The Federal District Court for the Southern District of New York recently decided that a licensing agreement between a television broadcast company and the owner of an animated children’s television series was fully integrated, despite a provision in the agreement which stated that the parties would execute a more detailed long form agreement in the future. 4Kids Entm’t, Inc. v. Upper Deck Co., 2011 U.S. Dist. LEXIS 58669 (S.D.N.Y. May 31, 2011).
The plaintiff in the suit, 4Kids Entertainment (“4Kids”), sued the Upper Deck Company and Upper Deck Entertainment, LLC (collectively “Upper Deck”) for breach of contract. In 2008, the two parties entered into a two-year licensing and broadcasting agreement for an animated children’s television series called the Huntik Series (“Huntik”). The Term Sheet for this agreement was executed by Upper Deck on February 26, 2008 and by 4Kids on March 4, 2008.
The Term Sheet licensed to 4Kids the right to broadcast Huntik within the United States, requiring it to air 26 episodes. It also granted 4Kids an exclusive option to license the television rights to any additional episode during the contract period, with the contract term being automatically extended by one year each time this option was exercised. The Term Sheet also included details regarding payment that would be owed to 4Kids.
A particularly crucial provision included in the Term Sheet was that both parties agreed to be bound by it until a long form agreement could be reached. The relevant provision read that “[t]he parties agree to execute a long form agreement on or before April 15, 2008… [and until such time], this Deal Memo shall serve as the binding agreement of the parties.” Id. at 9. However, the two parties never executed a long form agreement.
The Term Sheet required Upper Deck to pay an advance of $30,000 in two installments. They made the first installment, but failed to pay the second when it was due. 4Kids sought summary judgment in their favor for the amount owed, claiming Upper Deck breached its contract with the plaintiffs. Upper Deck argued the Term Sheet was ambiguous and offered parol evidence to support its argument.
The parol evidence rule is a common law rule that prevents parties from introducing additional evidence that seems to contradict or add to terms agreed to in a contract. In order to determine if the parole evidence rule applies, courts must determine if an agreement is integrated. Id. at 14. An agreement is integrated if its represents the entire understanding of the parties to the transaction. Id. Under New York law, a contract that appears complete on its face is an integrated agreement as a matter of law. Id.
In 4Kids, the Court found the Term Sheet to be fully integrated, holding that the agreement sets forth every material contract term. Id. at 16-17. Additionally, the Court found that nothing in the contract suggested that the defendants’ failure to pay any specific amount prior to the due date for the second payment would excuse the making of that payment. The Court also held that “the fact that the Term Sheet contemplates the possibility of a longer and more detailed agreement,” containing the terms set forth herein in more detail as well as such terms as may be agreed to in writing by the parties after good faith negotiation . . . does not call this conclusion into question.” Id. at 17-18.
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