Town Bank v. City Real EState Dev., LLC

• Citation: 793 N.W.2d 476,330 Wis.2d 340,2010 WI 134
• Decision Date: 14 December 2010
• Docket Number: No. 2008AP1845.,2008AP1845.
• Parties: TOWN BANK, a Wisconsin Banking Corporation, Plaintiff-Appellant, v. CITY REAL ESTATE DEVELOPMENT, LLC, Defendant-Respondent-Petitioner.
• Court: United States State Supreme Court of Wisconsin

330 Wis.2d 340

793 N.W.2d 476

2010 WI 134

TOWN BANK, a Wisconsin Banking Corporation, Plaintiff-Appellant,

v.CITY REAL ESTATE DEVELOPMENT, LLC, Defendant-Respondent-Petitioner.

No. 2008AP1845.

Supreme Court of Wisconsin.

Argued Sept. 7, 2010.

Decided Dec. 14, 2010.

For the defendant-respondent-petitioner there were briefs by Thad W. Jelinske, Michael J. Anderson and Mawicke & Goisman, S.C., Milwaukee, and oral argument by Thad W. Jelinske.

For the plaintiff-appellant there was a brief by Paul R. Erickson, Kari H. Race and Gutglass, Erickson, Bonville & Larson, S.C., Milwaukee, and oral argument by Paul R. Erickson.

An amicus curiae brief was filed by John E. Knight, James E. Bartzen, Kirsten E. Spira and Boardman, Suhr, Curry & Field LLP for the Wisconsin Bankers Association.

ANNETTE KINGSLAND ZIEGLER, J.

¶ 1 This is a review of a published decision of the court of appeals,Town Bank v. City Real Estate Development, LLC, 2009 WI App 160, 322 Wis.2d 206, 777 N.W.2d 98, which reversed the orders of the Waukesha County Circuit Court, Judge Paul F. Reilly presiding, denying Town Bank's two motions for summary judgment.

¶ 2 Town Bank and City Real Estate Development, LLC (City Real Estate) entered into a Term Credit Agreement (the TCA), through which Town Bank loaned $2,500,000 to City Real Estate for the purpose of acquiring an office building in downtown Milwaukee. Town Bank seeks a declaratory judgment that it fully complied with the TCA and is not obligated to provide additional financing to City Real Estate under the terms of a previously-issued commitment letter (the commitment letter).

¶ 3 Town Bank twice moved for summary judgment, which the circuit court denied. Because those motions were denied, the case proceeded to a jury trial. The jury returned a verdict in favor of City Real Estate. Town Bank appealed, and the court of appeals reversed.

¶ 4 On appeal to this court, City Real Estate argues that the TCA is ambiguous, and as such, the circuit court properly denied summary judgment and directed the case to trial. According to City Real Estate, it is not clear whether the parties intended the TCA to be the final expression of only the first of two financing phases, or whether the parties intended the TCA to be the final expression of the parties' financing agreement altogether. As evidence of the former, City Real Estatepoints to the commitment letter and various credit memoranda prepared by Town Bank, all of which reference a two-phase financing arrangement.

¶ 5 We conclude that the TCA is an unambiguous, fully integrated agreement with which Town Bank fully complied. Accordingly, Town Bank should have been granted summary judgment, and the case shouldnot have proceeded to a jury trial. We agree with Town Bank that the TCA contains an unambiguous merger clause which precluded City Real Estate from introducing any evidence of prior understandings or agreements that may have existed between the parties, including the commitment letter. Even assuming, without deciding, that the commitment letter constitutes a separate and enforceable contract for financing, we conclude that Town Bank was within its rights to terminate the agreement. It is undisputed that City Real Estate did not fulfill at least two of the conditions set forth in the commitment letter. We therefore affirm the decision of the court of appeals.

I. FACTUAL BACKGROUND

¶ 6 In March 2004 the managing member of City Real Estate, David Leszczynski (Leszczynski), approached Town Bank to secure financing for City Real Estate's proposed acquisition and renovation of a 22-story office building in downtown Milwaukee known as the Wisconsin Tower. City Real Estate's development plan consisted of acquiring the building, demolishing and refurbishing its interior, and converting the space into 65 residential condominium units.

¶ 7 On April 1, 2004, Town Bank's Vice President of Business Banking, Christopher Zirbes (Zirbes), prepared a loan write-up and recommended approval of a $9,000,000 loan to City Real Estate for the purpose of "purchas [ing] and construct[ing] retail space and condominiums in the Wisconsin Tower in downtown Milwaukee." The write-up indicated an initial draw of $2,500,000 to be put towards the building's purchase price. In addition, the write-up contemplated that the "[p]rimary source of repayment will come from [the] sale of condominium units."

¶ 8 On May 27, 2004, Town Bank sent Leszczynski a letter (the commitment letter), which stated that Town Bank "is pleased to provide [City Real Estate] with a financing commitment for a $9,000,000 Construction Line." ¹ Relevant for our purposes, the commitment letter outlined several terms and conditions, including a credit facility that divided the $9,000,000 construction line into two phases: "A) $2,500,000 initial funding for acquisition of building and completion of demolition, engineering, asbestos removal and marketing," and "B) $6,500,000 additional funding for the construction of condominium units as pre-sales dictate." The latter provision further noted that "[b]ank financing will be based on 75% of the pre-sold units." As collateral for Town Bank's commitment to City Real Estate, Town Bank was to receive, inter alia, a "1st R/E mortgage on [the] Subject Property."

¶ 9 In addition, the commitment letter provided that the "[c]losing of [the] loan is contingent upon but not limited to" four conditions:

A. Subject to satisfactory review of appraisal, title commitment, Environmental report, construction plans, and final review of loan documents by the Bank's legal counsel.

B. Borrower agrees to contribute $900,000 in up front equity capital prior to closing.

C. Borrower agrees to pay closing costs, including title, filing and documentation.

D. Borrower and guarantors agree to provide annual personal financial statements and tax returns.

¶ 10 Finally, the commitment letter contained the following clause: "In order to be effective in any regard,this letter must be properly executed and returned to the Bank by June 11, 2004. This commitment may be terminated at the sole option of Town Bank if the credit agreement is not executed by June 25, 2004."

¶ 11 While City Real Estate timely executed and returned the commitment letter, it is undisputed that a credit agreement between Town Bank and City Real Estate was not executed by June 25, 2004. However, on July 15, 2004, the parties entered into the TCA, and Town Bank loaned $2,500,000 to City Real Estate. The TCA incorporated by reference a Business Note (the Business Note), also dated July 15, 2004, in which City Real Estate promised to pay to Town Bank the sum of $2,500,000 plus interest by August 15, 2004.

¶ 12 According to Zirbes and Jay Mack (Mack), Town Bank's President and Chief Executive Officer, the TCA was intended to fund City Real Estate's purchase of the Wisconsin Tower. Earlier that month, Leszczynski had represented to Town Bank that City Real Estate's option to buy the building was about to expire and that Ruth's Chris Steak House, a major commercial tenant with whom City Real Estate had been negotiating, refused to sign a letter of intent until City Real Estate owned the building.²

¶ 13 The TCA is a standard form lending document sold to lenders by the Wisconsin Bankers Association. The first section of the TCA is entitled "Term Loan" and provides that the parties must "[c]heck" the box of one of two options: "(a) Single Note; Multiple Advances," or "(b) Multiple Notes; Multiple Advances." In this case, the second box was checked. By checking the second box, the parties gave effect to the following provision:

If checked here, and in consideration of extensions of credit from Lender to Customer from time to time, Lender and Customer agree that sections 4 through 19 of this Agreement shall apply to each such extension of credit unless evidenced by a document which states it is not subject to this Agreement. The term "Loan" includes all such extensions of credit. The term "Note" includes each promissory note evidencing Customer's obligation to repay an extension of Credit. This Agreement does not constitute a commitment by Lender to make such extensions of credit to Customer.

¶ 14 Relevant to this case, section 14 of the TCA bears the heading "Entire Agreement" and provides:

This Agreement, including the Exhibits attached or referring to it, the Note and the Security Documents, are intended by Customer and Lender as a final expression of their agreement and as acomplete and exclusive statement of its terms, there being no conditions to the full effectiveness of their agreement except as set forth in this Agreement, the Note and the Security Documents.

Three exhibits were attached to the TCA. Exhibit A is substantively blank and states that it is "Not Applicable." Exhibit B provides a list of "Security Documents," including a Chattel Security Agreement, a Mortgage on the building, and an Assignment of Leasesand Rents on the building. Exhibit C lists several "Additional Covenants," none of which are material to this case.

¶ 15 It is undisputed that the TCA does not expressly mention the commitment letter.

¶ 16 On July 16, 2004, City Real Estate closed on the purchase of the Wisconsin Tower for $2,500,000. Thereafter, Town Bank continued to monitor City Real Estate's progress on the building. On August 26, 2004, Zirbes prepared an internal memorandum for Town Bank's credit file, in which he recognized that "[t]he marketing of the building has started off slower than originally anticipated." Zirbes further noted:

Last month we decided to close this loan in two phases allowing [City Real Estate] to purchase the building and begin negotiations with Ruth's Chris, with the understanding that phase II (the construction loan) would begin when they sta[r]ted to get some pre-sold condo units. Because of the fact that they are behind schedule with their marketing, we are looking to extend the interest only period on the building for an additional 3 month

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