Lincoln Nat. Life Ins. Co. v. NCR Corp., s. 84-2041

• Citation: 772 F.2d 315
• Decision Date: 29 August 1985
• Docket Number: Nos. 84-2041,84-2057,s. 84-2041
• Parties: The LINCOLN NATIONAL LIFE INSURANCE COMPANY, Provident Life and Accident Insurance Company, Provident Mutual Life Insurance Company of Philadelphia and Life and Casualty Insurance Company of Tennessee, Plaintiffs-Appellants, Cross-Appellees, v. NCR CORPORATION, Defendant-Appellee, Cross-Appellant.
• Court: U.S. Court of Appeals — Seventh Circuit

Page 315

772 F.2d 315

The LINCOLN NATIONAL LIFE INSURANCE COMPANY, Provident Life and Accident Insurance Company, Provident Mutual Life Insurance Company of Philadelphia and Life and Casualty Insurance Company of Tennessee, Plaintiffs-Appellants, Cross-Appellees, v. NCR CORPORATION, Defendant-Appellee, Cross-Appellant.

Nos. 84-2041, 84-2057.

United States Court of Appeals Seventh Circuit.

Argued May 22, 1985.

Decided Aug. 29, 1985.

William L. Sweet, Barrett, Barrett & McNagny, Ft. Wayne, Ind., for plaintiffs-appellants, cross-appellees.

Robert P. Johnstone, Barnes & Thornburg, Indianapolis, Ind., for defendant-appellee, cross-appellant.

Before BAUER and COFFEY, Circuit Judges, and CAMPBELL, Senior District Judge. ^*

BAUER, Circuit Judge.

This case involves an alleged failure by Defendant NCR to honor a mortgage loan commitment issued by plaintiffs-lenders. NCR Corporation intended to build a world headquarters on the banks of the Greater Miami River in Dayton, Ohio. To that end, in 1975 NCR secured the services of the United California Mortgage Company (UCM) to obtain financing for its new project. UCM promptly lined up the plaintiffs in this case as lenders: The Lincoln National Life Insurance Co. (Lincoln); Provident Mutual Life Insurance Co. (Provident Mutual); Provident Life & Accident Insurance Co. (Provident Life); and Life & Casualty Insurance Co. of Tennessee (Life & Casualty). After a good deal of negotiations and exchanges of papers and signatures, all of which are now a matter of dispute, plaintiffs thought they had a contract to finance the construction of NCR's headquarters. We do not know what NCR thought it had, but we do know that in January 1976 in Dayton, Ohio, D.W. Russler, the Treasurer of NCR, made that always delightful discovery of an extra $200,000,000 cash on hand. Russler immediately formed an Excess Cash Committee, which loyally voted to spend the excess cash on construction of the world headquarters. NCR then notified plaintiff that because of Mr. Russler's happy discovery, NCR would not need outside financing. The plaintiffs, angry at having to erase the NCR loans from all of their flow charts, filed suit in the Northern District of Indiana, alleging that NCR had failed to consummate the mortgage loan commitment, and seeking damages or specific performance. After a two day bench trial, the District Court for the Northern District of Indiana held that the mortgage loan commitment was a contract which NCR had breached. The court looked carefully for some damage to plaintiffs, but finding none, suggested instead that plaintiffs ought to have been happy to have lucked out of what now looks in retrospect to have been a bad investment. Undeterred by the court's optimistic wisdom, the lenders appeal, arguing that the district court erred in holding that they had failed to prove damages. NCR on appeal applauds the district court's reasoning on damages but suggests on a cross-appeal that the court erred in even finding a contract. We affirm.

I

In 1975 NCR sought a loan of $14,000,000 to finance the construction of their world headquarters. NCR agreed to pay UCM a fee of one-half of one percent of the principal amount of the loan for UCM's services in securing lenders for the financing of the NCR headquarters. Thereafter UCM operated as an intermediary between the parties and arranged the participation amounts per party, the loan terms, and interest rates. Plaintiff Lincoln requested and received a good faith deposit of $50,000 from NCR in order to insure that UCM would act for NCR. The plaintiffs then secured approval for their loans from their respective loan committees, and, receiving such approval, placed the NCR loan on their cash flow charts.

On November 5, Lincoln, on behalf of all the plaintiffs, issued a Mortgage Loan Commitment to NCR which set forth various terms and conditions of the loan. The commitment provided for a loan of up to $14,000,000 at an interest rate of 9 7/8 for a term of 25 years. A specified portion of the loan was to be provided for by each plaintiff. The Mortgage Loan Commitment began by stating that the plaintiffs "have approved your application for a mortgage loan subject to fulfillment of and compliance with the terms and conditions of this letter." The paragraph concerning the "funding and commitment expiration date" provides that "NCR agrees to take the loan funds down no later than the fourth quarter of 1976," and that if the loans were not taken by December 31, 1976, the "commitment and Lenders' obligation under it shall terminate by that date unless the expiration date is extended in writing by Lenders."

The commitment also made reference to NCR's good faith deposit in the following language: "Lenders hereby acknowledge receipt of the sum of $50,000 submitted by NCR as a good faith deposit. It is understood and agreed that this deposit will be refunded immediately upon NCR's acceptance and return of this commitment." Above NCR's Vice-President's signature was the sentence: "The undersigned has read, approved, and accepted the foregoing mortgage loan commitment, including the general conditions," noting in addition that this acceptance was conditioned on the enclosed amendments. The commitment was signed by Charles Marcus of Lincoln on behalf of the plaintiffs. NCR's Vice-President executed its acceptance of the commitment on November 17, 1975, subject to amendments which it had attached regarding prepayment premiums and other conditions of the agreement. Acceptance of the commitment was made expressly subject to the approval of the Board of Directors of NCR. On November 19, 1975, the Board of Directors authorized and directed the officers of NCR to execute the mortgage. On December 30, 1975, NCR wired the $70,000 fee to UCM and on the same day NCR sent clarifications of NCR's proposed amendments.

On January 20, 1976, the plaintiffs executed the clarifications, sent the executed clarification document to NCR and returned the $50,000 good faith deposit to NCR. Plaintiffs then drafted and executed a loan participation agreement amongst themselves as required, and planned for funding the loan.

During January and February, when NCR recognized its unexpected cash surplus, the interest rates had also declined, so that NCR began to reconsider the terms of the plaintiffs' loan. On April 23, 1976, NCR sent two letters of authorization to UCM. The first letter, not to be disclosed to the plaintiffs, authorized UCM to renegotiate the NCR loan with plaintiffs at a rate not to exceed 9 3/8% in return for a sliding scale fee which depended on the size of the reduction in the interest rate. Alternatively, UCM could earn a fee by negotiating a penalty for NCR's cancellation of the commitment. The second letter, also dated April 23, 1976, which could be disclosed to the plaintiffs, authorized the renegotiation of a mortgage loan in the amount of $13,000,000 at a rate not exceeding 9 3/8% annually and also specified that "NCR should have the opportunity to consider a reasonable penalty fee to cancel the loan."

On May 14, 1976, UCM sent a letter to Lincoln stating that a letter from NCR was enclosed "with a real sense of regret." The letter from NCR to UCM was dated May 10, 1976, and stated that NCR did not need the money and that NCR could not "justify consummating a loan at a rate significantly above the market when the fund will not even be required for some time." In its letter, NCR specifically pointed out that 9 7/8% was "extremely high by today's standards" and that NCR should not consummate a loan at that interest rate when "the same deal could be done today for less than 9%, and even that figure is improving almost daily." The letter suggested cancellation of the arrangement with a reasonable damage payment to the lenders or "a new arrangement with an interest payment in tune with the current market."

These letters were the first notice that plaintiffs received with respect to NCR's desire to avoid consummating the loan agreement as written and to renegotiate its terms. On May 26, 1976, plaintiffs responded with a letter directly to NCR. That letter stated that there was an enforceable contract and insisted that the loan be consummated.

In July 1976, the plaintiffs removed the NCR loan from their cash flow charts. Since the plaintiffs expected to fund the loan to NCR from cash flow, no funds were ever set aside specifically to be loaned to NCR. After NCR decided not to borrow the funds, the cash flow which would have funded the loan became available as part of the total investment activity of the plaintiffs. The record indicates that the plaintiffs made a variety of investments after the NCR loan was removed, some of which returned a higher yield than the NCR loan would have returned, whereas others returned a lower yield. Testimony at trial indicated that because of subsequent increases in interest rates, the loan to NCR, if it had been made, would have been a bad investment.

In mid-July NCR told plaintiffs in a letter that NCR was not prepared to proceed with the loan, and on October 19, 1976, NCR informed the plaintiffs that further correspondence should be directed to their legal department. The loan was never made and on March 29, 1977, this lawsuit was filed by the lenders seeking damages or specific performance. On May 23, 1984, after a two day bench trial, the district court, 603 F.Supp. 1393 (N.D.Ind.1984), issued its order finding that the mortgage loan commitment was an enforceable contract obligating NCR to borrow the funds and that NCR was liable to plaintiffs for its breach of that obligation. The court also found that plaintiffs were not entitled to damages from NCR's breach. The lenders appealed.

II. ENFORCEABILITY OF COMMITMENT

The district court held that the mortgage loan commitment was a contract obligating the lenders to lend and the borrower to borrow. The court looked to parol evidence to reach this result, finding...