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Lee v. Kinnelon Gourmet Farm, Inc.

2006 WL 533396 (U.S. Dist. Ct. D. N.J. 2006) (Unpublished)

NOTES; PAROL EVIDENCE—Testimony that funds received were actually to be an investment and not a loan cannot be used to contradict the clear text of a promissory note.

A couple owned a trucking company that serviced fruit and vegetable markets in the New York metropolitan area, including a particular fruit store in New Jersey. That store owner operated two stores and needed capital to open a third store. He requested a loan from the couple in order to open the third store. The couple made an initial loan in cash, which was documented by a handwritten promissory note signed by the store owner. The couple then made additional loans to the store owner, each documented by a promissory note signed by the store owner. After making several payments, the store owner stopped making payments. The couple then sued for payment of the promissory notes. In response, the store owner claimed that the couple did not lend the money, but had made an investment in the new store. The store owners tried to introduce evidence to show that one of the spouses was a shareholder in the corporation.

The Court found in favor of the couple. It found the promissory notes to be enforceable, rejecting the store owner’s claims that the couple did not lend the money but invested in the business. It noted that the store owner was attempting to introduce testimony to contradict or alter the express terms of the written promissory notes. Under the parole evidence rule, a court is not permitted to consider oral evidence that contradicts the clear terms of a written contract. Thus, the store owner’s testimony that the couple agreed to treat the funds as investments could not be used to contradict the clear text of the written documents. The promissory notes demonstrated that the funds were given as loans to be repaid. The Court also noted that even without considering the parol evidence rule, the store owner’s claim was not credible. It noted the inconsistency of the testimony of the store owner and his wife, who, at various times, changed their testimony, initially stating that they knew it was a loan to be repaid, then claiming that it was not a loan but an investment, while failing to show that the couple took any role in the business of the store or received any profits from its operation.

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