America First Inv. Corp. v. Goland

• Decision Date: 22 February 1991
• Docket Number: No. 89-7253,89-7253
• Citation: 925 F.2d 1518,288 U.S.App.D.C. 298
• Parties: AMERICA FIRST INVESTMENT CORPORATION, Appellant, v. Michael GOLAND and Balboa Construction Co., Inc., Appellees.
• Court: U.S. Court of Appeals — District of Columbia Circuit

Page 1518

925 F.2d 1518

288 U.S.App.D.C. 298

AMERICA FIRST INVESTMENT CORPORATION, Appellant, v. Michael GOLAND and Balboa Construction Co., Inc., Appellees.

No. 89-7253.

United States Court of Appeals, District of Columbia Circuit.

Argued Oct. 5, 1990.

Decided Feb. 22, 1991.

Appeal from the United States District Court for the District of Columbia, Civil Action No. 88-01197.

David G. Leitch, with whom George H. Mernick, III, Washington, D.C., was on the brief, for appellant.

David I. Gelfand, with whom Seth P. Waxman, Washington, D.C., was on the brief, for appellees.

Before SILBERMAN, HENDERSON, and RANDOLPH, Circuit Judges.

Opinion for the court filed by Circuit Judge HENDERSON.

HENDERSON, Circuit Judge:

The question presented by this appeal is whether Balboa Construction Company (Balboa) agreed to pay America First Investment Corporation (AFIC) a fee for securing financing, the bulk of which Balboa never utilized. The district court granted summary judgment to Balboa on the ground that the contract between Balboa and AFIC is unambiguous and sustained Balboa's interpretation as a matter of law. The district court concluded alternatively that, even if AFIC could establish that the contract is ambiguous, the ambiguity would evidence only that there had been a mutual misunderstanding and a failure to contract. We reverse and remand.

I.

In 1986, Balboa sought to expand its self-storage mini-warehouse business into the Washington metropolitan area. To obtain adequate financing for this project, Balboa's president and sole shareholder, Michael Goland, contacted Michael Steed, AFIC's president. Goland and Steed entered into a loan brokerage agreement which provided that AFIC, an investment and brokerage firm, would use its best efforts to secure a financier willing to loan $30 million to Balboa and, in return, Balboa would pay AFIC one percent of the "loan amount" secured by AFIC. See Joint Appendix (JA) 7.

Steed soon found a financier for Balboa--Dominion Federal Savings and Loan Association (Dominion). Although Dominion was not willing to loan the full amount Balboa requested, it was willing to loan $12 million, payable in installments of not more than $3.5 million. Balboa agreed to these terms and signed a formal "loan commitment" contingent on Dominion making certain amendments to the terms of the agreement. Balboa, however, was not satisfied with the amendments Dominion offered and the Dominion commitment fell through.

Before the collapse of the Dominion deal, Goland and Steed finalized the terms of their agreement in a letter that was signed by both parties. JA 23. In pertinent part, the letter stated:

It is our agreement that if AFIC presents to Goland lenders who provide all or a portion of $30 million or more of acceptable loans that you [Goland] will pay to AFIC a fee of 1% of the loaned amount. This fee is earned in full by AFIC when Goland receives an acceptable commitment from a lender and is payable, ratably, upon the funding of the commitment. Should the loan not be funded, in whole or in part, for any reason, then AFIC shall be paid their fee upon maturity of the commitment or one year from that loan commitment date, whichever occurs first. Furthermore, Goland agrees to pay to AFIC the sum of $10,000 as a portion of the fee earned at the time that the loan commitment is accepted, if the loan commitment is for a loan requiring a term different than an immediate funding.

Regarding the Dominion deal in particular, the letter provided that Goland would "pay $75,000 of the fee upon the first funding." Because the loan commitment was canceled, Balboa never paid this amount to AFIC.

Next AFIC introduced Balboa to Balcor Real Estate Finance, Inc. (Balcor). Balboa and Balcor signed a Master Loan Agreement, by which Balcor agreed to extend $30 million in credit to Balboa. The Master Loan Agreement expressly referred to the $30 million amount as the "commitment" and set forth the terms and conditions governing the funding of individual loans. As soon as the Master Loan Agreement was finalized, Balboa received its first loan from Balcor, amounting to $2.1 million. In turn, on receiving the loan funds, Balboa promptly paid $21,000 to AFIC--its one percent commission. Several months later Balcor again made a loan to Balboa, this time for $1.55 million. Again Balboa promptly paid AFIC $15,500 when it received the loan funds.

Balboa then ran into serious financial difficulties and defaulted on both loans. Consequently Balboa stopped attempting to obtain financing for further projects. One year from the date Balboa entered into the Master Loan Agreement with Balcor, AFIC demanded that Balboa pay its one percent commission on the portion of the loan commitment that had not been funded (i.e., $30 million less $3.65 million). Balboa refused to do so and this lawsuit followed. AFIC is a Delaware corporation with its principal place of business in the District of Columbia. Goland is a California resident and Balboa is a California corporation with its principal place of business in California. Accordingly suit was brought pursuant to the court's diversity jurisdiction, 28 U.S.C. Sec. 1332(a).

The district court found that the contract between AFIC and Balboa was plain on its face and therefore could be interpreted as a matter of law. The court focused primarily on the single sentence stating that Balboa "will pay to AFIC a fee of 1% of the loaned amount." "Loaned amount," reasoned the court, should be given its ordinary meaning, namely the amount of money actually loaned to Balboa. Once the court determined this sentence was clear and controlling, it read the subsequent sentences so they comported with that sentence. In particular, the court concluded that "commitment" did not refer to the type of commitment described in the Master Loan Agreement between Balboa and Balcor, but instead referred to a "commitment to make a loan." JA 227. Also the court reasoned that "commitment" was relevant only insofar as it related to the timing of the brokerage fee and therefore did not render ambiguous the fee amount. Finally, the court concluded that the Balcor-Balboa Master Loan Agreement did not "commit" Balcor to do anything and therefore the terms of the AFIC-Balboa agreement could not be ambiguous. The district court did not explain why it looked to the Balcor-Balboa contract in order to determine the ambiguity vel non of the AFIC-Balboa agreement.

In addition to the district court's "plain meaning" interpretation of the contract, the court held that AFIC could not recover under the contract because AFIC could, at most, prove only that there had been a mutual misunderstanding of an essential fact. The court decided that AFIC's interpretation of the contract, even if it were accurate, would create an irreconcilable contradiction between the terms "loaned amount" and "commitment." This contradiction, concluded the court, "would evidence a lack of agreement over an essential term and therefore a failure to contract." JA 227-28. The court did not explain why an ambiguity on the face of the contract necessarily evidences a mutual misunderstanding; presumably, the court meant that AFIC presented no evidence that would allow it to find that the two parties had a common understanding of the contract's terms.

II.

The heart of the matter is whether the AFIC-Balboa brokerage agreement is unambiguous on its face. ¹ If the contract is unambiguous, the court can interpret it as a matter of law. See Horn & Hardart Co. v. National Railroad Passenger Corp., 793 F.2d 356, 359 (D.C.Cir.1986); NRM Corp. v. Hercules, Inc., 758 F.2d 676, 682 (D.C.Cir.1985); Davis v. Chevy Chase Financial Ltd., 667 F.2d 160, 169 (D.C.Cir.1981). Even a cursory reading of the agreement reveals that the meanings of "loaned amount" and "commitment" are unclear. The contract provides in one sentence that the fee is to be based on the "loaned amount" while in a later sentence it states that "[t]his" fee is earned in full when Goland receives an "acceptable commitment." These two sentences, if given their ordinary meaning, seem to lead us in very different directions. As the district court noted, the term "loaned amount" appears to mean what it says: that the fee is to be determined according to the amount of the individual loans as they are made. "Commitment," on the other hand, appears to refer to Balcor's commitment to extend credit to Balboa--not to the specific loans extended by Balcor. ² When these provisions are read together they produce an absurd result: the contract would provide that the fee must be based upon actual loan amounts but that the fee is earned in full before any of these amounts are determined. Adding to the confusing terminology, the contract states that a fee must be paid even when the loans are not funded or when the loans are not funded immediately. This...