The opinion of the court was delivered by: BARTELS
This is a motion pursuant to Rule 56, Fed.Rules Civ.Proc., 28 U.S.C.A., for summary judgment dismissing the complaint and for judgment upon defendant's counterclaim against plaintiff in the amount of $ 86,488.96 plus interest, together with costs and disbursements, upon the ground that the causes of action set forth in the complaint are barred by the statute of frauds and that there is no genuine issue as to any material fact involved in the action.
In the first cause of action plaintiff alleges, in substance, that an agreement was entered into between the defendant and the plaintiff's incorporators on November 22, 1963, which was subsequently, on December 5, 1963, confirmed by defendant and plaintiff, whereby the defendant agreed to appoint the plaintiff its distributor of liquor products in the New York metropolitan area and by May of 1964 to appoint it the sole and exclusive distributor of its products in said area and to supply plaintiff with adequate stocks of its products upon extended credit terms and to arrange for certain selling assistance to the plaintiff if the plaintiff 'would hire and keep employed as its General Manager one, IRVING KOERNER' and if plaintiff obtained an initial capital investment of $ 50,000 and the necessary liquor licenses to act as defendants' distributor in the New York metropolitan area and would promote defendant's products and perform certain other services in connection therewith, and that said appointment by defendant as such distributor 'would last as long as the aforesaid IRVING KOERNER was employed by said corporation as General Manager'; that plaintiff performed the terms of the agreement to be performed by it as defendant's liquor distributor and otherwise employed continuously and still has in its employ Irving Koerner but that the defendant has breached this agreement in that, among other things, it has 'failed to constitute plaintiff as its sole and exclusive distributor in the metropolitan New York area', by reason of which breach plaintiff claims it has suffered damages to the extent of $ 500,000 over and above a credit of $ 81,929.60, which it admits is due defendant for merchandise received.
In the second cause of action plaintiff alleges that between December 5, 1963 and the institution of the suit, plaintiff with the full knowledge and consent of the defendant, expended certain monies and performed certain work, labor and services for defendant in the New York metropolitan area in connection with the sale, promotion and reputation of defendant's products, which work, labor and services were reasonably worth the sum of $ 500,000.
In answer, the defendant interposes a general denial and an affirmative defense to both causes of action on the ground that both causes of action are based upon the alleged agreement which is void and unenforceable because by its terms it was 'not to be performed within one year from the making thereof'. Defendant also counterclaims for $ 86,448.96 for goods sold and delivered, for which it seeks a summary judgment.
For the purpose of the motion it is admitted that the alleged agreement was oral and that there was no written memorandum to support it. Pertaining to its counterclaim the defendant attached to its moving papers a photocopy of its accounts receivable record showing a series of entries for goods sold and delivered, amounts of invoices, credit memoranda and payments for the period from March 2, 1964 to August 24, 1964, and an affidavit indicating a balance due of $ 86,448.96.
The most difficult question presented by this motion is whether the alleged agreement is enforceable under the statute of frauds requiring an agreement which 'By its terms is not to be performed within one year from the making thereof'
to be in writing. The answer under New York law as construed by the Court of Appeals, is far from clear. According to the early New York cases an oral agreement which could be entirely performed within a year consistently with its terms, was outside of the statute even though such performance was neither probable nor expected.
The leading case upon the subject is Blake v. Voigt, 134 N.Y. 69, 31 N.E. 256 (1892), holding that an oral agreement which by its terms was not to be performed within a year was nevertheless taken out of the statute by reason of the fact that both parties had an option to terminate the agreement at any time within a year. The court observed that termination of the agreement was not performance but rather the destruction of the contract, except where there was an express 'provision authorizing either of the parties to terminate as a matter of right' (p. 72, 31 N.E. p. 256), in which event such termination did not defeat the contract but simply advanced the period of fulfillment.
Later there followed a series of cases such as Cohen v. Bartgis Bros. Co. (an oral agreement to pay commissions to an employee upon all orders placed by Resolute Paper Products Corporation at any time), 264 App.Div. 260, 35 N.Y.S.2d 206 (App.Div., 1st Dept. 1942), aff'd, 289 N.Y. 846, 47 N.E.2d 443 (1943); Martocci v. Greater New York Brewery (an oral agreement to pay commissions to plaintiff on all sales made by defendant to P. Lorillard Company), 301 N.Y. 57, 92 N.E.2d 887 (1950); Zupan v. Blumberg (an oral agreement to pay plaintiff commissions on all advertising accounts obtained for defendant so long as the account was active), 2 N.Y.2d 547, 161 N.Y.S.2d 428, 141 N.E.2d 819 (1957), all of which were considered by the Court of Appeals in reaching its conclusion in Farmer v. Arabian American Oil Co., 2 Cir. 1960, 277 F.2d 46, 85 A.L.R.2d 1321, cert. denied, 364 U.S. 824, 81 S. Ct. 60, 5 L. Ed. 2d 53 (1960). There an oral agreement to employ a physician in Saudi Arabia for the duration of defendant's oil well operations in that country was deemed outside of the statute upon the ground that the defendant's obligation was expressly limited to the duration of the defendant's operations and that such a provision authorized the defendant to terminate as a matter of right under Blake v. Voigt, supra. Subsequently, in the same year the case of Nurnberg v. Dwork, 12 A.D.2d 612, 208 N.Y.S.2d 799 (1960), aff'd, 12 N.Y.2d 776, 234 N.Y.S.2d 721, 186 N.E.2d 568 (1962), was decided by the Appellate Division, First Department. In that case the court held within the statute an oral agreement to negotiate for retail outlets for the defendants in certain stores which required the defendants to pay 1% Of the gross sales on such concessions established at any future time so long as the concessions were maintained by the defendants. Three years later the Second Circuit had occasion in Perrin v. Pearlstein, 2 Cir. 1963, 314 F.2d 863, to consider an oral agreement by the defendant-manufacturer and the plaintiff-broker to permit the plaintiff to represent the defendant so long as they remained in their respective businesses. Relying upon Nurnberg as the latest interpretation of the New York statute by New York courts, the Circuit Court held that this agreement was within the statute and that their decision in Farmer to the effect that the limitation of performance to the duration of defendant's operations was an express authorization to terminate as a matter of right, could no longer be followed.
These somewhat conflicting decisions present a perplexing problem. The troublesome question is whether the happening of the event within a year terminates the performance in accordance with the terms of the contract or whether such event destroys the contract. If there is an express option on the part of either party to terminate their respective performances at any time such as that in the Blake case, then the answer is easy. There are a number of events, however, which could happen within a year and terminate performance but which would not constitute performance in fulfillment of the terms of the contract but would effect the destruction of the contract. Thus insolvency, bankruptcy, dissolution of defendant's business, retirement from business, impossibility of performance and breach of contract are examples of events which would terminate performance by means of the destruction of the contract rather than by fulfillment of its express terms. See RCA v. Cable Radio Tube Corporation, 2 Cir. 1933, 66 F.2d 778, 784, cert. denied, 290 U.S. 703, 54 S. Ct. 373, 78 L. Ed. 604 (1934); Zupan v. Blumberg, supra; Cohen v. Bartgis Bros. Co., supra.
In Cohen the court stated 'We must distinguish between 'performance' which fulfils the contract and circumstances which defeat its purpose. 2 Williston on Contracts, Rev. ed., Section 499.' (35 N.Y.S.2d p. 208). In Martocci the court said that if the terms of the contract had included an event which might end the contractual relationship of the parties within a year, the possible liability of the defendant beyond that time would not subject the contract to the statute. and in Zupan the court in referring to a service contract of indefinite duration under which the plaintiff agreed to obtain orders on behalf of the defendant, stated that it was within the statute because 'performance is dependent, not upon the will of the parties to the contract, but upon that of a third party' (2 N.Y.2d p. 550, 161 N.Y.S.2d p. 429, 141 N.E.2d p. 821).
The answer to the problem might be different if, in considering such agreements of indefinite duration, the emphasis were placed upon, whether performance was completed in accordance with the terms of the agreement upon the happening of the event within one year
rather than upon, whether the agreement was terminated by the act of either party pursuant to an express provision in the nature of an option.
There are some New York cases which indicate that the happening of an event, other than by the will of the parties, within a year terminates the period of performance agreed upon and hence removes the agreement from the bar of the statute.
These cases are not in accordance with the apparent holding of the controlling New York authorities. While they might be susceptible of some nice factual distinctions, their reasoning appears to be predicated upon Professor Corbin's analysis of the 'so long as' type of agreement.
It is also possible for an agreement to be subject to a right of defeasance within a year by an express provision as well as by operation of law and since defeasance is not performance, the agreement would be barred by the statute. The fact that defeasance was covered by this express provision would make it nonetheless defeasance.
When termination of the contract which can be classified as performance removing the agreement from the statute is referred to in the New York cases, reference is generally to an event over which either one or both of the parties have exclusive control.
In other words, it was an event not only covered by an express provision over which the parties had control but also one which the parties contemplated would constitute performance even though the event occurred within one year; not an event or choice depending upon outside circumstances or the act of a third party.
Outside events terminating the agreement are more likely to be events of defeasance rather than events measuring alternative performance. Here defendant's liability in maintaining the plaintiff as the sole and exclusive distributor of its products was to continue and endure so long as Koerner remained in the plaintiff's employ. The failure of Koerner to continue in this employment either because he was discharged by the plaintiff for incompetence
or because he resigned, would be a circumstance which according to the express terms of the agreement would not constitute performance but, on the contrary, would be an event which would destroy the contract and defeat its purpose. Although expressly mentioned in the agreement, the condition was a condition of defeasance and not of alternative performance. Moreover, performance was dependent not upon the will of the parties but upon outside circumstances and the will of a third party. The Court concludes that the alleged agreement between the parties was by its terms not performable within a year and was therefore void and unenforceable under the New York statute of frauds. Sack v. Beasley, 282 App.Div. 153, 122 N.Y.S.2d 174 (1953); One Television, Inc. v. One Fifth Ave. Operating Corp., supra; Preminger v. Wynwood Mills, Inc., 31 Misc.2d 873, 222 N.Y.S.2d 371 (1961). Accordingly, the motion for summary judgment dismissing this cause of action will be granted.
Defendant further contends that plaintiff's second cause of action in quantum meruit for monies expended and the reasonable value of the work, labor and services rendered in promoting defendant's products must also be dismissed because it is predicated upon the identical agreement ...