussion concerning a sale of Petroleum's assets to Technical. During the next few weeks the boards of directors of Reports and Technical authorized their respective presidents to negotiate a sale of Petroleum's assets.

In June 1958 Stewart and Rice met for further discussion. At that time Stewart explained the terms of the consulting agreement between Youmans and Petroleum and the obligation of Reports as guarantor of the Youmans agreement. On July 8 Rice wrote Stewart indicating Technical's interest in buying the assets of Petroleum and suggesting terms for such purchase. In his letter Rice proposed a purchase price of $32,000 to be paid in installments. He also acknowledged the existence of Youmans' consulting contract and spoke of Technical's assuming the "balance of the obligation due Arthur Youmans."

On July 17 Stewart, Rice, and other representatives of the parties met again. The district court's finding with respect to this meeting reads in part:

During this meeting Kingsley L. Rice made an oral promise to the representatives of the plaintiff that the defendant would assume the balance of the obligations owed to Youmans under the Consulting Agreement as part of the consideration for the defendant's purchase of the assets of Petroleum. In connection with this promise Kingsley L. Rice explained that the defendant intended to pay the amounts due Youmans under the Consulting Agreement as tax deductible expenses rather than as a part of the purchase price for the assets of Petroleum.

Shortly after this meeting, the attorney for Technical prepared a draft purchase contract. The draft was sent to Herman S. Swartz, Reports' secretary-treasurer, who in turn transmitted it to the company's attorney in Boston. Upon receiving the draft, Reports' lawyer called Technical's lawyer in Chicago and inquired why the draft agreement omitted any mention of the promise by Technical to assume Reports' obligation to Youmans under the consulting agreement. Technical's attorney said that he was unwilling to include this promise in the asset purchase agreement because he was afraid that the moneys to be paid by Technical under the consulting agreement might be ruled for tax purposes as an acquisition of good will and therefore not deductible as a business expense. Reports' attorney accepted this statement and agreed that his client would execute a purchase agreement omitting any reference to Technical's promise to assume the unaccured payments under the consulting agreement.

A purchase agreement embracing the prior understanding was executed by the parties on July 25, 1968. The written agreement contained no provision that Technical was to assume the then unaccrued $36,000 of Reports' obligation under its guarantee with Youmans. At no time thereafter did Technical pay Youmans any amount in satisfaction of this obligation.

In 1961 Youmans brought suit against Reports in the federal court for the district of New Jersey, seeking recovery of the amount due under the consulting agreement which had been guaranteed by Reports. Reports notified Technical of the suit and ...

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