MELLON BK. v. FIRST UNION RL. EST. EQ. & MOR. INV.

• Decision Date: 28 September 1990
• Docket Number: Civ. A. No. 88-0775.
• Citation: 750 F. Supp. 711
• Parties: MELLON BANK CORPORATION and Mellon Bank, N.A., Plaintiffs, v. FIRST UNION REAL ESTATE EQUITY AND MORTGAGE INVESTMENTS, Defendant.
• Court: U.S. District Court — Eastern District of Pennsylvania

750 F. Supp. 711

MELLON BANK CORPORATION and Mellon Bank, N.A., Plaintiffs, v. FIRST UNION REAL ESTATE EQUITY AND MORTGAGE INVESTMENTS, Defendant.

Civ. A. No. 88-0775.

United States District Court, W.D. Pennsylvania.

September 28, 1990.

Paul A. Manion, Pittsburgh, Pa., for plaintiffs.

Kenneth S. Mroz, Pittsburgh, Pa., and James T. Crowley, Cleveland, Ohio, for defendant.

MEMORANDUM OPINION AND ORDER

D. BROOKS SMITH, District Judge.

This case arises out of a series of transactions between First Union Real Estate Equity and Mortgage Investments (hereinafter First Union), an Ohio real estate trust, and Mellon Bank (hereinafter Mellon). In the fall of 1981, Mellon was badly in need of space for expanded office facilities, and approached First Union to explore the possibility of acquiring from it One Oliver Plaza, a building in downtown Pittsburgh.

The parties began negotiating for a mutually agreeable sale price, and these efforts continued for several months. The greatest obstacle was not, however, the sale price. Instead, the parties had difficulty agreeing on the structuring of Mellon's payment for the building. Mellon preferred to purchase the property with cash, thereby avoiding the payment of interest on a loan. Barnes Deposition at 21. First Union, on the other hand, would not consent to a cash sale because of the tax ramifications to it. Schofield Deposition at 70. Indeed, Donald Schofield, the President of First Union, insisted that the transaction be structured to be tax free for First Union. Accordingly, he proposed that Mellon purchase the property through an installment sale. Mellon hesitated because of the attendant interest charges. Schofield then offered to give Mellon mortgages on two of its mall properties to offset the cost of the interest of the installment sale of One Oliver Plaza. Mellon accepted this arrangement and the parties began to draft the appropriate documents.

The transaction was further complicated by Schofield's insistence that the transactions, the sale of One Oliver Plaza and the mall mortgages, appear independent of each other. According to Mellon, Schofield insisted on the appearance of independence to lessen the likelihood of I.R.S. scrutiny. See Knight Deposition at 25-26; Montgomery Deposition at 37-38. To facilitate the appearance of independence, the parties agreed that the mall mortgages and the One Oliver Plaza deal would close in different years. The loan documents also contained different provisions regarding the parties' right to prepay the loans. The mall mortgages specifically provided for prepayment, whereas the One Oliver Plaza note expressly prohibited prepayment. Mellon claims that, notwithstanding the contractual language to the contrary, Schofield promised that he would not prepay the mall mortgages, or if he did exercise his right to prepay, he "would not hurt Mellon." See Knight Deposition at 32.

The mall mortgages closed on March 2, 1982, and the mortgage on One Oliver Plaza closed on May 13, 1983. On August 31, 1983, Schofield informed Mellon that First Union would exercise its right to prepay the mall mortgages as provided in the loan documents.

Mellon protested First Union's decision to prepay and reminded First Union of the alleged oral agreement. See Montgomery Deposition at 96; Schofield Deposition at 300-301. First Union denied making any such agreement and prepaid the mall mortgages in accordance with the written agreements. Mellon took no further action until September of 1986, when it approached First Union with a proposal to prepay the One Oliver Plaza note. First Union refused to accept prepayment and refused to make alternative arrangements to buffer Mellon's loss on the interest payments.

As a result, Mellon filed this suit against First Union alleging six breach of contract counts and one count of fraudulent misrepresentation. The case is now before us on First Union's motion for summary judgment. First Union claims it is entitled to summary judgment on the contract counts because the parol evidence rule bars the introduction of evidence concerning the alleged oral agreement. First Union further claims that it is entitled to summary judgment on the fraud count simply because Mellon cannot produce any evidence of fraud sufficient to overcome this motion for summary judgment.¹ We agree, and for the reasons set forth below, grant First Union's motion.

Rule 56 allows a party to move for summary judgment upon a showing that there is no genuine issue of material fact or that it is entitled to judgment as a matter of law. Although we view the evidence in the light most favorable to the non-moving party, Lang v. New York Life Ins. Co., 721 F.2d 118, 119 (3d Cir.1983), the nonmoving party has the burden of showing that there is a genuine dispute regarding an issue of material fact. The nonmoving party must produce more than a mere scintilla of evidence to avoid summary judgment. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 262, 106 S.Ct. 2505, 2517, 91 L.Ed.2d 202 (1986). Indeed, the nonmoving party must produce evidence upon which the jury could reasonably find for the plaintiff. Id. Mellon cannot meet this burden.

I. THE CONTRACT CLAIMS

The Pennsylvania courts steadfastly adhere to the parol evidence rule which forbids "the introduction of parol evidence of antecedent or contemporaneous agreements, negotiations and understandings of the contracting parties for the purpose of varying or contradicting the terms of a contract which both parties intended to represent the definite and complete statement of their agreement." American Bank & Trust Co. of Pennsylvania v. Lied, 487 Pa. 333, 409 A.2d 377, 381 (1979). See also McWilliams v. McCabe, 406 Pa. 644, 179 A.2d 222, 228 (1962). In re Furjanick's Estate, 375 Pa. 484, 100 A.2d 85, 89 (1953).

Whether a writing is the complete statement of the agreement is to be determined by examining the writing itself, and if "it is couched in such terms as import a complete legal obligation without any uncertainty as to the object or extent of the engagement, it is conclusively presumed that the whole engagement of the parties, and the extent and manner of their undertaking were reduced to writing." Gianni v. Russell & Co., 281 Pa. 320, 126 A. 791, 792 (1924). Thus, the question of integration is one for the court to decide by reference to the four corners of the agreement. Federal Deposit Ins. Co. v. Barness, 484 F.Supp. 1134, 1146 (W.D.Pa.1980). See also Mellon Bank, N.A. v. Aetna Business Credit, 619 F.2d 1001, 1010 n. 9 (3d Cir.1980). The agreement in the instant case was reduced to three separate, formal agreements which identified the property involved, the purchase price and the terms of repayment. Accordingly, we find that the writings were integrated and that therefore, the parol evidence rule is applicable.

Mellon attempts to avoid the consequences of the parol evidence rule by arguing that the instant case falls within two well recognized exceptions to that rule. Mellon first claims that the oral agreement was somehow separate and distinct from the written agreement, thereby making the parol evidence rule inapplicable. Next, Mellon contends that it was induced to agree to the written provisions of the note by Schofield's fraudulent misrepresentations regarding his intent to honor the prepayment provisions of the mortgage notes. Both of these contentions are without merit.

A. The Separate Agreement Theory

It is well recognized that the parol evidence rule does not bar evidence of oral agreements that are separate from the written agreement. See Wood v. R.R. Donnelley & Sons, 888 F.2d 313 (3d Cir. 1989). An oral agreement, however, is not considered a separate agreement unless it concerns a separate subject and is supported by independent consideration. See Wood v. R.R. Donnelley & Sons, 888 F.2d at 317-18; Cohn v. McGurk, 330 Pa.Super. 333, 479 A.2d 578 (1984), Kravitz v. Mudry, 200 Pa.Super. 240, 189 A.2d 311 (1963). The facts of the instant case preclude Mellon from availing itself of this exception. The oral agreement in the instant case concerned a material term of the contract that was expressly provided for in the writing. Thus, the oral agreement did not concern a collateral matter, but went to the heart of the transaction governed by the writing. Moreover, there was absolutely no independent consideration for the oral agreement. Both the facts of this case and counsel's statement at oral argument belie any attempt to characterize the oral agreement as separate from the writing. Indeed, at oral argument, counsel for Mellon stated that, but for the oral agreement that Schofield would "protect" Mellon, Mellon would not have entered into the transaction. Thus, it is impossible to find that the oral agreement was in any manner independent from the writings.

Moreover, the cases upon which Mellon relies for support of its theory of a separate agreement are easily distinguished from the matter at hand. Indeed, a brief review of these cases will demonstrate the weakness of Mellon's position.

Cohn v. McGurk, supra, is similar to the instant case in that it involved a dispute over an obligation on a mortgage. That, however, is where the similarities end. In Cohn, the McGurks were named guardians of the children of Margaret Grekowicz. In her will, Grekowicz directed that her estate provide the McGurks with enough money to purchase a home for her children. When the mortgage on the new house was closed, Cohn, the personal representative of Grekowicz's estate, told the McGurks that they would have to sign a mortgage on the new house in favor of the estate or the money required to purchase the house would not be forthcoming. Thus, the McGurks had a choice between signing the mortgage in favor of the estate or losing the $20,000.00 they had already deposited as a down payment. The McGurks chose to sign the mortgage. However, prior to the closing, Cohn had given McGurk assurances that...