Arcadian Phosphates, Inc. v. Arcadian Corporation,

884 F.2d 69 (2nd Cir. 1989)

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Nature of the Case

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Facts

In 1986, OTP became Arcadian Corporation's (AC) chief supplier of phosphate from Togo. Because a sharp drop in the price of fertilizer AC wanted to sell its fertilizer facility in Louisiana to Arcadian Phosphates, Inc., (API). AC and API signed a four-page memo of understanding outlining areas of agreement concerning the transaction include the purchase price, an option for AC to purchase up to 20% of API, deadlines for further action all of which were subject to AC's board and API's ability to obtain financing. Board approval was obtained, and a 1.5-page memo was signed in November 6, 1986, that incorporated the previous June's memo. API claims that this November 1986 memo was a binding contract for the sale of AC's fertilizer business. This memo specified the purchase price, the timing and amounts of payment, the fixed assets to be purchased and a closing date of not later than May 31, 1987. The memo also outlined a framework for the purchase of AC's finished product inventory at closing at a mutually agreeable market value, with phosphate stores to be purchased at closing at AC's book value. Other provisions were less definite such a reference to a 'note secured to AC's satisfaction and to additional equity participants 'subject to mutual agreement.' The memo stated that if negotiations were to fail, AC would repay any capital expenditures agreed to thereafter and made by API, and if negotiations failed through no fault of API, AC would refund API's deposit. The parties also agreed to cooperate fully and to work judiciously to expedite the closing of the transaction. The memo also called for a service and supply agreement to be negotiated and agreed upon by December 31, 1986, and a binding sales agreement to be completed by that date as well. AC's board approved the deal, and OTP also approved the deal. API tendered a cash deposit of $687,500, and AC executed an escrow agreement for deposit. AC's board minutes reflect the fact that they were executing a formal agreement with final details to be worked out on the service and marketing agreements. AC then agreed to reduce its option to buy 20% of API to 5% in order for API to get financing. API also allegedly incurred expenses of $100,000 installing fenders at the AC docking facility. API got a bank commitment for $7 million for its cash down payment of $13.75 purchase price and entered into a long-term rock supply contract with OTP. Suddenly the market for phosphates changed dramatically, and the market prices went up 25% in a very short period of time. AC's board then decided that it could not proceed with the transaction unless it had majority ownership of API. This suit was the result of that new demand. Summary judgment was given AC and API appealed.