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CHROMALLOY AMERICAN CORP. v. UNIVERSAL HOUS. SYS.

July 15, 1980

CHROMALLOY AMERICAN CORPORATION and Arrow Group Industries, Inc., Plaintiffs,
v.
UNIVERSAL HOUSING SYSTEMS OF AMERICA, INC. and Irwin Tobman, Defendants



The opinion of the court was delivered by: BRODERICK

MEMORANDUM ORDER

I.

 Plaintiffs Chromalloy American Corporation ("Chromalloy") and Arrow Group Industries ("Arrow") seek to recover from defendants Universal Housing Systems ("Universal") and Irwin Tobman on unpaid invoices and a promissory note. Defendants have counterclaimed for damages for breach of a joint venture agreement.

 Plaintiffs have moved for summary judgment under Rule 56, Fed.R.Civ.P., 28 U.S.C.

 For the reasons which follow, I find that the defendants have failed to establish the existence of any genuine issue of material fact as to all but one of plaintiffs' claims and as to all of the defendants' counterclaims. Summary judgment is granted to plaintiffs as to Counts I, III and IV of the complaint and as to all of the defendants' counterclaims. Summary judgment is denied as to Count II of the complaint.

 II.

 The following facts are not in dispute:

 Plaintiff Chromalloy is a Delaware corporation, engaged in manufacturing and shipping activities. Plaintiff Arrow, a wholly owned subsidiary of Chromalloy when this action was commenced, *fn1" is a New Jersey corporation engaged in the manufacture of low-cost metal structures. Defendant Universal is a New York corporation engaged in the sale of prefabricated plastic housing units and defendant Tobman is its president, director, and major shareholder.

 In January, 1976 a finder introduced Tobman to Chromalloy, which was interested in entering the housing market. In February, 1976 the parties began discussion of the possible acquisition of Universal by Chromalloy, and on May 7, 1976 William McGavock, Chromalloy's executive vice president, sent Tobman a letter of intent setting forth conditions precedent to consummating the acquisition. The letter made it clear that the contemplated transaction was subject to the execution and delivery of a definitive agreement. It set forth that "(n)either party shall have any liability nor in any way be committed to the other on account of the proposed transaction unless a definitive Agreement is executed. . . ., and thereafter any liability shall be only under the terms of the definitive Agreement." This letter of intent was never confirmed and approved on behalf of Universal.

 Chromalloy abandoned the idea of acquiring Universal because Universal was a start-up company with no established earnings record. Chromalloy instead considered the possible formation of a Chromalloy-Universal joint venture in the manufacture and sale of plastic housing. This prospective joint venture was to be for a period of four or five years, at the end of which Chromalloy would have the option to buy out Universal's interest in the joint venture at a price based on the joint venture's earnings. McGavock sent to Tobman a letter of intent dated June 25, 1976, setting forth a proposal to form a joint venture corporation in which each party would own 50%. The letter of intent by its terms disclaimed any intention by the parties to bind themselves contractually, and set forth conditions precedent to the formation of a joint venture. It clearly stated that neither party would be committed until a joint venture agreement was executed. This proposed letter of intent was never confirmed and approved on behalf of Universal.

 Negotiations continued concerning the form of the prospective joint venture and the amount of capital contribution. Tobman prepared projections of Universal sales and profits. Chromalloy began to assist Universal in developing advertising, and authorized the use of Chromalloy's logo on Universal stationery and purchase orders.

 On October 11, 1976 Universal and Chromalloy executed a loan agreement, under which Chromalloy agreed to loan Universal $ 100,000. By the terms of the loan agreement, the $ 100,000 was to be used by Universal as working capital, or to acquire the assets of Extrudyne, Inc., a public corporation which manufactured plastic extrusion forms. *fn2" The loan agreement contained a specific disclaimer of any present intention on the part of Chromalloy to make a capital contribution to the prospective joint venture, although it did provide that Chromalloy, in its sole discretion, could apply the principal amount of the loan as a capital contribution to the joint venture upon the consummation of a joint venture agreement, at which time the note would be cancelled. The loan agreement further provided that it did not constitute a letter of intent binding the parties to the formation of a joint venture.

 On October 22, 1976 Chromalloy loaned $ 100,000 to Universal under the loan agreement, and Universal executed and delivered to Chromalloy its promissory note for $ 100,000, personally guaranteed by Tobman and payable upon demand after January 1, 1977. The note obligated Universal to pay attorney's fees and costs incurred in the event collection became necessary. Tobman obtained from the other shareholders of Universal a signed agreement to indemnify him against any claims against him by Chromalloy arising out of the $ 100,000 loan. The $ 100,000 loan was reflected as an indebtedness to Chromalloy on Universal's tax returns and on its financial statements. On February 24, 1977 Tobman sent McGavock a letter enclosing payment of interest for the months of October, 1976 to February, 1977 in the amount of $ 3,030.

 A revised proposed letter of intent dated October 25, 1976, with respect to the prospective joint venture, was sent by Chromalloy on November 8, 1976 to Universal. It contained provisions similar to those in the June 25, 1976 letter, disclaiming any intention by the parties to bind themselves contractually, and clearly stating that neither party would be committed until a joint venture agreement was executed. While this proposed letter of intent was not confirmed and approved on behalf of Universal, Tobman on December 9, 1976 returned to Chromalloy a ...


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