Merger Clauses Bar Oral “Equity” Side-Deals; Excess Withdrawals from a Joint Account Support Conversion Damages Limited to the Over-One-Half Amount

I. Introduction

Yong Xu v 401 Foster Gasoline, Inc. (2026 NY Slip Op 02692 [App Div, 2d Dept Apr. 29, 2026]) arises out of the sale of a Brooklyn gas-station business. Plaintiff Yong Xu, a principal of 401 Foster Petroleum, LLC (“Foster Petroleum”), sold Foster Petroleum’s assets to 401 Foster Gasoline, Inc. (“Foster Gasoline”) and individual purchasers. After closing, plaintiffs sued, alleging (i) the purchasers failed to fully pay for the assets and (ii) they orally promised—in lieu of full payment— to convey Xu a one-third ownership interest in Foster Gasoline, but instead conveyed that interest to Xiao Yan Wang (“Grace”). Plaintiffs also alleged Grace improperly withdrew funds from a joint bank account she held with Xu.

The key issues on appeal were: (1) whether alleged oral promises could alter or supplement a fully integrated asset purchase agreement; (2) whether plaintiffs could recast contract-payment disputes as quasi-contract claims; (3) whether fraud-based rescission could rest on reliance on an oral representation that conflicted with the written agreement; (4) whether the judgment in a declaratory judgment claim must include an express declaration; and (5) whether Grace’s withdrawals from a joint account constituted conversion and, if so, in what amount.

II. Summary of the Opinion

The Second Department largely affirmed the defense judgment, holding that the asset purchase agreement—containing a merger clause—barred the plaintiffs’ attempt to enforce an alleged oral promise of a one-third ownership interest in Foster Gasoline and barred related fraud and unjust enrichment theories that sought to vary the deal or recover on the same subject matter covered by the written agreement.

The court modified the judgment in two material ways:

  1. Because the first cause of action sought declaratory relief, the judgment could not simply “dismiss” it; the court directed an express declaration that Xu does not possess an ownership interest in Foster Gasoline.
  2. The court reversed on the conversion claim against Grace, holding Xu proved conversion to the extent Grace withdrew more than her one-half share of the joint account, and awarded $60,625.63 to Xu on that claim.

III. Analysis

A. Precedents Cited

1. Appellate review after a nonjury trial

  • Morris v Tausik (222 AD3d 969) and Winston v Reichenbaum (209 AD3d 801): The court framed its review power as “as broad as that of the trial court,” while still acknowledging the trial judge’s advantage in assessing witnesses in close cases. This standard supported the appellate court’s willingness to modify the result on conversion while otherwise affirming.

2. Plain meaning, integration, and the parol evidence rule (especially with merger clauses)

  • Ikezi v 82nd St. Academics (221 AD3d 986) (quoting Greenfield v Philles Records, 98 NY2d 562): Reinforced the “plain meaning” rule: clear, unambiguous writings are enforced as written—setting the foundation for rejecting an unwritten equity interest.
  • Marine Midland Bank-S. v Thurlow (53 NY2d 381) and Transcan Sys., Inc. v Seldat Distrib., Inc. (209 AD3d 911): Stated the core parol evidence principle: once the parties reduce their agreement to an integrated writing, extrinsic evidence of prior or contemporaneous negotiations cannot contradict or modify it. This was decisive against the alleged oral promise to convey shares.
  • Schron v Troutman Sanders LLP (20 NY3d 430), Albert v Afanador (237 AD3d 1012), and Klein v Signature Bank, Inc. (204 AD3d 892): Addressed the heightened force of the parol evidence rule where a merger clause exists—barring attempts to vary the writing and preventing the oral promise theory from “effectively negating” the merger clause.

3. Contract claims against non-parties

  • Umoh v Zunz (238 AD3d 802) and Black Car & Livery Ins., Inc. v H & W Brokerage, Inc. (28 AD3d 595): Supported dismissal of the contract-based claims against Grace because she was not a party to the asset purchase agreement.

4. Declaratory judgment practice

  • Lanza v Wagner (11 NY2d 317): Required that, in a declaratory judgment action, the court issue an actual declaration of the parties’ rights—even where the result is adverse to the plaintiff. This drove the modification converting “dismissal” into an affirmative declaration that Xu has no ownership interest in Foster Gasoline.

5. Unjust enrichment and quasi-contract limits when an express contract governs

  • Main Omni Realty Corp. v Matus (124 AD3d 604) and E.J. Brooks Co. v Cambridge Sec. Seals (31 NY3d 441): Supplied the elements of unjust enrichment and emphasized equity-based recovery.
  • Gym Door Repairs, Inc. v Astoria Gen. Contr. Corp. (144 AD3d 1093) and New Hackensack Realty, LLC v Lawrence Dev. Realty, LLC (226 AD3d 799): Set the controlling limitation: quasi-contract is not viable where an express agreement governs the same subject matter.
  • Hoeg Corp. v Peebles Corp. (153 AD3d 607) and Grossman v New York Life Ins. Co. (90 AD3d 990): Reinforced dismissal where unjust enrichment attempts to duplicate or circumvent contract remedies.

6. Fraud-based rescission and the “meaningful conflict” rule for reliance

  • Seneca Wire & Mfg. Co. v Leach & Co. (247 NY 1), Steen v Bump (233 AD2d 583), and D'Angelo v Hastings Oldsmobile (89 AD2d 785, affd 59 NY2d 773): Stated the rescission-for-fraud elements, focusing on material misrepresentation and justifiable reliance.
  • Hong Qin Jiang v Li Wan Wu (179 AD3d 1041) and DDJ Mgt., LLC v Rhone Group L.L.C. (15 NY3d 147): Provided the key reliance analysis: where a written contract meaningfully conflicts with an alleged prior oral representation, reliance on the oral statement is not reasonable.
  • Old Clinton Corp. v 502 Old Country Rd. (5 AD3d 363): Supported applying the “meaningful conflict” principle to bar the fraud-based rescission claim.

7. Conversion of money and joint accounts

  • RD Legal Funding Partners, LP v Worby Groner Edelman & Napoli Bern, LLP (195 AD3d 968) and Cusack v American Defense Sys., Inc. (86 AD3d 586): Supplied the conversion standard: ownership or superior right to possession plus unauthorized dominion excluding plaintiff’s rights.
  • Petrone v Davidoff Hutcher & Citron, LLP (150 AD3d 776) (quoting Simpson & Simpson, PLLC v Lippes Mathias Wexler Friedman LLP, 130 AD3d 1543): Confirmed that specifically identifiable funds can be converted.
  • Matter of Wozniak (244 AD2d 148) and EPTL 6-2.2(a): Recognized a statutory presumption that a disposition of personal property to two or more persons creates a tenancy in common—applied here to the joint account.
  • Sweetman v Suhr (126 AD3d 1438) and Sperrazza v Kail (267 AD2d 692): Established that in a tenancy in common for a joint bank account, each holder has a one-half interest—crucial for computing damages as the “excess over one-half.”
  • Lenczycki v Shearson Lehman Hutton (238 AD2d 248) and Hearst v Hearst (50 AD3d 959): Cited as supporting authority for the conversion remedy in this factual posture and the manner of measuring invasion of the co-owner’s interest.
  • Looks Great Servs., Inc. v Roosevelt (239 AD3d 627) and Halvatzis v Perrone (199 AD3d 785): Supported dismissal of the conversion claim insofar as asserted by Foster Petroleum, which lacked a superior right to funds held in the individual joint account.

8. Duplicative claims and constructive trust elements

  • Crawford v Integrated Asset Mgt. Servs., LLC (236 AD3d 750) and Han v Chen (213 AD3d 453): Supported dismissal of unjust enrichment and money had and received claims as duplicative where they mirror the conversion claim and seek the same relief.
  • Jaybar Realty Corp. v Armato (175 AD3d 1391), Mazzei v Kyriacou (139 AD3d 823), and Pergament v Roach (41 AD3d 569): Supported denial of constructive trust where plaintiffs failed to prove an express or implied promise by Grace on which Xu relied.

B. Legal Reasoning

1. The alleged oral promise of a one-third ownership interest could not vary the written deal

The asset purchase agreement governed the sale and did not reserve to Xu any continuing equity in the purchaser entity (Foster Gasoline). Because the contract was integrated and contained a merger clause, the court held plaintiffs could not introduce evidence of prior or contemporaneous oral representations to contradict or vary the writing. This reasoning disposed of specific performance and undercut related theories premised on the oral promise.

2. Payment-dispute theories failed under the contract’s terms and the trial proof

On the claim that the purchasers failed to fully compensate Xu, the court relied on trial evidence showing Xu received the maximum compensation due under the agreement and amendments. That finding eliminated breach damages and also prevented quasi-contract recovery for the same alleged underpayment.

3. Fraud rescission failed because reliance on an oral promise conflicted with the written contract

Plaintiffs’ rescission theory depended on an oral promise of equity. The court found a “meaningful conflict” between that promise and the written agreement, which did not provide for such an ownership interest. Under that conflict, Xu could not establish justifiable reliance—a required element for rescission on fraud grounds.

4. Declaratory relief required an express declaration, not a bare dismissal

Although plaintiffs failed to prove Xu owned part of Foster Gasoline, the court held the proper disposition of a declaratory judgment cause of action is a declaration of rights. The judgment therefore had to affirmatively declare that Xu does not possess an ownership interest in Foster Gasoline.

5. Conversion: joint-account co-owner may recover only the amount withdrawn above the other co-owner’s one-half share

Applying the tenancy-in-common presumption to the joint account, the court treated each account holder as owning one-half. The evidence showed Grace withdrew or transferred $165,000 from an account holding $208,748.73 within the relevant period, without authorization. The court concluded Grace invaded Xu’s interest to the extent she took more than her one-half share, awarding $60,625.63 to Xu. Foster Petroleum could not recover because it did not establish a superior right to funds in an account titled to Xu and Grace.

6. Duplicative and constructive trust theories failed on doctrinal grounds and proof

The unjust enrichment and money had and received claims against Grace were dismissed as duplicative of conversion because they sought the same relief on identical facts. Constructive trust claims failed for lack of an express or implied promise by Grace and reliance—elements the cited cases require for that equitable remedy.

C. Impact

  • Transaction drafting and litigation: The decision strengthens the practical force of merger clauses in asset purchase agreements, signaling that alleged “side” oral equity arrangements will be difficult to litigate into existence, whether labeled as specific performance, breach, or fraud.
  • Pleading strategy limits: Plaintiffs cannot readily evade an express contract by repackaging the same dispute as unjust enrichment. Courts will police duplicative quasi-contract claims, especially when the contract expressly governs the subject matter.
  • Declaratory judgment practice: Even where the defendant “wins,” courts must enter an actual declaration of rights rather than a mere dismissal, which matters for preclusion, clarity in subsequent disputes, and business/ownership certainty.
  • Joint account disputes: The opinion provides a clear damages template in conversion between co-holders: recovery is generally limited to the amount taken above the withdrawing party’s one-half interest (absent proof rebutting the tenancy-in-common presumption or establishing different ownership).

IV. Complex Concepts Simplified

  • Parol evidence rule: If a final written contract covers the deal, courts usually will not consider earlier or contemporaneous oral statements to change what the contract says.
  • Merger clause: A provision stating the writing is the entire agreement. It makes it harder to claim the parties also made enforceable oral side agreements.
  • Integrated writing: A contract intended as the complete and final expression of the parties’ agreement on the subject.
  • Unjust enrichment / quasi-contract: An equity-based remedy used when there is no enforceable contract governing the issue. If an express contract covers the subject, unjust enrichment is typically unavailable.
  • Fraud rescission and “justifiable reliance”: To undo a contract for fraud, a plaintiff must show they reasonably relied on a material false statement. If the writing contradicts the alleged oral statement, courts often find reliance unreasonable.
  • Conversion of money: Wrongful control over specific identifiable funds belonging to (or superiorly possessable by) the plaintiff.
  • Tenancy in common in a joint account: Here, the law presumes co-holders own the funds as co-owners, typically one-half each; taking more than your share can expose you to conversion liability to the other co-owner for the excess.
  • Constructive trust: An equitable remedy that can impose “trust-like” obligations over property when retention would be unjust, often requiring a promise and reliance (among related factors) depending on the case’s formulation.

V. Conclusion

Yong Xu v 401 Foster Gasoline, Inc. underscores two practical rules. First, where an asset purchase agreement is integrated and contains a merger clause, courts will enforce it as written and will not allow alleged oral “equity-for-payment” side promises to re-write the transaction—whether framed as specific performance, breach damages, unjust enrichment, or fraud rescission. Second, in disputes over a joint bank account treated as a tenancy in common, a co-holder who withdraws funds without authorization may be liable for conversion, but damages are measured by the amount taken in excess of that co-holder’s one-half share. The decision also reiterates that declaratory judgment claims must end in an actual declaration, bringing doctrinal clarity and practical finality to business ownership disputes.