Fairway Center Corp. v. U. I. P. Corp., 73-1773
| Decision Date | 10 September 1974 |
| Docket Number | No. 73-1773,73-1773 |
| Citation | 502 F.2d 1135 |
| Parties | FAIRWAY CENTER CORPORATION, Appellant, v. U.I.P. CORPORATION, Appellee. |
| Court | U.S. Court of Appeals — Eighth Circuit |
Edward W. Dailey, Burlington, Iowa, for appellant.
J. C. Riley, Burlington, Iowa, for appellee.
Before LAY, ROSS and WEBSTER, Circuit Judges.
This is an action by Fairway Center Corporation (Fairway), originally brought in Iowa state court, seeking specific performance of an alleged contract for the sale by it of the Fairway Center shopping center in Burlington, Iowa, to the U.I.P. Corporation (UIP). This action was removed by UIP tothe federal district court under 28 U.S.C. 1441. Jurisdiction is based on diversity of citizenship.
After a trial to the court the district judge, the Honorable William C. Stuart, found that there was no contract between the parties because there had been no 'meeting of the minds.' He, therefore, refused to order the requested specific performance and dismissed the action. Fairway appeals, and we affirm the district court's decision.
In 1969 UIP formed Oceanda Corporation (Oceanada) and transferred some real estate holdings to that corporation in return for stock. Oceanada had been set up primarily for the purpose of developing real estate, but by late 1969 UIP wanted to divest itself of its Oceanada stock because of difficulties it was having in obtaining good management for Oceanada.
In the meantime the board of directors of Fairway had decided to sell its shopping center and made contact with two of the principal officers of Oceanada about a possible sale. Shortly thereafter these two officers were killed in an airplane accident. UIP then approached Fairway with an offer to exchange part of its Oceanada stock for the shopping center. While Fairway was not interested in obtaining Oceanada stock as such, the parties did enter into negotiations to see if a mutually satisfactory arrangement could be made. Initially these negotiations were carried on by counsel for the two corporations, and in early 1970 the Chicago firm of Arvey, Hodes and Mantynband, attorneys for Fairway, drafted an agreement which was submitted to UIP's attorneys, the Milwaukee firm of Frisch, Dudek, Slattery and Denny. The Frisch firm made several changes in this draft, and a second proposed agreement was prepared by Fairway's counsel. On March 10, 1970, the board of directors of UIP passed a resolution approving the purchase and authorizing certain officers to execute and deliver any agreement substantially in the form of this second proposal.
Pursuant to this resolution, Mr. John Frisch, Secretary of UIP and a member of the law firm representing that corporation, and Mr. James L. Dorman, an executive vice-president of UIP, went to the Arvey firm's office in Chicago the next day, March 11, 1970. Their purpose was to make necessary changes in the second draft and to come up with a final draft for signature. After several hours of negotiation with members of the Arvey firm and Mr. Irving Berlin, President of Fairway, they were successful, and the final proposed agreement was signed by Dorman for UIP and Berlin for Fairway that day. The agreement provided that neither party would be obligated to perform unless the execution and delivery of the agreement had been authorized or ratified by the boards of directors of Fairway and UIP and by the shareholders of Fairway. 1
The key provision of the agreement was paragraph 15(a), which dealt with the manner in which UIP was to pay for the shopping center. This paragraph represented an attempt to reconcile Fairway's goal of selling the shopping center and obtaining the most cash possible with UIP's goal of acquiring the shopping center in exchange for Oceanada shares without committing itself to any cash outlay. 2 This paragraph provided that UIP would use its 'best efforts' to cause the Oceanada stock it was transferring to Fairway to be registered under the Federal Securities Act of 1933 within eighteen months after closing. UIP also agreed to use its 'best efforts' to arrange for all of the so-called 'Fairway Oceanada' shares to be included in a firm underwriting agreement or to arrange for another lawful public or private market for these shares within eighteen months of closing. If the underwriting or other sale of the Fairway Oceanada shares resulted in a net price per share of less than $3.00, then UIP had three options to make up the difference, so that Fairway shareholders would receive the full agreed price for the shopping center. (1) UIP could simply pay the difference in cash. (2) UIP could deliver enough additional registered Oceanada shares to Fairway so that the total market value of all the Oceanada shares was equal to the total purchase price of the shopping center. (3) UIP could deliver enough fully registered common shares of UIP, so that at their aggregate fair market value they made up the difference between the selling price of the Fairway Oceanada shares and the agreed purchase price of the shopping center.
Paragraph 15 was silent as to what would happen if UIP's 'best efforts' failed and the Fairway Oceanada shares were not registered or no underwriting agreement or other public or private sale were arranged.
On March 17, 1970, the March 11 agreement was presented to the Fairway board of directors for the required ratification. However, rather than ratifying the agreement as written, the board ratified it subject to certain amendments being added to it, the most important of which was an effort to set forth what would happen if UIP was unable to register the Oceanada stock or arrange a public or private sale therefor. The key paragraph of this 'Amendment Agreement' is as follows:
Paragraph 15(a) of said Agreement is amended to add at the end thereof the following: 'In the event UIP shall not, within eighteen (18) months after the Closing Date, cause the Fairway Oceanada Shares to be fully registered and be includable in a firm Underwriting Agreement or arrange for another lawful public or private market for all of the Fairway Oceanada Shares and designate such market in writing to Fairway, then UIP shall within twenty-four (24) months after the Closing Date either (i) pay in cash to Fairway the sum of the Minimum Value (as hereinafter defined); or (ii) issue to Fairway validly issued, full paid and non-assessable shares of Common Stock of UIP, which shares are fully registered and validly listed for trading on the American Stock Exchange and any other stock exchange on which shares of Common Stock of UIP are then listed for trading, and which shares at the date of issue have an aggregate fair market value (as hereinafter defined) of at least the Minimum Value (as hereinafter defined).'
Careful analysis of this proposal reveals that in addition to clarifying paragraph 15, it also changes it. In essence, the amendment provides that if UIP's 'best efforts' to cause the Fairway Oceanada shares to be registered and to arrange for an underwriting agreement or other sale fail, then those shares will be deemed worthless; and UIP will have to pay the entire price of the shopping center in cash or UIP common stock. The proposed amendment is silent as to what would become of the Fairway Oceanada shares in the event no registration or sale was arranged by UIP, even though those shares could, in fact, still retain some value.
On March 18, 1970, Mr. E. A. Wahlen of the Arvey firm prepared a proposed amendment agreement incorporating the changes desired by the Fairway board. He sent this proposal to Mr. Frisch that day along with a letter which described the amendment as a 'Clarification of the obligations of U.I.P. Corporation.'
The UIP board met on March 23, 1970, but the proposed amendments were not submitted to it at that time. The board did, however, approve the March 11 agreement and authorized its officers to perform all acts necessary to consummate the agreement 'consistent with the proposed agreement' of March 11.
On March 24, 1970, Mr. Dorman was visited by Mr. Berlin, Fairway's president, who indicated to Dorman that he needed to obtain Dorman's signature on the amendment agreement so that he could present it at a shareholders meeting scheduled for March 30, 1970. Both Dorman and Berlin professed to not fully understand the amendment, but Berlin indicated that it did not change the basic agreement at all. Dorman told Berlin that he could not sign without first checking with Frisch. This he did, and Frisch indicated that if Dorman did sign in order to accommodate Berlin, he should do so only with an accompanying letter setting out UIP's understanding of the agreement as amended. On March 27, 1970, Dorman returned the amendment he had signed along with an explanatory letter also dated March 27, 1970. This letter stated:
I have also executed on behalf of U.I.P. Corporation the proposed amendment agreement furnished which clarifies the original agreement, however as further clarification we would like to point out that it is our mutual understanding that U.I.P. shares or cash referred to is not in lieu of the Oceanada shares but only in an amount which may be required to supplement the aggregate fair market value of the Oceanada shares.
On March 30, 1970, the special shareholders meeting of Fairway Center Corporation was held in Chicago. The minutes of that meeting reflect that the shareholders voted to authorize the sale of the shopping center to UIP 'for the consideration and upon the terms and conditions set forth in the agreement with U.I.P. Corporation dated March 11, 1970, as amended by agreement dated March 30, 1970, which agreement as amended is hereby adopted and approved . . ..'
On April 1, 1970, Mr. Wahlen of the Arvey firm responded by letter to Dorman's explanatory letter of March 27. In pertinent part this letter said:
Paragraph 2 of your letter of March 27 is not correct. It is the...
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