Shann v. Dunk

84 F.3d 73 (2nd Cir. 1996)

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Nature of the Case

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Facts

An agreement was made on November 25, 1992, in a rough preliminary form, which contemplated memorialization. This agreement called for a down payment of $500,000 by Shann (P) with monthly payments to Dunk (D) for a grand total of $2,352,000 plus interest over five years and a payment of $360,000, plus interest to be made after five years to D’s daughter in exchange for her stock. The monthly payments were for consulting and for a non-compete agreement. D was the controlling shareholder of St. Lawrence Explosives Corp. In 1991, D was 65 and eager to retire. P began negotiations and agreed with D to an option sale. The terms involved a down payment of $1,712.000 plus additional payments of $1,500,000 over six years pursuant to a consult-noncompete clause. This option agreement failed to result in a sale because of the inability to secure financing. The lenders would not lend without P’s personal guarantee. D then told P’s representative that he might finance the deal for P. The terms were agreed upon, and both parties signed the agreement of November 25^th. Both sides conceded that they considered the November 25^th deal to be binding notwithstanding its expected replacement by a more elaborate formal contract. Soon after, D argued that for tax reasons the deal was unfair to D. Shortly after getting a memo regarding the formal contract, D met with his advisors and told P that the deal did not give him sufficient security. D wanted P’s personal guarantee for the deferred payments or some other form of security. D faxed this request and also sent a letter asserting that several aspects of the transaction as modified by P would be unacceptable. D wanted an increase of almost $1,000,000 at closing, interest of 15% and payment to the daughter spread over five years instead of being deferred for five and that P personally guarantee the obligations. D sent P closing documents along with a check for $450,000. D refused to sign, did not cash the check, and insisted on P’s personal guarantee. D filed suit in state court for breach and a declaration of rights and P sued in federal for breach and removed the case. They were both consolidated. D got the verdict from a 5-day bench trial; the agreement was unenforceable because it lacked certain essential terms regarding the consulting/noncompete clause. The court found that there were no terms of employment, salary and no defined scope of non-compete. P then moved under Rule 59(e) for the return of his $50,000 deposit with interest. The court denied that motion because P had failed to raise the issue prior to judgment.