Charbonnages De France v. Smith (597 F.2d 406, 1979)

PHILLIPS, Circuit Judge:

Plaintiff appeals from the grant of summary judgment in favor of three individual and two corporate defendants against whom it had brought a diversity action alleging breach of contract and tortious interference with contractual relationships. The district court concluded as a matter of law that on certain undisputed facts before it on the defendants’ motions for summary judgment no contract had come into existence between the alleged contracting parties so that there had been no breach and no tortious interference. Because summary judgment was not proper on the record before the district court, we reverse and remand for further proceedings.

I.

The salient facts, as drawn from the record upon which the district court granted summary judgment, may be summarized as follows.

During early 1974, the plaintiff Charbonnages de France (Charbonnages) was looking for sources of coal in the United States with which to supply its French customers. At that time the individual defendants Smith owned all the stock in the defendant Smith Brothers Construction Company (Smith Brothers), which in turn owned valuable coal leases in Mingo County, West Virginia. The individual Smiths also owned mining equipment that was leased to Smith Brothers. In an attempt to bring the Smith interests together with Charbonnages, a group of six individuals formed the Apex Mining Corporation (Apex) in June of 1974. Representatives of Apex put Charbonnages in contact with defendant Frank B. Smith (Smith) who in all of the ensuing negotiations between the various parties acted as fully authorized agent of the Smith interests. Acting on information supplied it about the Smith mine reserves and the characteristics of the coal available from the Smith Brothers mine and based upon its testing of a sample of the coal, Charbonnages became definitely interested and sent a mining engineer to West Virginia for an on-site inspection. Favorably impressed, Charbonnages then entered into discussions with Apex and Smith looking to the possibility of a long-term arrangement for its purchase of coal from this property. In all the ensuing negotiations, Charbonnages was represented by the New York law firm of Bernstein & McCarthy, with each of the named partners directly involved from time to time. Negotiations and discussions during April and May of 1974 led to a proposed three-way arrangement in which Charbonnages would make a loan of four million dollars to Apex, which Apex would use to purchase all of the outstanding stock of Smith Brothers plus the mining equipment owned by the Smiths individually. Smith would stay in the picture by continuing to operate the mine under a separate agreement with Apex, and in consideration for its loan Charbonnages would be guaranteed by Apex a supply of coal at a preferential price over a five-year period during which Apex would repay the four million dollar loan with its revenues from the coal sales.

By May 16, 1974 these negotiations had reached the point that Charbonnages, Apex and Smith signed a letter of intent, dated that day, which summarized the arrangement above described and indicated the intention of the parties promptly to draw up formal documents memorializing the arrangement. One paragraph of the letter of intent stated Frank Smith’s agreement not to negotiate with any outside group concerning the letter’s subject during the period of formalizing the projected agreement. Between May 16 and May 30, 1974 the details of the proposed agreement were extensively discussed and negotiated by Charbonnages’ attorney McCarthy, Apex’s attorney Katz, Smith’s attorney Johnson, and Smith’s accountant Stevens. On May 31, 1974 the terms and conditions now incorporated in draft documents were reviewed in a meeting attended by various members of the Apex group, their lawyer Katz and one of their accountants. Following this review, Charbonnages’ attorney McCarthy was contacted and told that the basic terms of the documents were acceptable from the Apex and Smith standpoints and that since only one or two final details needed to be worked out, McCarthy should take steps to arrange an early closing date with Charbonnages. McCarthy then went to Paris and between June 4 and June 7, 1974 reviewed the draft documents with Charbonnages. Following these discussions, Charbonnages took steps to make the proposed purchase price of four million dollars available for drawing down by Apex, and the draft documents were redrawn and dated June 16, 1974.

Then followed a meeting on June 17,1974 in Pikeville, Kentucky, between McCarthy representing Charbonnages, Stevens the Smith accountant, and a representative of the Apex group, to review the transaction as now outlined in the draft documents. At the end of this meeting the persons in attendance were in essential agreement on the terms and conditions outlined in the June 16 drafts except for a major question concerning reimbursement by Apex to Smith of approximately $350,000 of the latter’s tax liability for 1974. On June 18, 1974 Apex came up with a proposal to Smith for handling this problem and Smith came to New York on June 20, 1974 to discuss this. Following Smith’s approval of the proposed solution, Smith and representatives of the Apex group went on the afternoon of June 20, 1974 to the New York offices of Charbonnages’ attorneys and there reviewed with McCarthy the solution of the tax question and indicated that with this resolved the parties were in agreement on a proposal now embodied in documents totaling sixty-nine pages. It was then agreed that there should be a formal closing in Paris during early July, and McCarthy again flew to Paris to meet with representatives of Charbonnages. There, on June 21, 1974, he indicated to Charbonnages that agreement had been reached by the American parties on all points as memorialized in the documents prepared to reflect the negotiations through the meeting of June 20, 1974, whereupon a closing date was set for July 12, 1974 at Charbonnages’ office in Paris.

Prior to the scheduled closing date, Smith let it be known to Apex and to Charbonnages’ attorneys that he was not happy with various elements of the proposal and that he might not go through with the closing. Thereupon the July 12, 1974 closing was postponed. McCarthy having remained in France, Charbonnages instructed Bernstein, McCarthy’s law partner, to attempt to salvage the agreement, and if necessary, to renegotiate it. Bernstein then telephoned Smith on July 12, 1974 and suggested that they meet to discuss the matter. When Smith agreed, Bernstein went to West Virginia where on July 15, 1974, accompanied by a member of the Apex group, he met with Smith at the Smith Brothers mine site. At this meeting Smith specifically identified various elements in the proposed three-way agreement that were not satisfactory to him. Among these was his dislike for use of New York banks to handle the escrow arrangements. He stated a preference for using his local bank in Pikeville, Kentucky. It was also learned at this meeting that, unknown to Charbonnages and Apex, Smith had, during the course of negotiations, removed approximately one million dollars in operating capital from Smith Brothers, although he wanted the purchase price of four million dollars to remain unchanged in the further negotiations. Smith then indicated that he would be willing to make a direct deal with Charbonnages if an arrangement could be made for Apex to step aside and the subsidiary agreements involved in the three-way arrangement eliminated or simplified. Acting on instructions from Charbonnages, Bernstein then indicated that Charbonnages would be willing to renegotiate the agreement and pay the purchase price of four million dollars directly to the Smith interests if that price could be justified in view of the diminution in working capital. To meet this problem Smith indicated in ensuing discussions that he would add to the equipment originally included in the three-way arrangement some additional equipment that he had personally purchased, and he represented that this would permit the opening of a second mine at considerably less cost than contemplated under the proposed arrangement in which Apex was involved. On this basis, discussion then turned to a price of four million dollars for all the shares of Smith Brothers plus the equipment so supplemented, with one million dollars to be placed in escrow with the Citizens Bank of Pikeville to assure compliance with the warranties under the agreement. A member of the Apex group present during these discussions indicated that the Apex group would work out its own arrangement with Charbonnages and go along with the renegotiated straight purchase and sale agreement. At this point Smith and Bernstein shook hands on the new proposal and Smith asked Bernstein to meet him the next day and to draw up the formal papers with Smith’s attorney, Johnson, and his accountant, Stevens.

The following day, July 16, 1974, Bernstein met with Stevens and Smith in Pike-ville, Kentucky and Smith brought in Ridenaur, of Smith’s bank, to discuss the escrow arrangement. After an escrow agreement had been prepared from the earlier Apex agreement text, Ridenaur called in Smith’s attorney, Johnson, who was also attorney for the bank. Johnson reviewed the escrow agreement for the bank and found it acceptable. At this time Bernstein showed Ridenaur and Smith a letter from a New York bank certifying that Charbonnages had the sum of four million dollars available for immediate use in the transaction. Bernstein and Johnson then met in Johnson’s office on July 16 to write up a purchase and sale agreement reflecting the proposal settled upon by Smith and Bernstein the previous day. Smith was also present for part of the meeting on July 16 but had to leave because of illness in his family. Bernstein and Johnson remained at work on July 16 and July 17,1974 preparing a proposed new agreement for use in the direct sale from the Smith interests to Charbonnages.

Because the last meeting of Charbonnages’ Executive Committee during the summer was to take place on Friday, July 19, 1974, and Bernstein did not have power to accept the new proposal on behalf of Charbonnages, it became necessary to act on something less than the full draft proposal on which work was proceeding. Accordingly, on July 17, 1974, Bernstein prepared the text of a cable to be sent to Charbonnages setting out the essential terms of the new proposal for a direct sale from the Smith interests to Charbonnages that had been worked out between Smith and Bernstein on July 15, 1974. Bernstein discussed the draft with Johnson who was in agreement with it except for a reference in it to the Apex group. Because of the time constraints, Bernstein and a representative from the Apex group hand carried the proposed cable to Smith on July 18, 1974 at the site of a home Smith was building in Williamson, West Virginia. There Smith and his accountant, Stevens, reviewed the text of the cable. Smith insisted on several modifications to the text. He deleted a reference to Apex. In a provision dealing with sales of coal prior to formal closing he changed “at market price” to “at a price to be agreed.” Finally, he insisted that there should be a cut-off date for Charbonnages to respond to the proposal and by agreement a date of July 25, 1974 was inserted in the text of the cable. Smith then signed Bernstein’s original draft of the cable as modified at his direction and retained a carbon copy. Bernstein stated that he would send the cable as revised to Charbonnages for the meeting of its Executive Committee the next day and added that he thought Charbonnages would appreciate receiving a cable directly from Smith because there had been no previous exchange between the principals. Smith stated his intention to have his attorney examine the cable message and then to send it directly to Charbonnages. The text of the proposed cablegram, as revised at Smith’s direction read as follows, with the matter deleted from Bernstein’s original draft marked through and the added matter underscored:

We confirm method has been arrived at for dealing with Apex group-and that we shall sell you Smith Brothers Construction Company with its mining leases representing approximately three million tons, equipment and assets representing approximately one million three hundred thousand dollar cost plus operating capital for four million dollars of which one million will be held in escrow by the Citizens Bank of Pikeville. Until formal closing you would have right to purchase from us at market all coal mined, at price to be agreed—

Please answer by July 25—

Frank Smith (signed) Frank B. Smith

Smith never sent a cable, but Bernstein flew back to New York and on the evening of July 18, 1974 cabled the revised text with the added words that it was “the text of the telegram that Mr. Frank Smith is to send to you and of which we have in our possession a signed copy.” The following day, July 19, 1974, Bernstein spoke by telephone to Charbonnages’ financial director in France, who advised that Smith’s proposal had been accepted by Charbonnages’ Executive Committee. On the following Monday, July 22, 1974 Bernstein called Smith and told him that his proposal had been favorably acted upon, following this up on July 24, 1974 with a confirming mailgram of which a copy was sent to Smith’s attorney, Johnson. The mailgram in its substantive parts read as follows:

This is to confirm my telephone call of July 22 informing you that your proposal of July 18 to Charbonnages de France had been acted on favorably and that I had been authorized to proceed with the preparation of