Full opinion text
OPINION CANNELLA, District Judge: After a bench trial, the Court finds defendant liable to plaintiffs on their complaint for breach of contract, and plaintiffs liable to defendant on its counterclaims for breach of warranty and fraud. FACTS This lawsuit, between the sellers and the purchaser of a paperback book publishing company, actually centers on a controversy between the publisher and the author of a series of paperback books. The events giving rise to liability occurred between January 1972 and November 1973, but the history of the relationship between the author and the publisher is necessary to an understanding of the significance of those events. The facts are largely undisputed, reflected in the numerous documents introduced at the trial. Facts pertinent only to damages are incorporated into the discussion of that issue. Jurisdiction is based on diversity of citizenship. In 1965, plaintiff David Zentner was the publisher of a “sophisticated” men’s magazine which was distributed by the Kable News Company [“Kable”]. In the summer of that year Zentner entered into an agreement with the co-plaintiffs Samuel Campbell, George Davis, Arthur Ainger, Edward Silvey, and Walter Weidenbaum who were then stockholders, officers, or employees of Kable. Under the agreement, the plaintiffs became the sole stockholders of BeeLine Books, Inc. [“Bee-Line”], a corporation formed to publish erotic paperback books. Zentner was the president and chief operating officer of Bee-Line. The other plaintiffs were, for the most part, “silent partners” in the business, and Weidenbaum, an attorney, functioned as the liaison between Zentner and the other stockholders. Kable distributed the books published by BeeLine, and its promotion likely contributed to Bee-Line’s early success. Among the authors writing for Bee-Line was Donald Pendleton, who wrote six or seven erotic books which were published by Bee-Line in 1966 and 1967. By 1968, Bee-Line had published, in addition to its erotic books, a number of titles directed to a wider audience. In the early summer of that year, Zentner and Weidenbaum were exploring the possibility of BeeLine’s entering the “mass market” paperback business. To this end, they had several meetings in May and June with Lyle Engel, another publisher, who had had great success with “series” paperbacks. (Although there are other types of series, for purposes of this case, a series may be defined as a number of books with a common main character; examples include Tarzan, Fu Manchu, and, more recently, James Bond.) Zentner and Weidenbaum were not particularly inspired by any of Engel’s suggestions for a series, and they believed that they could develop a better concept themselves. According to Zentner and Weidenbaum, they were walking on Third Avenue in midtown Manhattan, after a luncheon meeting with Engel, when the following conversation took place: Mr. Weidenbaum said to me [Zentner], “What do you think of an idea that just occurred to me? Suppose we use a man, an anti-hero type, who is a trained jungle fighter in Vietnam, and whose life is destroyed because his family has been damaged irrevocably by the Mafia, and who gets a leave of absence due to hardship from the Army, . . . comes home, finds these terrible conditions, and tries to go on a one-man crusade to eliminate this evil from the face of the earth?” And spontaneously he said, “Let’s call him ‘The Executioner’.” I thought it was a tremendous title, tremendous name, for such an individual, and in further discussion Mr. Weidenbaum said to me, “Why not have him then, this Executioner, go from city to city, find the strongholders of the Mafia in each city, and destroy them in this single one-man campaign to . eliminate the Mafia?” In further discussion, Weidenbaum and Zentner named their character “Matt Bolan,” and decided to approach Don Pendleton to see if he would be willing to write the books. During a telephone conversation in mid-July 1968, Zentner outlined the Executioner concept to Pendleton. On or about August 19, 1968, Pendleton submitted a synopsis of the proposed book to Zentner, and in October, Pendleton signed a contract to write the book. The Executioner books, along with other mass market paperbacks, were published under the “Pinnacle” imprint or trade name, to avoid the taint of Bee-Line’s reputation. Pendleton’s version of the inception of the series differs. Pendleton testified, at his deposition, that, during the July telephone conversation, Zentner said that he was interested in manuscripts suitable for mass market publication. Pendleton acknowledged that Zentner had suggested the name “The Executioner” as an anti-hero protagonist at war with the underworld. Pendleton testified, however, that he told Zentner during the telephone conversation that he had “been developing a theme for over a year regarding a Viet Nam trained soldier who returns to this country and declares a holy war on organized crime.” This was a result of a series of conversations that Pendleton had with third parties over a year before his conversation with Zentner. Additionally, Pendleton drew on his own military experience in developing this idea. Pendleton also claimed to have developed the name “Mack Bolán.” In any event, Pendleton began writing the series and it became a great success. Bee-Line published the first two books in 1969, two more in 1970, and five in 1971. By January 1972 more than four million copies of these nine books were in print. Zentner believed there was more money to be made if a way could be found to get Pendleton to produce more manuscripts, perhaps as many as nine each year. Following a conversation with Andrew Ettinger, who had been editing the series, Zentner decided to invite Pendleton to New York to discuss the situation. Pendleton arrived in mid-January 1972 for a three-day visit. This was the first face-to-face meeting between Pendleton and Zentner and it marks the beginning of the dispute that is the gravamen of this lawsuit. On the last day of Pendleton’s visit, just before he was to depart for the airport, he met with Zentner and Ettinger in Zentner’s office. At that time, Zentner told Pendleton that the series could be an even greater success than it already was if Pendleton would write more books each year. Pendleton did not believe this was possible. Zentner then suggested the possibility of BeeLine’s hiring other writers to assist Pendleton in the preparation of manuscripts. Pendleton stated he did not think that other writers would be able to maintain the artistic quality of the series. Zentner then stated that his suggestion was not entirely up to Pendleton because the series belonged to the publisher which could assign authors to write the books as it saw fit. This infuriated Pendleton, who proclaimed “Nobody else is going to write my books.” After further heated discussion along these lines, Pendleton stormed out of the Bee-Line offices, into a waiting taxicab. Upon Pendleton’s return home, he wrote a letter to Zentner, dated January 21, 1972, reading in part: Regarding our point of disagreement, just one postscript please. I will take whatever steps are necessary to insure a steady flow of Executioner books, of the quality and quantity desired, but this is and must be my personal responsibility. I am not a Pinnacle hired hand. I do not rent myself (or my name) to anyone. I do not write “on assignment.” Let’s keep those ideas visible in our association. Otherwise, I will be compelled to assert my legal position — and I doubt that either of us wish to begin hurling legalities at each other. . Mack Bolán is my creation. All of the characters, incidents, plots, situations, and every word of dialogue used in each of the books are my creations. In a strictly legal sense, even “the Executioner” is my creation — but I stand more on ethics than on legalities, and I would not contest your independent use of the Executioner tag. I would, however, descend with all the fury of an outraged plagiarism victim if any attempt was made to steal Mack Bolán and/or any of his attendant creations. It is important that you understand that implicitly. On receipt of this letter, Zentner convened a meeting of his staff, sending them a memorandum dated January 24,1972, reading in part: I think, at this stage, that if anything were done about another author he [Pendleton] might panic and either break down completely or force some unreasonable action in view of his basic emotional insecurities. He made it unmistakable to me that he thinks he “owns” the series. Somehow, he believes that he even originated — if not the idea itself — just about everything else. Zentner, Ettinger and Weidenbaum met in late January or early February to discuss the Pendleton situation. After Zentner and Weidenbaum recounted their version of the creation of the series, Weidenbaum suggested that a letter be sent to Pendleton. He prepared a handwritten draft of a letter for Zentner’s signature that set out the development of the series and the position that the publisher was taking, namely, that the publisher created and owned the series and that while Bee-Line would be most pleased to have Pendleton continue to write, it would make other arrangements if necessary. After further discussion, it was decided that the letter might provoke Pendleton and could delay the receipt and publication of future books. Accordingly, it was decided that Zentner would telephone Pendleton in an attempt to bring him back into the fold. As to what next occurred, there are conflicting versions. Zentner testified that shortly after the staff meeting he telephoned Pendleton, reminded him of the history of their relationship, and of how Pendleton’s success was largely owing to Zentner’s efforts. As a result of Zentner’s comments, Pendleton became very contrite, apologized profusely for creating the incident, acknowledged the publisher’s ownership of the series, and said that he was just upset about the idea of other authors. He told Zentner to tear up the original of the letter of January 21, and said that he withdrew the statements it contained, and was tearing up his own copy. Zentner then asked Pendleton to send a telegram withdrawing the letter, which Pendleton subsequently did. Pendleton testified, at his deposition, that he never spoke to Zentner, or to anyone from Bee-Line, concerning the contents of his January 21 letter. He specifically denied telling Zentner to tear up the letter and stated that he did not send a telegram to Zentner. Weidenbaum testified that Zentner told him, shortly after the meeting, that he had spoken with Pendleton and that Pendleton acknowledged that the publisher owned the series and had withdrawn his comments of January 21. Although Weidenbaum had requested that Zentner get something in writing from Pendleton which acknowledged the publisher’s ownership of the series, he never saw the telegram from Pendleton, or any other writing to that effect. Ettinger testified that he had no conversation with either Pendleton or Zentner regarding Zentner’s alleged telephone call to Pendleton. Ettinger did not recall whether Zentner told him about Pendleton’s instructions to tear up the letter. Nor, did Ettinger ever see the telegram. Nonetheless, Ettinger believed there had been a discussion between Pendleton and Zentner because “certain operating decisions were made shortly thereafter which seemed to calm the stormy waters.” Specifically, we began paying Mr. Pendleton more money and on a regular basis and one of the sources of his problem was that he was always in financially dire straits and the fact that we were paying him more money seemed to solve the problem, and I had assumed, although I was not told, we settled the problems. In early March, Pendleton wrote to Ettinger regarding the delay on the part of the publisher in executing the contract for the 12th book in the series. Pendleton was concerned because contract execution triggered an advance payment, which he had not received. With regard to the ownership question, the letter states: Perhaps I should remind you that common-law protection of the non-copyrighted portions (sequels) of my series is all in my favor in the event of a break in continuity of our publishing agreements. . An inordinate delay in contractual acceptance (already a fact) could be viewed as a rejection, in which case I may place the manuscript for publication with whomever I please. The contracts Pendleton referred to were eventually sent to him. He sent the signed copies back to Pinnacle covered by a letter to Ettinger, dated March 10, 1972, reading in part: [I]n the matter of future contracts, I can understand Mr. Zentner’s reasoning regarding carrying the copyrights in the name of the house. To keep everybody happy, though, let’s add to future contracts, Clause 5, the following wordage: “In the event that copyright is registered in the name of the Publisher, such copyright is to be held in trust for the Author. The Publisher agrees to promptly re-convey copyright to the Author upon the Author’s written request.” At about this time, Bee-Line was negotiating the sale of the motion picture rights to the Executioner to Avco Embassy Pictures. Pendleton learned of these negotiations, and in a letter to Zentner dated March 13, 1972, he revoked a power of attorney he had granted to Zentner to negotiate and execute such contracts on his behalf. Zentner telephoned Pendleton on March 17 and told him that the motion picture contract could make them both rich men, and that Pendleton’s conduct was jeopardizing the deal. Pendleton evidently agreed, and in separate letters to Zentner, both dated March 20, Pendleton reinstated Zentner’s power of attorney, and covered a signed copy of the motion picture contract with a letter to Zentner, reading in part: My wife told me, David, nearly four years ago, that David Zentner was going to make me rich one day. From the bottom of my heart, Dave, thank you. At about the same time, the spring of 1972, defendant Michigan General Corporation [“Michigan General”] was in the business of acquiring other companies. To this end, Michigan General utilized the services of various “finders” to alert it to potential acquisitions. Through Dave Daynard, Michigan General learned that the stockholders of Bee-Line were interested in selling that company. The match was made and the betrothal is memorialized in an agreement dated May 29, 1972, executed by all plaintiffs, and providing in pertinent part: Seller and Shareholders shall further warrant . . . that Seller is not involved in litigation and has not been notified of any claims which could give rise to litigation . . .. At about this time, Bee-Line changed its corporate name to Carlyle Communications, Inc. [“Carlyle”], which continued to use the Bee-Line name as an imprint or trade name for its erotic paperbacks, and the name “Pinnacle” for its mass market paperbacks. As it turned out, Michigan General was unable to obtain financing for the purchase of the erotic book portion of Carlyle’s business. Consequently, the deal was restructured to allow Michigan General to “spin off” the Bee-Line division by having Carlyle convey all of its assets to a subsidiary of Educasting Systems, Inc. (not a party to this lawsuit), which would then convey all the assets, except the Bee-Line division, to Michigan General’s subsidiary. After a number of subsequent agreements, the acquisition was consummated on January 12, 1973. Michigan General purchased the assets of Carlyle, not including the Bee-Line division, for $2,573,115. Additionally, Carlyle retained $390,373 against potential tax liabilities, on condition that these funds would be distributed to the selling stockholders if not required for payment of taxes. There is no dispute that the various warranties made by the plaintiffs, as stockholders of Bee-Line and later as stockholders of Carlyle, run to Michigan General. Defendant incorporated the newly acquired business under the name Pinnacle Books Inc. [“Pinnacle”]. The Executioner series was a topic of much discussion during the acquisition negotiations. The person negotiating on behalf of Michigan General was Stanley Springer, defendant’s vice-president and general counsel. Zentner spoke for Carlyle and the stockholders concerning the Executioner series. In a letter to Michigan General dated May 29, 1972, the same date as the original agreement between the parties, Zentner warranted “that no single author and no single series, such as the Executioner series, accounts for more than 30% of the sales volume of the Company or of the Pinnacle Line.” During the course of the acquisition negotiations, Springer had occasion to examine some of the books Bee-Line had published. In one of the series paperbacks, not the Executioner, Springer came across a book where the copyright had not been registered in the name of the publisher. Springer decided to explore the matter further. On or about November 6, 1972, Springer visited Carlyle’s offices in New York. At that time Springer received a list of the series works that had been published along with excerpts from the authors’ contracts concerning these books. Springer also asked to see a copy of the last contract with Pendleton and any correspondence, with the áuthor, and received a copy of the contract for Executioner No. 15, a letter from Pendleton, dated July 29, 1970, which enclosed a copy of an agreement, dated July 17, 1970, and a letter from Zentner to Pendleton dated March 20, 1972. Springer reviewed these documents, and on his return to Michigan General’s Dallas offices the following day, he reported to defendant’s other officers “that Carlyle does not have any specific contract which says that it owns all rights to any particular Series.” Michigan General decided to seek outside legal advice. That same day, November 7, 1972, Springer wrote to a New York City law firm said to be well versed in copyright matters and other legal problems of the publishing industry. He enclosed copies of the documents received from Carlyle and advised the lawyers that Michigan General wanted “to make sure that Carlyle owns . the basic rights to the concept and characters in each Series.” In an opinion letter, dated November 11, 1972, the lawyers stated, in part: After reviewing the various contracts and letters that exist by and between Pinnacle [Carlyle] and Don Pendleton, the author of The Executioner series, it is our opinion that, except for the limited rights specified in the papers, Pinnacle does not have any right or claim of right with respect to the character Mack Bolán, the central figure in the series, as against Pendleton’s subsequent use thereof. As between Pinnacle and Pendleton, the whole question of scope of copyright protection is slightly irrelevant because Pinnacle has simply failed to tie up all of the rights in and to the series as well as the character portrayed. Thus, if Michigan General is set on acquiring character and series rights of substance, it is essential that Pendleton and Pinnacle enter into a new contract drafted properly to provide for same. Springer provided a copy of the opinion letter to the officers of Michigan General, covered by his own memorandum, reading in part: It seems clear, however, that we [Michigan General] must ultimately secure something from Don Pendleton, and we should give consideration to whether it is politically better, to contact him after our acquisition as opposed to doing so in the midst of it. Our principal risk, I believe, is the possibility that Carlyle personnel may have exaggerated their contributions to the creation of the Executioner Series and Pendleton may, in fact, be the creator of the character. It may be appropriate, therefore, to secure a warranty from Carlyle as to those facts. In subsequent correspondence with Zentner, Springer requested “validation, in writing, of the representations made to us that Carlyle is the owner of all rights to the concept and characters embodied in the Executioner Series,” and “a signed memorandum setting forth the facts establishing your creation of the concept of the Executioner Series.” Springer received two letters in response to these requests. The first, dated December 5, 1972, was from Weidenbaum. It recounted the version of the creation of the series to which he later testified and it expressly assigned to Carlyle any rights Weidenbaum had in and to the Executioner. The letter also stated: Dave [Zentner] assured me that he met with Pendleton, gave him our ideas for plot, locale, and principal characters and that it was clearly understood between them that the series title “Executioner” series, the war with the Mafia concept, and characters, particularly Mack Bolán, would belong to our corporation. It is, also, my understanding that the copyright in each published title in the series has been taken in the name of the publisher, rather than the author — which is the custom in the industry — because the author accepts the fact that all of the books in “The Executioner” series are the property of the publisher, and not the author. The second letter, dated December 6, 1972, was from Zentner. This letter also related Zentner’s version of the creation of the series and concludes, in part: [W]e have always approved, and still do — • before any book is written or contracted for — the basic plot, the locale and a general outline of the story. Don Pendleton has publicly and in many conversations with both myself, my editor and other staff members, always willingly and gratefully acknowledged the fact that we created the EXECUTIONER idea and concept, and that he started working originally on an assignment basis. From Book # 1 through Book # 15 (now in progress) copyright for all EXECUTIONER books has been registered with the U.S. Copyright Office in the name of the publisher and NOT in the name of the author, as is customary. This is the distinction used in the publishing industry to indicate that the publisher basically owns the rights to the book and/or series. Springer forwarded these letters to his lawyers and requested their opinion regarding “the minimum language change which could be made in the standard contract with Pendleton so that when the next contract is executed it will confirm that the publisher has the rights to the series.” Springer further advised the lawyers that their proposed changes should “not be sufficiently startling to require any particular discussion or protracted negotiation with Pendleton.” The lawyers responded by letter dated December 26, 1972, proposing two avenues of approach: a rider to the existing contract or certain amendments on the standard contract form. Springer also had a number of conversations with Zentner during November and December. According to Springer, he told Zentner that the Executioner series was “the key to the whole transaction,” and that Michigan General “had to have absolute assurance that Pinnacle or Bee-Line owned this series.” Zentner did not recall being told by Springer that there would be no deal without evidence of ownership. There is no dispute, however, that Springer asked Zentner about the possibility of Springer’s speaking with Pendleton prior to the closing. Zentner discouraged this approach saying that Pendleton was very tempermental and that any discussion with him concerning contract modifications could delay his production of manuscripts. In this regard, the parties have agreed “for the purposes of this case that Mr. Pendleton was totally unpredictable and everybody knowing him knew he was unpredictable.” Neither Springer nor any other representative of Michigan General spoke with Pendleton prior to the closing. As mentioned earlier, the deal closed on January 12, 1973 and Michigan General formed a subsidiary named Pinnacle Books, Inc., to own and operate the newly acquired company. The acquisition did not change the day-to-day operations of the business. Zentner remained as president of the new corporation and most, if not all, of the staff continued to be employed in the same capacities as before the acquisition. Springer testified that this was standard acquisition policy for Michigan General: We [Michigan General] specialize in acquiring small companies that have been successful and leaving [them] alone. We don’t interfere in the management. . We don’t know anything about the business to begin with and we are not going to run it afterwards. Coincidently, Pendleton was in New York City in January 1973, at about the time that Michigan General was closing the acquisition. Pendleton testified at his deposition that he had invited himself to New York to get financial advice from his publisher, because he had made more money in 1972 than in previous years. However, something about the “atmosphere” in the Pinnacle offices caused Pendleton to feel “uneasy.” Upon his return home, Pendleton received a copy of the contract for Executioner No. 16 for his signature. Ettinger testified that he had mailed the contract to Pendleton without consulting Zentner. The contract did not contain any of the changes that had been proposed by Michigan General’s copyright counsel, but was virtually identical to the contract Pendleton had signed for book No. 15. Nonetheless, Pendleton perceived certain “disturbing" and “negative” changes in the new contract, and decided to employ a literary agent to deal with the publisher on his behalf. Pendleton advised Ettinger of his decision in a letter dated February 2, 1973, reading in part: A quick review of correspondence over the past few years should reveal, to most perceptions, that I have been begging Dave [Zentner] to clean this thing up so that I wouldn’t have to go this route. Instead of responding positively, it would almost seem that he has been daring me to step outside. Okay, I’ve taken the step. What follows now is entirely between Pinnacle and the [agent]. I do think it best that you remove the Sicily book from your schedule, for now. According to Pendleton, his agent began to inquire of all the New York City paperback publishing companies regarding their interest in publishing the Executioner. Zentner allegedly learned of these approaches and “leaked” a copy of his December 6, 1972 letter to Springer, to put the other publishers on notice of Zentner’s version of the inception of the series. Pendleton then realized he would not be able to come to an accommodation with Zentner, and he instructed his agent to seek out the best offer from the other publishers. On or about February 8, 1973, Pendleton entered into a contract to write the Executioner for The New American Library, Inc. Pinnacle reacted to these developments by creating a new series, similar to the Executioner, called the Penetrator, and by hiring another author to write the Executioner series. Copyright litigation ensued, first by Pinnacle, Pinnacle Books, Inc. v. The New American Library, Inc., No. 73 Civ. 1185 (S.D.N.Y. filed March 21, 1973) and later by Pendleton, Pendleton v. Pinnacle Books, Inc., No. 73 Civ. 2175 (S.D.N.Y. filed May 16, 1973). Both cases were consolidated before Judge Charles E. Stewart, Jr. of this Court. During the discovery proceedings relating to that litigation, Pendleton produced a copy of his January 21, 1972 letter to Zentner. This was the first time that Michigan General became aware of the contents of the letter. By late May, Executioner No. 16, entitled Sicilian Slaughter, had been completed by the newly hired author and Pinnacle’s printer was preparing to ship the books to wholesalers. Apparently, distribution of the books was temporarily restrained and, in July, Judge Stewart heard cross-motions for preliminary injunctions. On July 31, 1973, Judge Stewart preliminarily found that “it was the parties’ intention that Pendleton was an employee for hire.” Accordingly, Pendleton’s motion was denied and Pinnacle was granted a preliminary injunction which prohibited The New American Library and Pendleton from publishing, promoting or advertising any book relating the deeds and exploits of Mack Bolán. Pendleton appealed the district court’s ruling to the United States Court of Appeals for the Second Circuit. On August 14, the Second Circuit stayed all parties to preserve the status quo pending a hearing on the merits of the appeal. In November 1973, while the appeal was sub judice, Pendleton and Pinnacle settled their dispute. The settlement agreement is dated November 12, 1973, and it provides, among other things, that Pendleton would terminate his contract with The New American Library and return to Pinnacle; that Pendleton would write six more Executioner books for Pinnacle; that Pinnacle had an option, which it could exercise in six-book blocks, to publish further Executioner books by Pendleton; that Pinnacle could release Sicilian Slaughter; that Pendleton would be required to produce four books each year; that Pendleton would receive a royalty of 12.5% of the retail price on net sales of the books; that Pendleton owned the copyright to all future books; and, that he had been the owner of the copyright to the Executioner books previously published. Meanwhile, on August 9, 1973, Springer wrote to the former stockholders of Carlyle advising that $80,739 of the $390,373 tax reserve fund would not be required for payment of taxes. Nonetheless, Michigan General would not distribute this money to the stockholders because of its belief that the stockholders had breached various warranties they made in connection with the sale. Specifically, Springer pointed to the agreement of May 29, 1972 and the warranty that the stockholders had “not been notified of any claims which could give rise to litigation.” In this regard, Springer summarized the Pendleton/Pinnacle litigation then pending and he enclosed a copy of Pendleton’s January 21, 1972 letter to Zentner. Weidenbaum responded “on behalf of all” the former stockholders in a letter to Springer dated August 14. Weidenbaum sought “to strike a conciliatory note,” by stating that it was by no means clear that the warranty had been breached, and, in any event, “Pinnacle [was] achieving record earnings.” Moreover, Weidenbaum noted that the stockholders had not been afforded the opportunity to litigate the Pendleton matter on behalf of Michigan General. Springer replied in a letter to Weidenbaum, dated August 22, 1973, with a copy to all the former stockholders. He advised that Michigan General would release $40,000 to the stockholders, without prejudice to its claims for breach of warranty, and he specifically invited “all of the former shareholders to participate in th[e] litigation to the full extent that they deem necessary or desirable, but at their own expense.” None of the stockholders came forward to participate in the litigation in response to this request. Plaintiffs commenced the instant suit to recover the $350,873, balance of the tax reserve fund that was never distributed to them. Defendant does not dispute that it now holds this money, nor does it maintain that any of the reserve fund was required for the payment of taxes. Rather, Michigan General has counterclaimed against the plaintiffs for breach of warranty and fraud, and submits that it was entitled to keep this money in lieu of a cash payment for breach of warranty. DISCUSSION Before the following attempt to fit the peculiar facts of this case into a recognized theory of recovery or form of action, a general statement is in order. It is the opinion of the Court that plaintiffs’ warranty, that they had not been notified of any claims which could give rise to litigation, and the statements to that effect in the December 1972 letters from Zentner and Weidenbaum, were totally inconsistent with what plaintiffs had. been told by Pendleton in January and March of 1972; the conduct of plaintiffs was wrongful and it resulted in injury to Michigan General. Nevertheless, the path to a just resolution here is a tortuous one, made even more so by the conduct of the litigation. The facts have been obscured by the testimony of witnesses for both sides, who chose to misrepresent themselves in several material respects. Pendleton, the focus of the controversy, did not testify in the presence of the Court. Additionally, although certainly not the fault of the litigants, the law of misrepresentation has provoked a centuries-old imbroglio among courts and legal scholars with regard to whether the principles of contract or those of tort should apply. The sole relatively simple issue is choice of law: this diversity suit is governed by the substantive law of New York, where the contract was made and the wrongs were committed. Plaintiffs’ Claim Plaintiffs’ claim for the return of the $350,373 balance of the tax reserve fund is undisputed. Rather, the question before the Court is how much, if any, of this money the defendant properly retained as a set-off against damages for plaintiffs’ misrepresentations and breach of warranty. Defendant’s Counterclaim: Breach of Warranty Michigan General contends that Pendleton asserted a claim “which could give rise to litigation,” in his letters and statements to Zentner and Pinnacle in early 1972; that plaintiffs’ warranty, that they had “not been notified” of any such claims, was breached; and, that defendant should recover $2,746,474 in compensation for the expenses incurred and profits lost by reason of the Pendleton/Pinnacle litigation. Characteristically, the most lucid statement of the law of breach of warranty was written by Judge Learned Hand: A warranty is an assurance by one party to a contract of the existence of a fact upon which the other party may rely. It is intended precisely to relieve the promisee of any duty to ascertain the fact for himself; it amounts to a promise to indemnify the promisee for any loss if the fact warranted proves untrue, for obviously the promisor cannot control what is already in the past. Metropolitan Coal Co. v. Howard, 155 F.2d 780, 784 (2d Cir. 1946). Accord, Gulf Oil Corp. v. Federal Power Comm’n, 563 F.2d 588, 599 (3d Cir. 1977), cert. denied, 434 U.S. 1062, 98 S.Ct. 1235, 55 L.Ed.2d 762 (1978); Paccon, Inc. v. United States, 399 F.2d 162, 166-67, 185 Ct.Cl. 24 (1968); Glacier General Assurance Co. v. Casualty Indemnity Exchange, 435 F.Supp. 855, 860 (D.Mont.1977); Pittsburgh Coke & Chemical Co. v. Bollo, 421 F.Supp. 908, 928 (E.D.N.Y.1976), aff’d, 560 F.2d 1089 (2d Cir. 1977); 17 Am.Jur.2d Contracts § 293 (1964); 17A C.J.S. Contracts § 342 (1963). Judge Hand’s analysis of a warranty as an implied promise to indemnify is supported by the leading authorities on contract law. For example, the Restatement of Contracts defines a “promise” as follows: Words which in terms promise the happening or failure to happen of something not within human control, or the existence or non-existence of a present or past state of facts, are to be interpreted as a promise or undertaking to be answerable for such proximate damage as may be caused by the failure to happen or the happening of the specified event, or by the existence or non-existence of the asserted state of facts. Restatement of Contracts § 2(2) (1932); see 1 S. Williston, Treatise on the Law of Contracts § 1A, at 4-5 (3d ed. 1957); 1 A. Corbin, Contracts § 14, at 31 (1963). And, by analogy, the Uniform Commercial Code’s definition of a seller’s express warranty, appears to be in accord: Any affirmation of fact or promise made by the seller to the buyer which relates to the goods and becomes part of the basis of the bargain creates an express warranty that the goods shall conform to the affirmation or promise. N.Y.U.C.C. § 2-313(l)(a) (McKinney 1964). In the instant case, plaintiffs dispute their liability for breach of warranty on two grounds: (1) the warranty was not breached; and, (2) the defendant did not rely on it. The threshold question in determining whether the warranty was breached involves the meaning of the words “any claims which could give rise to litigation.” The Court has not been cited, nor has it found any decision construing this phrase. As to the individual words, Corpus Juris Secundum offers the following definition of the word “claim”: In what has been termed its primary meaning, or in its ordinary or usual sense, the word is a broad and comprehensive term, and in its legal use has been understood in a somewhat enlarged sense, embracing every species of legal demand, not necessarily limited to money demands; and, particularly when used in connection with property, “claim” has been held to signify a demand and nothing more. The term has been specifically defined as meaning a demand of a right, or of an alleged or supposed right; a calling on another for something due or supposed to be due; an active assertion of right and the demand for its recognition; an assertion, demand, or challenge of something as a right; the assertion of a liability to the party making it to do some service or to pay a sum of money, or a demand of a right or thing withheld, the amount of which can be stated in money; . . . more specifically, a challenge by a man of the property or ownership of a thing which he has not in possession, but which is wrongfully detained from him, or the assertion of ownership or proprietary interest or other direct right or claim to the property itself 14 C.J.S. Claim at 1182-83 (1939) (footnotes omitted). Over a century ago, Mr. Justice Story wrote as follows: What is a claim? It is, in a just juridicial sense, a demand of some matter as of right made by one person upon another, to do or forbear to do some act or thing as a matter of duty. Prigg v. Pennsylvania, 41 U.S. (16 Pet.) 539, 615, 10 L.Ed. 1060 (1842). The New York Court of Appeals has adopted Justice Story’s definition, In re Levine, 287 N.Y. 243, 245, 39 N.E.2d 223 (1942), and, on another occasion, afforded the word “claim” a similarly broad construction, see Robinson v. Wiley, 15 N.Y. 489, 491-92 (1857). The result of this inquiry is perhaps best expressed in the terse definition of the noun “claim” in Black’s Law Dictionary 313 (4th ed. 1951) (citation omitted): “A broad, comprehensive word.” Plaintiffs urge, however, that the phrase “which could give rise to litigation,” restricts the meaning of the word “claim.” Assuming, for argument’s sake, this to be so, the Court finds that the limitation does not absolve plaintiffs of their breach. “In construing contracts, words are to receive their plain and literal meaning . . .” Calderon v. Atlas Steamship Co., 170 U.S. 272, 280, 18 S.Ct. 588, 591, 42 L.Ed. 1033 (1898); see Hoffman & Place v. Aetna Fire Insurance Co., 32 N.Y. 405, 413 (1865), quoted in Alland v. Consumers Credit Corp., 476 F.2d 951, 956 (2d Cir. 1973). In the context of the agreement between the parties, therefore, the Court interprets the phrase “claims which could give rise to litigation” as meaning any claim “which the party asserting it may enforce by an action or by some proceeding at law or in equity.” 14 C.J.S. Claim at 1186 (1939) (“legal claim”). Thus, “claims which could give rise to litigation,” would be distinguished from claims based upon moral, political or emotional obligations or duties. Additionally, the Court construes the warranty as an objective assertion of the nonexistence of facts within its meaning. In support of their argument that the warranty was not breached, plaintiffs contend that they knew Pendleton’s “outburst” in January 1972 to be without basis in fact; that they accurately warranted to Michigan General that the sellers had not been notified of any claims which reasonably could give rise to litigation; and, that even if it is found that Pendleton made a claim, it was withdrawn prior to the closing. Since the asserted withdrawal of Pendleton’s claim could be dispositive, the Court must address this contention at the outset. Plaintiffs allege that Pendleton withdrew his claim to the ownership and creation of the Executioner series in a telephone conversation with Zentner in February 1972, and that Pendleton sent Zentner a telegram confirming this conversation. The evidence in support of this version of the facts consists of Zentner’s testimony, Weidenbaum’s testimony concerning what Zentner told him, and inferences that may allegedly be drawn from Pendleton’s subsequent correspondence and activities. The Court, however, finds the alleged telegram to be a fabrication. Neither the document, nor any record of it was produced at the trial. It allegedly disappeared, never to be seen by anyone but Zentner, with its existence denied by Pendleton. Zentner made no mention of the telegram in the testimony he gave in the Pendleton/Pinnacle litigation. By contrast, Pendleton’s letter, dated March 20,1972, reinstating Zentner’s power of attorney, was produced at the trial, bearing Zentner’s handwritten instructions to his secretary. As to what did transpire following Zentner’s staff meeting, the Court finds Ettinger’s testimony the most credible. Pendleton and Zentner reached a dátente. Neither retreated from his version of the inception of the series and the corresponding legal consequences. Rather, the legalities were put aside in favor of the practicalities: Pendleton received more money on a regular basis and Bee-Line continued to receive manuscripts. Moreover, Pendleton’s conduct in March 1972 is inconsistent with the notion that the claim had previously been withdrawn. He revoked Zentner’s power of attorney; wrote concerning his “common-law” right to sequels; and, suggested that future contracts provide that the copyright was held by the publisher in trust for the author. Weidenbaum, an attorney, had examined the contracts with Pendleton and concluded that they were ambiguous with regard to the publisher’s right to future books in the series. He sought a document releasing any claim that Pendleton might have, but never received one. He suggested that a letter be sent to Pendleton clearly stating the publisher’s position that it created and owned the series, but no letter was sent. Additionally, Ettinger testified that Pendleton’s claim of ownership was a continuing subject of discussion throughout at least a portion of 1972. Plaintiffs bear the burden of proving their assertion that the claim was withdrawn. Nothing in the record, including Pendleton’s subsequent correspondence concerning his eagerness to write books and his activities at a booksellers’ convention, persuades the Court that the claim he asserted in January and March of 1972 was ever withdrawn or released. Plaintiffs’ other arguments — that the claim was without basis in fact and could not reasonably give rise to litigation — are unpersuasive. Pendleton’s letter of January 21, 1972, expressly states that he created the principal character in the series; it refers to his “legal position”; it suggests that the parties should not unnecessarily “begin hurling legalities at one another,” but threatens precisely that; and, it responds to Zentner’s suggestion that other authors could be employed by the publisher to write the series, as follows: I [Pendleton] would . descend with all the fury of an outraged plagiarism victim if any attempt was made to steal Mack Bolán and/or any of his attendant creations. It is important that you [Zentner] understand that implicitly. Zentner apparently understood, as he observed in the memorandum he sent to his staff upon receipt of Pendleton’s letter: He [Pendleton] made it unmistakable to me that he thinks he “owns” the series. Somehow, he believes that he even originated — if not the idea itself — just about everything else. Although common sense and common law occasionally lead to different results when applied to a particular set of facts, this is not such a case. Here the fact warranted— that the sellers had not been notified of any claims which could give rise to litigation— was untrue. Zentner was an experienced publisher by 1972, and Weidenbaum was an attorney. Both knew, or should have known, that a claim by an author of the exclusive right to his writing is cognizable under the law in this country and has been so from the time of the Constitution. See U.S. Const, art. I, § 8, cl. 8. Additionally, Ettinger testified that litigation was discussed at the February staff meeting and that that is why Weidenbaum was asked to attend. Plaintiffs’ alleged subjective belief that Pendleton’s claim was without basis in fact, is irrelevant to defendant’s contract claim. As the New York Court of Appeals long ago observed: After the warranty . . . had been established by proper evidence, it was immaterial and improper, to consider what . . . [was] said to the defendant, leading him to suppose his warranty true and justifiable. It was no answer to the proposition of the plaintiff, that the defendant made his warranty, under misinformation, and in good faith . Brisbane v. Parsons, 33 N.Y. 332 (1865) (per curiam). Accord, Lee v. State Bank & Trust Co., 54 F.2d 518, 521 (2d Cir. 1931) (“the law of contracts does not judge a promisor’s obligation by what is in his mind”), cert. denied, 285 U.S. 547, 52 S.Ct. 395, 76 L.Ed. 938 (1932); see Chaffee v. Cattaraugus County Mutual Insurance Co., 18 N.Y. 376, 383 (1858). Plaintiffs’ second defense to their liability for breach of warranty — that defendant did not rely on the warranty — is somewhat more interesting, although likewise unavailing. As observed in a recent decision in the Ninth Circuit: The problems of a reliance, and a right to rely, on the representations do not appear when the action is grounded in warranty. The warranty is as much a part of the contract as any other part, and the right to damages on the breach depends on nothing more than the breach of warranty. Glacier General Assurance Co. v. Casualty Indemnity Exchange, 435 F.Supp. 855, 860 (D.Mont.1977). The authors of the comments to the Uniform Commercial Code are in accord: In actual practice affirmations of fact made by the seller about the goods during a bargain are regarded as part of the description of those goods; hence no particular reliance on such statements need be shown in order to weave them into the fabric of the agreement. N.Y.U.C.C. § 2-313, Official Comment 3, at 240 (McKinney 1964). Nevertheless, the decisional law of New York appears, at first blush, to the contrary. A turn-of-the-century case states flatly: It is elementary that, in order to entitle the plaintiff to maintain an action for breach of an express warranty, it must be established that the warranty was relied on. Crocker Wheeler Electric Co. v. Johns-Pratt Co., 29 A.D. 300, 302, 51 N.Y.S. 793, 794 (1st Dep’t 1898), aff’d, 164 N.Y. 593, 58 N.E. 1086 (1900). Accordingly, plaintiffs urge that under the law of New York, “reliance” is an element of breach of warranty. Further, it is said that this “reliance” is the equivalent of “reliance” in the tort of misrepresentation, which has been described by Dean Prosser as follows: In order to be influenced by the representation, the plaintiff must of course have relied upon it, and believed it to be true. If it appears that he knew the facts, or believed the statement to be false, or that he was in fact so skeptical as to its truth that he reposed no confidence in it, it cannot be regarded as a substantial cause of his conduct. If, after hearing the defendant’s words, he makes an investigation of his own, and acts upon the basis of information so obtained, he may be found not to have relied on the defendant, since the fact that he was unwilling to accept the statement without verification is evidence that he did not believe it. W. Prosser, Handbook on the Law of Torts, § 108, at 714-15 (4th ed. 1971) (footnotes omitted). Transplanting tort principles into contract law seems analytically unsound. If a party to a contract purchases a promise, he should not be denied damages for breach on the grounds that it was unwise or unreasonable for him to do so. Indeed, Judge Hand admonishes: “To argue that the promisee is responsible for failing independently to confirm [the warranty], is utterly to misconceive its office.” Metropolitan Coal Co. v. Howard, 155 F.2d 780, 784 (2d Cir. 1946). Thus, a claim for relief in breach of warranty is complete upon proof of the warranty as part of a contract and proof of its breach. It is true that courts, especially in New York, use the word “reliance” in warranty eases. In these contexts, however, the word relates to the first element of proof, existence of the contract, because there can be no contract, no express warranty, without a “meeting of the minds.” The question of whether the promisee “relied” on the warranty, then, is whether he believed he was purchasing the promise. As to the promisor’s mental state in contract formation, it is judged “by the objective test of what his promise would be understood to mean by a reasonable man in the situation of the promisee,” Lee v. State Bank & Trust Co., 54 F.2d 518, 521 (2d Cir. 1931), cert. denied, 285 U.S. 547, 52 S.Ct. 395, 76 L.Ed. 938 (1932), as opposed to a subjective test of guilty knowledge or scienter, as in the intentional tort of fraud. Where the warranty is proved — and especially where it is expressly stated in a signed writing — the promisor should be allowed to disclaim “the bargain of the parties in fact as found in their language,” N.Y.U.C.C. § 1-201(3) (McKinney 1964), only in an extraordinary case, such as one involving illegality or some other overriding consideration of public policy. Several New York decisions on breach of warranty appear to blur the tort/contract distinction. This may be a result “consonant with historical attitudes towards breaches of warranty, which until 1778 had to be sued in tort,” Strika v. Netherlands Ministry of Traffic, 185 F.2d 555, 558 (2d Cir. 1950), cert. denied, 341 U.S. 904, 71 S.Ct. 614, 95 L.Ed. 1343 (1951), or that in many cases, indeed, in this case, the breach of warranty is also a fraud. More importantly, both of the decisions cited by plaintiffs, Friedman v. Medtronic, Inc., 42 A.D.2d 185, 345 N.Y.S.2d 637 (2d Dep’t 1973), and Lewitus v. Brown & Seccomb, 228 A.D. 146, 239 N.Y.S. 261 (1st Dep’t 1930), involved sales of goods: transactions that are governed by statutes. In this regard, Section 93 of the New York Personal Property Law defined an “express warranty,” as follows: Any affirmation of fact or any promise by the seller relating to the goods is an express warranty if the natural tendency of such affirmation or promise is to induce the buyer to purchase the goods, and if the buyer purchases the goods relying thereon. 1911 N.Y.Laws, ch. 571, § 1, at 1304 (emphasis added) (repealed 1964); see N.Y.U. C.C. §§ 2-313, 10-102, 10-105 (McKinney 1964). In any event, the New York decisions that speak in terms of “reliance,” in connection with alleged breaches of warranty, use the word to describe situations where no warranty was made, see Ellen v. Heacock, 247 A.D. 476, 286 N.Y.S. 740 (4th Dep’t 1936); Lewitus; supra; where the warranty was not communicated to the plaintiff, see Friedman, supra; or, where the warranty was not breached, see Rowe v. Van Denburg, 270 A.D. 1054, 63 N.Y.S.2d 604 (3d Dep’t 1946) (Foster & Heffernan, JJ., dissenting), aff’d, 296 N.Y. 803, 71 N.E.2d 773 (1947). To the extent that the principles of the New York sales decisions may be deemed applicable in a common law contract action on an express warranty, the buyer need establish only that the warranty was “part of the basis of the bargain.” See N.Y.U.C.C. § 2-313 (McKinney 1964). In the instant case, the entire $4 million transaction was governed by the six-page letter agreement of May 29, 1972. Plaintiffs reviewed this document, line by line, and several amendments were made at their request. The disputed warranty provision is contained in paragraph 9 of the agreement and other portions of this paragraph were amended by plaintiffs to extend the time for collection of accounts receivable. The document was executed by all plaintiffs or their authorized agents. Accordingly, Michigan General has established to the Court’s satisfaction that the warranty that plaintiffs had “not been notified of any claims which could give rise to litigation,” was part of the basis of the bargain between the parties, and, as discussed earlier, that it was breached. Defendant’s Counterclaim: Fraud Defendant Michigan General contends that the warranty in the agreement of May 29, 1972, and the statements made by Zentner and Weidenbaum in their letters of December 1972, were false when made, known by plaintiffs to be false, and made with the intent that defendant rely on them in purchasing Carlyle’s assets, including the Executioner series. Michigan General claims to have relied on these representations to its injury. Plaintiffs counter that they did not act with the requisite scienter, and, in any event, defendant was not deceived. Whether denominated as fraud, misrepresentation or deceit, “ft]he essential constituents of the action are tersely and adequately stated as representation, falsity, scienter, deception and injury.” Ochs v. Woods, 221 N.Y. 335, 338, 117 N.E. 305, 306 (1917) (emphasis in original omitted); accord, Channel Master Corp. v. Aluminum Limited Sales, Inc., 4 N.Y.2d 403, 407, 176 N.Y.S.2d 259, 262, 151 N.E.2d 833 (1958). Although other authorities have formulated the elements somewhat differently, the definitions are generally subsumed in one another. For example, Dean Prosser defined the elements of deceit as follows: 1. A false representation made by the defendant. In the ordinary case, this representation must be one of fact. 2. Knowledge or belief on the part of the defendant that the representation is false — or, what is regarded as equivalent, that he has not a sufficient basis of information to make it. This element often is given the technical name “scienter.” 3. An intention to induce the plaintiff to act or to refrain from action in reliance upon the misrepresentation. 4. Justifiable reliance upon the representation on the part of the plaintiff, in taking action or refraining from it. 5. Damage to the plaintiff, resulting from such reliance. W. Prosser, Handbook of the Law of Torts § 105, at 685-86 (4th ed. 1971) (footnotes omitted). The Restatement section, entitled “Liability for Fraudulent Misrepresentations,” states: One who fraudulently makes a misrepresentation of fact, opinion, intention or law for the purpose of inducing another to act or refrain from action in reliance thereon in a business transaction is liable to the other for the harm caused to him by his justifiable reliance upon the misrepresentation. Restatement of Torts § 525 (1938). In analyzing the instant case, the Court considers the warranty in the agreement of May 29, 1972, and the letters of December 1972 separately. The warranty — that plaintiffs had not been notified of any claims which could give rise to litigation — has already been determined to have been a false representation of an existing fact. And, it was “material,” in the contract sense, as it was “part of the basis of the bargain.” Moreover, in view of Springer’s letters to the copyright lawyers and to Carlyle regarding the ownership of the Executioner series, the warranty was “material” in the tort sense. At the time of the acquisition, the nonexistence of Pendleton’s assertion of ownership was “a matter to which a reasonable man would attach importance in determining his choice of action in the transaction in question.” Restatement of Torts § 538(2)(a) (1938); see Robitzek v. Reliance Intercontinental Corp., 7 A.D.2d 407, 183 N.Y.S.2d 870 (1st Dep’t 1959), aff’d, 7 N.Y.2d 1041, 200 N.Y.S.2d 424, 167 N.E.2d 74 (1960). The element of scienter, under the law of New York, includes false representations known to be untrue, or made with a reckless indifference to error, with the intent to cause the other party to act in reliance upon them. E. g., Jo Ann Homes at Bellmore, Inc. v. Dworetz, 25 N.Y.2d 112, 119, 302 N.Y.S.2d 799, 803, 250 N.E.2d 214 (1969). The first matter of significance in determining whether scienter was established in the instant case is that the Court does not believe Zentner’s trial testimony, with regard to the alleged telephone conversation wherein Pendleton acknowledged the publisher’s ownership of the Executioner series. Despite Zentner’s detailed recital of the contents of that conversation, he testified in a 1973 deposition, taken in the Pendleton/Pinnacle litigation, that he never discussed the ownership of the Executioner series with Pendleton. Second, under the agreement of May 29, 1972, all of the warranties contained therein were to be true as of the closing date. By that time, Zentner and Weidenbaum were aware that Michigan General was concerned about the ownership of the Executioner series. Accordingly, the Court concludes that on January 12, 1973, the warranty was a false representation of a material existing fact, that was known by plaintiffs to be false, and was made with the intent to cause Michigan General to consummate the acquisition in reliance thereon. On the question of whether, and to what extent, Michigan General was deceived, defendant’s “mental state” is put in issue. Plaintiffs argue that Michigan General was not justified in its reliance on the warranty because defendant’s own investigation had disclosed that Pendleton had a claim of rights to further Executioner books. In a sense, plaintiffs fault defendant for relying on the warranty because the fact that they were lying was apparent. To be sure, Michigan General is no model of veracity. Springer boldly testified that the right to undisputed control of the Executioner series was a sine qua non of the transaction, yet defendant knew as early as November 1972 that it was not acquiring such rights but proceeded to consummate the acquisition anyway. The element of justifiable reliance in the law of misrepresentation has been described as follows: if the facts represented are not matters peculiarly within the party’s knowledge, and the other party has means available to him of knowing, by the exercise of ordinary intelligence, the truth, or the real quality of the subject of the representation, he must make use of those means, or he will not be heard to complain that he was induced to enter into the transaction by misrepresentations. Danaan Realty Corp. v. Harris, 5 N.Y.2d 317, 322, 184 N.Y.S.2d 599, 603, 157 N.E.2d 597 (1959) (quoting Schumaker v. Mather, 133 N.Y. 590, 596, 30 N.E. 755 (1892)). Accord, Marine Midland Bank v. Palm Beach Moorings, Inc., 61 A.D.2d 927, 403 N.Y.S.2d 15 (1st Dep’t), appeal denied, 44 N.Y.2d 644, 405 N.Y.S.2d 1028, 377 N.E.2d 488 (1978); Cudemo v. Al & Lou Construction Co., 54 A.D.2d 995, 387 N.Y.S.2d 929 (3d Dep’t 1976); Sylvester v. Bernstein, 283 A.D. 333, 127 N.Y.S.2d 746 (1st Dep’t), aff’d, 307 N.Y. 778, 121 N.E.2d 616 (1954); see 200 East End Ave. Corp. v. General Electric Co., 5 A.D.2d 415, 172 N.Y.S.2d 409 (1st Dep’t 1958), aff’d, 6 N.Y.2d 731, 185 N.Y.S.2d 816, 158 N.E.2d 508 (1959). Compare Restatement of Torts §§ 537, 538(3) (1938) with id. § 540. The rule remains from the era when “caveat emptor” expressed the ethics of bargaining: Courts have recognized that parties to a bargain deal at arm’s length and have made but little effort to care for those whose acumen and sagacity are inferior to those of their adversaries. In some particulars the recent tendency of the courts has been to relax the requirement of vigilance against deception but there is no tendency to require commercial or financial adversaries to lay all their cards on the table face upward when dealing with one another. Restatement of Torts, Scope Note to ch. 22, at 58 (1938). In the instant case, Michigan General had been informed, prior to the closing that Carlyle did not have any contract that specifica