Ash v. Egar
| Decision Date | 17 October 1975 |
| Docket Number | No. 2,CA-CIV,2 |
| Parties | Paul ASH and Jerome Sonenblick, General Partners in Casa Royale-Casa Espana Apartment Company, a Limited Partnership, Appellants, v. Max EGAR and Rebecca Egar, husband and wife, Helyn Brodsky, Ben Welt and Florence Welt, husband and wife, Appellees. 1842. |
| Court | Arizona Court of Appeals |
This case involves the interpretation of two 99-year leases on two parcels of land upon which apartment buildings were constructed by appellants. Appellees are the owners-lessors of the land. The dispute revolves around paragraph 13 of the lease agreements. Paragraph 13(f) provides: 1
'(f) Landlord's interest in the demised premises shall not be subordinated to any loan or loans secured by a mortgage where such loan is to replace original mortgage financing or to refinance original mortgage financing other than interim construction financing, UNLESS: (1) The other provisions of this Article are complied with, (2) Such new loan is procured for the purpose of refinancing or replacing the original loan, (3) Such new loan is procured to provide funds for remodeling or new improvements, or (4) Unless such new loan is procured to construct improvements after such time as original improvements become obsolete, or original improvements are demolished and new improvements erected, but in no event shall original improvements be demolished before June 1, 1988.'
The trial court in deciding in appellees' favor made findings of fact among which were the following:
'8. Paragraph 13 of the lease agreements listed the only purposes for which the loans, to be secured by mortgages to which defendants would be required to subordinate their interests, could be used.
9. Paragraph 13 of the lease agreements was intended to provide and did provide that any loan secured by a mortgage to which defendants would be required to subordinate their interests would both
(a) meet the requirements of subparagraphs (a) and (b) of Paragraph 13, and
(b) be for one of the three purposes defined in subparagraphs (2), (3) and (4) of subparagraph (f) of Paragraph 13.
10. The purposes for which a loan could be used if it were to be secured by a mortgage to which defendants would be required to subordinate their interests were those purposes listed in subparagraphs (2), (3) and (4) of subparagraph (f) of Paragraph 13, and no others.
11. The purposes for which the loans to be secured by the mortgages to which plaintiffs demanded that defendants subordinate their interests were to be used included purposes not listed or permitted in Paragraph 13.'
In January of 1970, appellants procured an original mortgage on the properties and improvements for $800,000. This money was used to construct the apartments. In the spring of 1973, there was $780,000 remaining to be paid on the mortgage. Pursuant to the lease 2 which allowed a mortgage to be placed on the property in a sum not to exceed 70% Of the then-appraised value, appellants had the properties reappraised and secured a commitment from a lending institution to lend the sum of $1,000,000 which was somewhat less than the 70% Of the then-appraised value of the properties.
The purpose of the new loan and mortgage was to release capital to appellants' investors. The $1,000,000 was to be applied as follows: $780,000 to pay off the original mortgage and the balance of $220,000 less $4,400 in 'points' to be distributed to the original investors who had originally invested $265,000 in the properties. A very small sum was to be kept on hand for remodeling.
Appellants wrote a letter to appellees requesting them to subordinate their interest in the property, pursuant to Article 13(f) of the lease, to the new mortgage. When they refused to do so, appellants filed this action for declaratory judgment and damages.
Both parties agreed at trial that subparagraphs 2, 3 and 4 of Paragraph 13(f) are to be read in the disjunctive and not the conjunctive. Their disagreement centers on Paragraph 13(f)(2), which requires subordination only if 'Such new loan is procured for the Purpose of refinancing or replacing the original loan.' (Emphasis added)
It is appellants' contention that the term 'refinancing the original mortgage' means that a new mortgage can be placed on the properties in an amount based upon the current appraised value of the properties and not limited by the amount of the original loan.
Appellees' position is that when Paragraph 13(f) is read as a whole, it is evident that under Paragraph 13(f)(2) the new mortgage can either be in an amount which does not exceed the original loan (refinancing) or in the amount of the balance of the original loan (replacing).
To aid the court in interpreting the disputed provision, extrinsic evidence was introduced. Appellants produced the testimony of two persons who were 'experts' in the mortgage loan field to explain the term 'refinancing.' The one deduction that can be made from their testimony is that the term has no special meaning, custom or usage, and is not a word of art. As one of the witnesses said, 'I would expect anybody to comprehend the word 'refinancing. " Both witnesses testified that the term 'refinancing' did not imply any limitation on the amount of the loan. At this point we observe that the issue is not what the term 'refinancing' means but rather what does that term mean in the context of the lease agreement?
Mr. Sonenblick testified as to conversations with Mr. Schorr, the attorney for Mr. Brodsky, who subsequently acquiesced and with Mr. Brodsky himself. After testifying that the drafts of the lease were composed by both Schorr and himself, he stated:
'A. I told Mr. Schorr that I objected to the provision (on subordination) because it provided that at some later time when the tenants ground lease if he were to refinance, as I recall the testimony, provided we could not refinance, beyond the then original balance. If it had been reduced from $800,000 to $400,000, we could only go out and get a new $400,000 loan. We couldn't even build it back up to $800,000 and I said, 'This is intolerable.' So, I left his office and I talked to Mr. Ash and I said to him--
Q. Not here your testimony about the conversation with Ash. Did you then have a conversation with Schorr again or with Brodsky about that?
A. I then had a conversation with Mr. Brodsky.
Q. How long after the Schorr conversation?
A. Probably within a week.
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Q. Would you relate that conversation?
A. I told Mr. Brodsky, I said, He said, 'Yes.' and I said, and he said, 'Jerry, I will talk to Mr. Schorr and straighten it out.' He said, I said, I said--he said he understood that. 'What else,' he said, And I said, and Irving said 'Look, I understand.' And he said, 'I will go back and see Sy and work it out.'
Q. Did you have any subsequent conversation with either Mr. Brodsky or Sy Schorr about that point?
A. Yes.
Q. Who was the next person?
A. The next meeting was with Mr. Schorr, I believe it was in his office again shortly thereafter.
Q. Were the two of you alone?
A. Yes. The two of us were alone.
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A. (By the witness): I (Mr....
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