General Elec. Capital Corp. v. Armadora, S.A.
| Decision Date | 22 September 1994 |
| Docket Number | No. 1573,D,1573 |
| Citation | 37 F.3d 41 |
| Parties | GENERAL ELECTRIC CAPITAL CORPORATION, as Successor in Interest to General Electric Credit Corporation, Plaintiff-Appellant, v. Eva ARMADORA, S.A., and Christina Armadora, S.A., Defendants-Appellees. ocket 93-9282. |
| Court | U.S. Court of Appeals — Second Circuit |
Mark C. Flavin, New York City (Alan Heblack, Andrea Fischer, Haight, Gardner, Poor & Havens, of counsel), for plaintiff-appellant.
James P. Rau, Cardillo & Corbett, New York City, for defendants-appellees.
Before: FEINBERG, VAN GRAAFEILAND and WINTER, Circuit Judges.
General Electric Capital Corporation ("GECC") appeals from a judgment entered following a bench trial before Judge Motley directing Eva Armadora, S.A., and Christina Armadora, S.A. (collectively "Armadora") to pay GECC $492,418.50 in principal, interest, and attorneys' fees for breach of contract. GECC sought an additional sum of over two million dollars based upon the "Special Interest Payment" term of the contract. The district court denied this relief because it found the "Special Interest Payment" term to be ambiguous and construed it against GECC based on extrinsic evidence. We disagree. Whatever the original intent underlying the "Special Interest Payment," Armadora's conduct estops it from challenging GECC's interpretation. For that reason we reverse. We remand for a recalculation of attorney's fees.
On February 28, 1986, Armadora obtained a three-year loan from GECC to pay for two tanker ships that Armadora's principal, T. Peter Pappas, had commissioned from a Spanish shipyard. In return for financing equal to the total value of the vessels, $18,000,000, Armadora agreed to make a payment over and above the repayment of the loan following any sale or refinancing of the vessels. Section 2.09 of the Loan Agreement, entitled "Special Interest Payment," thus specified that:
(a) After the principal of, and interest at the Interest Rate, on a Note and any other amounts required ... have been repaid or prepaid in full ... [Armadora] shall pay to GECC, as additional interest ("Special Interest Payment") on the Loan in respect of which such Note was issued:
. . . . .
(ii) On the date of sale or Loss Payment Date respecting a Vessel, 30% of the excess of (x) the total gross proceeds received from the sale, loss or other disposition of such Vessel received by [Armadora] over (y) the aggregate of (A) the amount of expenses paid or incurred by [Armadora] and directly related to the sale, loss, or other disposition of the Vessel and (B) any amounts due or paid which are described in clauses (i) through (iv) of the definition of Excess Income.
The Loan Agreement defined "Excess Income" as follows:
"Excess Income " for each Vessel during any period shall mean ... all earnings received in respect of such Vessel ... less [certain operating expenses] ... plus (x) as to any refinancing occurring during such period, the principal amount of any increase over existing indebtedness of [Armadora] at the time of such refinancing and (y) any interest earned by [Armadora] less the aggregate of (i) commissions paid to independent charter brokers, (ii) operating expenses directly related to such Vessel including drydocking expenses paid by the relevant borrower under the Bareboat Charter, (iii) management fees due to a manager under a management contract approved by GECC, (iv) principal and interest paid for the relevant period in respect of any outstanding indebtedness respecting such Vessel.
In September 1987, Armadora sought to refinance the loan, pre-pay it, and terminate its agreement with GECC. Pursuant to the Loan Agreement, the pre-payment and termination required GECC's consent. Pappas engaged Paul Gurtler to negotiate for this consent on Armadora's behalf with GECC's Steven Gonzalez. In the course of these negotiations, Gonzalez and Gurtler discussed the timing of the termination, its treatment as a "deemed sale" in the amount of $26,400,000, and the calculation of the Special Interest Payment. At trial, both Gonzalez and Gurtler testified that Gonzalez had calculated this payment for Gurtler as approximately $3,000,000. On October 15, 1987, Gurtler sent a letter to Gonzalez confirming the substance of these discussions, including a reference to the "30% 'profit sharing' element," but without referring to Gonzalez's calculation of approximately $3,000,000 for that payment. On October 27, 1987, Gonzalez responded in a letter to Gurtler that "state[s] my understanding of the current state of negotiations." This letter spelled out Gonzalez's calculation of the Special Interest Payment as follows:
The amount of the 30% "Special Interest Payment" referred to in the Loan Agreement shall be fixed at 30% of the difference between $26.4MM ... less the aggregate loan principle balance on the Vessels on the date of payment.
Under its interpretation, GECC would permit a deduction from the deemed sale price only of the $14,951,484 of outstanding principal at the time of repayment. At trial, Pappas conceded that, were the calculation of the Special Interest Payment embodied in the October 27 letter to govern, GECC would be entitled to a Special Interest Payment in excess of $3,000,000.
Gonzalez's October 27 letter closed with a request for Gurtler to discuss the matter with Pappas and, if Pappas was "in general agreement," to have counsel prepare a written agreement for GECC to review and execute. Following the receipt of the October 27 letter, Gurtler and Gonzalez spoke again and, as Gurtler testified, Gonzalez once again referred to the approximately $3,000,000 he expected as the Special Interest Payment. According to Gurtler, Gurtler responded that the Loan Agreement provided for "certain deductions" but that Gonzalez had characterized those as "minor."
On November 12, 1987, Pappas sent Gonzalez by telecopier the draft of an addendum that would become "Addendum 1" to the Loan Agreement. Pappas included a cover letter to Gonzalez that stated, "THIS ADDENDUM FORMALIZES THE AGREEMENT WHICH WE HAVE REACHED AS RECAPITULATED IN YOUR LETTER ADDRESSED TO MR. PAUL GURTLER DATED OCTOBER 27, 1987." In Addendum 1, GECC consented to the pre-payment and termination of the agreement. However, Addendum 1 failed to specify the method of calculation of special interest and merely stated that, "[w]ith respect to the Special Interest Payment provided for in Section 2.09 of the Loan Agreement this transaction shall be treated as a sale to a third party on the date of pre-payment with the sale price fixed at $26.4 million...." It concluded that "[a]ll other terms and conditions of the Loan Agreement dated as of February 28, 1986 shall remain in full force and effect."
Just before the execution of Addendum 1, Gonzalez spoke with Robert Miliaresis, an officer of Armadora, to discuss the language of Addendum 1, including the language referring to the Special Interest Payment. Gonzalez testified that Miliaresis characterized the deductions as minor. Miliaresis denied this but admitted that he had neither sent Gonzalez his own calculation of the deductions applicable to the Special Interest Payment nor directly disputed GECC's calculation. He did testify that he informed Gonzalez that Armadora would insist that the Loan Agreement would govern the terms of the pre-payment.
On November 17, 1987, GECC signed Addendum 1, thus giving up its right to block pre-payment and termination. Soon thereafter, Armadora began openly to insist upon an interpretation of Section 2.09 at odds with that embodied in the October 27 letter. In a telephone conversation in late January 1988, Miliaresis told Gonzalez that Armadora wanted to deduct the entire amount of the principal and interest, $21,000,000. As the district court found, this was the first time that Armadora revealed to GECC its interpretation of Section 2.09. Gonzalez responded to Pappas once again that GECC's interpretation of the Special Interest Payment calculation was that Armadora would be allowed to deduct only the present outstanding balance of approximately $15 million. Pappas wrote back indicating that he disagreed with GECC's calculation and that "[t]he amount of the special interest payment was to be calculated strictly in accordance with the Loan Agreement." Following this exchange, on February 26, 1988, the parties signed a second addendum ("Addendum 2") which defined the Special Interest Payment by reference to Addendum 1 and the Loan Agreement and stated that
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