The undisputed evidence shows that in September, 1982, Mr. G. Mertins and his assistants went to Fairchild's headquarters in Syosset, Long Island, and discussed a mutually appropriate business arrangement. Mr. G. Mertins met with Mr. Louis Pighi, Fairchild's president and Mr. Chris Lay, Fairchild's vice president.
Mr. G. Mertins testified that on his visit to Syosset in the autumn of 1982, he and Mr. Pighi discussed the sale/resale arrangement. Construed most favorably to G. Mertins, his testimony was that he told Mr. Pighi that the arrangement was impossible and that he, G. Mertins, rejected the distributor contract in favor of the alleged oral contract.
This testimony is incredible in light of G. Mertins' testimony on cross-examination.
The Court finds as a matter of fact that G. Mertins, during his visit to Syosset in the autumn of 1982, did not press any claim for proceeding on the basis of the alleged oral contract.
If G. Mertins believed the August, 1982 Neasham contract was binding upon the principal, Fairchild, he was under an affirmative duty to reject the Fairchild sale/resale proposal, not because he thought it was impossible, but because he believed he already had a binding agreement to receive a ten percent commission just for introducing Fairchild to the PRC market. A person who deals with an agent has a duty to determine the scope of the agent's authority, Ford, 32 N.Y.2d at 473, 346 N.Y.S.2d at 244, 299 N.E.2d at 664, while a principal's duty to ratify or renounce the act of his agent arises only when the principal has knowledge of the act and is given an opportunity to accept or repudiate it. 2 N.Y. Jur.2d Agency § 174, at 598. G. Mertins remained silent when presented with the opportunity to discover the scope of Neasham's authority -- and thus the reliability of the representations Mertins claims to have relied upon. At the same time, G. Mertins did not present Fairchild with the opportunity to adopt or ratify the alleged Neasham agreement, although if he had, Fairchild's pursuit of a sale/resale agreement would prevent this Court from finding ratification of the alleged oral commission agreement anyway. plaintiff, not Fairchild, failed in his duties.
It is to be noted that at the time of the September, 1982 meeting at Fairchild headquarters, neither plaintiff nor defendant had performed any act or incurred any expense. Only after Merex sent its letter to Fairchild on October 6, 1982, accepting the Fairchild September proposal of a sale/resale, did G. Mertins, Lachmann and Neasham travel to the PRC on November 7, 1982. Neasham and Lachmann presented the technical details for the LORAP/MTRF System to the PRC representatives.
After a further meeting between G. Mertins and Fairchild executives at the Fairchild Headquarters in January, 1983, Merex summarized the agreement reached as follows:
It is intended at present that Merex will submit this offer as Fairchild's representative to the Chinese on Merex paper. The prices of this contract are Fairchild ex-factory prices on which we will add our addition.
From the foregoing uncontroverted facts, even if one assumes the Neasham/G. Mertins oral agreement in August of 1982, the record supports a finding -- not of ratification by Fairchild -- but of a counteroffer by the principal Fairchild which was accepted by the plaintiff, creating a new and different relationship between the parties. Fairchild was not bound by any oral agreement alleged.
Plaintiff's Acts Must Have Been in Reliance on the Oral Promise
Plaintiff has failed to meet his burden of proving by a preponderance of credible evidence that he reasonably relied upon the oral promise alleged to have been made by Neasham in Germany. See City of Yonkers v. Otis Elevator Co., 844 F.2d 42, 49 (2d Cir. 1988) ("Yonkers officials were aware of the weakness of their position at the time they contracted, rendering reliance unreasonable."); Wurmfeld Assocs., P.C. v. Harlem Interfaith Counseling Servs., 179 A.D.2d 502, 578 N.Y.S.2d 200, 201 (N.Y. App. Div.) ("Plaintiffs' services could not have been performed in reasonable reliance . . ."), leave to appeal dismissed, 79 N.Y.2d 1027, 584 N.Y.S.2d 439, 594 N.E.2d 933 (1992).
The alleged oral promise contradicts the terms of an admitted, subsequent, written executory agreement. The credible evidence -- as opposed to plaintiff's unreliable, unsubstantiated and self-serving testimony -- shows that any oral promise was superseded by the parties' later dealings. Indeed, plaintiff did not convincingly establish that the alleged oral agreement was ever discussed with Fairchild after the meeting with Neasham. Reasonable reliance cannot be based upon wishful thinking, yet nothing more is suggested by the credible evidence here; plaintiff may have preferred a percentage commission all along, but it went ahead with a deal structured in a wholly different manner.
Plaintiff's Performance Must Be Unequivocally Referable to the Promise Alleged.
Plaintiff has alleged reliance on an oral agreement between G. Mertins and Neasham in Germany in August, 1982.
This Court finds that when Neasham informed Fairchild of the discussions in Germany between G. Mertins and Neasham, Fairchild immediately invited G. Mertins to Long Island where Fairchild told G. Mertins that a sale/resale would be the only basis on which the project could go forward. That meeting took place in September, 1982. On October 6, 1982, Merex wrote Fairchild that Merex accepted the Long Island proposal.
This Court finds that G. Mertins' October 6, 1982 acceptance of Fairchild's Long Island proposal is evidence of the parties' mutual agreement in principal to negotiate a sale/resale to the PRC.
Pursuant to the agreement to negotiate, the record reveals that the parties undertook three relevant activities:
(1) Plaintiff and defendant began discussions of terms for the back-to-back sale/resale which were reduced to the writing known as the Blue Book, later the Red Book.
(2) Mertins and Fairchild representatives went to the PRC on November 7, 1982, to present the technical details of the LORAP system.
(3) Fairchild began preparations for the manufacture of the LORAP camera systems.
There is no dispute between the parties that they negotiated all of the terms in the Red Book and used it as the basis of the negotiations with the PRC. The Red Book expressed the mutual intent of the parties; however, it was never executed because the condition precedent -- the Merex sale to the PRC -- never took place.
Where, as in the instant case, plaintiff performs under an alleged oral contract and defendant offers proof of another agreement (the sale/resale proposal) to which plaintiff's acts are equally referable, the finder of fact must be convinced that plaintiff's performance was pursuant to the contract it alleges and not another.
In the instant case, plaintiff did not perform any substantive act until after G. Mertins sent the October 6, 1982 letter to Fairchild accepting the sale/resale proposal. It cannot on this record be said that the preponderance of evidence demonstrated reliance by plaintiff on the oral agreement. Cunnison v. Richardson Greenshields Sec., 107 A.D.2d 50, 485 N.Y.S.2d 272, 276 (N.Y. App. Div. 1985) ("If . . . an act is equally consistent with an explanation having a basis in other than the alleged oral agreement, the part performance relied upon will not remove the agreement from the bar of the statute of frauds."); see also American Bartenders School, Inc. v. 105 Madison Co., 59 N.Y.2d 716, 463 N.Y.S.2d 424, 450 N.E.2d 230 (1983) ("The doctrine of part performance is inapplicable, inasmuch as the performance is not 'unequivocally referable' to the alleged oral agreement."); Ripple's of Clearview, Inc. v. Le Havre Assocs., 88 A.D.2d 120, 452 N.Y.S.2d 447, 449 (N.Y. App. Div.), appeal denied, 57 N.Y.2d 609, 456 N.Y.S.2d 1026, 442 N.E.2d 1277 (1982).
This Court finds that overwhelming evidence that plaintiff intended to perform in reliance on the sale/resale proposal and not on the alleged oral agreement of August, 1982 is contained in a letter dated February 27, 1985, after plaintiff learned of the direct sale by defendant to the PRC. The letter was written by G. Mertins to Fairchild's parent corporation. It stated in pertinent part:
Between Merex and Fairchild Weston Systems Inc. it was agreed to that Merex would buy five photographic systems from Fairchild Weston for resale to NORINCO . . . the three companies going through two contracts instead of one. The business relations between Fairchild Weston Systems, Inc. and Merex were established in a distributorship agreement in which Fairchild Weston Systems Inc. appointed Merex as its exclusive distributorship in the People's Republic of China.
Plaintiff's argument that it accepted the sale/resale proposal as a mechanism to get the deal done and not as a substitute for the oral agreement is belied by the record evidence. This Court finds that plaintiff's performance was unequivocally referable to the sale/resale proposal under which plaintiff was to receive a commission by a markup of Fairchild's ex-factory price. Plaintiff has failed to prove that its performance was unequivocally referable to the oral commission agreement alleged.
Is This Case a Rare Exception?
Before imposing liability by finding an equitable estoppel, courts look for a high degree of unconscionable behavior on the part of the defendant which makes invocation of the Statute of Frauds itself a fraud. Philo Smith, 554 F.2d at 36; see also American Bartenders, 59 N.Y.2d 716, 463 N.Y.S.2d 424, 450 N.E.2d 230 ("The purpose of invoking the doctrine [of equitable estoppel] is to prevent the infliction of unconscionable injury and loss upon one who has relied on the promise of another."); Buddman Distribs., Inc. v. Labatt Importers, Inc., 91 A.D.2d 838, 458 N.Y.S.2d 395, 396-97 (N.Y. App. Div. 1982) (citation omitted) ("The doctrine of promissory estoppel . . . is 'properly reserved for that limited class of cases where 'the circumstances are such as to render it unconscionable to deny' the promise upon which the plaintiff has relied.'"). The focus of the court therefore is the conduct of the defendant rather than the loss to the plaintiff.
Plaintiff's claim was that Fairchild acted with fraudulent intent in insisting on the sale/resale format -- which plaintiff claimed Fairchild knew the PRC would not accept -- in order to take advantage of G. Mertins' contacts with that country. Plaintiff further argued that during the negotiations of the technical aspects of the Red Book proposal, Fairchild schemed with the PRC to "cut plaintiff out of the deal"
and to make a direct sale to the PRC.
The Court finds that the credible evidence in the record simply does not support this version of the facts.
Both plaintiff and defendant testified that their understanding was that both were to be present during negotiations with the PRC. For reasons never explained, G. Mertins did not go to the PRC as he agreed to do when he knew Chris Lay was negotiating the technical aspects of the Red Book proposal. Instead, G. Mertins sent an employee, Helmut Bucholz. When the technical discussions were nearing conclusion, Mr. Lay made repeated efforts by telexes to secure the presence of Mr. G. Mertins for the commercial negotiations. This series of telexes has been quoted earlier in this opinion,
but the telex of March 24, 1984, from Lay to Mertins bears repeating:
I had a meeting with Mr. Zhao Fei this morning. Tomorrow he wants to have technical meeting about pod modification. . . . Mr. Zhao Fei spoke to me directly on the commercial part and he indicated strongly that he desires your presence here for the commercial discussions. Would appreciate you trying to get over here as fast as possible.
Mr. Lay credibly testified to his reaction to the failure of G. Mertins to come to the PRC:
Mr. Bucholz [an employee of Merex] came to me and informed me that Mr. Helmut Mertins was coming to China, and my reaction to Mr. Bucholz was: I am very disappointed. We need Mr. G.G. Mertins in China, and there's no way that young Mr. Helmut Mertins is going to be able to handle the problem we are in right now. It is Mr. G. Mertins that has the rapport, and I was very upset with the message I had received, and I told him he could pass that information back to Merex, and he could possibly save Helmut a trip. And he informed me that Helmut was really coming on some other business also.
The Court finds, based on the evidence in the record, that Fairchild, rather than engaging in an unconscionable or fraudulent scheme with the PRC to "cut plaintiff out of the deal," endeavored in good faith to secure the presence of G. Mertins in the PRC to negotiate the commercial aspects of the proposal. Fairchild bargained for the negotiating services of the elder, knowledgeable, and business wise Mertins, not his twenty-five year old son.
Plaintiff has not proven by a preponderance of the credible evidence that the negotiations collapsed in April, 1984 due to any wrongdoing on the part of Fairchild. plaintiff has not proven the most essential factor of Philo Smith, unconscionable conduct on the part of the defendant which caused him injury.
This Circuit held in Philo Smith, 554 F.2d at 36:
The proof in this case fell well short of that mark. Judge Tenney found that the only substantial injury suffered by the plaintiffs was the loss of a fee from the defendant. However, as Judge Tenney held, and as the quotation from Woolley indicates, this is not the kind of injury contemplated by New York law, for it is solely a result of the non-performance of a void agreement.
In the instant case, there has been no proof of damages other than loss of a fee. This Court charged the jury that such loss was insufficient to invoke the doctrine of promissory estoppel.
This Court has not overlooked the case of Arcadian Phosphates, Inc. v. Arcadian Corp., 884 F.2d 69 (2d Cir. 1989). Mr. G. Mertins absented himself from the negotiations in China, which were a critical part of his responsibility, and Fairchild, by telexes, made him aware of the urgency of his appearance. This Court does not find the defendant negotiated in bad faith; on the contrary, the Court finds plaintiff breached its own negotiating responsibilities.
Although this Court cannot say with a reasonable degree of certainty whether the presence of G. Mertins at the bargaining table would have caused a successful conclusion to the contract negotiations, it can certainly say that his absence constituted a failure to negotiate in good faith on his part, and defendant had an absolute right to rescind its agreement with Merex because of the material breach of that agreement by Mr. G. Mertins. This court therefore finds that Merex, rather than Fairchild, materially breached the agreement to negotiate in good faith for the sale/resale of the LORAP systems to the PRC. This Court finds that plaintiff has not proven its claim of promissory estoppel by a fair preponderance of the credible evidence and renders a verdict for the defendant on this claim.
IT IS SO ORDERED.
Mary Johnson Lowe
UNITED STATES DISTRICT JUDGE
Dated: New York, New York
December 29, 1992