# In Re Flying W Airways, Inc.

> District Court, E.D. Pennsylvania · February 3, 1972 · 341 F. Supp. 26

URL: https://www.frixlaw.com/law-library/cases/1456930

## Case

- **Full name:** In the Matter of FLYING W AIRWAYS, INC. and Its Wholly Owned Subsidiary, Red Dodge Aviation, Inc., Debtors in Proceedings for Reorganization Under Chapter X of the Bankruptcy Act
- **Court:** District Court, E.D. Pennsylvania
- **Decided:** February 3, 1972
- **Citations:** 341 F. Supp. 26; 11 U.C.C. Rep. Serv. (West) 982; 1972 U.S. Dist. LEXIS 15259
- **Precedential status:** Published
- **Opinion:** Opinion by Becker
- **Judges:** Edward R. Becker
- **Cited by:** 27 later opinions in the Frix Law Library

## Citator (automated)

- No negative treatment found by the automated citator. That is not the same as a confirmation that the case is good law; read the citing cases.
- Full citator and citing cases: https://www.frixlaw.com/law-library/cases/1456930

## How later opinions describe it (automated extraction)

- applying Delaware law and holding that "the partial performance exception is not available to the 'not to be performed within one year' portion of the statute” in considering an aircraft refinancing agreement

## Opinion text

OPINION AND ORDER
EDWARD R. BECKER, District Judge.
I. PRELIMINARY STATEMENT
This is a Chapter X bankruptcy reorganization matter. It presents a myriad of complex issues, with each of which we shall deal in this lengthy opinion. The case is capped, however, by an ultimate question: is there a reasonable prospect of success of the reorganization proceedings? If there is such prospect, then the Court should act in two directions :
First,
it should adhere to a turnover order entered by this Court on September 25, 1970 requiring the Girard Trust Bank and the Farmers Bank of the State of Delaware (“Banks”), secured creditors of reorganization debt- or Flying W Airways, Inc. (“Flying W”), to turn over to Robert C. Duffy and Eugene M. Bernstein, trustees of Flying W, two Lockheed L-100-20 Hercules aircraft, denominated N30FW and N40FW.
1
These aircraft, which are owned by Flying W and are presently being operated by its wholly owned subsidiary, Red Dodge Aviation (“Red Dodge”), the other reorganization debtor, are the vehicles by which the debtor’s principal business — the carriage of cargo from Anchorage and Fairbanks to the oil rich North Slope of Alaska (“Slope”) — is carried out; moreover, these aircraft are the security for a large loan from the Banks to Flying W.
Second,
the court should grant the trustees’ petition to extend the time within wihch to file a plan of reorganization from December 13, 1971 (by which date the trustees were heretofore ordered to file but were unable to file a plan) to some suitable date in the future.
On the other hand, if a reasonable prospect of success of the reorganization proceeding does not exist, then the court should order the trustees to return the aircraft to the Banks, and should refuse to extend the time for filing a plan of reorganization. Such actions would abort the chapter X proceedings and lead to the liquidation of the debtors.
The issues which we here adjudicate arise in large measure out of a mandate given to us by the United States Court of Appeals for the Third Circuit in an Opinion filed May 11, 1971 In The Matter of Flying W Airways, Inc., Debtor, 3rd Cir., 442 F.2d 320 . In its opinion, the Court of Appeals remanded the case to us:
“ * * * so that the district court may conduct promptly a plenary hearing to consider fully whether adherence to and enforcement of its ex parte turnover order would facilitate a successful corporate reorganization, while minimizing the likelihood of loss to the secured creditor. Among the factors that the district court should consider are the probability of success of the
*32
reorganization, whether the debtor has any equity in the airplanes and the relationship of the trustees’ possession of the airplanes to the trustees’ reorganization efforts. Should the district court decide to adhere to its turnover order, it should consider the appropriate use of income and profits from the operations of the airplanes, with a view toward fashioning an order designed to minimize the possibility of loss to the secured creditor. Any district court order permitting the trustees to retain possession of the airplanes should also require the trustees to obtain adequate insurance coverage for the airplanes.” (footnote omitted) 442 F.2d at 323-324.
We have conducted the plenary hearing as we were bade by the Court of Appeals. Out of it developed some 4,400 pages of testimony, replete with financial data, and hundreds upon hundreds of documentary exhibits, many of which are voluminous in character. The major portion of this record was developed on the issues remanded for our consideration by the Court of Appeals. However, two other significant matters were included within the parameters of the plenary hearing:
First:
the debtor, Flying W, has raised the question of whether it was in fact in default on its obligation to the Banks with respect to installment payments on the aircraft loan when the chapter X petition was filed. Flying W, with the support of the trustees,
2
claims that it was not in default: (1) because of the existence of a tripartite agreement (the “refinancing agreement”) among itself, the Banks, and PSL Air Lease Corp. (“PSL”), a subsidiary of Pepsico, Inc., which relieved Flying W of its obligation to the Banks through the vehicle of the sale of the aircraft to PSL which would in turn lease them to Flying W, and the refinancing of the aircraft by means of a loan from the Banks to PSL which would pay off the Flying W loan; and (2) because the Banks and PSL breached the alleged agreement. Alternatively, Flying W asserts that the Banks and PSL are estopped from denying the agreement’s existence or asserting default on the loan, because of their own inequitable conduct. The Banks and PSL, conceding that negotiations took place looking towards a refinancing agreement, deny that any such agreement was ever reached; they further deny that they were guilty of any inequitable conduct. However, if Flying W is correct in either of the just recited contentions, then Flying W was not
in
default of its obligations to the Banks at the time of the filing of the reorganization petition, may not be in default even now (the Banks and PSL might also be liable in damages to Flying W), and if there is no default, there can be no turnover of the aircraft. Therefore, the question raised by these contentions is a threshold question which we were not only forced to consider during the plenary hearing, but must deal with in this Opinion
before
reaching the question of prospects of success.
Second,
trustees raised the question of whether or not they are entitled to the granting of their petition for a turnover order against the Provident Bank of New Jersey and the First National Bank of Beverly, New Jersey (“New Jersey Banks”), which hold some $50,000 in funds claimed by PSL to be security for Flying W’s obligations to PSL under a certain lease agreement for a third Hercules Lockheed aircraft denominated N50FW, which is owned by PSL and was leased to Flying W and used by it in Alaska. This matter was considered because the issues involved in its determination were essentially covered during the plenary hearing, and because the in
*33
fusion of $500,000 in working capital, if the New Jersey Banks were ordered to turn over the funds, might be relevant to prospects of success.
The plenary hearing was conducted in two stages: the first- from June 21 to July 2, 1971 and August 25 to 27, 1971 dealing principally with prospects of success, and the second from September 21 to 27, 1971 dealing principally with the alleged refinancing agreement. We have also conducted an extended hearing on the trustees’ application to extend the time for filing a reorganization plan. The evidence adduced at that hearing dealt principally with prospects of success. We consider that evidence on the question of turnover of the aircraft and also consider the evidence developed on the question of prospects of success at the plenary hearing in deciding the trustees’ application to extend time.
The case has been a fascinating one. In a way, more than a case, it is a saga, in which a once viable business enterprise, seemingly on the threshold of a bonanza, has become a victim of an historic collision, occurring on the Arctic’s trackless waste, between man’s quenchless thirst for the oil which he needs to power his combustion engines, and the dawning age of ecology. The bonanza was the lucrative cargo carriage business, then in its nascent stage, which had been generated by the commencement of oil drilling operations on the Slope, and which was expected to be brought to fruition by the “imminent” issuance of the permit for construction of the forty-eight inch trans Alaska pipeline which would transport the oil from the Slope across the Brooks Mountain Range and on to Valdez on the south coast of Alaska with its ice-free port and railhead. The age of ecology, on the other hand, dawned in the late 1960’s and has now spread across the land, focusing nationwide attention upon the Slope’s treeless tundra, the permafrost beneath, and the massive herds of caribou which migrate each year through the masses in the Brooks Range to bear their calves upon the Slope. The ecologists’ aim is to preserve nature’s delicate balance from the threat of destruction by the pipeline construction and oil production activities.
The ingredients in this historic collision are not the determinative factors in this lawsuit. They do, however, provide the backdrop and the perspective which one must at least understand before deciding the issues involved, hence this brief prologue.
The Brooks Mountain Range runs some 600 miles east to west across northern Alaska. It has been called America’s last wilderness. North of the Brooks Range, the land slopes in a wide, gentle plain to the shores of the Arctic Ocean. This vast flatland, stretching from the Bering Sea to the Canadian border, is known as the North Slope. The surface of the Slope is know as the tundra, a thin vegetation mat composed of the fragile interrelationship of mosses, lichens and grass. Below the tundra is the permafrost — permanently frozen earth, which prevents deep-rooted plant life from growing. Any scraping of the tundra insulation can lead directly to spring and summer melting of the permafrost, which in turn causes erosion. Erosion results in a slowing of the growing cycle, and, arctic plant life, once disturbed, can take a long period of time to revegetate in the affected area. The ecologists fear scraping of the tundra by the construction equipment which will be involved in the construction of the pipeline; they also fear that the heat generated by the oil removed hot (150° F.) from the ground will escape from the drilling rig or the pipeline and melt the permafrost through which much of the pipeline must be built, causing subsidence and caveins.
In the summer, when the tundra thaws, much of the Slope is a swampland which even breeds mosquitos; the temperature averages forty degrees above zero, and often reaches seventy degrees. In the winter, however, the Slope is a land of harsh and frozen desolation, its climate inhospitable to man. The sun is up for but two hours per day, and the biting winds of the polar icecap send tempera
*34
tures plummeting to 55 and 60 degrees, and often even 70 degrees below zero, where they remain for many months.
The Slope is the home of an abundance of wildlife. It is estimated that some 400,000 caribou migrate yearly to the Slope. There they join countless bear, moose, dall sheep, fox, hare, squirrel, lemming, and wolf, as well as geese, duck and numerous other species of water fowl. Moreover, the Slope is traversed by some 350 rivers which spawn a variety of fish. The ecologist fear that the pipeline will obstruct the migration of the caribou, that oil spills will pollute the rivers and destroy the fish, and that any upsetting of nature’s balance will make the Slope as inhospitable to wildlife as it is to man.
It had been suspected for many years that oil deposits might lie under the Slope. Shortly after the turn of the century, the United States Geologic Survey made a report on geologic conditions in the area, with a view to the location of oil. The first intensive exploration for oil and gas on the Slope came after the Second World War and was conducted by the United States government, concerned over the security of the nation’s oil supplies. In 1958, oil exploration by private oil companies commenced. After many failures, in July of 1968 Arco and Humble reported a major strike near Prudhoe Bay. In the months that followed, other oil companies made similar discoveries in the Prudhoe Bay Field. It was soon estimated that the eons of geologic development had resulted in the trapping of some ten billion barrels of recoverable oil in the Prudhoe Bay Field. Other oil fields were soon discovered on the Slope and the estimates ran to a total of 30 billion barrels of recoverable oil and many billion cubic feet of recoverable gas. The oil discovery appeared to be the most important in the history of North America.
Understandably, the strike had enormous impact upon the State of Alaska, creating an atmosphere reminiscent perhaps of the days when gold was discovered there at the turn of the century. On September 10, 1969, the State of Alaska auctioned off oil leases on the Slope. Various major oil companies participated in the bidding and shortly thereafter commenced oil drilling operations on the tracts for which they had successfully bid. The drilling operations, however, required logistical support: construction materials to build the network of facilities necessary to conduct the drilling operations and to accommodate the men who were to work on the Slope; drill casing for the rigs which have to bore many thousands of feet to reach the oil; and fuel for power and heat, without which the drilling operations cannot be carried on nor life sustained. Similar logistical support was expected to be required for the men constructing the pipeline should the pipeline permit be issued.
Because of the climatic conditions on the Slope, there is only one feasible way to consistently supply this logistical support: by air. Red Dodge Aviation possesses a contract carrier certificate issued by the Alaska Transportation Commission to transport cargo from Anchorage and Fairbanks to the Slope. Red Dodge carries cargo under contract with various oil and construction companies, utilizing the two Lockheed Hercules aircraft, NS0FW and N40FW which are the subject matter of the turnover petition before us. Shortly after the oil strike, negotiations were concluded for the sale of Red Dodge Aviation stock by its then owner, Earl “Red” Dodge, to Flying W, theretofore a New Jersey based executive jet and charter flight operator with extensive real estate holdings, including an airfield on which was located the so-called “Flying W Ranch”. Flying W was and is a publicly held corporation whose stock is traded over the counter; presently there are some 1700 shareholders located all over the United States.
As the facts which we find from the plenary hearing will show (see
infra),
following the acquisition of Red Dodge, Flying W embarked on a major financial commitment in Alaskan cargo aviation. Infected, at it were, by the exuberant
*35
Klondike-like spirit which gripped Alaska in the fall of 1969 when the oil lease sale was held in Anchorage, and anticipating the early issuance of the permit to the Alyeska
3
Pipeline Company, a consortium formed by the oil companies for the construction of the trans Alaska pipeline, Flying W staked its corporate future in the Frontier State. Five of Flying W’s major shareholders, Edwin, Brooke and Robert Matlack, and James and William Whitesell, through the instrument of personal guarantees of corporate obligations, staked their personal fortunes there as well.
4
Perhaps the most graphic illustration of the exuberant spirit, in view of the difficulties visited upon Flying W by its involvement with three Lockheed Hercules aircraft, is the fact that, during the winter of 1969, Flying W placed orders for two
additional
Hercules aircraft with delivery scheduled for the spring of 1970!
The events occurring since the fall and winter of 1969 are the sinews of this lawsuit. Suffice it to say, for purposes of this prologue, that the question of the trans Alaska pipeline has become a national cause celebre and that, because of the objections raised by the ecologists, both in the form of public discourse and of litigation, the pipeline permit has not been issued by the Interior Department, and no one knows when it will be; nor, for that matter, can anyone be certain of the ultimate pipeline route.
5
As the result of the delay, the level of activity on the Slope has fallen off from the original flurry, and with it has fallen off the business of Red Dodge Aviation. These events have led Red Dodge and its parent, Flying W, into bankruptcy reorganization court.
This has been a vexatious litigation, but, after all, the stakes are high. The shareholders of Flying W have their entire investment on the line and several of them have their personal fortunes at stake because of their guarantees of corporate obligations. The Banks, which seek recovery of the aircraft which are their security for a loan balance of well over $7 million on which no principal or interest has been paid for over two years, are properly concerned about impairment of their security by continued flying operations; they contend that they are being deprived of fundamental rights by continuation of reorganization proceedings which they believe to have no reasonable prospect of success. PSL, owner of the N50FW, which Red Dodge formerly used in Alaska, and of three spare aircraft engines, which Red Dodge is presently using, has huge claims as well as the engines at stake. And, needless to say, the general creditors whose claims total some $3,258,073 must be concerned about the outcome, for the general creditors will probably be “wiped out” along with the shareholders if the reorganization aborts. However, it is regrettably impossible to reconcile and accommodate in this adjudication the interests of all of the contending parties.
Many of the facts set forth in this prologue are not of record. Most of those which are not of record are matters of a judicial or of common knowledge.
6
In any event, the facts just recited are only at the threshold. We have related them because they are necessary to an understanding of those findings of fact which we now make and the conclusions of law which we draw therefrom.
*36
Because of the protracted and complex nature of the case, the high stakes involved, and the high probability of an appeal, we have set forth extremely extensive findings. We feel that the parties and the reviewing court are entitled to no less. This Opinion will constitute our findings of fact and conclusions of law under Fed.R.Civ.P. 52(a).
II. PROCEDURAL HISTORY OF THE CASE
According to the docket of the clerk of the court, there have been over 230 papers docketed in the case to date. Full understanding of the case requires that we set forth a procedural history by describing the more significant aspects of the proceedings.
A.
The Flying W Petition, and Order Number One
On September 24, 1970, at 9:25 a. m., Flying W filed with this Court a petition for reorganization under chapter X of the bankruptcy act. On the same day, Judge Kraft entered an order appointing the trustees, which,
inter alia,
provided:
“4. That Robert C. Duffy, Esq., and Eugene M. Bernstein ... be and are hereby appointed trustees of the estate of the said Debtor and that the said trustees upon filing a bond as hereinafter provided shall be vested with all of the right, title and interest of the Debtor, as of the date of the filing of the said Petition for Reorganization, in all of its property
if
.
• • • t
“5. That the said trustees shall qualify by entering into bond to the United States in the sum of $100,000 with such sureties as shall be approved by the Court . .
“11. That the said trustees shall be vested with full power and authority, and he is hereby instructed and directed to take all the properties, assets and business of the Debtor, real and personal, wherever situated and of whatever nature, into his exclusive possession and control,
and the Girard Trust Bank, Farmers Bank of the State of Delaware,
PSL Air Lease Corporation, or any other person, their officers, directors, agents, employees, attorneys, nominees, successors, assigns, or other representatives, be and they
are hereby jointly and severally, ordered and directed to surrender and turn over to the possession and control of the trustee any of the above properties, assets and business of the Debt- or, real, personal or mixed, now in its or their possession and control,
and the said Girard Trust Bank, Farmers Bank of the State of Delaware, PSL Air Lease Corporation, or any other person, and each and every of its or their said officers, directors, agents, employees, attorneys, nominees, successors, assigns, and other representatives, be and they [sic] hereby jointly and severally restrained, enjoined and stayed from, in any manner whatsoever, interfering with or disturbing the trustee’s right to exclusive possession and control of said properties, assets and business, real, personal or mixed.” (emphasis added).
The trustees’ bond was approved by the Court and filed on September 25, 1970. On November 4, 1970, the Banks filed an answer to the petition for reorganization, averring that there was no reasonable prospect of success and that the petition was not filed in good faith. The answer also asked dismissal of the reorganization petition.
B.
Turnover Proceedings in re NS0FW and N40FW
Shortly after the entry of order number one, and despite notice of its provisions (see
infra),
the Banks caused the N30FW and N40FW to be flown from Alaska to Wilmington, Delaware. On September 25, 1970, the trustees petitioned the Court that the Banks be ordered to return the aircraft to the trustees in Alaska. Judge Kraft conducted a brief hearing on the matter. During the course of the hearing, the Banks moved to vacate the turnover portion of order number one and requested a pie-
*37
nary hearing on the motion to vacate. Judge Kraft refused to conduct a plenary hearing, denied the motion to vacate, and entered an order requiring the Banks to return the aircraft to Alaska at their sole cost and expense. The Banks appealed Judge Kraft’s order, and on May 4, 1971 the Court of Appeals filed its opinion and judgment ordering the plenary hearing. In their November 4, 1970 answer, the Banks also requested reclamation of the N30FW and N40FW. This prayer raised essentially the same issues as were heard in the plenary hearing.
C.
The Red Dodge Aviation Petition and Consolidation of Proceedings
On September 29, 1970, Red Dodge Aviation, Inc. filed with this Court a petition for reorganization under chapter X of the Bankruptcy Act. On the same day, the Court approved the petition, appointing as trustees Messrs. Bernstein and Duffy, the trustees of Flying W, and fixing bond at $25,000. The bond of the trustees was filed on October 7, 1970. On December 29, 1970, the Court ordered the reorganization proceedings of Red Dodge consolidated with those of Flying W under the above caption.
D.
Order of Reference to Referee as Special Master
On October 2, 1970, Judge Kraft ordered that all matters in the proceedings were to be referred to Referee in Bankruptcy Emil F. Goldhaber, as special master. On January 15, 1971, the undersigned referred certain petitions to Referee Goldhaber to hear and report and reaffirmed Judge Kraft’s general Order of Reference. However, since the advent of the Court of Appeals mandate, most of the matters of substance in connection with the proceeding have been recalled by the Court from the Referee.
E.
Petition for Turnover Order in re New Jersey Banks
The trustees’ petition for turnover of the $500,000 held as a deposit to secure Flying W’s obligations to PSL with respect to the N50FW lease was first referred to Referee Emil F. Goldhaber as special master to hear and report. Referee Goldhaber made a partial record, but, because of the overlapping of issues with the plenary hearing, the matter was recalled by the Court during the course of the plenary hearing and will be adjudicated in this opinion.
F.
PSL’s Petition for Reclamation of Engines
On December 11, 1970, PSL filed a petition for reclamation of: (1) three spare Allison engines usable interchangeably on the N30FW and N40FW; and (2) certain Hercules loading equipment. This matter is pending before Referee Goldhaber. The matter is significant because one of the original N40FW engines is now on the N50FW which is in storage at Lockheed, Georgia, and therefore the reclamation of all of the spares which are in actual use in Alaska might abort the reorganization proceedings regardless of any other aspect of the case, because of the insufficiency of engines in Alaska.
G.
Proceedings Involving the Alaska Transportation Commission
Several petitions have been filed by the trustees throughout the course of these proceedings seeking to stay proceedings instituted by Alaska Airlines and/or Interior Airways, Red Dodge’s principal competitors, in either Alaskan state courts or before the Alaska Transportation Commission. These Alaskan proceedings have questioned the legality of Red Dodge’s operations under its air carrier certificate, and an adverse result to Red Dodge could abort the chapter proceedings. The trustees also sought to stay an investigation by the Commission into the competitive situation involving Hercules operators. On two occasions the Court has stayed proceedings in Alaska. It is sufficient to say that, as of this date, the proceedings have not threatened Red Dodge’s certificate.
*38
H.
Section 167 Investigation
Pursuant to petition of both the trustees and the Banks, the Court ordered the trustees to conduct an investigation under section 167 of the Bankruptcy Act. The investigation was conducted, and a section 167 report was filed. The Banks filed objections to the report, alleging that it was inadequate in certain particulars. The Court deemed it unnecessary to act upon the Banks’ objections in view of the voluminous record developed at the plenary hearing which has illuminated the condition of the reorganization debtors far better than even the most comprehensive section 167 report.
I.
Medford Real Estate
Pursuant to petition of the trustees, and after two lengthy hearings, the Court, on July 8, 1971, granted permission to the trustees to dispose of the Flying W Ranch, including the motel property, airfield and the equipment, for the sum of $708,000.00. The Court approved the sale: (1) because the maintenance of the Medford facility, which was nonoperational, was a considerable financial burden ($6,000 a month expense) on the estate, and the sale thereof would lessen that burden; and (2) because it was persuaded that the offer was a good one, representative of the market value of the real estate.
7
Settlement has been held and the proceeds of sale held in escrow pending order of the Court with respect to distribution.
J.
Petition for Appointment of Counsel for the Debtors
The debtors have actively participated in the proceedings through counsel. However, in an opinion which may be found at D.C., 332 F.Supp. 56 , the Court denied the petition of the debtors for
formal
appointment of counsel, holding that:
“the Bankruptcy Act does not confer power upon the Court to formally appoint counsel for a debtor out of possession in a chapter X proceeding, except in the instance where counsel, for good cause and with the court’s acquiescence, is acting as de facto counsel for the trustee.”
8
K.
Filing of Claims
The Court ordered that proofs of claim by creditors be filed with Referee Goldhaber by September 15, 1971 and that proofs of interest as stockholders be filed with Referee Goldhaber by November 1, 1971.
262 creditors’ claims totalling $15,576,-410.68 have been filed with the referee. This figure includes both secured and unsecured claims but does not include the claims of EBR Corporation and the Whitesells. The secured claims total over $12 million; the priority claims total $174,400, and the balance of the claims are unsecured. Some 1650 shareholders have filed proofs of interest representing 2,214,698 shares.
L.
Order in re Filing of Reorganization Plan
As indicated above, the Court, on September 3, 1971, entered an order that by December 13, 1971 the trustees file a Plan of Reorganization or a report of why such a plan could not be effected, and that a hearing be held on such plan or report on January 3, 1972. On December 8, 1971, the trustees petitioned the Court to extend the time for filing
*39
a plan. We thereupon stayed our order of September 3, 1971 and have held a hearing on the trustees’ petition.
M.
Interim Compensation
On November 1, 1971, pursuant to petition by the trustees, the Court allowed interim and partial compensation in the sum of $15,000.00 to the trustees, $20,-000 to counsel for the trustees, and $8,-000.00 to Laventhol, Krekstein, Horwath & Horwath, accountants employed by the trustees. The S.E.C. supported the trustees’ position that the interim compensation was fair and reasonable and necessary to the continuance of the proceedings.
III. THE BUSINESS AND PROPERTY OF THE DEBTORS AND THEIR FINANCIAL CONDITION PRIOR TO THE FILING OF THE PETITIONS FOR REORGANIZATION
We find the following facts with respect to the business and property of the debtors, and their financial condition pri- or to the filing of the petitions for reorganization.
Flying W Airways, Inc. is organized under the laws of the State of New Jersey and is a publicly held corporation.
9
As of September 24, 1970, 2,555,335 shares of its common stock were issued and outstanding, and registered in the name of approximately 1700 shareholders. Until the spring of 1969, Flying W was engaged in various business activities, including aviation sales, charter flying, flight training, operation of an airport, motel and restaurant, and rental of industrial and office buildings and land development. To conduct these activities Flying W had a fleet of seven (7) executive jet and propeller powered cargo aircraft and seven (7) small and medium size propeller powered cargo aircraft. In addition, Flying W operated the Flying W Ranch in Medford, New Jersey and an office building in Cinnaminson, New Jersey, which was under lease to R.C.A. These activities were conducted through various subsidiary corporations owned by Flying W. Of the several subsidiaries, only Longhorn Airways, Inc., Thunderbird Airways, Inc. and Continental Aircraft Sales, Inc. remain in existence today. None of these corporations are operating entities, they have been dormant for some period of time, and they are without operating assets.
On April 16, 1969, Flying W entered into an agreement with Earl “Red” Dodge, the sole shareholder of Red Dodge Aviation, Inc., a corporation organized in January 1968 under the laws of the State of Alaska, to acquire from him all of the outstanding stock of Red Dodge Aviation, Inc. in exchange for 104,000 shares of the common stock of Flying W. At the time of this acquisition, which was consummated in May 1969, Red Dodge held Alaska Air Commerce Certificate Number 16 which authorized it to operate fixed wing aircraft as a contract carrier of cargo within the state of Alaska. Red Dodge is also certified by the Federal Aviation Agency as a commercial operator for carriage of cargo only under Part 121 of the Federal Aviation Act. This certificate is issued annually and has been renewed each year. After the acquisition of Red Dodge, Flying W pursued contract cargo operations within the State of Alaska as its major line of business, and disposed of its propeller driven equipment and replaced it with jet-prop and pure jet aircraft.
As of September 24, 1970, the date of the filing of its reorganization petition, Flying W’s principal assets were: its stock interest in its wholly-owned subsidiary, Red Dodge; the two Lockheed Hercules L-100-20 aircraft N30FW and N40FW, which were used by Red
*40
Dodge ;
10
a leasehold interest in a North American Sabreliner jet airplane, which Flying W sub-leased to Philco-Ford as an executive airplane;
11
and parcels of improved real estate in Cinnaminson and Medford, New Jersey.
The Cinnaminson property, which is leased by Flying W to RCA Corporation under agreements expiring June 30,1972, consists of seven acres on which is located an office building of 144,000 square feet. The property is subject to three mortgages: a first mortgage to the First Pennsylvania Bank of approximately $575,000; a second mortgage to Charlotte Aircraft Corporation (a supplier of used aircraft parts) of approximately $224,-000; and a third mortgage to EBR Corporation of approximately $2,300,000. The annual rent amounts to $278,279.11, which is assigned to First Pennsylvania Bank. The trustees are studying the possibility of selling the Cinnaminson property to RCA.
12
The Medford property, known as the Flying W Ranch, consists of 144 acres and contains,
inter alia,
two air strips, a motel, restaurant, bar, office buildings, and two large hangars. The property is subject to three mortgages: a first mortgage to First Pennsylvania Company of approximately $500,000; a second mortgage to Chan-Air Corporation (a subsidiary of PSL) of approximately $160,000; and a third mortgage to EBR Corporation of approximately $2,300,000. As noted above, the trustees have proposed and the Court has approved a sale of the Medford property for $708,000.
Red Dodge’s business is essentially that of a contract air carrier of cargo. Under its certificate from the Alaska Transportation Commission, authorizing it to conduct such a business within Alaska, Red Dodge flies from Anchorage and Fairbanks to the North Slope and largely to air strips in the vicinity of Prudhoe Bay. Its principal customers are oil companies and oil well drilling or construction companies. Red Dodge does lease some hangar space to others and does have some fuel sales business, but those aspects of its business are minor. Red Dodge uses the N30FW and N40FW for the carriage of cargo. The firm also owns a B-25 World War II bomber it uses during the summer under contract with the Bureau of Land Management in Alaska for fire prevention, observation and spraying. In addition to this equipment, Red Dodge has four spare Allison engines which may be used interchangeably on the Hercules aircraft; three are leased from PSL and one is owned by Flying W. Red Dodge also uses spare parts for Hercules aircraft which are owned by Flying W.
Red Dodge has various facilities at the Anchorage Airport from which its flying operations are directed. Its hangar, known as the Cordova Hangar, is currently the subject of litigation between Red Dodge and The Cordova Development Company over ownership. Red Dodge leases ground at the airport adjacent to the hangar, for staging and the storage of supplies. It also leases four parcels of real estate directly from the State of Alaska. On one parcel sits a partially constructed hangar, about 40% complete; if finished, it would be the largest hangar in the State of Alaska and would permit indoor maintenance work on Hercules aircraft. However, at the time of the filing of the reorganization petition, the trustees had incurred an obligation of $235,000 to the general contractor it had engaged for this purpose, and the cost of completion would be in excess of $500,000, which Red Dodge can
*41
not now afford. At the Fairbanks airport, Red Dodge leases an office facility and an adjacent staging area. For a period during the winter of 1970-71, the trustees leased a hangar at Fairbanks so that aircraft maintenance work might be done inside.
13
The Hercules aircraft (often referred to in the record as “Herks”) are, in and of themselves, of paramount importance in these proceedings, hence the following description. The Hercules aircraft is a high-wing monoplane powered by four Allison turbojet engines which drive propellers. Its cargo compartment is aft-loaded at truckbed height which permits loading and unloading more quickly and less expensively than side-loaded cargo aircraft. Lockheed has built the military version of the Hercules, the C130, for 15 years. Lockheed’s commercial program started in 1966. The commercial Hercules has progressed from the basic L-100 model through the L-100-20 (the so-called stretched Hercules) and L-100-30
13a
(the so-called superstretched Hercules).
The Hercules L-100-20 is 106 feet long, has a wing span of 132 feet and a gross weight of 155,000 pounds. It can carry a payload of approximately 50,000 pounds approximately 2,100 nautical miles. The main cargo compartment is 49 feet long, can take objects 108 inches high by 120 inches wide, and has a volume of 4,400 cubic feet. The three models of commercial Hercules differ from each other principally in the length of their cargo compartments. The cargo compartment is about 41 feet long in the L-100, and about 55 feet long in the L-100-30. Each of the three models of commercial Hercules can carry about the same weight of cargo.
The Hercules was designed for the support of military front-line combat situations requiring short take-off and landing capabilities and the capacity to carry heavy loads. The Hercules L-100-20 is extremely well-suited for the carriage, from Fairbanks and Anchorage to the North Slope, of pipe used in oil well drilling operations (and prefabricated huts for drilling sites) because it can accommodate a 48 foot length of casing used in oil drilling, and because the short takeoff and landing capability enables the Hercules to utilize the relatively short landing strips on the North Slope. Economic considerations require that as long a piece of pipe as possible be transported. For example, neither the DC-8 nor the Boeing 707, which are used for cargo and have large payloads, would be suitable for Slope cargo operations, because they load from the side and at greater than truck bed height, and because they lack short take-off and landing capability. No other aircraft is as well-suited as the Hercules for operations on the Slope.
The principal customers of Red Dodge during the period of the reorganization have been the oil companies which have been conducting drilling operations on the Slope: BP Alaska, Inc., Humble Oil and Refining Company, McCulloch Oil Corporation, Forest Oil Corp. and the Atlantic Richfield Co. Other major customers have included the State of Alaska, Hamilton Brothers (a construction firm), Brinkerhoff Drilling Company, Rivers Construction Company, Frontier Rock & Sand, Rock Island Oil Company, and Burgess Construction Company. For a
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long period of time, BP was Red Dodge’s principal customer. However, since the conclusion of the plenary hearing, Red Dodge has lost BP’s business to Interior Airways (see
infra,).
The cargo carried for BP Alaska, Inc. included drilling rig material, oil casing and drill stems, and was hauled principally from Fairbanks to Prudhoe Bay. The same type of cargo is carried for Humble to Mikkelson Bay, approximately 80 miles east of Prudhoe Bay, and for Forest Oil Corp. to Kemick, approximately 150 miles southeast of Prudhoe Bay. Red Dodge hauls the same type of cargo for Mc-Culloch Oil to Finn Creek, which is also on the Slope. Red Dodge hauls drilling rigs, trucks and fuel for Brinkerhoff Drilling Company, which performs the drilling operations in Alaska for Mc-Culloch Oil Corp. Red Dodge hauls heavy construction equipment, such as road graders, caterpillers, trucks and trailers for the State of Alaska, Rivers Construction Company and Frontier Rock & Sand. From time to time, however, Red Dodge hauls other cargo, such as fish. Approximately 85% of Red Dodge’s business is attributable to no more than 10 oil companies or oil well drilling companies.
As of June 29,1971, during the plenary hearing, the only companies with which Red Dodge had written contracts for the carriage of cargo were Atwood Enterprises, BP Alaska, Inc., Brinkerhoff Drilling Co., Inc., Petroleum Distributing Company, Inc. and McCulloch Oil Corp. The typical Red Dodge Oil contract obligates it to provide L-100-20 aircraft upon request of the customer but does not require the oil company to make any payment to Red Dodge other than those arising from the use of the aircraft. The contract provides that the customer is obligated to use Red Dodge for the carriage to the Slope of its cargo requiring the use of a Hercules L-100-20, and is terminable at any time by the customer upon a short written notice.
The amount of air cargo carried to the North Slope is, in large measure, seasonal. The peak months are in the late fall and winter when the ground surface is solid ice and snow. Supplies and equipment are then carried from the airstrips to the drilling or operational sites over the ice and snow. In the summer, however, most of the airstrips on the Slope, which are constructed on tundra with overlying gravel, are too soft to land on. The flights fall off in May and June; July and August are light, and the flights begin to pick up in September. While there are some all-weather roads (just as there are some all-weather airfields), to protect the tundra, there are governmental restrictions limiting permits for additional roads and operations after the tundra thaws. When the thaw comes, many drilling or operational sites are closed because they become inaccessible except by helicopter.
The N30FW and N40FW are being financed by the Girard Trust Bank (“Girard”) and Farmers Bank of the State of Delaware (“Farmers”). Girard and Farmers are the joint holders, as mortgagees, of an Aircraft Chattel Mortgage — Security Agreement (“Mortgage Agreement”) executed by Flying W on April 10, 1969, and amended by a written agreement (“Mortgage Amendment”) dated May 7, 1969 (the Mortgage Agreement as so amended is hereinafter called “Mortgage”). N30FW and N40FW are the Federal Aviation Agency (“FAA”) registration numbers for the Lockheed Hercules aircraft serial numbers 4302 and 4303, which are referred to in the mortgage by FAA registration numbers N7952S and N9237R. The Mortgage Agreement was recorded with the FAA on April 16, 1969 (assigned FAA Conveyance Number G47069) and the executed Mortgage Amendment was recorded with the FAA on May 16, 1969 (assigned FAA Conveyance Number D43884). At the time of its execution, the Mortgage secured the payment by Flying W of its promissory note dated April 10, 1969 in the principal amount of $7,500,000 with interest thereon (payable over a term of eight years) and
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the payment and performance by Flying W of its other obligations recited in the Mortgage. The loan received by Flying W from the Banks was used by Flying W to purchase the aircraft and certain spare parts. The total amount of the loan was $7,323,796.07.
On November 3, 1969, Flying W did not pay the installments of principal and interest then due. The principal balance on that date was $7,055,938.91. Interest had been paid to October 1, 1969. Since October 1969, the following payments on account of interest were made by Flying W on or about the dates and in the amounts as follows: March 9, 1970, $64,952.59; April 6, 1970, $69,-592.06; and May 12, 1970, $64,952.06. Although Flying W has made no payment on account of principal since November 3, 1969, the principal balance was reduced by a set-off of two bank accounts in the combined amount of $42,906.00 maintained by Flying W with Farmers Bank. As of September 24, 1970, the date of filing the reorganization petition, the unpaid principal balance exceeded $7,013,000. As of that date, the books of Flying W, prior to any auditor’s adjustments, showed $7,055,938.91 as due and payable on account of the principal of the Banks’ loan to Flying W and $724,-954.55 as accrued interest payable.
The debtors have been operating the N30FW and N40FW in Alaska since they were purchased. For a time Red Dodge operated a third Hercules N-100-20 aircraft in Alaska — the N50FW. Prior to September 1969 Flying W had contracted with Lockheed to purchase the N50FW at a price initially set at $3,350,000 and later amended to $3,375,800. However, by letter of September 9, 1969, PSL proposed to purchase the N50FW from Lockheed and lease it to Flying W. Flying W thereupon assigned PSL its rights under the contract, with the consent of Lockheed, and on December 30, 1969, PSL purchased the N50FW from Lockheed and immediately leased it to Flying W under a lease agreement bearing the same date. Under the terms of the Lease, Flying W was to pay as rental for the N50FW the sum of $124,866 each calendar quarter in advance commencing December 30, 1969. The rental was paid for the first quarter, but no quarterly rental payments have been made since that date. Red Dodge used the N50FW in its North Slope operation until April 1970, when it developed a wing crack and was flown to Lockheed in Marietta, Georgia for repairs, where it has remained to this day. The wing section has now been repaired, and the airplane is in storage, but Lockheed’s repair bill of $147,862.00 is still unpaid and Lockheed has filed suit in the United States District Court for the Northern District of Georgia against PSL. PSL was denied leave by this Court to join the trustees and debtor as a third party defendant in that action, but has included in its claim filed with the Referee the amount of the repair bill. On October 21, 1970, by stipulation approved by the Court, the trustees relinquished their right to possession of the N50FW.
As of September 24, 1970 (the date of the filing by Flying W of the reorganization petition) the books of account of Flying W and its subsidiaries showed, on a consolidated basis as reflected in the statement of auditors employed by the trustees, assets of $12,816,322 and liabilities as follows:
Liabilities having priority (payroll taxes and payroll) 153,434
Liabilities having collateral 9,513,737
General liabilities 4,285,443
Deferred credits 192,959
Due to related interests (E.B.R. Corp. and Whltesells, who are principal shareholders of Flying W) 3,388,502
Total $17,534,075
There was no shareholders’ equity. There was a shareholders’ equity deficiency of $4,717,753.
Flying W maintained its records on a June 30 fiscal year. For the three years ended June 30, 1970, and the period from July 1, 1970 to September 24, 1970, Flying W and its subsidiaries, including Red Dodge, on a consolidated basis,
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had the following income, expenses and net losses:
Net
Year ended Income
June 30, Income Expenses (Loss)
1968 $1,130,449 $1,204,366 ($ 73,917)
1969 1,712,869 3,478,493 ( 1,765,624)
1970 4,600,815 9,248,806 ( 4,647,991)
July 1, 1970 to September 24, 1970 780,181 1,658,612 ( 878,431)
The determination of depreciation reflected in the debtors’ books of accounts was reviewed and approved by Laventhol, Krekstein, Horwath & Horwath (“Laventhol”). The N30FW and N40FW were depreciated at the rate of $49,312.83 per month in accordance with instructions from Laventhol. It will be seen by a review of the figures that the heavy losses are not just due to depreciation. We will defer, until later in this Opinion, a discussion of the financial data pertaining to the operation of Flying W and Red Dodge by the trustees during the reorganization, and of the valuation of the aircraft. While these two areas of our findings are at the core of our adjudication of the issues involved, they are best dealt with separately.
IV. DID FLYING W, THE BANKS AND PSL ENTER INTO A REFINANCING AGREEMENT WHICH WAS BREACHED BY THE BANKS AND PSL SO THAT FLYING W WAS NOT IN DEFAULT ON THE LOAN TO THE BANKS AT THE TIME OF THE FILING OF THE REORGANIZATION PETITION; IN THE ALTERNATIVE, ARE THE BANKS AND PSL, BY VIRTUE OF THEIR CONDUCT, ESTOPPED TO DENY THE EXISTENCE OF SUCH AN AGREEMENT OR TO ASSERT A DEFAULT?
A.
Introductory Statement
We find that, in the latter part of the year 1969, because of a lack of business on the Slope, and the lack of revenue generated by the Aircraft, it became apparent that Flying W could not make the required payments to the Banks in connection with the Hercules loan. In meetings between representatives of the Banks and Flying W during the period from December 30, 1969 to March 13, 1970, the Banks were so advised; they were also informed that the issuance of a pipeline permit was vital to the business of Red Dodge, (and they were advised as to the status of the pipeline permit) . During the same period, Flying W determined that it was necessary that it reduce the monthly payments due on the N30FW and N40FW aircraft by refinancing the aircraft over a longer period. Under the Loan Agreement with the Banks, the monthly obligation of Flying W for principal and interest was approximately $160,000 per month, and during the months of February, March and April 1970 would be approximately $248,000 per month. Moreover, the Lease Agreement with PSL for the N50FW obligated Flying W to a quarter-annual charge of $124,866, or approximately $42,000 per month.
On January 28, 1970, Jack Selby (“Selby”), President and Chief Operating Officer of Flying W, wrote to O. H. P. Baldwin (“Baldwin”), Chairman of the Board and President of the Farmers Bank, confirming a request by Flying W that the Banks refinance the N30FW and N40FW aircraft over a 12-year period instead of 8 years. The request was denied by the Farmers Bank. After the negative response, Selby spoke to a number of leasing companies, and he and James Whitesell commenced discussions with Fraser Noble (“Noble”), Vice-President of PSL, about the possibility of PSL’s refinancing the N30FW and N40FW. Commencing with March 13, 1970, there ensued a long series of meetings among representatives of Flying W, PSL and the Banks. Most of the meetings were held either at the offices of Farmers Bank in Wilmington or of PSL in Purchase, New York. During this period of time, representatives of these parties engaged in numerous telephone conversations and exchanged many written communications.
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It is the position of the debtors and trustees that these meetings, conversations and communications, which will be described in detail below, add up to the fact that the parties had concluded a binding tripartite agreement encompassing: (1) the sale of the N30FW and N40FW from Flying W to PSL, to be financed by (2) a newly created loan from the Banks to PSL which would pay off the prior loan from the Banks to Flying W; and (3) a lease of the N30FW and N40FW by PSL to Flying W along the same lines as the N50FW lease.
The trustees and debtors contend that this binding agreement was breached by the Banks and PSL when they refused to perform thereunder. They further contend that the Banks and PSL led Flying W “down the garden path”, inducing it to change its position in reliance on their promises to refinance, and that they, at the last minute, “pulled out the rug” by refusing to perform, thus precipitating the filing of the chapter proceedings. This conduct is alleged to constitute an exercise of bad faith, giving rise to an estoppel either to deny the existence of the refinancing agreement, or to assert an act of default, even if no agreement had been concluded.
The parties agree that no formal or written agreement was ever entered into. The debtors and trustees have therefore attempted to construct an agreement out of: (1) pieces of conversation occurring at the meetings; (2) the correspondence among the parties; and (3) internal memoranda, obtained from PSL and the Bank’s records by discovery. Some of the documents emanated from discovery which was permitted by the Court in connection with these proceedings, and some from coordinate discovery which has been conducted in connection with actions pending in the courts of the State of Delaware by the Banks and PSL against the Matlacks, EBR Corporation and the Whitesells seeking recovery on their guarantees of Flying W’s obligations.
The Banks and PSL, of course, deny the existence of any refinancing agreement. They were participants in the meetings which we have mentioned, but contend that all of the discussions at those meetings, together with the correspondence and other communications constituted
negotiations
for a refinancing agreement. They assert that there was never a manifestation of mutual consent on all of the essential terms of such agreement, and that the debtors and trustees have attempted to “cut a suit out of whole cloth” by piecing together certain isolated and tentative memoranda from the files of the parties. The Banks and PSL deny that they were guilty of any inequitable conduct such as would give rise to an estoppel and, further, assert that Flying W was guilty of inequitable conduct during the course of the negotiations by withholding important data concerning its financial condition. Finally, asserting the applicability to the proposed agreement of Delaware law, the Banks and PSL argue that the Delaware statute of frauds bars the enforcement of any such agreement, if one is found to exist.
We shall, in the succeeding pages of this Opinion, detail the contentions of the parties with respect to the alleged refinancing agreement. A voluminous record was developed with respect thereto — approximately a week and a half of the plenary hearing was devoted to the question. The matter of the refinancing agreement was not before the Court of Appeals; obviously, however, if the contention of the debtors and trustees is valid, Flying W was not in default of its obligations to the Banks at the time of the filing of the reorganization petition and may not be in default even now (and the Banks and PSL might be liable in damages to Flying W), and if there is no default, there can be no turnover. It is necessary, therefore, to decide whether Flying W is in default on the loan before we reach the question of whether the Banks are entitled to turnover of the Aircraft.
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B.
Findings of Fact
We make the following findings of fact:
1.
The Dramatis Personae, Their Roles and Relationship
To facilitate reference throughout this Opinion, we will, at the outset, identify the principal actors with respect to the alleged refinancing agreement, and their roles.
a.
Flying W
Jack Selby (“Selby”) was the president of Flying W during the negotiations in question. Selby’s background prior to joining Flying W was as a pilot and as a director of airline operations. He was not experienced in financial affairs when he became executive vice president in December of 1969. Robert W. Matlack was, during 1970, chairman of Flying W’s board of directors. Whenever Robert Matlack was present at the meetings which we will describe, he was the Flying W spokesman. At meetings attended by Robert Matlack and Selby, Selby would generally sit quietly except to deal with technical matters that might arise, and he was more of an observer and a listener than a participant in the negotiations. James P. Whitesell and William C. Whitesell were, at all times relevant here, officers and directors of Flying W. During the period of time between late 1969 and the late spring of 1970, James Whitesell had the principal responsibility for Flying W’s dealings with PSL. Most of the contact and negotiations with PSL with respect to the refinancing agreement were handled by Whitesell, who had many discussions with PSL when Selby was not present.
b.
The Banks
O. H. P. Baldwin (“Baldwin”) was, from January 1, 1970 to September 25, 1970, chairman and chief executive officer of Farmers. His associates who handled most of the details in connection with the Flying W and PSL negotiations were Joseph R. Johnson (“Johnson”), who was, during the same period, a senior vice president and director of Farmers and president of Farmers’ Wilmington office, and Cornelius J. Milione (“Milione”) who was an assistant vice president of Farmers until July 1970 and thereafter became a vice president. At meetings attended by Baldwin, he was the spokesman for Farmers. Girard’s representatives were: William E. Van Norden (“Van Norden”), a vice president of Girard in charge of its special lending division; Harold Ikeler (“Ikeler”), a Girard vice president in charge of Girard’s correspondent bank division, through which Girard had been invited into the initial loan participation; and Stuart H. Brown (“Brown”), a vice president of Girard dealing with correspondent bank relations, who reported to Ikeler.
At no time during the negotiations with Flying W and PSL during 1970 did Farmers speak or act on behalf of Girard; similarly, at no time did Girard speak or act on behalf of Farmers. The relationship between the two banks with respect to the April 10, 1969 loan agreement with Flying W is set forth in, and governed by, a participation agreement dated April 10, 1969 by and among Farmers, Girard and Flying W. Selby had seen the participation agreement at the closing of the original loan between the Banks and Flying W. By the terms of the participation agreement, Farmers was prohibited from consenting to any modification of the loan agreement or note, or any collateral therein provided for, or consenting to any release of borrower from liability or waiving any claim against borrower without the prior written consent of Girard. Under the terms of the agreement, the loan participation of Farmers and Girard were 35% and 65% respectively, and the negotiations looking toward a refinancing agreement contemplated similar percentages. At the crucial April 1, 1970 meeting Baldwin stated that he was not speaking for Girard.
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c.
PSL
Robert G. Clark (“Clark”) was, in March 1970, president and a director of PSL, a wholly owned subsidiary of Pepsico Service Industries Leasing Corporation, of which Clark was also president and director. Pepsico Service Industries Leasing Corporation is a wholly owned subsidiary of Pepsico, Inc., and is the instrument for the operation, through various subsidiaries such as PSL, of Pepsieo’s leasing operation. Fraser Noble was, prior to June 1970, vice president in charge of business development at PSL, with responsibility principally in sales. In June 1970, Noble became president of PSL, and Clark became Chairman of the Board of PSL and of Pepsico Service Industries Leasing Corporation. When Clark was present at a meeting, he was the chief negotiator for PSL.
2.
The Preliminary Discussions and the PSL Preconditions
As we have already noted, in late 1969 and early 1970, Flying W sought to reduce the monthly payments due on the N30FW and N40FW by refinancing the aircraft over a twelve-year period. Among the sources from which they sought refinancing was PSL.
During the winter of 1969, while negotiations with respect to the N50FW lease were taking place, at a meeting attended by William Whitesell, James Whitesell, Clark and Noble, William Whitesell told Clark and Noble that Flying W had an option on two additional Hercules aircraft to be delivered in the spring of 1970. William Whitesell asked Clark if PSL would be interested in entering into an arrangement concerning those two aircraft. Clark responded by saying that PSL would not be interested and that he did not think that Flying W should buy the two additional aircraft. Clark indicated that he felt that before Flying W got involved with additional aircraft, Flying W should develop satisfactory revenues and show that it could successfully operate the three aircraft which it then had. Clark went on to state that if at some time in the future Flying W could show PSL a financially stronger company, or in other words, obtain some additional outside financing, PSL would, at that point, be happy to have Flying W come back to it for some further discussions concerning additional leasing. James Whitesell indicated his agreement with what Clark had said. As a result, the two options on the two additional Hercules were given up.
During the last week of February, or early in March 1970, James Whitesell came to PSL and stated that Flying W would like PSL to consider buying the N30FW and N40FW aircraft and leasing them back to Flying W. In that regard, Whitesell made reference to the conversation which had taken place in the winter of 1969, and indicated that Flying W was now in a position to comply with all of the requirements which had been stated by Clark during the earlier meeting. During the initial contact about the possible purchase and lease back transaction, James Whitesell indicated that Flying W had a financing commitment, making reference to the firm of Elkins, Morris, Stroud & Co. (“Elkins, Morris & Stroud”), an investment banking firm. He gave PSL a copy of Elkins, Morris & Stroud’s letter of intent with respect to an equity issue of $3,000,000.00.
James Whitesell also indicated to PSL that Flying W was now operating profitably on the North Slope. He delivered a number of papers to PSL, including a December 31, 1969, pro forma balance sheet showing the conversion of debt owed by Flying W to EBR to equity as well as a forecast showing that the Company would become profitable in 1970. Whitesell delivered a copy of Flying W’s 1969 annual report, a Flying W statement for the six months ending December 31, 1969, and a letter which had been sent to Flying W’s shareholders along with the annual report and interim report stating that the Matlacks and EBR
*48
had decided to convert their debt position to equity.
Clark indicated to James Whitesell that in light of the foregoing representations, the situation looked attractive. However, there was one further problem. At that time, the money market was extremely tight and Clark told Whitesell that unless financing could be arranged through the Farmers and Girard banks, Clark doubted whether it would be possible to accomplish what Flying W was proposing. In light of the foregoing, the Banks were contacted.
We find, however, that Clark made clear to Whitesell that the following preconditions would have to be satisfied before PSL would enter into any agreement to borrow money from the Banks to pay off the Flying W loan and purchase the N30FW and N40FW and then lease them to Flying W: (a) the debt owing to EBR (the Matlack Family corporation) from Flying W would have to be converted into equity; (b) there would have to be a substantial infusion of new capital into Flying W in the neighborhood of the proposed $3,000,000 Elkins, Morris & Stroud issue; and (c) the profitability of the Red Dodge operation in Alaska would have to be improved. As it happened (see
infra),
the debt conversion was never effected, the equity financing was never obtained, and the profitability of the debtor was never improved. Moreover, we find that, despite the numerous meetings and conversations to which PSL was a party, these preconditions were never altered. In this respect, the refusal of the debtors and trustees to produce Whitesell to refute Clark’s testimony was crippling. We use “refusal” advisedly; Whitesell’s counsel informed the Court of his availability as a witness, and the Court, sensing the importance of the issue, repeatedly urged debtors and trustees counsel to produce him.
Shortly prior to March 13, 1970, Selby told Johnson that discussions were taking place between Flying W and PSL concerning the possible sale of the N30FW and N40FW. Selby arranged for a meeting to be held on March 13, 1970, at Farmers so that PSL and the Banks could meet. Prior to March 13, 1970, PSL had no dealings with representatives of the Banks concerning the N30FW and N40FW. A meeting was held on March 13, 1970 at Farmers in Wilmington, Delaware. The following individuals were present: Selby, Robert Matlack, James Whitesell, A. W. Weidenmuller (“Weidenmuller”, Flying W’s comptroller), Clark, Noble, Johnson and Milione.
The meeting was essentially exploratory in nature and served as a vehicle for the Banks and PSL to be introduced.
Inter alia,
Clark asked Johnson whether the Banks had any interest in lending money to PSL to purchase the N30FW and N40FW, and Johnson replied that the transaction sounded interesting and that Farmers would discuss the matter with Girard. No agreement was reached as to the amount of the loan, or the interest rate. It was agreed that PSL would produce financial statements for the Banks and that another meeting would be held.
Following the March 13 meeting, Clark wrote a memorandum to Herman Lay, chairman of the board of PepsiCo, Inc. The memo was written so that Pepsico’s top management would be fully advised as to what PSL was considering, and so that PSL could benefit from Pepsico’s management advices during the course of negotiations. Clark’s memo to Lay set forth the basic information which Clark had received from Flying W and requested authority to continue negotiations. The memo also indicated that the factual context upon which the PSL-Flying W discussions had been based included the following specific elements:
a. EBR had recently converted 2.5 million dollars of debt owing to it by Flying W to equity in Flying W;
b. As a result of the conversion of debt to equity, Flying W then had a positive net worth;
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c. Flying W operations had improved and as of March 19, 1970, were stated to be profitable;
d. Flying W had been advised by Elkins, Morris & Stroud that an additional public offering of securities having a value of $3,000,000 could be made and that Flying W was planning to have the securities registered shortly;
e. A December 31, 1969 pro forma balance sheet reflecting the conversion of EBR debt to equity, rather than the actual balance sheet as of December 31, 1969, which was attached to the memo, was the balance sheet to be relied upon;
f. Flying W had advised that the current portion of the 1.6 million dollars of accounts payable shown on the balance sheet had been reduced to a figure below $300,000; and
g. A projected statement of income and expenses for the calendar year 1970 showing a profitable operation for the last three quarters of the year and for the calendar year ending December 31, 1970. This was attached and relied upon.
The next meeting among Flying W, the Banks and PSL took place on April 1, 1970 at Farmers. For reasons described below, that meeting is the crucial meeting in connection with the alleged refinancing agreement. However, between the March 13 meeting and the April 1 meeting, no proposal was made by PSL to the Banks, and there were no prospective terms for a possible deal which had been communicated to the Banks. Moreover, prior to attending the April 1 meeting, no representative of Girard had been informed of any terms that were being discussed with respect to any possible transaction, although between March 13 and April 1, the Banks did receive some financial information from and about Flying W and PSL.
3.
The April 1, 1970 Meeting
a.
Introduction
The April 1, 1970 meeting took place at the offices of Farmers in Wilmington. The meeting was attended by Selby, Robert Matlack, James Whitesell, and Weidenmuller (representing Flying W); Clark and Noble (representing PSL); and Baldwin, Johnson (who was present for a short time at the beginning of the meeting and then left), Milione, Brown and Ikeler (representing the Banks). Our findings with respect to that meeting are of central importance, for, from the time that the defense of the refinancing agreement was first interposed, until the time that the debtors and trustees filed briefs concerning the matter after the conclusion of the plenary hearing, the debtors and trustees took the position that the essential elements of the refinancing agreement were concluded at the April 1 meeting.
14
Only in their supplemental brief filed well after the plenary hearing did the debtors and trustees state that they also relied upon events occurring between April 2 and May 26 to establish an agreement. Accordingly, we now set forth our findings as to what transpired at the April 1, 1970 meeting. We also set forth our findings as to what did not transpire at the April 1 meeting;
i. e.,
we will recite the matters with respect to which there was no manifestation of mutual assent by the parties.
b.
Events of the Meeting
The basic proposal which was presented at the meeting was that Flying W
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would sell the N30FW and N40FW and certain spare parts to PSL; that PSL would borrow money from the two banks to buy the aircraft and spare parts; and that PSL would lease the aircraft and spare parts back to Flying W. The figure discussed as the purchase price of the aircraft was approximately $7,-350,000, which was the figure stated by Milione to be the principal balance and accrued interest on the Flying W loan to the Banks. Clark expressed PSL’s interest in purchasing the aircraft at that figure if the Banks would make the loan to PSL.
There was some discussion concerning the interest rate for the proposed loan. After a facetious reference to “6%”, Clark indicated that he would like the rate in the area of 9-9%% (Selby puts his figure at 10%), but Baldwin stated that he thought a 10%% rate would be better. Clark indicated that PSL would like to borrow the funds for an eight-year term with a twelve-year payoff schedule and a balloon payment at the end of eight years. Although Baldwin stated that he would be interested in making the loan to PSL, he qualified that observation by stating that he was not speaking for Farmers or for Girard, and inquired as to the steps to follow. Clark analyzed the various things that would have to be done on a preliminary basis before they could come up with any conclusion, including financing, documentation, control over the insurance, and security and guarantees for the transaction.
With respect to the $500,000 which was on deposit with the New Jersey banks as security for the N50FW lease, Clark stated that that would have to be spread out as security for the proposed leases of the N30FW and N40FW as well, and that the deposit would be transferred to Farmers. He stated that EBR Corporation and the Matlack brothers would be required to guarantee the lease for the N30FW and N40FW aircraft. Robert Matlack assented to these conditions, although none of his brothers was present. With respect to insurance, Clark stated that, in light of the problems which had existed with respect to Flying W’s maintaining its insurance, one of the conditions for PSL’s involvement in the transaction which was being discussed would be the effectuation of some type of control over payments for Flying W’s insurance. Clark also discussed Flying W’s earnings and the question of financing for Flying W and summarized the discussion by stating that there was an awful lot of work to bring about an agreement with respect to the proposed transaction, and that it would be impossible for him to come with an estimate as to when something like the proposed transaction could be put together.
While there was no discussion of the terms of a lease between PSL and Flying W for the N30FW and N40FW, in response to Robert Matlack’s question as to whether the terms of the lease of the N30FW and N40FW would be the same as the terms of the lease for the N50FW, a representative of PSL, whom Selby believed to be either Clark or Noble (but he could not be sure which) answered that the terms of the lease would be essentially the same. At the end of the meeting, Baldwin said that the Banks had received a lot of information and that they would consider it. As Brown left the meeting, he said to Baldwin that the Girard people would go back to their bank and consider what they had heard. The parties were aware that extensive documentation would be required for the transaction as proposed.
In a side discussion at the end of the meeting between Noble and Selby, Noble stated that all existing delinquencies from Flying W to PSL would have to be paid at closing, and that more security in the form of a mortgage on the RCA Building, and an extended mortgage on the Flying W Ranch, might be required. We find these facts to have been the extent of the April 1, 1970 meeting.
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c.
Background, Factors to be Considered in Evaluating the Alleged Refinancing Agreement.
(1)
Introduction
While our determination of whether or not the parties reached a binding refinancing agreement will be made on the basis of our findings as to whether or not they mutually assented to the material terms, there are nonetheless two considerations by way of general background which are helpful in evaluating the intention of the parties. We turn to these now.
(2)
Size of the Proposed Transaction
We find that the Farmers participation in the 1969 Flying W loan was the biggest loan ever made by Farmers. The proposed loan to PSL would have been an even bigger loan and would have approached the Farmers’ legal lending limit for a secured loan. The proposed purchase and leaseback of the N30FW and N40FW would have been the largest aircraft transaction ever entered into by PSL. The transaction would also have been a very large deal for any of the subsidiaries of Pepsico Leasing, Inc. We consider these factors significant in evaluating whether or not the Banks and PSL would have entered into a refinancing agreement in a manner so informal as is herein alleged.
(3)
Extent of Documentation Required
Exhibit D-71, which was received in evidence, was the closing documents for the N50FW transaction. It involved the cash sale of that aircraft from Lockheed to PSL and the lease of the aircraft from PSL to Flying W. This documentation consisted of well over two hundred pages of legal instruments, divided into fifty separate chapters. The memorandum of closing documents contained therein listed no less than sixty documents, most of which were complex, required to be provided by the various parties. Moreover, the N50FW transaction did not involve a loan such as was proposed from the Banks to PSL. Milione, in a memorandum to Johnson, listed at least sixteen documents which would be needed in that connection. The parties themselves recognized the need for voluminous documentation and that it would take a long period of time to prepare. The Court finds that the documentation involved is not “boilerplate” in nature and that there are innumerable terms contained in the documentation which normally, and in the present case, are the subject of negotiation.
We make findings with respect to the extent of documentation involved because findings upon that matter, just as those with respect to the size of the proposed transaction, bear upon the credibility of the contention of the debtors and trustees that the Banks and PSL intended that the events at the April 1, 1970 meeting, or the events occurring between April 2nd and May 26th give rise to a binding agreement.
d.
Matters Not Agreed Upon at the April 1, 1970 Meeting
We now proceed to itemize the matters which we consider material to any refinancing agreement upon which we find that there was
no
manifestation of mutual assent at the April 1,1970 meeting.
15
(1)
Lease Between PSL and Flying W
We find that there was no manifestation of mutual assent on the myriad terms involved in a lease for the N30FW and N40FW (the N50FW lease contained some 39 pages), including the most important term of all, the quarterly rental payments for the aircraft and spare parts. The amount of the quarterly payments was not discussed and was not calculated.
The debtors and trustees have argued that the lease rental term provision is
*52
not missing because of an understanding that the terms of the lease for the N30FW and N40FW would be essentially the same as the terms for the N50FW, and that the lease rental could be calculated by the same “formula” used to calculate the N50FW rental. We find, however, that the formula which was used by PSL to calculate lease rentals varied from case to case, depending, as it did, according to the explanation of Clark, upon such variables as: (1) PSL’s evaluation of what it thinks the equipment’s value will be at the end of the lease term; (2) what the equipment’s value is to PSL on a present value basis; (3) what PSL’s over-all profit objective is in the specific transaction; (4) the cost to PSL of the money which it is using in connection with the transaction; and (5) what the market will bear. Moreover, the “formula” in question is based upon PSL’s internal cash flow, is exceedingly involved and had never been explained to Flying W. Therefore, there could be no basis for reliance thereon.
Another important term with respect to the lease which was not discussed on April 1 was the number of minimum nonchargeable hours for use of the Aircraft (over and above the basic rental).
In addition to the rental payment, none of the following matters which we find material to any lease agreement were discussed until
after
the April 1 meeting:
(a) The computation of the reserve time on the engines, including a discussion of the exact number of hours on each of the engines;
(b) Security which would be established to protect any parts which might be owned by PSL, including the possibility of constructing a special building or secured area for them;
(c) Insurance which would be maintained on the spare parts; and
(d) The segregation of PSL’s parts from other parts which Flying W might subsequently purchase and the establishment of a method by which PSL’s parts could be identified.
(2)
The Loan From the Banks to PSL
We find that there was no agreement arrived at on April 1 to the effect that the Banks would make a loan to PSL. Moreover, when the April 1st meeting ended, there was no agreement on what the interest rate would be in the event of such a loan, or on the terms of the loan itself. PSL had never done business with the Banks. It had, however, established lines of credit with some ninety other banks throughout the country and was accustomed to negotiating loan terms with respect to matters such as default, grace, security etc. None of such technical loan terms was discussed at the meeting.
There were affirmative expressions at the April 1 meeting of the Banks’ interest. These expressions, however, do not amount to a loan commitment. We find that there was no manifestation of mutual assent with respect to any of the legal, as well as the financial, terms of the loan agreement.
(3)
Purchase of the Aircraft
We find that no firm purchase price for the N30FW and N40FW was agreed upon at the meeting. Moreover, there was no discussion of what spare parts (one of the subject matters of sale) would be purchased, whether just rotable (reworkable) parts, or also expendable parts, and, if just rotable parts, what rotable parts would be purchased; nor was there a discussion of the price to be paid for the parts which were to be purchased.
(4)
Guarantees
While the thought was expressed at the meeting that Matlack, EBR and Whitesell guarantees were the sine qua non of any tripartite agreement, we find that Robert Matlack’s statement that he would agree to the guarantee did not bind his brothers, EBR or the Whitesells. We note in this regard that a review of the carefully maintained minutes of EBR Corporation reveals that they accurately reflect all guarantees that the corpora
*53
tion entered into. The minutes reflect that there was an EBR meeting on April 13, 1970, but neither in this, nor in any other meeting, is there any mention of a resolution or authorization to enter into a guarantee agreement for the performance of all leases between PSL and Flying W.
(5)
Insurance
Insurance on the aircraft is one of the most important terms involved in the alleged agreement. The aircraft fly and must be maintained under arduous conditions, and Flying W’s insurance premiums approximate $600,000 per year.
15a
While we find that there was general discussion on the subject of insurance at the April 1 meeting, we do not find that there was a mutual manifestation of assent on details with respect to the insurance. There was no discussion of such important matters as the financing of premiums (including the interest rate), the disposition of unearned premiums or premium credits, the frequency of installment payments, the term of the insurance, and the control over cancellation.
(6)
Payments Due at Closing
We find that Noble stated to Selby in a “side meeting” at the close of the April 1 meeting that a condition of any refinancing agreement was that all of Flying W’s delinquencies would have to be paid at the time of the closing. There was no agreement as to the exact amount due. However, we find that, as of April 1, 1970, Flying W’s financial situation was such that it could not have made settlement in the then foreseeable future.
(7)
Ultimate Findings With Respect to the April 1,1970 Meeting
In view of the foregoing itemization, we find that there was no manifestation of mutual assent on the material terms of a refinancing agreement at the April 1, 1970 meeting.
According to the testimony of Selby, when Robert Matlack left the meeting, he went over and shook Clark’s hand and said: “Buddy, you’ve got a deal.” This incident is uncorroborated
16
and there is no testimony of a response from Clark. We credit this incident, if it happened, as meaningless in the wake of the failure of the parties to agree upon even the most salient of the terms of the refinancing agreement at the April 1 meeting. We mention it because it is symptomatic of the bootstrap type approach too often put forth by the debtors and trustees in connection with their claim that a refinancing agreement was reached.
4.
Events Occurring Between April 2, 1970 and May 26, 1970
a.
Introductory Statement
As we have indicated above, up until the filing of their reply brief, long after the close of the plenary hearing, the debtors and trustees took the position that the refinancing agreement had been concluded on April 1, 1970. In their initial brief, the debtors and trustees took the position that:
“During the period from April 2, 1970 to May 25, 1970, Flying W, the Banks and PSL took numerous and definitive steps to effectuate . the Refinancing Agreement that was reached on April 1, 1970 between Flying W, the Banks and PSL. ...”
However, in their reply brief, the debtors and trustees went a considerable step further and stated:
“The evidence conclusively establishes that the Banks, PSL, Flying W and others concluded a binding Refinancing Agreement. Even if the agreement reached on April 1, 1970 be thought too indefinite and incomplete to be enforceable, it is clear that a meeting of the minds was achieved
*54
on May 26, 1970. By. that date the following events had occurred:
(1) Farmers Bank had agreed to provide a $500,000 accounts receivable loan to Flying W concurrently with the sale of the aircraft to PSL (2805-09 — Selby).
(2) PSL had mailed to the Banks a letter confirming the amount and terms of the loan from the Banks to PSL (D — 111, D-113).
(3) PSL had performed a substantial obligation under the Refinancing Agreement by advancing $931,556 for insurance on all three Hercules aircraft for the policy year May 1970 to May 1971.
(4) The officers of PSL had received approval from their parent company to enter into the Refinancing Agreement in accordance with the terms of Mr. Clark’s May 12, 1970 memorandum to Mr. Lay of Pepsieo, Inc. (D-230, D-231). Despite Mr. Clark’s attempts in his testimony to explain away this approval, the notation by Mr. Frank at the top of the memorandum (D-231) must be credited. Furthermore, the permission which Mr. Clark requested was to ‘finalize the discussions’, which necessarily means ‘conclude the agreement’, for otherwise discussions would not be ‘finalized’.
(5) Mr. James of PSL had reported back to his company that Orvis Brothers had made a ‘commitment’ to provide equity financing for Flying W (D-227). It was after learning of this commitment that Mr. Clark sought and received approval from Mr. Lay to ‘finalize the discussions’.
(6) Mr. Noble of PSL had written a letter to Flying W in connection with the advance of money for insurance premiums, stating that the first quarterly payment by Flying W to PSL would be made ‘at closing’ (D-114). Mr. Noble testified that the closing he referred to was the closing of the ‘transaction’ between the parties (3682 — Noble), which was the Refinancing Agreement.
(7) Flying W and its sureties had executed a note (D-117) and a letter agreement (D-116) agreeing to repay the money which PSL had advanced for insurance. Their understanding, which was derived in part from Mr. Noble’s letter (D-114), was' that the first installment of the repayment was to be made at the closing of the Refinancing Agreement.
(8) PSL had informed Flying W of the amount of the quarterly payments to be required under the leases for the N30FW and N40FW aircraft and the spare parts, and Flying W had consented to those payments (2896-97, 2963 — Selby; 3555 — Clark; 3650-52 —Noble).
(9) Flying W had given PSL a list of the spare parts to be sold to PSL under the Refinancing Agreement (D-224; PSL-32a; see D-226, p. 3), a statement of aircraft serial numbers and engine serial numbers of the N30FW and N40FW, a statement of transactions on which E.B.R. Corporation was a guarantor, a letter from counsel dated April 28, 1970 (D-104) expressing an opinion on the sale of the N30FW and N40FW aircraft and the E.B.R. Corporation balance sheet at December 31, 1969 (D-225).”
In this section of the Opinion we will set forth our findings as to the events occurring between April 2nd and May 26th, and will analyze specifically the factual contentions of the debtors and trustees which we have set forth verbatim. In this connection, we note here, as we have before, that the debtors and trustees rely, in large measure, upon PSL internal memoranda, and written communications between PSL and the Banks and between the Banks
inter se,
which they have obtained by discovery. We have the gravest doubts as to whether such writings, even if they supported the position of the debtors and trustees, could constitute manifestations of assent to a contract. Notwithtanding those grave
*55
doubts, we will make reference to the internal memoranda and communications in our findings.
b.
The Aircraft Lease
We have found that there was no manifestation of mutual assent on the essential terms of a lease for the N30FW and N40FW at the April 1 meeting. Some of the terms which had not even been discussed on April 1st were the subject of discussions in the ensuing period between April 2nd and May 26th. During that period of time, PSL calculated the amount of the quarterly payments that it expected to receive under the lease for the N30FW and N40FW: “approximately $135,000 per aircraft”, and had further calculated the quarter-annual payment for spare parts at “approximately $25,000”.
17
These figures were communicated to Flying W which evidenced no objection. Flying W had, moreover, transmitted to PSL a list of the spare parts to be sold to PSL under the proposed refinancing agreement,
18
a statement of aircraft serial numbers and engine serial numbers of the N30FW and N40FW, a statement of transactions on which EBR Corporation was a guarantor, a letter from counsel expressing an opinion on the sale of the N30FW and N40FW aircraft, and the EBR Corporation balance sheet as of December 31, 1969. However, we find that the communication, without objection, of the approximate lease rental, even if sufficiently definite to constitute agreement on that important term, and the transmission of the other matters just enumerated do not supply the elements which we found missing at the April 1 meeting; nor are the missing elements supplied by the meetings which we now describe between Flying W and PSL during the April 2nd-May 26th period.
On May 4, 1970, a meeting with the two Whitesells was held at Purchase, New York, by Clark, Noble and a PSL staff attorney, Robert Frank. At the meeting, there was discussion about PSL’s “requirements for further consideration of this deal”. Among the items specifically mentioned were: (1) the need for further information from Orvis Brothers with respect to the stock offering which had previously been discussed (the Whitesells confirmed that Orvis was now taking a lead position with respect to the financing, although Elkins, Morris & Stroud was still involved; and (2) the need for current financial information on Flying W. There was a lengthy discussion about Flying W’s activities on the North Slope and Flying W’s future prospects, and also a discussion about the request of the Whitesells that PSL assist Flying W in maintaining its aircraft insurance which was about to lapse.
A few days later, Clark and Noble flew to Wilmington for a meeting. Afterward, Noble went with William White-sell to work at the Flying W Ranch; Clark stayed in Wilmington and lunched with Selby and Robert Matlack. During lunch, they talked informally about Flying W’s progress in Alaska, Flying W’s overhead costs, Flying W’s insurance problems and other matters. We find that the net effect of the early May meetings was only to reinforce the preconditions PSL insisted Flying W must accept for there to be a deal.
We turn then to the internal memoranda and correspondence. It is important, however, to refer to
all
of the important internal
memoranda and
correspondence during this period, not just those upon which the debtors and trustees rely. To refer only to the latter would give a distorted view.
On April 9, 1970, Clark wrote a memo to Noble indicating that further discussion with corporate management about the proposed Flying W lease transaction
*56
had brought to light several matters which, in addition to other matters which had been previously discussed, had to be taken care of prior to PSL’s being able to agree to anything. Among the matters which in Clark’s view had to be taken care of were: (1) the development of figures relating to Flying W’s insurance, specifically including the insurance rates and payment terms; (2) a modification of the EBR and Matlack guarantees; (3) expansion of the $500,000 cash escrow to cover all three airplanes; (4) modification of the existing second mortgage on the Flying W ranch and the obtaining of a new second mortgage on the RCA Building; (5) obtaining of current financial statements for EBR, the Mat-lacks, Flying W, Red Dodge and the Whitesells and a credit check on the Mat-lacks ; and (6) checking of the statements which had been made by Flying W concerning the financing which was (as of that time) to be obtained through Elkins, Morris & Stroud.
We find that Clark’s memo indicates that as of April 9th, negotiations were continuing and were still in a preliminary stage.
On April 22,1970, Noble wrote a memo to Frank indicating that PSL was apparently going to be able to proceed with negotiations concerning the proposed purchase and lease back. The memo specifically notes that Flying W had not been given a “final o. k.” with respect to the proposed transaction. In addition, the memo contains discussion about certain provisions which PSL felt it would be desirable to have in any documentation which might be developed.
On April 24, 1970, a memo was prepared by PSL which is captioned “Flying W — Items to be Covered Before Closing Can be Scheduled”. The memo demonstrates that as of the time it was written, there was no agreement. Among the areas covered are the following: (1) documentation from the Banks had to be obtained and reviewed and documentation on behalf of PSL had to be prepared and reviewed; (2) further information had to be obtained about the Elkins, Morris & Stroud/Orvis interim financing; and (3) further financial information had to be obtained from the Matlacks, EBR and Flying W.
On May 8, 1970, Noble wrote a memo to Frank indicating that PSL had decided to proceed with negotiations concerning the proposed purchase and lease back, subject to a multitude of requirements and conditions which had to be fulfilled or complied with before PSL would go ahead with any possible deal. The memo also describes the need for documentation which had to be agreed to by all parties and which, in particular, had to be submitted to the Banks “for approval”.
Included among the “requirements and conditions” and among the documents needed for submission to all parties “for approval” were the following: (1) the Aircraft lease agreements; (2) agreements extending the $500,000 security to all three airplanes; (3) documentation for an unlimited second mortgage covering the Flying W Ranch making the security applicable to all Flying W leases;
19
(4) documentation establishing a second mortgage position with respect to the RCA Building, which security was to be applicable to all Flying W leases; (5) a redrawn EBR guarantee to cover all leases to Flying W; (6) a redrawn guarantee by the individual Matlacks agreed to by them so as to cover all leases; (7) guarantees for James and Wm, White-sell; (8) arrangements covering the security of the spare parts; (9) negative covenant agreements had to be prepared for inclusion in the proposed lease; (10) production of EBR’s financials through March 31, 1970 (reflecting the conversion of EBR debt to equity), certified by the three Matlack brothers with an agreement that PSL would receive an audited statement within 90 days; and (11) production of an unaudited Flying W statement through March 31, 1970, certified as to accuracy by Weidenmuller.
Many of the foregoing items had not even been agreed to, much less documented in satisfactory detail. We find
*57
that the memorandum indicates,
inter alia,
that, as of May 8, 1970, the matter was still in the negotiating state and reflects that, in view of the extensive documentation required, there would be no agreement until all documentation was approved and signed by the parties.
On May 11th, PSL’s James wrote an optimistic memo to Noble reporting on a visit which he had had with the partners of Orvis concerning the Flying W letter of intent. James concluded his memo by saying that, “I conclude that Orvis Brothers has made a commitment to Flying W and they should strengthen the companies’ financial area considerably”. The debtors and trustees have contended that it was after learning of this commitment that:
“Mr. Clark sought and received approval from Mr. Lay to ‘finalize the discussions’ ”.
This brings us then to the May 12th memorandum, prepared by Clark as he was preparing to leave the country for several weeks, which is the crux of the debtors’ and trustees’ contention that an agreement was reached between April 2nd and May 26th.
The Clark memorandum to Lay sets forth the nature of the proposed lease transaction as follows:
“Purchase of two additional Lockheed Hercules L-100-20 aircraft (and related parts) from Flying W and leaseback, on a twelve year term, to Flying W. Cost to PSLAL of this year old additional equipment is $7,650,000, compared to present replacement cost of $8,059,000. PSLAL purchase proceeds will be used to pay out present bank financing. The investment tax credit is not a factor in this transaction.
Our back-up financing will be accomplished through a borrowing by PSLAL from Flying W’s present lenders, i. e., The Farmers’ Bank of Delaware and the Girard Trust Company, who will advance 100% of the cost, without compensating balances, on an eight-year term with balloon, the loan to be amortized on a twelve-year, 10% p. a. payout basis. The loan will be guaranteed by PSALC.”
The memorandum further sets forth twelve requirements (some of which appeared in the prior memoranda) of PSL in order to secure the transaction. These requirements include extension of the $500,000 cash security on the N50FW to cover the N30FW and N40FW; guarantees of EBR, the individual Matlack brothers and the Whitesell brothers; extension of the second mortgage lien on New Jersey airport property to cover all Hercules leases; a second mortgage on commercial building (apparently in Cinnaminson); a lease of spare parts to include segregated warehousing and control of same; certain agreements of Flying W and EBR not to incur certain additional obligations without the consent of PSL; certain provisions with respect to insurance; certain requirements as to documentation; certain requirements as to engine and airframe escrow reserves; and the condition that Flying W was to pay all of PSL’s accrued and future costs of the transactions, including counsel fees, recording and other out-of-pocket expenses, and to clear away any liens or claim on the equipment or collateral security except the first mortgages previously noted.
Clark concluded the memorandum with the following words:
“Subject to the above conditions, I request approval of the transaction recommended in my memorandum of March 19, so that we may now finalize the discussions we have had with the lessee, the banks and the guarantors.”
On a copy of the Clark-Lay memorandum, which is marked for identification as D-231, there appears, in the hand of Frank, a notation that “RGC [Clark] advised that Mr. Lay had approved this transaction”. It is the position of the debtors and trustees that this memorandum with Frank’s notation demonstrates that the officers of PSL had received approval from their parent company to enter into the refinancing agreement. We do not so find. Neither Frank, who was oníy a
*58
staff attorney, nor Lay were called upon to testify. However, Clark and Noble, the executive officers of PSL, unequivocally deny that Lay had ever approved the transaction. We do not find that the May 12,1970 memorandum indicates that agreement. In fact, we find that the PSL had entered into a refinancing tenor of the memorandum, referring, as it does, to the “proposed transaction”, and containing many as yet unagreed upon conditions, clearly negates this contention. We do not credit Frank’s notation as having any value. Neither do we find that the absence from the Clark-Lay memorandum of specific reference to the preconditions which we have referred to above indicates PSL’s abandonment of those preconditions. Clark testified that the May 12th memorandum was intended as an amendment and supplement to the March 19th memorandum in which the preconditions had been set forth. Moreover, the intensive PSL activity during this period with a view towards determining the status of the Orvis brothers commitment demonstrates PSL’s concern about the financial situation of Flying W. We find that the purpose of the May 12th memorandum was to obtain authority to negotiate further. At a May 13 meeting, believing that the Orvis commitment was solid, Lay authorized Clark to continue to negotiate and to continue to attempt to develop those terms which they felt were necessary. Clark never advised Frank that Lay had approved the transaction. In fact, the memo itself indicates that before PSL would give a final commitment documentation had to to be reviewed and approved, and we further find that, at this time the documentation was in its early stages.
On May 20, 1970, Noble wrote to Flying W confirming Flying W’s knowledge of the fact that PSL had commenced the preparation of documentation for a possible purchase and lease back transaction. Noble stated that in connection with the preparation of documents, PSL was going to incur certain costs and expenses. He then asked for a confirmation that “whether or not the transaction is consummated”, Flying W would agree to pay and reimburse PSL for all of its reasonable out-of-pocket costs and expenses. This does not in our view indicate that an agreement had been reached. Noble asked Flying W to indicate its agreement to the contents of the letter by executing and returning a copy. On May 25, 1970, Selby executed a copy of the May 20th letter confirming and agreeing to the substance of the letter.
From the foregoing, we find that, as of May 25, 1970, notwithstanding the matters respecting the aircraft insurance to which we now turn, there was no agreement on the aircraft lease aspect of the refinancing agreement.
c.
The Insurance Package
, It is undisputed that on May 26, 1970, PSL advanced the sum of $931,556 for insurance on all three Hercules aircraft for the policy year May 1970 to May 1971. This fact is the second major “prop” of the debtors' and trustees’ contention that a refinancing agreement was concluded by May 26, 1970. Moreover, the debtors and trustees contend that this act by PSL constitutes sufficient part performance to take the agreement out of the statute of frauds, if the statute is applicable; we will discuss that aspect of the matter in a succeeding section of this Opinion. There being no dispute that the advance was made, the important consideration for us is why it was made, hence the following findings.
At the April 1 meeting, Clark had raised the topic of insurance when he stated that if any deal was worked out, PSL would want to establish some form of control over Flying W’s insurance. There was no discussion concerning his observation. At the May 4th meeting, James Whitesell had pleaded with PSL to do everything possible to find a way to help Flying W get insurance coverage which it was now unable to finance. (Flying W was in default on notes due in connection with the then current year’s insurance.) Clark and Noble did not give any commitment, but merely stated
*59
that they would do what they could to help.
After the May 4th meeting Clark and Noble met with PSL’s insurance people and developed an insurance package which was profitable for PSL in the form of an advance of the premium by PSL in return for a note bearing 11% % interest, guaranteed by the Matlacks, EBR and the Whitesells. In analyzing the proposed policies, Clark directed his attention to PSL’s risk of loss. As the transaction was analyzed, PSL’s total maximum exposure was approximately $150,000. Clark considered that exposure to be minimal, especially in light of the guarantees of the Whitesells, the Mat-lacks and EBR. At the time he was considering the insurance problem, Clark was heavily influenced by the fact that PSL’s report had just come back from Orvis indicating that everything looked favorable in connection with the Orvis financing. Therefore, Clark was optimistic about the possibility of reaching an agreement with Flying W on the purchase and lease back transaction, and was partly motivated by his desire to protect the negotiations. In its dealing with Flying W, PSL thought that it was dealing with a viable company. Another factor in deciding to go ahead with the insurance payment was the fact that PSL’s own airplane (the N50FW) would be protected as a result of the payment.
On May 26, 1970, Flying W executed, and the Matlacks, EBR and the Whitesells guaranteed, a promissory note covering the amount of the insurance advance. The makers and guarantors of the note also executed a letter agreement providing,
inter alia,
that the insurance company was authorized to cancel the insurance at the sole discretion of PSL and to refund to PSL all refundable premiums. The note and letter agreement were returned to PSL on that day.
While we find that the insurance premiums were advanced by PSL in anticipation that a refinancing agreement ultimately would be concluded, we also find that the advance had an independent and self-sustaining business purpose. Accordingly, we do not deem the advance of the insurance premiums to be an ingredient in any refinancing plan.
d.
The Bank Loan to PSL
We have found that at the April 1, 1970 meeting, there was no manifestation of mutual assent concerning a loan from the Banks to PSL, although there was an expression of interest to lend. We consider there to be a significant distinction between an expression of interest to lend, or even a statement of intention to lend, and an actual agreement to lend and a confirmation of that fact by a formal commitment on the part of a lender.
The debtors and trustees have heavily underscored the fact that on May 20, 1970, Noble wrote to the Banks,
inter alia,
as follows:
“In connection with our proposed purchase from and lease to Flying W Airways, Inc. of its two Hercules aircraft, registration numbers N30FW and N40FW, and certain rotatable spare parts, we wish to confirm our understanding that you and Girard Trust Company will lend to PSL Air Lease Corp. the amount of $7,650,000 for an eight-year term to be amortized on a twelve-year 10% per annum payout basis, secured by a chattel mortgage upon the aircraft and spare parts, a collateral assignment of the lease for the same and the guarantee of the loan by Pepsico Service Industries Leasing Corporation. We also confirm to you that the loan referred to above is a condition of our going forward, with Flying W in the proposed transactions. ...
We have commenced preparation of the necessary documents and expect to close the transaction within the next two to three weeks. We, therefore, would appreciate receiving from you at your earliest convenience a copy of the letter agreement setting forth the terms and conditions of your proposed loan to PSL Air Lease ...”
*60
We find, however, that PSL never received a response, either orally or in writing, from either Farmers or Girard to the letter, and observe that Noble referred to the “proposed loan”. The Noble letter therefore adds nothing to the debtors’ and trustees’ case.
20
We also find that there was no negotiation between April 2nd and May 26th of the multitude of terms and conditions which would have normally been set forth in the documentation necessary to a loan commitment. As we indicated above, PSL did not have an established banking arrangement with Farmers or Girard as it did with some ninety other banks, and none of the details which are normally part of a bank loan transaction were ever discussed by PSL and the Banks.
The debtors and trustees also heavily rely upon a letter written on April 10, 1970 from Brown of Girard to Baldwin of Farmers as follows:
“This is to advise you that Girard Trust Bank agrees to the sale by Flying ‘W’ Airways, Inc. of the two Lockhed [sic] Hercules Airplanes involved in our joint loan to Flying ‘W’. This sale is to be made to Pepsico Service Industries Leasing Corp. for an amount equal to the present balance owing us including past due principal and interest. This figure is approximately $7,400.000.
Our agreement for the above is based on the following conditions:
(1) Receipt of a note from Pepsico Services covering the amount presently due our two banks.
(2) Retention of our security interest in the two airplanes in question.
(3) Assignment to us of Flying ‘W’ and Pepisco Leases.
(4) Assignment of Flying ‘W’ and Red Dodge Leases (if in existence).
We understand further that the loan will be for a period of 8 years with a 12 year payout and the rate of interest is to be 10% per annum.”
We find that Brown wrote this letter because he was asked by Johnson to give Farmers something for its files so that they could rely upon it, indicative to PSL that the Banks desired to proceed with negotiations. We do not find the letter to constitute a bank loan commitment. Moreover, there is no evidence indicating that a copy of Brown’s April 10th letter was delivered to PSL prior to September 25, 1970.
There having been no other interim developments, we find that, as of May 26, 1970, there was no manifestation of mutual assent by the parties upon that aspect of the refinancing agreement which contemplated a loan from the Banks to PSL to cover the cost of purchase of the N30FW and N40FW.
e.
The Loan to Flying W to Provide Funds for Settlement
As will be seen from the succeeding sections of this Opinion, the financial position of Flying W was seriously deteriorating. Flying W therefore needed to raise sums to complete settlement. Considerable sums were already past due to PSL, and, in addition, it had come to light after the April 1,1970 meeting that Lockheed held a lien on the N30FW and N40FW which would require $125,000 to satisfy (this had not even been discussed at the April 1 meeting at which the debtors and trustees contended that there was an agreement reached!). Accordingly, on May 11, 1970, Selby wrote to Baldwin requesting a loan from Farmers, stating that Flying W’s “complete financial requirements” were as follows: (1) an accounts receivable loan in the amount of $500,000 (this was to replace and augment Flying W’s present accounts receivable financing, which was with First Pennsylvania Company, and on which there was a balance outstanding); (2)
*61
an interim loan in the amount of $549,-768.00 to be used to establish engine reserve accounts on the N30FW, N40FW and N50FW; and (3) a loan in the sum of $284,000 to enable the refinancing of loans which Flying W had with the New Jersey banks. We find, however, that Farmers at no time responded to Selby’s May 11th letter with a commitment to make the loan and that Flying W would not have been in position to complete settlement without it. We shall see,
infra,
how Flying W’s loan requests to provide funds to enable it to complete settlement steadily increased throughout the spring and summer. We find that, on some occasions, Farmers expressed a “willingness” to lend; Baldwin would say from time to time that he thought that a particular loan “could be arranged”, but we find no loan commitment in the conventional sense to have been issued.
The fact of the matter is that Flying W would not have been financially able to close even had there been a refinancing agreement without obtaining a closing loan. While such a loan therefore became a necessary ingredient of the refinancing plan, it never was agreed to by Farmers.
f.
Conclusion
We have reviewed the events occurring between April 2nd and May 26th pertaining to the principal terms of the alleged refinancing agreement and have found that there was no manifestation of mutual assent during that period on any of the principal terms. We further find that had there been such manifestation on the so-called
principal
terms that we have discussed, there would by no means have been a mutual manifestation of assent upon
all the material terms
of an infinitely complex agreement. We further find (see
infra)
that the parties did not contemplate that there would be an agreement until the documentation was concluded and the terms reduced to writing, which did not occur between April 2nd and May 26, 1970.
5.
Events Occurring Between May 26, 1970 and June 25, 1970
Although the debtors and trustees do not contend that a refinancing agreement came into existence between May 26th and June 25th, it is, nonetheless, important that we review the events occurring between those dates, for they shed light on the refinancing agreement claim and bear heavily on the estoppel issue. In so doing, we first find that, during the period from May 26th to June 25, 1970, the parties continued the negotiations which had been underway for several months looking towards the refinancing agreement. However, during this period, a number of events occurred which caused Flying W’s position in the negotiations to deteriorate seriously.
First,
it became apparent to all concerned that Orvis Brothers was in serious financial difficulty and that the Orvis commitment to raise equity financing for Flying W was therefore worthless. In late May, Orvis Brothers failed and went out of business.
Second,
PSL learned that the N50FW was at Lockheed, Georgia with a defective wing which had cracked during a flight in Alaska, and that a major repair was involved.
Third,
Clark learned that Weidenmuller had resigned; Weidenmuller was the individual upon whom PSL was relying for figures.
Fourth,
Clark saw Flying W’s March 31st statements for the first time, reflecting the seriously deteriorating financial position of the company.
Fifth,
on June 11th, Selby wrote to Baldwin with a renewed request for a loan to be made at the time of closing with PSL. This time the loan request had been upped to $805,807.
Inter alia,
Flying W was unable to meet the payment due PSL in connection with the insurance advance in addition to the other sums owed PSL. Included in the letter was a request for the sum of $125,000 for final payment to Lockheed Aircraft Service Company in
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order to release liens held on the Hercules aircraft.
On June 16, 1970, a meeting was held at Farmers attended by Selby, Robert Matlack, James Whitesell, Baldwin, Johnson, Milione, and Wesley Newhouse (a representative of First Pennsylvania Bank).
21
The principal subject of the meeting was Selby’s loan request of June 11th. Milione said that, in considering a loan of the size requested, the bank was concerned because it could see nothing in Flying W to secure the loan; thereupon a discussion ensued as to possible additional security. Farmers requested further information from Flying W, including an itemization of contingent liabilities and a request, previously made, for a complete listing of all accounts receivable and an aging of those accounts. Although Selby apparently felt that Farmers was committed to an $805,000 loan at the June 16th meeting, we do not so find. On June 24, 1970, Farmers was still investigating the possibility of lending money to Flying W. In a telephone conversation, Johnson so informed Clark and asked him to provide him with financial information which PSL had available concerning EBR and the Mat-lacks so that Farmers could evaluate the loan request.
After Clark’s return from abroad in early June, PSL, still concerned about Flying W’s financial situation, had continued to accumulate information on Flying W’s liabilities. Noble contacted James Whitesell and asked him to be certain to bring Flying W’s current financials to a meeting which had been scheduled for June 25th. Noble had frequent conversations with Whitesell and was discussing with him the financial requirements for Flying W to close the deal. In a conversation with Selby during this period, Noble had reiterated his statement at the April 1st “side-meeting” to the effect that all delinquencies of Flying W to PSL, including the N50FW delinquency, would have to be brought up to date.
The June 25th meeting occurred at the offices of PSL at Purchase, New York. It was attended by Selby, Edwin Matlack, James Whitesell, John O. Sitzler, Esq. (Flying W’s corporate secretary), Clark, Noble, and also Robert I. Pagnucco, J. W. Barba and William Foss, all lawyers representing PSL. Prior to the meeting, Selby had been advised by the representatives of PSL that the June 25, 1970 meeting was to be a “pre-closing meeting”, and the meeting began with a review of the available documentation. The draft lease was reviewed along with other documents.
22
The significant event of June 25th was a side-meeting in Clark’s office, attended by Clark, Noble, Selby and James Whitesell, at which Clark told Selby and Whitesell that the May 31 financial statements which had just been presented to PSL portrayed a different financial picture from that which had been presented to PSL on earlier occasions. These financial statements showed that for the first eleven months of Flying W’s fiscal year, the company had lost $3,496,951.61. The loss for the month of May was $268,875.17. The Flying W loss for the first five months of 1970 was shown to be $1,-324,000. Clark stated that he could not take the May 31 financials to Pepsico for approval. During the discussion which followed, Clark made reference to the fact that the statements showed that Flying W had a deficit equity position. He also made reference to the fact that the
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statement presented was an actual statement and did not reflect the conversion of the Matlacks’ debt position to equity. Clark was particularly surprised about that fact in light of what he had been previously told by James Whitesell — that the EBR conversion had been effectuated as of March 30th.
During the side-meeting, a number of new requirements for proceeding with the negotiations were discussed. Clark stated: (1) that Flying W should have working capital in an amount sufficient to cover the Corporation’s losses for a period of six months to a year; (2) that all accounts payable should be up to date; and (3) that financing for the Anchorage hangar should be arranged. At the time of the conversation, Selby knew that Flying W was going to have to obtain money to make a quarterly advance rental payment with respect to the two Aircraft, and spare parts and money to cure other delinquencies. Clark offered some suggestions as to how Flying W could obtain the financing that was necessary. One of his suggestions was that Flying W should contact the oil companies with whom it was doing business. Selby responded to Clark’s comments by stating that,
“[W]e would try to provide this financing, that we would attempt to go out and get the financing.”
James Whitesell responded to Clark’s remarks and suggestions by saying that Flying W would try to arrange the requested and needed financing. In the wake of PSL’s firm insistence upon its preconditions (and the addition of some new ones), and the lack of Flying W’s protestations thereto, it is clear that, in the period between May 26th and June 25th, just as before, there had been no affirmation of mutual assent as to the terms of a lease for the N30FW and N40FW aircraft.
During the period from May 26th to June 25th, the Banks also continued their role in the negotiations. Anticipating that something favorable might happen with respect to Flying W’s finances, and in recognition of the fact that the executive committee of Farmers does not meet in August, Baldwin and Johnson sought and obtained authorization to make a $7,650,000 loan to PSL and a $1,200,000 loan to Flying W from the Wilmington Board of the Bank in late June, and from the Executive Committee of the Bank in its July meeting. However, in accordance with Baldwin’s testimony, we find that the actions of the Wilmington Board and the Executive Committee do not constitute approval of the loans, but rather authorization to Baldwin and Johnson to proceed with the loans if they deemed it appropriate. The debtors and trustees also point to a June 3, 1970 letter sent by Johnson to Noble enclosing draft loan papers. The letter had been prepared by Milione, who had understood that PSL was inquiring as to what type of contract Farmers would desire in the event that the parties entered into the loan arrangement which was being discussed, and we find Milione’s objective in sending such papers was solely to give PSL a sample of what Farmers had used in the past.
We further find that neither Ikeler, Van Norden nor Brown had authority to commit Girard’s participation in a loan of the size contemplated. They met with Raymond Euler, Vice President of Girard, who did have authority to approve a loan of that magnitude. Euler agreed that the concept of such a transaction was desirable, and he authorized Ikeler and Van Norden to proceed with negotiations. He did not, however, authorize or approve the making of a loan, nor do we find that Girard’s participation in the loan to PSL was ever authorized by appropriate corporate action.
In view of the deteriorating financial status of Flying W, it is plain that the Banks would have preferred to have its loan paid off and be able to look for payment to a financially sound subsidiary of Pepsico, Inc. instead of Flying W. Notwithstanding this fact, we find no evidence that the aircraft loan aspect of the refinancing agreement had been agreed upon by June 25, 1970.
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6.
Negotiations Looking Towards a Refinancing Agreement After June j25, 1970
We find that the parties continued their negotiations looking towards a refinancing agreement into the early part of September 1970. They also continued to develop the documentation for a proposed transaction. It is important to recite the events of this period because they shed light upon the refinancing agreement claim and bear heavily upon the issue of estoppel.
The first development of significance after the June 25, 1970 meeting involved efforts to obtain a successor to Orvis Brothers with respect to Flying W’s equity financing. James Whitesell, Robert Matlack and other representatives of Flying W (aided in some instances by representatives of PSL) sought such financing from numerous sources, including Lehman Brothers, the Alaskan State Bank, the Industrial Valley Bank, the Gulf Oil Corporation, the Humble Oil Corporation, and a number of other groups.
23
The parties met again at Farmers on June 30,1970. Selby attended along with Robert Matlack for Flying W; Clark represented PSL, and Baldwin and Johnson represented Farmers. At the meeti

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Source: Frix Law Library, https://www.frixlaw.com/law-library/cases/1456930. Public record. Not legal advice.