Republic National Bank of New York v. Richter, 16 N.Y.2d 163 (1965)

The parol evidence rule bars the admission of oral evidence to contradict the clear terms of a written agreement, even when a party claims the written terms were a mere formality to circumvent usury laws.

Summary

Republic National Bank loaned Richter $150,000 at 10% interest, secured by stock and personal guarantees, with the note stating it was payable “On Demand.” When the bank sued for repayment, Richter claimed the loan was actually for one year and the “On Demand” clause was a sham to avoid usury laws. The Court of Appeals held that the parol evidence rule prevented Richter from introducing oral evidence to contradict the written terms of the note. The court also clarified the requirements for collateral under the relevant statute, finding that collateral need not equal the full loan amount to be considered valid security.

Facts

Richter borrowed $150,000 from Republic National Bank, evidenced by a promissory note with 10% interest, payable “On Demand.” The loan was secured by corporate stock valued at approximately 40% of the loan amount and personal guarantees from Wolf, Spilky, and Eckhaus. Richter claimed he applied for a one-year loan through Spinrad, an officer at an affiliated bank, who allegedly assured him the “On Demand” clause was a mere formality. The bank’s records indicated initial discussion of a one-year loan, but the final approved loan was documented as payable on demand.

Procedural History

The bank sued for summary judgment based on the note. The defendants argued usury. Special Term granted partial summary judgment to the bank. The Appellate Division modified the interest rate post-default but otherwise affirmed the judgment for the bank. The defendants appealed to the Court of Appeals.

Issue(s)

1. Whether the parol evidence rule bars the admission of oral evidence to contradict the “On Demand” term in a promissory note, where the borrower claims the true agreement was for a one-year loan.

2. Whether collateral pledged as security for a loan must equal or exceed the loan amount to satisfy the requirements of Section 379 of the General Business Law (now General Obligations Law, § 5-523).

Holding

1. Yes, because the parol evidence rule prevents the introduction of oral evidence that contradicts the clear terms of a written agreement, even if the borrower claims the written terms were intended to circumvent usury laws.

2. No, because Section 379 requires only that the lender accept property of substantial value as security; it does not mandate that the collateral’s value equal or exceed the loan amount.

Court’s Reasoning

The Court of Appeals emphasized the importance of the parol evidence rule: “The rule of law which defeats defendants and makes this summary judgment valid is that which makes parol evidence inadmissible to vary the terms of a written instrument.” The court distinguished this case from fraud in the inducement, where oral evidence may be admitted to show that the written agreement was procured by fraud. Here, the defendants received the loan they sought but were attempting to avoid repayment based on an alleged oral agreement contradicting the written terms. The court cited Thomas v. Scutt, 127 N.Y. 133, 138 as direct authority. As to the collateral issue, the court noted that the statute requires only that the lender accepts “collateral security.” While declining to speculate on a situation involving only nominal collateral, the court held that collateral of “substantial value” satisfies the statute’s requirements. The court stated, “If the lender accepts as security property of a substantial value and of the kind required by the statute, that should satisfy its requirements.” The court also noted, “It is of course no defense here that plaintiff made the note payable on demand to avoid usury and to take advantage of the exempting statute (Dunham v. Cudlipp, 94 N. Y. 129; Jenkins v. Moyse, 254 N. Y. 319).”