The opinion of the court was delivered by: THOMAS J. MCAVOY
The instant action arises out of two cases which have been consolidated. John Dunk originally filed his complaint against Peter Shann in state court, and soon thereafter, Peter Shann filed his complaint against John Dunk in federal court and removed the state court proceeding. For convenience sake, the court will refer to Mr. Shann as the plaintiff and Mr. Dunk as the defendant. In doing so, the court intends no favoritism or prejudice to either party.
A bench trial was held August 1-5, 1994 on the issue of liability. This Memorandum-Decision and Order constitutes the court's findings of fact and conclusions of law pursuant to Rule 52(a) of the Federal Rules of Civil Procedure.
Before we delve into the specifics surrounding the alleged agreement of November 25, 1992, some background information should be laid. Plaintiff is a citizen and resident of York, England. He is the owner of Explosives Developments Ltd. and affiliates, which are engaged in the development, manufacture and sale of commercial explosives, primarily to mines and quarries, in the United Kingdom. Explosives Developments Ltd.'s market share for commercial explosives in the U.K. amount to approximately one-third.
Defendant is the controlling shareholder of St. Lawrence Explosives Corp. (hereinafter "SLE"). SLE is a New York corporation with its principal place of business in Adams Center, New York. SLE manufactures low grade explosives, provides drilling and blasting services, and sells and resells explosive products. SLE has 333 shares of outstanding stock and ownership of these stocks are broken down as follows: Defendant, as majority shareholder, owns 242 shares which amounts to 73% of all outstanding shares; defendant's daughter Netto owns 60 shares; defendant's son Erik Dunk (hereinafter "Erik") owns 27 shares; and SLE's President, Julie Pecori (hereinafter "Pecori"), owns 4 shares.
The facts during trial revealed that defendant has, for a long time, been actively attempting to sell SLE. There appear to have been a number of prospective buyers including plaintiff. The most recent offer, excepting the offer made by the plaintiff which is the subject of the present litigation, was an offer made by Boyes, Inc., a Canadian explosives company. Apparently, a lot of work was invested by both parties into the proposed buy-out, but the deal fell through just prior to closing. As for plaintiff and defendant's relationship, they have had a long history of proposed joint ventures which never reached fruition; plaintiff has attempted to purchase SLE on two prior occasions without any success.
In the fall of 1992, Eric contacted plaintiff and his personal solicitor, Reginald Ashworth, to inquire whether plaintiff was still interested in acquiring SLE. At this time, plaintiff, who was disheartened by two prior failures when dealing with defendant, insisted that defendant sign an option contract prior to any further negotiations. Plaintiff did not want to travel to the United States unless plaintiff bound himself to certain terms under the option contract. Proposed option contracts were exchanged by both parties. On or about November 6, 1992, defendant sent a handwritten proposed option contract which was acceptable and signed by both parties.
At this point in time, plaintiff and Ashford made the trans-Atlantic journey to the United States to meet with defendant and to arrange financing for the transaction. They met in Watertown, New York. The terms of the option agreement need not be discussed here because the agreement never materialized due to plaintiff's failure to obtain the required amount of financing for the transaction. The primary factor in the failure to obtain the required financing was plaintiff's insistence that no personal guarantees would be given by him. Soon thereafter plaintiff left Watertown and only Ashford remained.
On or about November 25, 1992, defendant and Ashford met at the Ramada Inn to discuss a new proposal for the sale of SLE. After a breakfast meeting, Ashford retreated to his room to draft an agreement stating the terms discussed by them during their earlier meeting. By early afternoon, Ashford had drawn up a proposed agreement laying out the terms for the sale of SLE (hereinafter "the 11/25 agreement"). Initially, the agreement provides that "Seller agrees to sell and Buyer agrees to buy seller's shareholding comprising 242 shares" of SLE, and moreover, defendant is to "procure" Netto's shares to sell to plaintiff. As for the sale price, plaintiff is to pay defendant a $ 50,000 cash deposit and $ 450,000 upon closing which is to occur no later than January 31, 1993. Netto is to be paid $ 360,000 plus interest for her shares. In addition to the sale price, the agreement goes on to say that defendant is to be paid an amount of $ 2,352,000 plus interest at the rate of 7% over prime in 60 monthly installments commencing one month after closing as compensation for the non-competition and consultation clause. The interest is to have a floor of 10% and a ceiling of 15%. This interest rate is to apply to Netto's purchase price as well. The writing also contemplates the future preparation of a stock purchase agreement.
On or about December 2, 1992, plaintiff wired to defendant's bank account the $ 50,000 deposit as required under the 11/25 agreement. In December of 1992, during correspondence between the attorney's for the parties involved -- William Kissel, Esq. for the defendant and Hartley Chazen, Esq. for the plaintiff -- it was revealed that plaintiff was in the process of forming a corporation to be the record owner of defendant's SLE shares after closing.
Between December 22 and December 30, 1992, Chazen sent Kissel, or at times Eric, various documents which had either additional or contradictory terms to the 11/25 agreement. Examples of additional terms include, but are not limited to, the terms governing the consultation and non-competition provision of the agreement and terms relating to warranties and covenants. Examples of contradicting terms are the purchase price,
the creation of LeBon, Inc. as the buyer, and the difference in the interest rate charged on the post-closing payments to be made by the plaintiff.
None of these proposed terms were binding on the parties since neither party signed off on the documents in question.
It is here noted that plaintiff did indeed remit the $ 450,000 in a form of a bank check to be deposited at defendant's bank. This check was received by defendant but was never deposited nor cashed, and it was returned to plaintiff after it ...