Mill Factors Corporation v. Irving Trust Company, 27 N.Y.2d 53 (1970)

Parol evidence of a fraudulent misrepresentation, including a misrepresentation of intent, is admissible to avoid an agreement induced by such fraud, even if the written agreement is unconditional and makes no mention of the alleged misrepresentation.

Summary

Mill Factors sued Irving Trust and others on guarantees. The defendants claimed they were fraudulently induced into signing the guarantees by Mill Factors’ oral promises of extended credit and forbearance, promises Mill Factors allegedly never intended to keep. The lower courts granted summary judgment to Mill Factors, finding the fraud defense “feigned.” The New York Court of Appeals reversed, holding that a triable issue of fact existed regarding the alleged fraudulent inducement. The court emphasized that parol evidence is admissible to prove fraud, even if the written contract is unconditional.

Facts

Mill Factors sold cattle feed to Briarcliff Farms. The individual defendants, controlling shareholders and directors of Briarcliff, guaranteed Briarcliff’s debts to Mill Factors. Originally, the guarantee was for $400,000. When Briarcliff’s debt exceeded this amount, Mill Factors requested an increased guarantee of $1,000,000. The defendants alleged that Mill Factors orally promised additional credit up to $1,000,000 and forbearance from demanding payment until the debt reached that limit, inducing them to increase their guarantee. The written guarantees were unconditional and silent on these promises. Shortly after the new guarantees were signed, Mill Factors demanded payment, leading to the lawsuit.

Procedural History

The trial court initially granted summary judgment for Mill Factors. After reargument based on affidavits alleging fraudulent inducement, the trial court denied summary judgment and allowed the defendants to amend their answer. The Appellate Division reversed, granting summary judgment to Mill Factors, concluding the defense of fraudulent inducement was “feigned.” The Court of Appeals reversed the Appellate Division’s decision, reinstating the trial court’s order denying summary judgment.

Issue(s)

Whether parol evidence is admissible to prove that a written guarantee was fraudulently induced by oral misrepresentations regarding future credit and forbearance, despite the absence of such terms in the written agreement.

Holding

Yes, because parol evidence of a fraudulent misrepresentation, including a misrepresentation as to intent, is admissible to avoid an agreement induced by such fraud. The court found a triable issue of fact existed as to whether the guarantee was fraudulently induced.

Court’s Reasoning

The court reasoned that summary judgment is inappropriate when there is a material and triable issue of fact. The Appellate Division erred in concluding that the defendants’ fraud defense was “feigned.” The Court of Appeals acknowledged arguments against the defendants’ claim, such as the absence of the alleged promises in the written guarantees. However, the court also noted the improbability that the defendants would increase their guarantees from $400,000 to $1,000,000 without some assurance of continued credit for Briarcliff. The court cited Sabo v. Delman, 3 N.Y.2d 155, 160-161, stating that “Parol evidence of a fraudulent misrepresentation including a misrepresentation as to intent is admissible to avoid an agreement induced by such fraud.” The court emphasized that the truth should be determined through trial, where witnesses can be examined and cross-examined. The court stated, “The truth as to these matters must be arrived at in the lawful and customary way, this is, by a trial where the witnesses can be examined and cross-examined and their demeanor and their versions put under the scrutiny of the triers of the facts.”