Smilow v. Dickerson

54 A.2d 883, 357 Pa. 455, 1947 Pa. LEXIS 244

• Court: Supreme Court of Pennsylvania
• Decided: May 27, 1947
• Docket: Appeal, 83
• Status: Published

Opinions

Opinion by

Mr. Justice Allen M. Stearne,

The pivotal question raised by this appeal is whether the parol testimony received in evidence contradicted or varied the terms of a written contract or whether such evidence established that the written contract was never intended to be operative between the parties and never in fact had any legal existence as a contract.

The appeal is from a decree in equity of the Court of Common Pleas No. 4 of Philadelphia County, dismissing a bill for an accounting under a written contract of employment and the transfer of defendant’s set-off and counterclaim to the law side of the court.

On April 27, 1944, Sylvan D. Broder (plaintiffs’ decedent) and E. S. Dickerson, Jr., individually and trading as The Dickerson Company, entered into a written contract whereunder Broder was employed as Dickerson’s representative in South and Latin America for the purpose of initiating and stimulating Dickerson’s business as importer and exporter in those countries. The term of the contract was twelve months, subject to cancellation by either party on 90 days notice. Broder’s compensation was fixed at $250 semi-monthly, plus reasonable traveling expenses. The contract provided that Broder was to devote his time exclusively to Dickerson’s business.

Pursuant to the terms of the contract, Broder went to South America early in 1944 and purchased a large quantity of chocolate for Dickerson. His services were satisfactory and he was paid the agreed compensation. In October 1944, Dickerson contemplated sending Broder to South America on a second trip when it was discovered that Broder had breached his agreement to render service exclusively to Dickerson. It was disclosed that Broder had entered into an agreement with a competitor company, in which Broder was interested, to be its exclusive sales agent in South America; also that Brodei had been marketing one of his own inventions to increase power of gasoline and had, in addition, been employed by a chemical company to survey chemical industries in South America. Broder admitted his violations of the agreement but excused himself because he was indebted to the majority stockholder of the competitor corporation in the sum of $10,000 and was unable to repay his indebtedness. Dickerson was desirous of continuing the employment but was insistent that Broder should serve him exclusively. He required an “iron clad” agreement, with provisions for his protection, in the event that Broder again violated his agreement.

On December 31, 1944, Broder met with Dickerson at the latter’s home, together with Dickerson’s attorney, accountant and wife. Dickerson agreed to pay off the indebtedness of 'Broder, who in turn agreed forthwith to relinquish all other outside business activities. The parties then evolved an extraordinary scheme to accomplish their purpose. What they proposed to do was to set up on Dickerson’s books fictitious expense payments aggregating $10,000, which, in effect, would transfer Dickerson’s payment of Broder’s indebtedness to a Federal income tax allowance. Apparently realizing the irregularity of such fictitious procedure, and as a cautionary measure against Federal civil or criminal liability, the' agreement was made conditional upon its approval by Dickerson’s Washington tax lawyer.

In order to effectuate such scheme, the parties executed a written agreement on December 31,1944, which they predated July 24, 1944• Parol evidence is admissible to prove the actual date of a writing even though it be different from the date inserted in the writing itself: Davis v. Oauffiel, 287 Pa. 420,135 A. 107, and the cases therein cited. This agreement provided that it was “. . . amending and modifying our former agreement of (sic) April 12, 1944. . . .” The term of the contract was “the year 1944”,’ that at the expiration of the term it should be continued until thirty (30) days notice was given by either party for termination. Compensation was fixed at 6% on the gross sales in 1944 and thereafter until the contract was terminated. However, on the date of the actual execution of this agreement, December 31,1944, Broder had already performed all his services for that fiscal year and had already been paid in full. It was shown that 6% of the gross sales from July 24, 1944 until December 31,1944, amounted to the $10,000 indebtedness plus the compensation Broder had already received. It is thus readily discernible that if such a nefarious device had been approved by the tax expert and passed by the Federal Income Tax Department, it would have resulted in Dickerson passing the payment of Broder’s indebtedness over to the United States Government as an expense allowance and leaving the parties in the same position as they were before.

Further to effectuate the parol agreement entered into on December 31, 1944, Dickerson predated a termination notice dated November 29,1944, which provided that Broder’s service would end “as of the end of the year 1944”

The parties having thus, subject to approval of the tax expert, placed themselves in the position of having paid off Broder’s debt at Federal expense, and having cancelled their fictitious contractual obligation, and with no further obligation or duty as respects Broder’s salary, on December 31, 1944, executed a third agreement which they postdated January ft,1945. Under its terms Broder undertook to go to South America that week or shortly thereafter; and that his “compensation shall be reasonable traveling expenses plus such percentage of profits resulting from [his] trip as [Dickerson] ■may later fix” (emphasis supplied). Dickerson then gave Broder $1,600 on account of his traveling expenses.

Broder left for South America on January 4, 1945, and was killed in an airplane accident en route on January 8,1945.

The personal representatives of Broder brought a bill in equity for an account under the provision of the contract of April 27,1944, as modified by the writing dated July 24, 1944. Dickerson filed an answer, and at the trial established the facts as recited. Dickerson also filed a set-off and counterclaim. It was averred by Dickerson that before the first trip Broder had been instructed to take out a travel accident insurance policy for $25,000 in favor of Dickerson as employer. Broder secured the policy, with funds of Dickerson, but changed the beneficiary to Broder’s wife who collected the insurance upon his decease. Dickerson also demanded the return of all unexpended moneys from the $1,600 traveling expenses advanced on December 31, 1944.

The court below, as above stated, dismissed the bill and transferred defendant’s set-off and counterclaim to the law side of the court under the Act of June 7, 1907, P. L. 440, 12 PS 1228 and Rule of Civil Procedure No. 213.

It is apparent that this was a cumbersome, fraudulent, fictitious transaction. The parties signatory never intended the writing bearing date July 24, 1944, but actually signed December 31,1944, to be in truth and in fact a binding contract between them. What they really intended to accomplish, as before stated, was to relieve Broder from his obligation; falsely to charge that amount to the United States Government as a tax deduction ; forthwith to cancel all future obligations thereunder ; to insure Broder’s exclusive service, and to compensate him in whatever sum Dickerson should thereafter determine. As Broder stated, when, on December 31,1944, he signed the agreement dated January 2,1945: “This is a blank check.”

At the trial plaintiffs offered the two written papers datéd respectively April 27, 1944 and July 24, 1944 and rested. They relied solely upon the written terms of the agreement. Had the paper of July 24,1944 been unconditionally executed and delivered and intended to be a true contract between the partis then, under Gianni v. R. Russell & Co., Inc., 281 Pa. 320, 126 A. 791, and the numerous cases following it, defendants could not be heard to contradict or alter its written terms. But the paper was not in fact so unconditionally executed and delivered. It was specifically agreed that the terms of the agreement, and the entire scheme, was subject to the approval of one Robert Ash, Esquire, a tax attorney in Washington, D. O. Broder was killed before the tax expert had an opportunity to approve the contract, and consequently the conditional execution and delivery became ineffectual. This case is ruled by Eaton v. New York Life Insurance Company of New York, 315 Pa. 68, 172 A. 121, where the opinion was written by our present Chief Justice. There a policy of life insurance was presented by the beneficiary to the insurance company for payment. The policy was regular on its face and acknowledged receipt of the first premium. Parol evidence was admitted to show that no premiums had been actually paid, and that delivery of the policy was made to the insured for inspection only and was not intended to have been the delivery of an enforceable insurance contract.

Mr. Justice Maxey said (p. 78) : “Whether or not there was a legally effective delivery of this policy, i. e., a final jural act, depends on whether or not the minds of the agent and the insured met on the matter of the finality of the delivery. Did the agent and the insured intend the former’s manual delivery of the policy to the latter, to be an absolute delivery and acceptance? The answer to this is to be found not only in what was done but in what was said. What was merely done being not conclusive of the issue, what words accompanied the deeds of manual delivery and acceptance, respectively, become important. These deeds unaccompanied by words would indicate an absolute delivery and acceptance. If there were accompanying words, these might show that the delivery and acceptance were only conditional. . . .”

Again (p. 82) : “[There was raised] a strong presumption that there had been a legally operative delivery of the policy. Defendant, however, had a right to present competent evidence for the purpose of proving that the policy had been delivered for inspection only, i. e., conditionally and not absolutely. What the agents offered to testify, first, as to what they said about the policy’s delivery, contemporaneously with the handing of this policy to the insured, and, secondly, as to what the insured said about its acceptance, contemporaneously with taking this policy into her possession, is competent evidence to prove the character of the delivery. . . .”

That case rested upon sound principle. The parol evidence rule has no application where parol testimony reveals that the instrument never had any legal existence or binding force. The written instrument in the instant case is exactly what the parties intended it to be, and only that. No effort is made by parol testimony to vary or contradict its terms.

In the leading English ease of Pym v. Campbell, 6 El. & Bl. 370, it is said: “The distinction in point of law is that evidence to vary the terms of an agreement in writing is not admissible, but evidence to shew that there is not an agreement at all is admissible:" Rogers, v. Hadley, 2 H. & C. 227, 249; Lister v. Smith, 3 Swabey & Tristram 282; Nichols v. Nichols, 2 Phillimore 180; Pattle v. Hornibrook, 1 Ch. 25; See also: Pollock on Contracts, 11th Ed. p. 202, and 1 Greenleaf Evidence, 305c, p. 439.

It was said by Justice Harlan in Burke v. Dulaney, 153 U. S. 228: “The rule that excludes parol evidence in contradiction of a written agreement presupposes the existence in fact of such agreement at the time suit is brought. But the rule has no application if the writing was not delivered as a present contract . . . ,” and parol evidence was admissible to show that there never was any concluded, binding contract entitling the party who claimed the benefit of it to enforce its stipulations.

Wigmore on Evidence, Yol. IX,. section 2410, states “. . . the finality of the writing as a jural act depends upon the circumstances of each case; that it may be left to depend on a third person’s assent or upon any other precedent condition. . . .” It is stated that the doctrine of Pym v. Campbell, supra, is completely accepted in the United States. In note 3, the Pennsylvania case of Eaton v. New York Life Insurance Company of New York, supra, is cited.

It was established by disinterested witnesses that the writing bearing date July 24, 1944, was executed and delivered with the distinct declared intent, understanding and agreement of both parties that it would not be effective unless or until the tax expert approved of the proposed advancement of $10,000 (which was never made) as a business expense from Dickerson’s 1944 Federal income taxes. This condition, because of the death of Broder, was never fulfilled. What was therefore said contemporaneously with the execution and delivery of the paper was competent evidence.

The decree of the court below is affirmed at the cost of appellants.