996 F.2d 568 (2nd Cir. 1993), 649, Consarc Corp. v. Marine Midland Bank, N.A.

Docket Nº:649, Docket 92-7821.
Citation:996 F.2d 568
Party Name:CONSARC CORPORATION, Plaintiff-Appellant, v. MARINE MIDLAND BANK, N.A., Defendant-Appellee.
Case Date:June 14, 1993
Court:United States Courts of Appeals, Court of Appeals for the Second Circuit

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996 F.2d 568 (2nd Cir. 1993)

CONSARC CORPORATION, Plaintiff-Appellant,


MARINE MIDLAND BANK, N.A., Defendant-Appellee.

No. 649, Docket 92-7821.

United States Court of Appeals, Second Circuit

June 14, 1993

Argued Dec. 15, 1992.

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[Copyrighted Material Omitted]

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Michael R. McGee, Buffalo, NY (F. Brendan Burke, Jr., James P. Giambrone, Jr., McGee & Gelman, Buffalo, NY, of counsel), for plaintiff-appellant.

Kenneth Payment, Rochester, NY (A. Paul Britton, Harter, Secrest & Emery, Rochester, NY, of counsel), for defendant-appellee.

Before FEINBERG, CARDAMONE and PRATT, Circuit Judges.

CARDAMONE, Circuit Judge:

Consarc Corporation, a New Jersey corporation with its principal office in Rancocas, New Jersey, sued Marine Midland Bank (Marine or bank), a national bank with its principal office at Buffalo, New York, in the United States District Court for the Western District of New York (Curtin, J.) for an alleged breach of contract. The district court granted summary judgment to Marine finding no binding contract between it and Consarc.

One of the principal issues raised on this appeal is whether such a contract existed between the parties in the absence of a formal writing. Many modern business transactions could not be carried out unless the parties were able to rely on oral promises or informal writings, such as letters, memos and faxes. A stock market transaction or insurance coverage by verbal binder are examples. In other, more complex transactions, negotiations would be chilled were a person later to be held bound by every chance promise made. In such situations, the legal obligation must await the execution of a formal written agreement--so the party may be assured that all proper precautions were taken before it was legally committed.

The tension between the concepts--contract arises upon meeting of the minds, no binding contract absent a writing--has resulted in courts struggling to resolve these inherently conflicting notions. From this judicial effort have evolved two widely-accepted common law principles: (a) that absent an expressed intent that no contract shall exist, mutual assent between the parties, even though oral or informal, to exchange acts or promises is sufficient to create a binding contract; and (b) that to avoid the obligation of a binding contract, at least one of the parties must express an intention not to be bound until a writing is executed. In granting summary relief to the bank the district court did not view the evidence before it with respect to these two rules in a light most favorable to Consarc, the non-moving party, as it was required to do. Hence, we reverse.


Consarc Corporation manufactures advanced high technology steel-making furnaces for steel manufacturers. Guterl Special Steel Corporation, a steel manufacturer, is a Delaware corporation previously headquartered at Lockport, New York, but now a debtor in a Chapter 11 proceeding in the Western District of Pennsylvania. Consarc's relationship with Marine springs from an arrangement under which the bank agreed to loan $7.5 million to Guterl Steel partly to finance its purchase of two steel furnaces from Consarc. In 1981 these two companies contracted for Consarc to supply Guterl with two state-of-the-art furnaces, one a vacuum induction melting type and the other an electroslag remelting furnace. Guterl agreed to pay $9 million for the furnaces and related engineering and construction services in connection with their installation, all as part of an overall modernization of its facility, the total cost of which was $15 million.

Marine was a 50 percent participant with Equimark Commercial Finance of Pittsburgh in supplying an $8 million revolving line of credit to Guterl beginning in 1979. After lengthy negotiations in early 1981, Marine agreed to lend Guterl $7.5 million, part of which was to help finance the modernization project, and part of which was made specifically for the two new Consarc steel-making furnaces. Due to Consarc's financial stake in Guterl's ability to pay for the furnaces, Consarc became concerned when the bank began to equivocate on whether it would actually make the loan to Guterl.

Marine first became anxious with regard to Guterl's ability to repay loans advanced to it for the two steel-making furnaces when it learned that Guterl might not meet its promised payments schedule on another $7.5 million

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loan. Guterl had negotiated the other loan with the Southern Investors Management Company (Southern Investors). The Southern Investors loan was to be guaranteed by the Farmers Home Administration and contained certain conditions Guterl was to meet. If Guterl was unable to meet these financial benchmarks it would lose access to the balance of the Southern Investors loan proceeds. Without Guterl's access to those proceeds, Marine worried that Guterl would not pay for the Consarc-built furnaces and Consarc in turn would be unable to complete manufacturing them. Thus, the bank feared it might be left with no collateral to protect its own $7.5 million loan to Guterl.

Guterl commenced discussions with Consarc and Marine in an attempt to allay Marine's concerns. Representatives of Guterl, Consarc and Marine met on October 7, 1981 in Marine's Buffalo offices. At this meeting the bank finally agreed to advance the loan to Guterl. In return, Consarc promised to complete the furnaces so that Marine could use them as collateral to secure its loan. The parties now dispute exactly what additional promises were made at this October 7 meeting. Consarc asserts Marine promised to pay the entire loan proceeds directly to it. The bank avers that while it agreed to loan Guterl the $7.5 million, it retained the option to advance the proceeds either to Consarc or Guterl, as it chose.

Consarc's attorney, Steven Heath, Esq., who attended the meeting, later testified that Consarc agreed to complete the furnaces only if Marine promised to disburse the loan proceeds directly to his client. Consarc's vice president, James Metcalf, stated the general discussion at the meeting involved promises of direct payment by the bank to Consarc. Guterl's president, Douglas Pinner, also testified that he was at the meeting and understood that "all payments were to be made directly from the banks to Consarc." Contrary evidence was given by Marine's lawyer, Raymond Seitz, Esq., who declared in a May 24, 1989 affidavit that the subject of direct disbursement of the loan proceeds was not raised in the meeting. Marine was never asked, he averred, nor did it ever promise, to pay funds to Consarc directly.

A series of letters followed the face-to-face meeting. Unfortunately, they do not resolve the parties' different understandings respecting disposition of the loan moneys. Shortly after October 7 Marine received a brief letter dated October 13, 1981 from Consarc representative Metcalf. It stated that Consarc guaranteed it would complete the equipment and carry any "short-fall" in Guterl's payments in an open account. Consarc confirmed it would not use such short-fall, if any, as an excuse to delay completion of the furnaces and further agreed that the bank might make any filings necessary to protect its interest in the furnaces. By its terms, Consarc's October 13 guarantee to complete and install the furnaces was made "provided all payments included in Schedule B attached hereto are paid." Schedule B listed certain payments, but did not explicitly state whether payments were to be made directly to Consarc or to Guterl.

In response to Consarc's October 13 letter, Charles Moran, Marine's Commercial Finance Officer, sent a letter dated October 28 to Consarc attorney Heath. That letter in part requested Heath to provide an opinion letter confirming that the "letter agreements between Marine and Consarc dated October 13, 1981" were executed by an authorized officer and would remain in effect until delivery of the furnaces. Enclosed with the letter was the security agreement between Consarc and Marine. In a letter dated October 29 Heath responded and acknowledged that Metcalf's October 13 letter constituted the "valid and binding obligation" of Consarc.

Marine made the loan to Guterl on October 29, 1981. Consarc and Marine executed the security agreement the same day. Marine proceeded to pay $744,720.10--the first installment of the loan--directly to Guterl. That amount went to reimburse Equimark Commercial Finance which, as noted, had with Marine provided Guterl with an uninsured revolving line of credit since 1979. At Guterl's direction and, as permitted by the loan agreement between Guterl and the bank, Marine then paid the remaining $6,755,279.90 directly to Consarc. Consarc was unaware of the $744,720.10 initial payment to Guterl until it inquired in early 1982

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about the remaining balance of the loan proceeds. Shortly thereafter Guterl entered bankruptcy.

Consarc filed the instant suit against Marine in 1987 seeking the $744,720 balance, claiming that Marine had entered into an oral agreement with it on October 7, 1981 to pay the entire $7.5 million directly to it. Consarc also asserted that the exchange letters evidenced a binding obligation on Marine to pay the $7.5 million directly to it. On May 15, 1989 Marine moved for summary judgment. Following a hearing, the district court rejected Consarc's arguments and in an order entered July 2, 1992 granted Marine's motion for summary judgment. This appeal followed.


I Summary Judgment

We review a grant of summary judgment de novo using the same tests as those applied in the district court. See Owens v. New York City Housing Auth., 934 F.2d 405, 408 (2d Cir.), cert. denied, --- U.S. ----, 112 S.Ct. 431, 116 L.Ed.2d 451 (1991). Extensive jurisprudence developed in the Supreme Court and in our Circuit provides well-established standards governing review of a Rule 56 motion for...

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