The opinion of the court was delivered by: GURFEIN
This is a motion by the defendants for judgment on the pleadings under Rule 12(c) F.R. Civ. P. and, alternatively, a motion for summary judgment under Rule 56 in that the complaint fails to state a cause of action and there is no triable issue of fact. In the complaint American Cyanamid Company (Cyanamid) charges with breach of contract and unjust enrichment the defendant Elizabeth Arden Sales Corporation (Arden), the Executors of the Estate of Elizabeth Arden, deceased, namely, The Bank of New York, J. Howard Carter and Patricia Graham Young, individually and as Executors of the Estate. The complaint also charges the defendant Eli Lilly and Company (Lilly) with inducing a breach of the alleged contract between Cyanamid and Arden and of unjust enrichment flowing therefrom.
Extensive discovery proceedings have been commenced by both sides. Plaintiff has thus far examined seven of defendants' witnesses and has expressed an intention to examine additional parties and numerous witnesses. The defendants have partially deposed two of plaintiff's employees and have requested an examination of nine additional witnesses. The testimony taken to date encompasses some 2,000 pages of transcript. The material facts on which the complaint is based, accepting the plaintiff's version for purposes of these motions, arose in the following way.
Elizabeth Arden was the founder and sole owner of Arden, an internationally known manufacturer of cosmetics and fragrances. She died on October 18, 1966. Defendants The Bank of New York, J. Howard Carter and Patricia Graham Young are the Executors of her Estate which owned 100% of Arden.
When the President of the plaintiff met to discuss the possible purchase of Arden with officials of the Bank he told them that Cyanamid would not negotiate to buy Arden if an "auction sale" were contemplated or if Cyanamid's terms would be used to get a higher price from another buyer. These conditions were repeated to Arden's investment advisers and apparently were the subject of general agreement. On the basis of this understanding Cyanamid undertook a costly and in-depth investigation of Arden's business, including its subsidiaries abroad. The plaintiff finally agreed to meet the defendants' asking price of 35 million dollars in cash. Negotiations continued with respect to various matters, such as the method of verifying Arden's net worth, for adjusting the purchase price in relation to that verification process, as well as provision for an escrow fund and indemnification by the seller. The negotiations culminated in an October 1, 1970 meeting. At the October 1 meeting there were present Bliss and Carter, Forbath, Harvey B. Gross, plaintiff's Secretary and General Counsel, and J. Clifford Blauvelt, plaintiff's Controller.
A draft letter agreement containing substantially the same terms as the October 2 agreement about to be described was handed to Bliss and Carter who stated that they did not wish to accept more than a $500,000 (rather than $1.2 million asked for by the plaintiff) reduction on the $35,000,000 purchase price based on the discrepancies that might be determined in the net worth verification. Forbath and Gross stated they would recommend the formal acceptance of these changes by the plaintiff's Executive Committee the next day. Forbath also stated that as soon as the agreement was signed a special meeting of the board of directors of Cyanamid would be called for the next week. Carter and Weinberg, the investment adviser to the Executors, have admitted that all the selling defendants knew of the proposed board meeting when they signed the agreement. The parties agreed that following Executive Committee approval the written agreement would be hand delivered to Bliss who said he would call a meeting of the Executors on October 2 to approve and sign the agreement. As the meeting ended Carter put his arm around Forbath and said "you've got a great deal; you'll see that in two years." On the morning of October 2 Bliss dictated by telephone to Forbath's secretary certain additional language to be placed at the top of page 3 of the draft agreement. This language was substantially incorporated and the agreement was submitted to Cyanamid's Executive Committee which approved it. Forbath then signed the agreement and had it hand delivered to the Executors in New York. Bliss called Forbath and Gross in the afternoon of October 2 and told them that the Executors were ready to accept the written agreement, but he wanted certain clarifying language interlineated on page 1 of the agreement. Forbath and Gross then suggested additional modifications which were incorporated by interlineation on page 3. These modifications were accepted by the Executors.
The written agreement already executed by Forbath on behalf of Cyanamid after formal approval by his Executive Committee was approved and executed on Friday, October 2, by Bliss on behalf of Arden, and by the Executors, Arden's sole shareholders. All signed under the statement "Agreed to and Accepted." The interlineations were also initialled by each Executor and subsequently by Forbath. On learning that the October 2 written agreement would be executed Bliss agreed with Forbath that "we're in business," and agreed to do "everything possible" to move speedily towards a closing. Carter simultaneously offered Gross his congratulations and stated "you've got a great deal; tell your difficult friend [Forbath] in two years he'll see what an excellent deal this has been." The same day, October 2, Bliss sent the executed original agreement to the plaintiff with a personal note which said "I will do everything I can to speed the finalization of the agreement." On Monday, October 5, Forbath received the executed agreement by mail and Cyanamid sent out notices for a special meeting of its directors to be held Wednesday, October 7. On October 5 Blauvelt also contacted plaintiff's accountants, Peat Marwick Mitchell & Co., to arrange for the verification of Arden's net worth pursuant to the agreement. The same day Forbath also tried to reach Bliss to arrange for the plaintiff's auditors to begin the verification but was unable to reach him. When he finally spoke to Bliss that evening Bliss informed Forbath that the Executors had been meeting all day with another party concerning Arden. Forbath expressed shock since they had already agreed to sell Arden to the plaintiff. Forbath stated that the matter would be referred to Cyanamid's Legal Department.
Shortly after the October 2 agreement was signed Lilly sought to commence negotiations with the selling defendants for the properties covered by the agreement. The selling defendants initially refused to negotiate with Lilly on the ground that a "deal" had already been made. Lilly applied some pressure to get a meeting and offered a price which was several million dollars higher than the 35 million dollars Cyanamid was paying. The selling defendants then consulted counsel for advice as to whether they could make a new deal with Lilly. Bliss admitted to Miller, who was involved in the transaction on Cyanamid's behalf, on October 6, that although he had acted in good faith when he signed the agreement on October 2 and believed it constituted a deal, another buyer had pressed him thereafter to negotiate. Bliss stated that he had repeatedly told the buyer that he would not negotiate because he had already made an agreement to sell Arden. Bliss conceded to Miller that it was only after seeking the advice of counsel that he had decided Arden was free to deal with the other party. Even then he recognized that the Executors would be bound unless they could get a cash payment before Wednesday, October 7, when, it was mutually understood, plaintiff's board of directors was to meet formally to approve the acquisition of Arden. The next day, October 7, plaintiff received a telegram from Bliss advising it of the sale of Arden to Lilly. The same day at a special meeting of the plaintiff's board the October 2 written agreement was actually ratified and the acquisition of Arden approved. At the same meeting the Cyanamid board also authorized legal action to be taken against the selling defendants who through Bliss had given notice that they had sold to another.
THE OCTOBER 2 WRITTEN "AGREEMENT"
The October 2, 1970 written agreement is a closely typed four page letter signed by " American Cyanamid Company by T.P. Forbath, Vice President," and "Agreed to and Accepted by Elizabeth Arden Sales Corporation (by Bliss as President), and by The Bank of New York, J. Howard Carter and Patricia Graham Young [each] as Executor under the Will of Elizabeth Arden." It states substantially the following: It confirms the general understanding with respect to the acquisition by Cyanamid of the assets and business of Arden as a going concern and the assumption by Cyanamid of its liabilities for a price of $35,000,000 (reduced by any dividend between June 30 and the date of closing), the price to be based on the consolidated balance sheet of Arden as of June 30, 1970, and the assumption of liabilities to the extent reflected in such balance sheet, plus liabilities incurred in the ordinary course of business to the date of closing.
It states that the acquisition will be subject to the creation of an escrow fund in the amount of $1.2 million withheld from the purchase price, plus an indemnification of $2.3 million by the Executors. The escrow shall terminate 3 years from the date of closing, and shall be reduced to the extent of 25% per year less, in each year, by the amount of claims in such year. The indemnification shall terminate four years from the date of closing and shall similarly be reduced to the extent of 25% per year less, in each year, by the amount of claims in such year. Claims shall first be made against the escrow fund until it is exhausted and only then against the indemnification. It states that the purchase price was based on a consolidated net worth of Arden as of June 30, 1970 of approximately $22,000,000. It provides that accountants of Cyanamid would "verify" such net worth "to the extent determined by Cyanamid" during a period of not more than 60 days following the execution of an appropriate purchase agreement. The price was to be reduced if the verification showed the actual net worth to be less than the book net worth.
It is further provided that there would be no reduction in the escrow fund for undisclosed liabilities, breaches of representation or warranty or material omissions under the purchase agreement until the aggregate of all claims against the escrow fund equalled at least $50,000.
Cyanamid agreed, that following the closing under the purchase agreement, it would assume and be liable for disclosed liabilities to the extent reflected by the consolidated balance sheet as of June 30 plus liabilities incurred in the ordinary course of business through the closing, as well as undisclosed liabilities of subsidiaries, provided that such undisclosed liabilities would effect a reduction of the purchase price (and of the escrow fund and indemnification as the case may be). It then contains a paragraph which is quoted in full in the margin.
THE MOTIONS BY ARDEN AND THE EXECUTORS
Arden and the Executor-defendants contend that the October 2, 1970 agreement was not a binding agreement for the following reasons: (a) it was not a meeting of the minds since it did not contain all the essential terms required in such a transaction; (b) for the same reason it was invalid under the New York statute of frauds; and (c) the provision for a subsequent formal purchase agreement established that the October 2 "agreement" was nothing more than a memorandum of understanding. They contend that Forbath, Vice President of Cyanamid, had no authority to enter into the agreement even though it was authorized by the Executive Committee because, under the by-laws of Cyanamid and guidelines established by its board of directors, an acquisition for more than $2,500,000 requires the approval of the board of directors. Arden and the Executor-defendants argue that since Cyanamid was not bound until its board met there was no mutuality of obligation and that, therefore, the defendants could not be bound.
The plaintiff contends that the agreement of October 2 did contain all the essential terms; that it constituted a meeting of the minds; that the contemporaneous admissions of the defendants' representatives, Bliss and Carter, establish that they too understood that there had been a meeting of the minds. It argues, alternatively, that even if the October 2 agreement was not a binding contract, it was an offer by Arden which under the circumstances was to be irrevocable until the board of Cyanamid had a chance in good faith to ratify it. It also contends that since there was a ...