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SWISS BANK CORP. v. DRESSER INDUS.

October 3, 1996

Swiss Bank Corporation, a Swiss Banking Corporation; and O'Connor Investments, an Illinois partnership, Plaintiffs,
v.
Dresser Industries, Inc., a Delaware corporation, Defendant.



The opinion of the court was delivered by: ZAGEL

 I. Background

 Anyone who has given a deadline to another has learned that it is unwise to use the phrase "prior to x day". Many will regard the deadline to mean "by x day", meaning sometime before the close of business on "x". The fact remains that "prior to x" does not mean the same thing as "by x" and the legal consequences are very different. The plaintiffs here seek to avoid the price paid for reading "prior to" as meaning the same thing as "by". It can do so in two ways. It can show that the use of "prior to x" is so commonly understood to mean "by x" that it is unfair, even deceptive to use "prior to x" as a deadline, a deliberate creation of a trap for the unwary. This showing seems impossible to make and plaintiffs do not try. Instead the plaintiffs argue that in the context of the contract in this case, the use of "prior to x" means "by x" or, alternatively, that "prior to x" is ambiguous here and one must consider parole evidence that the true meaning of the deadline was "by x".

 On the basis of this argument, plaintiffs have brought this action for breach of contract regarding a stock warrant agreement that expired "prior to April 5, 1996". This case is now before the court upon Defendant Dresser's Motion to Dismiss the Complaint.

 The plaintiffs have alleged that on April 5, 1991, Baroid Corporation ("Baroid") issued a stock warrant ("Baroid Warrant") to Diamant Boart S.A. ("Diamant") granting Diamant the right to purchase up to 1,000,000 shares of Baroid for $ 7.875 per share.

 On January 21, 1994, Defendant Dresser Industries, Inc. ("Dresser") acquired Baroid. Dresser assumed Baroid's obligations under the Baroid Warrant and issued a replacement certificate ("Diamant Warrant") to Diamant. The replacement granted the same benefits under the same terms as contained in the Baroid Warrant. However, the Diamant Warrant granted the right to purchase up to 400,000 shares of Dresser stock for $ 19.6875 per share to adjust for Dresser's acquisition of Baroid.

 On May 19, 1994, plaintiff O'Connor Investments ("O'Connor") purchased the Diamant Warrant from Diamant. On or about June 21, 1994, Dresser issued a replacement certificate ("O'Connor Warrant") to O'Connor. Then, on or about December 29, 1994, plaintiff O'Connor sold the O'Connor Warrant to plaintiff Swiss Bank Corporation ("SBC").

 On April 8, 1996, SBC attempted to exercise its rights under the O'Connor Warrant by offering to purchase 400,000 shares of Dresser stock. However, Dresser refused to sell any shares on the grounds that the warrant had already expired. Subsequently, SBC and O'Connor brought this action based on diversity jurisdiction claiming that Dresser's refusal to sell stock to SBC breached the O'Connor Warrant contract. The Defendant moved to dismiss the complaint under Fed. R. Civ. P. 12(b)(6).

 "The purpose of a motion to dismiss is to test the sufficiency of the complaint, not to decide the merits." Gibson v. Chicago, 910 F.2d 1510, 1520 (7th Cir. 1990) (quoting Triad Assocs., Inc. v. Chicago Hous. Authority, 892 F.2d 583, 586 (7th Cir. 1989)). A plaintiff fails to state a claim upon which relief may be granted only if "it appears beyond doubt that plaintiff can prove no set of facts in support of his claim which would entitle him to relief." Leahy v. Board of Trustees of Community College Dist. No. 508, 912 F.2d 917, 921 (7th Cir. 1990) (quoting Conley v. Gibson, 355 U.S. 41, 44-45, 2 L. Ed. 2d 80, 78 S. Ct. 99 (1957)).

 "For the purposes of determining whether the complaint states a claim, the facts alleged, plus reasonable inferences therefrom, are taken as true, and the question is then whether on those assumptions plaintiff would have a right to legal relief." Bane v. Ferguson, 890 F.2d 11, 13 (7th Cir. 1989).

 III. Analysis

 Did the defendant breach the O'Connor Warrant contract? To answer this, the court must construe the contract to determine whether it was valid at the time that SBC attempted to exercise its rights thereunder. According to the terms of the O'Connor Warrant, Delaware substantive law governs its interpretation and validity.

 Under Delaware law, a contract should be construed as a whole to satisfy the reasonable expectations of the parties at the time they entered into the contract. See Northwestern Nat'l Ins. Co. v. Esmark, Inc., 672 A.2d 41, 43 (Del. 1996); Demetree v. Commonwealth ...


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