Prima Paint Corp. v. Flood & Conklin Manufacturing Co

388 U.S. 395 (1967)

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Nature of the Case

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Facts

Flood entered into a consulting agreement with Prima and that agreement was followed by a contract for Prima to purchase Flood. Flood was to provide advice and consultation in connection with the agreement for a six-year period. Flood also bound itself for the duration of the agreement to make no Trade Sales of paint or paint products in its existing sales territory or to current customers; lists of customers were attached to the agreement. The agreement called for Prima to pay Flood percentages of its receipts from the listed customers and from all others not to exceed $225,000 over the life of the agreement. The agreement contained an arbitration clause. From the first payment, trouble started. Prima failed to make the first payment but did pay it into escrow and then attempted to notify Flood that they had breached the contract; Flood was insolvent and was unable to meet its obligations under the contract. Flood served notice of intent to arbitrate. Prima filed suit seeking rescission of the contract based on fraud in the inducement. Prima petitioned the court to enjoin Flood from proceeding with arbitration. That was denied, and Flood's motion to stay the action until arbitration was finished was granted; the claim being disputed was for fraud in the inducement.