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Hornell Brewing Co. v. Spry

Supreme Court of New York County
664 N.Y.S.2d 698 (1997)


Facts

Spry (defendant) approached Vultaggio, the Chairman of the Board of Hornell Brewing Co. (Hornell) (plaintiff) seeking distribution rights for Arizona Tea, one of Hornell’s products, in Canada. Hornell granted Spry exclusive distribution rights and, for the purposes of distribution, Spry established Arizona Iced Tea, Ltd. (Arizona) in Canada. The agreement was oral. In reliance on the agreement, Spry hired counsel to assist with beginning distribution, gained approval for labeling, and obtained importation approval. Spry began distribution of Arizona Tea in 1993. Between that time and May 1994, Spry had problems timely remitting payment for shipments. By February 1994, Spry owed over $100,000 to Hornell and a check to Hornell for $31,000 had been returned for insufficient funds. In March and April 1994, Hornell and Spry had meetings, telephone calls, and letter communications regarding Spry’s arrearages and the need for Spry to obtain a line of credit so that the business relationship could remain secure. In late March, Spry provided Hornell a letter stating that a financing group had approved Spry for a $1.5 million line of credit. Spry continued to miss payment deadlines. Hornell sent to Spry a letter dated April 19, 1994, which provided that Spry was indebted to Hornell for almost $80,000. The letter also provided that, if Spry would pay that amount by May 2, 1994, Hornell would continue the distributorship agreement and allow up to $300,000 in outstanding balances so long as all invoices were paid within 14 days. After sending the April 19 letter, Vultaggio learned that Spry’s warehouse in Canada was empty; there was no managerial, sales, or office staff; and that Spry had no distribution trucks. Spry did not remit payment by May 2, but did by May 9. Upon confirmation of that payment, Spry ordered $390,000 to $450,000 of product. Through a letter dated May 10, Hornell acknowledged receipt of the payment and that it would extend up to $300,000 of credit, which must be paid within 14 days, if Spry would confirm that he had, in fact, secured the $1.5 million line of credit. Spry did not respond. On May 26, Vultaggio met with Spry to discuss termination of the business relationship. Vultaggio presented Spry with a letter of agreement regarding the termination, but Spry did not sign it. Hornell filed a declaratory judgment action with the Supreme Court of New York County, seeking adjudication that the distribution rights of Spry and Arizona had been properly terminated.

Rule of Law

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Issue

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Holding and Reasoning (Louise Gruner Gans, J.)

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