Centronics Corp. v. Genicom Corp.

• Decision Date: 16 August 1989
• Docket Number: No. 88-160,88-160
• Citation: 562 A.2d 187,132 N.H. 133
• Parties: CENTRONICS CORPORATION v. GENICOM CORPORATION.
• Court: New Hampshire Supreme Court

Page 187

562 A.2d 187

132 N.H. 133

CENTRONICS CORPORATION v. GENICOM CORPORATION.

No. 88-160.

Supreme Court of New Hampshire.

Aug. 16, 1989.

Devine, Millimet, Stahl & Branch P.A., Manchester (Andrew D. Dunn and Mark W. Dean, orally, on the brief), for plaintiff.

McLane, Graf, Raulerson & Middleton P.A., Manchester (Wilbur A. Glahn, III on the brief and orally), for defendant.

SOUTER, Justice.

A contract between the buyer and seller of business assets provided for arbitration of any dispute about the value of the property transferred, to which the purchase price was pegged, and required an escrow deposit of a portion of the price claimed by the seller pending final valuation. The seller has charged the buyer with breach of an implied covenant of good faith in refusing, during arbitration, to release a portion of the escrow fund claimed to be free from "dispute." The Superior Court (Hollman, J.) granted summary judgment to the buyer, which we affirm.

The agreement between the plaintiff-seller, Centronics Corporation and corporations related to it (Centronics), and the defendant-buyer, Genicom Corporation (Genicom), sets the purchase price at the consolidated closing net book value (CCNBV) of the assets plus four million dollars. CCNBV is defined as the value reflected in Centronics's consolidated balance sheet as of the closing date, minus certain liabilities. Because CCNBV could not be stated definitely in advance, the parties agreed to derive it by a series of steps that we describe here in a somewhat simplified distillation of their contract documents.

As a basis for calculations (albeit subject to later challenge), they selected the consolidated net book value to be determined from Centronics's consolidated balance sheet as of September 28, 1986, a date prior to the closing. Within thirty days of the closing, Centronics was obliged to revise the September balance sheet to reflect the results of operations from September 29 through the closing date, and, on the basis of the revision, to compute a consolidated closing net book value and consequent purchase price. Although Centronics was bound to follow "generally accepted accounting principles" in preparing both the September balance sheet and the subsequent revision, and although Centronics was required to review the latter with the Boston office of Coopers & Lybrand before delivering the revised figure to Genicom, the agreement provided that the revised balance sheet would nonetheless be unaudited and certified only by Centronics's president or principal accounting officer.

After Genicom's receipt of the revised balance sheet, the Richmond, Virginia, office of Coopers & Lybrand then had thirty days to review it on Genicom's behalf and either to accept the revision as conclusive of CCNBV and the consequent purchase price, or to propose adjustments. If the Richmond office proposed no such adjustments on Genicom's behalf, the balance sheet as revised by Centronics would determine CCNBV. If the Richmond office did propose adjustments, Centronics would then have thirty days to object to them, in default of which the balance sheet with Genicom's proposed adjustments would be conclusive. The parties agreed that any timely dispute about the consolidated closing balance sheet or the computations based upon it would be referred to a New York accounting firm for final and binding "determination in accordance with the terms of [the] Agreement," a process that each party now describes as arbitration.

Although the parties agreed to use their best efforts to promote the resolution of disputed issues within fifteen days of their submission to the arbitrator, even on the optimistic assumption that arbitration would conclude that soon the parties faced a potential delay of more than one hundred days between closing and final calculation of the purchase price. Instead of deferring all payment for such a time or longer, they agreed that upon closing Genicom would pay Centronics an amount equal to the purchase price based on the September balance sheet, less $5,000,000 to be placed in escrow. They also agreed that if Centronics proposed revisions to the September balance sheet indicating a higher purchase price Genicom would promptly increase the escrow deposit by the difference, to be known as the Adjustment Amount.

Distribution from the escrow fund was to be governed by two sets of provisions. Insofar as the escrow agreement relates to the issue before us, it simply provided that "[i]n accordance with Section 2.07 of the Purchase Agreement, the Escrow Agent shall hold the Escrow Fund in its possession until instructed in writing" by respective New York counsel for Centronics and Genicom "to distribute the same or some portion thereof to Centronics or [Genicom] as the case may be," whereupon the escrow agent was to make the distribution as ordered. Section 2.07 of the Purchase Agreement, entitled "Final Payment of Purchase Price," began with a provision that "[f]inal settlement and payment of the Purchase Price shall be made not later than ten days after determination of [CCNBV] and computation of the Purchase Price," whether by agreement of the parties or decision of the arbitrator. There followed detailed instructions for payment out of escrow and final settlement between the parties, which are of no significance in the matter before us, being intended to provide for the payment to Centronics of whatever balance it might be owed on the purchase price, and the distribution to Genicom of any amount it might be found to have overpaid.

The parties took the first step in applying these valuation and payment provisions at the closing held on February 13, 1987. Centronics's consolidated September balance sheet showed a net book value of $72,529,000 for the assets to be transferred, to which amount $4,000,000 was added, to give a preliminary purchase price of $76,529,000. Genicom placed $5,000,000 in escrow and paid Centronics the balance of $71,529,000.

On March 30, 1987, Centronics delivered a revised balance sheet to reflect operations for the four and one-half months before the closing. The revised net book value was $83,396,000, and Genicom accordingly increased the escrow by depositing the required Adjustment Amount of $10,867,000, representing the difference between the earlier and later figures. Genicom's accountants then proposed downward adjustments to the revised figures, which would reduce the net book value, and purchase price, by $10,213,164, almost back to the earlier figure. Centronics objected, and the dispute was submitted to the arbitrator.

The arbitration had begun to drag by the summer of 1987, when Centronics sought a distribution of $5,653,836 from the escrow fund, being the difference between the total fund of $15,867,000 and the $10,213,164 in downward adjustments Genicom had proposed. Centronics described the amount requested as free from dispute and complained of a loss of economic opportunity to use the funds for its corporate purposes. Genicom replied that the purchase agreement provided for no distribution from escrow prior to determination of CCNBV and the final purchase price, which, as it turned out, would presumably be at the close of arbitration.

Centronics responded by bringing this two-count action to recover the amount in question and consequential damages. Count one alleged that Genicom had breached implicit terms of the agreement by delaying arbitration and refusing to release the presently undisputed amount from escrow. The second count characterized Genicom's action as the tortious breach of a legally-implied covenant of good faith and fair dealing (which we will speak of simply as one of good faith).

Although count two was ill-pleaded, given this jurisdiction's clear law that a breach of contract does not sound separately in tort, see Lawton v. Great Southwest Fire Ins. Co., 118 N.H. 607, 613, 392 A.2d 576, 580 (1978), the trial court treated the covenant of good faith mentioned in count two as the term said to have been breached under count one, and we will accept that merger of pleading. Centronics's allegations have undergone further refinement by dropping any claim that Genicom acted to delay the arbitration, the sedate progress of which is now acknowledged to be neither party's fault. (Slow as it was, the arbitration may well have concluded before this decision, although Centronics's claims for interest and consequential damages suffice to stave off the threat of mootness.)

Genicom moved for summary judgment on the theory that, given the dispute over CCNBV, the terms of the parties' agreements required payments out of escrow only upon completion of arbitration, thus barring the implication of any duty to authorize a distribution before that event. Centronics objected and sought its own summary judgment, grounded on affidavits said to indicate that Genicom's refusal was meant to pressure Centronics into conceding a disputed item worth a substantial amount.

The trial court ruled for Genicom, after construing the contract to provide that the "only way funds can be released is upon final determination of the purchase price, which, as the parties agree, is in the hands of the arbitrator.

The instant suit is no more than [an] attempt on the part of [Centronics] to rewrite the contract. Essentially, [Centronics] asks this Court to read between the lines of § 2.07 and insert therein a provision regarding partial disbursal of funds from escrow in light of the protracted arbitration. While it is true that the parties contemplated a short time period for resolution of disputes through binding arbitration, the Court cannot insert a provision in the contract for partial payments where such provision does not exist.

[Centronics] should have demanded a mechanism for partial payments from the Escrow Fund if the arbitration process lagged, or if the factual situation regarding adjustments to the final purchase price...