American Fletcher Mortg. v. First Am. Inv.

• Citation: 463 F. Supp. 186
• Decision Date: 30 June 1978
• Docket Number: Civ. A. No. C75-1750A.
• Parties: AMERICAN FLETCHER MORTGAGE COMPANY, INC., Plaintiff, v. FIRST AMERICAN INVESTMENT CORPORATION and Fidelity Capital Corporation, Defendants.
• Court: U.S. District Court — Northern District of Georgia

463 F. Supp. 186

AMERICAN FLETCHER MORTGAGE COMPANY, INC., Plaintiff, v. FIRST AMERICAN INVESTMENT CORPORATION and Fidelity Capital Corporation, Defendants.

Civ. A. No. C75-1750A.

United States District Court, N. D. Georgia, Atlanta Division.

June 30, 1978.

COPYRIGHT MATERIAL OMITTED

Stuart E. Eizenstat and Robert L. Connally, Jr., Powell, Goldstein, Fraser & Murphy, Atlanta, Ga., for plaintiff.

Emmett J. Bondurant and Albert C. Ruehmann, III, Kilpatrick, Cody, Rogers, McClatchey & Regenstein, Atlanta, Ga., for defendants.

ORDER

MOYE, District Judge.

This diversity suit is brought by American Fletcher Mortgage Company (American Fletcher), an Indiana corporation which is seeking damages resulting from alleged breaches of contracts entered into for the acquisition, development, construction, and financing of The Woods Condominiums (Woods) in east Cobb County, Georgia. Plaintiff American Fletcher claims that it is entitled to collect damages from the defendant Georgia corporations, First American Investment Corporation (First American) and Fidelity Capital Corporation (Fidelity), on two grounds. First, American Fletcher contends that it is a third-party beneficiary of a contract between Futren of Powers Ferry, Inc. (Futren), a Georgia corporation which was the owner and developer of the Woods, and the defendants which the defendants allegedly breached. Secondly, American Fletcher contends that it had a contract with the defendants for the construction and financing of the Woods which the defendants allegedly breached.

This action is being tried by the Court on deposition testimony, documents, and briefs submitted by the parties pursuant to an agreement reached between counsel for the parties, as approved by this Court. On the basis of the evidence presented, the Court makes the following:

Findings of Fact

In September 1972, James L. Rhoden, Jr., the president and principal shareholder of Futren, began seeking financing for the acquisition, development, and construction of the Woods. Three lenders, in particular, expressed an interest in financing the Woods condominium project. They were plaintiff American Fletcher, with whom Rhoden had previously never done any business, and defendants First American and Fidelity, both of whom were involved in the financing of another condominium project that Futren was developing in St. Petersburg, Florida. Rhoden's contacts with American Fletcher were almost exclusively with one of its vice-presidents, James P. Trepinski, while Rhoden's contacts with the defendants First American and Fidelity were primarily with William B. Hargett, an assistant-vice president of First American, who was acting on behalf of both defendants with respect to their possible financing participation in the Woods.¹

As discussions between Rhoden and the three prospective lenders progressed during the fall of 1972, plaintiff American Fletcher indicated that it would be amenable to providing one hundred percent of the financing for the acquisition, development, and construction of the Woods, provided that Rhoden obtain additional financial backing. Defendants First American and Fidelity, on the other hand, expressed an interest in providing a more limited type of financing for the Woods. The defendants indicated that they were willing to provide Futren with "standby," or secondary, financing for the Woods provided that Rhoden obtain the primary construction financing for the condominium project from another lender.

On December 6, 1972, American Fletcher issued two loan commitment letters to Rhoden, one for a $2,250,000 land acquisition and development loan, and the other for a $2,150,000 construction loan for the Woods. Both of these commitment letters contained a condition that the borrower be a corporate nominee acceptable to American Fletcher. This condition was designed to insure that Rhoden obtain some form of additional financing and that the borrower have more financial substance than simply the collateral (i. e., land and improvements thereon) securing American Fletcher's loans.

On December 13, 1972, Rhoden obtained additional financial backing in the form of a standby loan commitment from First American and Fidelity, evidenced by a loan commitment letter signed by Jerry J. Pezzella, Jr., president of First American, and Wayne J. Haskins, vice-president of Fidelity. The loan commitment to Rhoden, which was later assigned to Futren, provided that the defendants agreed to lend Rhoden $500,000 for the construction and development of the Woods, subject to certain terms and conditions, in the event that the loans made by American Fletcher were depleted prior to the completion of the project. Pursuant to the loan commitment, First American agreed to provide standby financing of $350,000 and Fidelity agreed to provide standby financing of $150,000 for the Woods. These commitments were in exchange for a twenty-five percent share of the equity of the Woods for the defendants and the payment of commitment fees to the defendants amounting to two percent of their respective loan commitments.

On December 14, 1972, Rhoden, Mark Levitt, Rhoden's attorney, and Hargett of First American traveled to American Fletcher's offices in Indianapolis, Indiana, to establish agreement on the particulars of the financing of the Woods. American Fletcher requested and received from the defendants information indicating the financial condition of the defendants at this time. American Fletcher's representatives at the meeting expressed concern regarding the enforceability of the defendants' commitment.

By a letter dated December 18, 1972, Rhoden accepted and, in the process, modified the defendants' commitment letter. He stated that his acceptance of the defendants' commitment was contingent upon American Fletcher's approval of that commitment. He also indicated that American Fletcher wished to be involved in the decision of whether to renew the defendants' commitment which would initially run for only one year.

On December 20, 1972, Rhoden and Hargett again traveled to Indianapolis to meet with American Fletcher's representatives with respect to the financing of the Woods. After the plaintiff's representatives again expressed reservations regarding the openendedness of the defendants' proposed commitment to Rhoden, Hargett conferred with his home office and presented a letter to Trepinski of American Fletcher which stated that the defendants would prepare a letter for American Fletcher at the time of the defendants' loan closing with Rhoden which would acknowledge satisfaction of the conditions contained in the defendants' December 13 commitment letter. The letter also stated that the loan commitment of the defendants would be available to Rhoden pursuant to the conditions contained in certain paragraphs of the loan commitment letter. In addition, the last sentence of the letter stated:

Should cost over-runs become evident or other conditions which make American Fletcher's mortgage position insecure, our funds will be available upon your request.

On December 27, 1972, American Fletcher closed its land acquisition and development loan with Futren and executed all of the necessary documents. Also on December 27, 1972, First American and Fidelity closed their loans with Futren. The defendants' standby obligations to Futren were contingent on a number of specific terms, representations, and warranties that were stated in detail in a comprehensive written Loan and Stock Purchase Agreement dated December 27, 1972, and executed by each of the defendants and Futren. See Appendix A.

In addition, Hargett of First American wrote a letter on behalf of the defendants on December 27, 1972, to Trepinski of American Fletcher confirming that Futren and defendants had entered into their loan agreements for standby financing of the Woods. See Appendix B.² The purpose of the letter was to "acknowledge satisfaction of those certain conditions contained in our letter of commitment dated December 13, 1972." The letter also reiterated that the defendants' $500,000 commitment would be available pursuant to the conditions contained in certain paragraphs of the loan commitment letter which would remain in force throughout the life of the Woods condominium project.³

On April 9, 1973, after Piedmont Engineering and Construction Corporation (Piedmont) had been selected as the general contractor for the Woods, American Fletcher's construction loan to Futren was closed. On this date, Futren, First American, and Fidelity entered into a Subordination Agreement whereby defendants' security interest in the Woods was subordinated to the security interest of American Fletcher, which secured the construction loan.

Construction of the Woods during 1973 and the early part of 1974 seemed to be progressing in accordance with the plans and specifications for the condominium project. Rhoden and his agents made frequent and complete inspections of the work being done by the general contractor, Piedmont, and its subcontractors to insure that work was being completed properly and on time. In addition, Rhoden kept both the plaintiff and the defendants comprehensively advised of all developments at the Woods. Rhoden maintained an especially close working relationship with Hargett and conferred regularly with him concerning work progress and draw requests.

Throughout the course of the administration of the two loans made by American Fletcher to Futren, the defendants' representatives, including Hargett, reviewed and approved the draw requests submitted by Futren to American Fletcher in order to obtain funds to pay Piedmont for its work. In passing on these draw requests, the defendants placed the following language on the cover sheets of the draws:

The above signed acknowledges receipt of a complete copy of the attached Draw and further acknowledges our Letter of Commitment dated December 13, 1972 is in full force and effect in accordance with the

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