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Delareto v. Totaro

A-0366-09T1 (N.J. Super. App. Div. 2010) (Unpublished)

LIMITED LIABILITY COMPANIES; OPERATING AGREEMENTS — Where a company’s limited liability operating agreement names the company’s members and includes an integration clause, merging all previous understandings and agreements into the operating agreement, the argument that one named member was actually a lender, and not a member, based upon an oral agreement, will not be heard.

A business owner sought to purchase property to relocate his florist store. Lacking sufficient funds, he entered into an agreement with the owner of a landscaping company to purchase property as a partnership. The florist acquired a two-thirds share of the new partnership, while the landscaper acquired one-third. The bank required a capital contribution in order to obtain the mortgage. The florist, unable to afford his share of that contribution, sought funds from a friend.

The florist claimed that his friend lent him money without asserting an interest in the new partnership. However, the three parties executed a limited liability company operating agreement naming each of the them as equal members. The operating agreement contained an integration clause, merging all previous understandings and agreements into the single document. Income tax records substantiated the existence of three members.

The florist claimed that his friend had no ownership interest in the property or in the limited liability company, and had actually agreed to accept repayment of the loan and not to assert an ownership interest. The lower court concluded that there was no clear and convincing proof that the friend had fraudulently induced the florist to sign the operating agreement and granted the friend’s summary judgment motion.

On appeal, the florist did not claim an ambiguity in the operating agreement or that changes were made after its execution. Rather, he argued that there was an enforceable oral loan agreement between him and his friend. The Court found that, because of the integrated agreement in this case, the parol evidence rule barred consideration of the alleged oral loan agreement, and no recognized exception applied. There being no evidence of fraud or fraudulent inducement, the integrated limited liability company agreement prevailed.

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