Runnemede Owners, Inc. v. Crest Mortg. Corp.
Decision Date | 18 November 1988 |
Docket Number | No. 87-1763,87-1763 |
Citation | 861 F.2d 1053 |
Parties | , 12 Fed.R.Serv.3d 787 RUNNEMEDE OWNERS, INC., and Ranjit S. Ghura, Plaintiffs-Appellants, v. CREST MORTGAGE CORPORATION and Steven M. Rayman, Defendants-Appellees. |
Court | U.S. Court of Appeals — Seventh Circuit |
Craig P. Rieders, Orenstein & Orenstein, P.C., New York City, for plaintiffs-appellants.
Marguerite M. Tompkins, Jenner & Block, Chicago, Ill., for defendants-appellees.
Before COFFEY and KANNE, Circuit Judges, and ESCHBACH, Senior Circuit Judge.
This is a diversity case arising from Runnemede's unsuccessful attempts to obtain a business mortgage loan from Crest Mortgage. After considerable effort by both parties and considerable expense by Runnemede, Crest Mortgage refused, at the eleventh hour, to lend Runnemede the proposed mortgage money. Runnemede
sued Crest, asserting state law claims that Crest breached its contract with Runnemede, defrauded Runnemede, and converted the "commitment fee," Runnemede paid to Crest as consideration for the proposed loan. The district court granted Crest's motion to dismiss under Fed.R.Civ.P. 12(b)(6). We affirm.
We accept as true the facts set forth in Runnemede's complaint for the purpose of reviewing the district court's grant of Crest's motion to dismiss. 1 These facts are as follows: On April 18, 1985, plaintiff-appellant Ranjit Ghura entered into a contract to purchase a Holiday Inn in Runnemede, New Jersey, from Turnpike Industries, Inc. for 6.2 million dollars. Ghura proceeded to assign the contract to the plaintiff-appellant Runnemede Owners, Inc., a corporation set up by Ghura, and engaged the services of Theodore Schwartz, a mortgage broker, who attempted to obtain financing for the hotel purchase. 2 Almost a year later, Schwartz contacted Crest Mortgage on Ghura's behalf. During this time period, Runnemede had given Turnpike two down payments in the amount of $50,000 each (curiously, the record fails to reflect whether Ghura's contract with Turnpike was contingent upon Ghura's securing financing).
After negotiating, Crest conditionally agreed (in a limited "commitment letter" executed in March of 1986) to lend Runnemede 5 million dollars if Runnemede could obtain a second mortgage of $950,000 from the seller Turnpike. Turnpike refused to provide the financial assistance, and the parties cancelled the March, 1986, commitment letter shortly thereafter. In March, 1986, Ghura had forwarded another $50,000 "down payment" to Turnpike, as well as $42,000 to Crest ($37,000 as provided in the commitment letter plus a $5,000 application fee).
After the parties cancelled the March, 1986, commitment letter, Crest reconsidered and agreed to issue a second conditional letter, dated April 10, 1986, for the increased sum of 5.5 million dollars. This letter is the subject of the present dispute.
Although labeled a "commitment" letter, Crest did not in fact commit to extend the proposed loan; instead Crest agreed to make the loan subject to a number of conditions. Thus a conditional commitment of this nature is not considered in the financial world as an unqualified guarantee to extend credit like a letter of credit. More importantly, Crest expressly refused to enter into a binding obligation to fund the loan until such time as it had completed its pre-closing investigation before giving final approval to the loan.
Paragraph IV of the letter, entitled "Conditions of Commitment; Loan Underwriting Requirements," provided in part that "[t]his commitment is subject to the borrower providing to lender at its cost and expense, and the lender in its sole discretion, approving each of the following in form, substance and content:
The letter concluded with this provision:
Before executing the qualified commitment letter, Ghura inquired of Steven Rayman, Crest's chairman, concerning the makeup of the Loan Committee reviewing Runnemede's loan application. Rayman replied, Interpreting Rayman's extracontractual statements of assurance as a guarantee that the loan would be approved, Runnemede accepted the April, 1986, qualified commitment, paid Crest another $47,500 toward the $165,000 commitment fee and forwarded another $100,000 to Turnpike as consideration for Turnpike extending the closing date on the hotel sale to May 7, 1986.
Following the parties' execution of the April qualified commitment letter, Crest commenced its underwriting investigation. As part of this investigation, Rayman met with Ghura at the hotel and conducted an inspection of the premises. Upon concluding the inspection, Rayman once again stated to Ghura "we have a deal."
On May 8 and 9, prior to the scheduled closing date, Crest's president, Michael McConnell, advised Ghura orally and in writing that based upon a review of an auditor's report of the recent financial data submitted concerning the hotel, Crest had decided not to extend the loan to Runnemede because Crest believed that the cash flow from the hotel would be insufficient to carry a 5.5 million dollar debt. Accordingly, Ghura was advised that Crest was withdrawing from its qualified mortgage loan commitment. In accordance with the terms of the April 10 letter, Crest offered to refund all deposits that Runnemede paid except for the $2,500 inspection fee. Mr. McConnell also advised Ghura that if Runnemede could reduce its borrowing needs, Crest might reconsider financing the hotel purchase.
In responding to Crest's decision to withdraw, Ghura made no further attempt to negotiate for additional financing on behalf of Runnemede, but filed the instant lawsuit. The suit attempts to state claims for relief premised upon fraud, breach of contract, conversion and racketeering but fails to demand a return of the commitment fee paid to Crest (totaling $89,500). No request has been made for the return of the commitment fee. Based upon the allegations of the plaintiffs' complaint, the district court granted Crest's motion to dismiss the amended complaint in its entirety. On appeal, Runnemede and Ghura have dropped their racketeering allegations. 3
The parties agree that Illinois law governs in this diversity action. "Parties can within broad limits stipulate the substantive law to be applied to their dispute"; Casio, Inc. v. S.M. & R., Inc., 755 F.2d 528, 531 (7th Cir.1985). The litigants have not contested the trial court's application of Illinois law; thus, we apply Illinois law. See City of Clinton v. Moffitt, 812 F.2d 341, 342 (7th Cir.1987).
Runnemede and Ghura allege in their complaint that Crest breached a written contract binding Crest to loan Runnemede 5.5 million dollars. The purported contract is the April 10 qualified letter of commitment; but what are its terms? Essentially, the qualified commitment letter outlined the terms of a proposed loan and only bound Crest to consider lending Runnemede money, subject to the conditions set forth in paragraph IV of the letter. In other words, the letter was nothing more than an agreement to consider extending a loan, not an unqualified promise that such consideration would yield the financial help desired. We believe this construction is in keeping with the function and reason for a conditional letter of commitment--to provide the initial framework from which the parties might later negotiate a final loan agreement, if the deal works out. In an analogous situation involving the interpretation under Illinois law of a preliminary letter of intent between purchaser and seller, we explained that:
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