BUDGET MARKETING, INC. V. CENTRONICES CORPORATION
927 F.2d 421 (1991)
NATURE OF THE CASE: Budget Marketing, Inc. (P) appealed from an order of summary judgment
denying their claims against Centronics (D) for: (1) breach of implied duty to negotiate in
good faith; (2) promissory estoppel; and (3) negligent misrepresentation.
FACTS: In April 1987, P and D executed a letter of intent outlining the basic terms of a
proposed acquisition of P by D. The letter of intent stated that completion of the merger
depended on four express conditions: (1) satisfactory completion of an accounting, legal,
and business review of P; (2) purchase by P of 'key man' life insurance coverage; (3)
avoidance by D of a 'significant cash outlay' for taxes because of BMI's planned change in
accounting methods; and (4) execution of a definitive and legally binding agreement between
P and D. The letter of intent provided that the transaction was subject to approval by the
boards of directors of both corporations and by the P shareholders. It also contained a
specific disclaimer: 'This letter shall not be construed as a binding agreement on the part
of P or D' It set a target date for a definitive agreement of May 31, 1987. Between January
and May 1987, D officials carefully evaluated P. On May 21, the parties executed an addendum
to the letter of intent that included changes favorable to D. The D board approved the
addendum on May 26, 1987. The addendum changed the target date for the definitive documents
to June 30, 1987. D's public relations firm issued a press release about the letter of
intent, the directors of P's parent company and P shareholders approved the proposed merger,
and D received all documents necessary to complete the legal, business, and accounting
review of P. In August, D sent its draft of the final agreement to P. P began taking the
steps necessary to meet the conditions imposed by the letter of intent. Eagle, the president
and principal shareholder of P borrowed $ 750,000 for P's use that he personally secured. P
opened additional branch offices and expanded existing branch operations. P also purchased
'key man' life insurance coverage for Eagle. Eagle kept D informed of P's expansion efforts
and the other developments. D did not disclose that it might not complete the deal. In
August, a D representative confirmed a planned closing date no later than September 0 during
a conversation with an official of Norwest Bank, P's lender. In mid-September, a D executive
participated in a meeting with P representatives, an investment banker from R.G. Dickinson,
and representatives of Norwest Bank regarding post-closing financing for P. All of those
present at the meeting proceeded on the assumption that the deal would close, and D's
representative said nothing to the contrary. In October, a D representative discussed with a
P official a necessary SEC filing that would have to be completed after closing. Also in
October, D's president and chief executive officer, Robert Stein, told Philip Boesel, an
investment banker with R.G. Dickinson who had been involved with the planned merger, that D
was ready to move toward closing the deal with P. In November 1987, D abruptly halted
preparations for the merger. The letter from D stated that the merger would lead to a cash
outlay for taxes because of P's change in accounting methods, thereby triggering one of the
negative conditions of the letter of intent. P brought this action against D, alleging that
it had invested 'hundreds of thousands of dollars' to meet the cash flow requirements of the
letter of intent. D removed the case to federal court. D filed a counterclaim alleging
negligent misrepresentation concerning an FTC investigation of P and P's financial
prospects. The district court granted D's motion for summary judgment, and also granted P's
motion for summary judgment on D's counterclaim. Both parties appeal.
ISSUE:
RULE OF LAW:
HOLDING AND DECISION:
LEGAL ANALYSIS:
Get
free access to the entire content for Mac, PC or Online
for 2-3 days and free samples
of all kinds of products.
for 2-3 days and free samples of all kinds of products.
https://bsmsphd.com
© 2007-2016 Abn Study Partner
No comments:
Post a Comment