Leeds v. First Allied Connecticut Corp., 8594

• Decision Date: 25 November 1986
• Docket Number: No. 8594,8594
• Citation: 521 A.2d 1095
• Parties: Leonard S. LEEDS and Parkview Convalescent Center, Inc., Plaintiffs, v. FIRST ALLIED CONNECTICUT CORPORATION, a Delaware corporation, and Leo J. Dugan, Jr., Recorder of Deeds in and for New Castle County, Defendants. Civil Action . Submitted:
• Court: Court of Chancery of Delaware

Page 1095

521 A.2d 1095

Leonard S. LEEDS and Parkview Convalescent Center, Inc., Plaintiffs, v. FIRST ALLIED CONNECTICUT CORPORATION, a Delaware corporation, and Leo J. Dugan, Jr., Recorder of Deeds in and for New Castle County, Defendants.

Civil Action No. 8594.

Court of Chancery of Delaware New Castle County.

Submitted: Nov. 25, 1986.

Decided: Dec. 8, 1986.

Paul P. Welsh, and Palmer L. Whisenant, of Morris, Nichols, Arsht & Tunnell, Wilmington, for plaintiffs.

Louis B. Ferrara, and Michael W. Modica, of Aerenson, Ferrara & Lyons, Wilmington, for defendants.

OPINION

ALLEN, Chancellor.

In this contract action the principal issue is whether an agreement signed by both parties constitutes a contract. Plaintiff, asserting that it does not, sues to remove a cloud on title to real estate caused by defendant's recording of the document which it contends to be a contract to sell that land. Defendant has counterclaimed for specific performance of the alleged contract. This is the Court's opinion on both of these claims following a two-day trial.

I.

It is elementary that determination of the question whether a contract has been formed essentially turns upon a determination whether the parties to an alleged contract intended to bind themselves contractually. A court determining if such intention has been manifested, however, does not attempt to determine the subjective state of mind of either party, but, rather, determines this question of fact from the overt acts and statements of the parties. Industrial America, Inc. v. Fulton Industries, Inc., Del.Supr., 285 A.2d 412, 415 (1971). Thus, the ordinary meaning of the language employed in writings reflecting agreements, the course and substance of negotiations, prior dealings between the parties and customs or practices in their trade or business are typically turned to in order to determine whether the parties intended to bind themselves. Under this approach, the so-called "objective" theory of contract law, the unexpressed, subjective intention of a party is irrelevant.

Thus, in this case, our task is to determine the factual setting in which the document that is here claimed to constitute a contract was negotiated and executed and to decide the factual question whether a reasonable negotiator in the position of one asserting the existence of a contract would have concluded, in that setting, that the agreement reached constituted agreement on all of the terms that the parties themselves regarded as essential and thus that that agreement concluded the negotiations and formed a contract. I turn then first to a statement of the facts of this case from which such determination must be made.

II.

Plaintiff, Leonard Leeds, is the owner of Parkview Convalescent Center, a 150-bed nursing home located in the city of Wilmington. The written agreement asserted to be a contract relates to a sale of Parkview to defendant First Allied Connecticut Corporation.

Following the sale in 1984 of another nursing home in which Mr. Leeds had an interest, he decided to solicit offers to purchase Parkview. In the earlier nursing home sale, the seller had financed the sale by taking back tax-exempt industrial revenue bonds (IRBs) that were issued as an economic development measure by a state agency specifically in connection with that sale. The appeal of tax-exempt IRB financing to a seller who was willing to himself finance a large part of the transaction--as Leeds apparently was--is obvious and Leeds had it in his mind from the start that IRB financing would be a desirable aspect of any sale of Parkview.

In mid-1985 Leeds placed a small advertisement in two national publications inviting indications of interest in the purchase of Parkview. William Sondericker, a young professional employee of Mr. Malcolm Glazer--the sole shareholder of First Allied Connecticut--saw one of the ads, and in August Mr. Sondericker wrote Leeds expressing an interest in discussing a possible deal. While Mr. Sondericker is relatively new at the business of negotiating the acquisition of businesses, his employer, Mr. Glazer, is expert in that field. A self-made man, Glazer has negotiated and acquired many businesses, for his own account, across the country. Among these are four or five nursing homes, mobile home parks and television stations. Mr. Glazer is a knowledgeable and sophisticated businessman. Sondericker, who had, with one important exception, all of the communications with Leeds, reported regularly and fully to Glazer.

The Sondericker-Leeds negotiations began with a call by Leeds to Sondericker on August 20, 1985. Their accounts of that conversation differ somewhat.

According to Leeds, he had a standard "spiel" which he gave to Sondericker: the price asked was $4.5 million, but if IRB financing was arranged, the price would be $3.5 million; the deal would require $1 million cash down and Leeds would take back the remainder with a 25-year installment note (or bonds) at 12 percent interest. According to Leeds, a significant pre-payment penalty and a one million dollar payment if the IRBs became for any reason taxable, were also mentioned as conditions of the sale.

Sondericker recalls a price of $4 million being mentioned, with $1 million down. He also recalls IRB financing being mentioned, but says he never had encountered IRBs and didn't understand them. To him, the significant facts (other than those concerning the value of the property) were the price, the amount of cash required, and that the seller would finance the purchase.

Sondericker concluded the original conversation by asking for financial information concerning Parkview, which Leeds promptly provided. Sondericker and Leeds talked on other occasions during this period. After receipt of financial information from Leeds, Sondericker consulted with Glazer. Glazer decided that the deal required too much cash to be attractive. ¹ He instructed Sondericker to let the situation sit for sixty days and to then see if the the deal could be made more attractive.

Towards the end of October, Sondericker contacted Leeds again to ask if there had been any change in his position. Leeds replied that he would take $3.5 million with one million down (i.e., according to Leeds, the same thing he had said in August; according to Sondericker a $500,000 reduction in price). Some further mention of IRB financing was made, but again that did not cause Sondericker to understand that in order to make such tax-exempt financing available, the investor--Glazer in this instance--would have to invest 15% of the value of bonds in capital improvements to the facility whose purchase was being financed with the bond proceeds. Indeed, there is no indication in the record, as I recall it, ² that Leeds himself understood that technical requirement at that time. In all events, Sondericker continued to think of IRB financing as simply some version of seller financing, and took the view that how Leeds wanted to arrange the form of the obligation he would take back was Leeds' concern. Glazer also testified that that was his view as well. While it is credible that the relatively inexperienced Sondericker may have failed to grasp the significance of IRB financing to a seller taking back paper, it is far less likely that Mr. Glazer, a businessman very experienced in the purchase and sale of businesses, failed to understand the importance to such a seller of getting tax-exempt financing if available.

In all events, Sondericker continued to have conversations with Leeds and continued to report to Glazer. Leeds had had several indications of interest in Parkview but no firm offer. At some point, Sondericker succeeded in getting Leeds to reduce the cash portion of the deal to $750,000. At this point, Glazer became interested. Sondericker arranged a telephone call among himself, Glazer and Leeds. The call which apparently occurred on November 14, 1985, lasted only a short time. Glazer said he was interested in buying Parkview at $3.5 million, but the cash down payment was too high. He offered $500,000 down and the parties quickly compromised on $600,000.

According to Leeds, Glazer said he would send out a "letter of intention" for Leeds to sign because he (Glazer) had in the past dealt with persons without authority. Thereafter, the parties could enter into a formal contract. Leeds does not report that in this short conversation he brought up the list of his "requirements" previously described.

According to Glazer (and Sondericker), once the price, the down payment, and the interest rate on the purchase money note had been agreed upon, Glazer asked if Leeds would sell on those terms. When Leeds responded yes, Glazer said he would put a "contract" promptly in the mail for Leeds to execute and return.

Glazer immediately had the following document prepared:

Dear Mr. Leeds:

We wish to purchase all of the assets and real property known as Parkview Convalescent Center, 2801 West 6th Street, Wilmington, Delaware 19805 ("Seller"), being a nursing home fully equipped and licensed for 150 patients, and Seller has a Certificate of Need for an additional 82 beds, and including all buildings, land of approximately one (1) acre, and any other assets of the nursing home, subject to the inspection of the books, records, and assets which must be satisfactory to the Buyer on the following basis:

Price. $3,500,000.00 (THREE MILLION FIVE HUNDRED THOUSAND DOLLARS)

Terms. $ 600,000.00 (SIX HUNDRED THOUSAND DOLLARS) maximum cash on date of transfer of title to Buyer.

$2,900,000.00 (TWO MILLION NINE HUNDRED THOUSAND DOLLARS) approximate bond to be taken back by Seller, payable principal and interest at 12%, payable approximately $30,544.00 per month for a period of 25 years.

In the event Buyer adds additional beds to the Parkview Convalescent Center, Seller agrees to subordinate its bond to any new first mortgages or bonds, and in that event the interest rate on the Seller's bond would...