Crown Technology Park v. D&N BANK

• Decision Date: 16 November 2000
• Docket Number: Docket No. 207762,Docket No. 213762.
• Citation: Crown Technology Park v. D&N BANK, 619 N.W.2d 66, 242 Mich. App. 538 (Mich. App. 2000)
• Parties: CROWN TECHNOLOGY PARK and Michael L. Stefani, Plaintiffs-Appellees, v. D&N BANK, FSB, Defendant-Appellant. Crown Technology Park and Michael L. Stefani, Plaintiffs-Appellants, v. D&N Bank, FSB, Defendant-Appellee.
• Court: Court of Appeal of Michigan — District of US

619 N.W.2d 66

242 Mich. App. 538

CROWN TECHNOLOGY PARK and Michael L. Stefani, Plaintiffs-Appellees, v.D&N BANK, FSB, Defendant-Appellant.

Crown Technology Park and Michael L. Stefani, Plaintiffs-Appellants, v.D&N Bank, FSB, Defendant-Appellee.

Docket Nos. 207762, 213762.

Court of Appeals of Michigan.

Submitted December 7, 1999, at Detroit.

Decided September 15, 2000, at 9:05 a.m.

Released for Publication November 16, 2000.

Frank, Stefani & Haron(by Patrick C. Hall and Tamara E. Fraser), Troy, for Crown Technology Park.

Butzel Long(by Philip J. Kessler, Alan S. Levine and Susan K. Friedlaender), Birmingham, for the defendant.

Before: WHITBECK, P.J., and TALBOT and ZAHRA, JJ.

ZAHRA, J.

In Docket No. 207762 of this consolidated appeal, defendantD&N Bank, FSB, appeals as of right the trial court's judgment and order based on a jury verdict awarding plaintiff Crown Technology Park damages in the amount of $39,827.20, with interest, for its claims of promissory estoppel and negligence.In Docket No. 213762, Crown Technology appeals by delayed leave granted the trial court's order denying Crown Technology's motion for offer of judgment sanctions.We reverse.We conclude that the trial court erred in failing to grant D&N Bank's motion for summary disposition on Crown Technology's promissory estoppel and negligence claims.¹

I.Facts

D&N Bank is a Michigan corporation engaged in the banking business.Crown Technology is a Michigan partnership formed in 1985 to construct and own an office building (hereinafter the property) in Warren, Michigan.Michael Stefani is an attorney who represented Crown Technology since it was formed.After constructing the property, Crown Technology leased it to Michigan Mutual Insurance Company(MMIC) as the single tenant under a ten-year lease.

In 1987, D&N Bank loaned $720,000 to Crown Technology to refinance the property.D&N Bank secured this loan with a mortgage on the property.The refinancing agreement required Crown Technology to make 119 monthly payments of $6,991.84 until March 19, 1997, at which time Crown Technology would have to pay all unpaid principal and all accrued interest.The parties executed a promissory note on March 20, 1987.²The promissory note included a prepayment penalty that is the basis for this lawsuit.That penalty clause states in pertinent part:

The indebtedness evidenced by this note may not be prepaid, in full or in part, prior to March 1, 1997.In the event of acceleration of payment prior to such time, for any reason whatsoever, Maker [Crown Technology] shall pay the holder hereof, in addition to the principal balance, accrued interest, penalties and any other amounts due hereunder, additional interest equal to the interest which would have accrued to such date.

In December 1991, a commercial loan officer at D&N Bank became aware that MMIC had vacated the property.D&N Bank officers were concerned that Crown Technology would not be able to make its payments on the loan even though MMIC was still paying rent on the property.D&N Bank officers wanted a tenant to occupy the property.

Over the next several years, D&N Bank regularly inquired of Crown Technology's counsel whether Crown Technology was taking steps to find a new occupant.Counsel for Crown Technology interpreted some of these inquiries as indicating that D&N Bank was open to the possibility of "restructuring" or refinancing the loan.At least twice in 1993, D&N Bank loan officers reviewed the risk evaluation of the loan.The loan continued to be rated as a moderate risk.However, internal documents from D&N Bank indicate that the loan was closely monitored.

On April 26, 1994, Stefani met with Jamie Muter, a commercial loan officer for D&N Bank, to discuss the loan and the potential for a new tenant, GE Capital Leasing.Stefani sent Muter a letter to confirm the nature of their discussions.The letter noted that Crown Technology was considering leasing the property to GE Leasing under a ten-year lease, which would require Crown Technology "to build a 3,000 square foot addition to the building, to acquire an adjoining 2.6 acres and to construct an automobile storage area on that acreage...."Stefani stated that Crown Technology was "quite anxious to sign a lease with GE, but [was] reluctant to do so until [Crown Technology] know[s] what the financing would cost."

Some time later, Stefani informed Muter that Crown Technology was interested in obtaining a new loan of $1.4 million with a ten-year fixed interest rate.Muter informed Stefani that D&N Bank was willing to loan Crown Technology money at approximately nine percent interest, which included "any points or fees."However, D&N Bank would agree to a fixed rate only for the first five years of the loan.Following this conversation, Stefani asked Muter if there was "any way" D&N Bank could extend a ten-year fixed interest rate to Crown Technology so that it could meet GE Leasing's demands.Stefani told Muter that Crown Technology was negotiating with other lenders who had agreed to extend a ten-year fixed rate and asked Muter whether "there was going to be any problem with [Crown Technology] paying off this loan early" in the event Crown Technology sought refinancing elsewhere.Stefani testified that Muter replied:

"[']I checked and there's no prepayment penalty[,'] or ... words to that effect.He definitely [led] me to believe that he had checked—he didn't say who he checked with or what he checked— but he said ... [']I've already checked and there will be no problem with you paying off the loan or there will be no prepayment penalty.[']"

Although Stefani was "generally aware" that the promissory note provided a prepayment penalty, he did not believe D&N Bank would enforce it.Stefani did, however, admit that he was experienced in commercial real estate transactions and did not claim that the terms of the loan itself were confusing to him.

Stefani contacted Muter shortly thereafter to determine whether Muter had given Crown Technology D&N Bank's last, best offer.Muter reportedly told Stefani that D&N Bank would not go beyond its original loan offer.Stefani replied that Crown Technology would repay the original loan sometime in late summer or early September, when GE Leasing moved into the property.In a D&N Bank interoffice memorandum, Muter detailed D&N Bank's rejection of Stefani's loan request and stated that refinancing through another lender would occur.Muter completed another risk classification memo in June 1994, in which he stated that D&N Bank "expect[ed] the loan to be paid in full within the next few months."

On June 28, 1994, Crown Technology and GE Leasing signed a lease.In September of 1994, Stefani contacted Muter and requested an early payoff by September 15.A D&N Bank employee informed Muter that the loan was closed to prepayment until maturity, and Muter relayed this information to Stefani.Stefani was displeased and claimed that Muter never informed him that D&N Bank was unwilling to waive the prepayment restriction and penalties.Stefani relied on his past experience to conclude that banks routinely waived prepayment penalties.Stefani testified that he"assumed that they were so worried about this building being vacant that they were going to waive the prepayment in order to solve their problem."Stefani contacted D&N Bank's president and told him that Crown Technology had been assured in May 1994 that prepaying the loan would not be a problem and that "[Crown Technology] went ahead and did all these things in reliance on that[, like] the construction of the building, the purchase of the land and signing the lease."

On September 27, 1994, Muter sent a letter to Stefani stating that D&N Bank had further reviewed Crown Technology's request for payoff and that "[i]t is not our intention to prohibit prepayment on the loan, but only to be compensated for the loss of income upon reinvestment."Muter did not reveal the amount that defendant intended to charge as a prepayment penalty, but wrote, "If you are still interested in paying the loan in full, prior to its maturity, please contact our office so our requirements may be discussed."According to Stefani, because of the steps Crown Technology had already taken to obtain GE Leasing as a tenant, he concluded that Crown Technology had no choice in the matter and that early payoff and paying the penalty were necessary.Stefani said that if he had known that D&N Bank was going to enforce the prepayment penalty he would have renegotiated the lease with GE Leasing to account for that penalty by raising rent, eliminating some of the improvements, or Crown Technology would not have entered into the lease at all.Stefani believed that his only other realistic options, given the tight profit margin on the lease with GE Leasing, would have been to take the refinanced loan only for the five-year fixed term D&N Bank offered or to pursue discussions with another potential tenant who expressed interest in a shorter lease.On December 21, 1994, some three months after Crown Technology requested a payoff letter from D&N Bank, D&N Bank informed Crown Technology that the prepayment penalty was $66,378.67, which Crown Technology eventually paid under protest once the new loan was closed.

Frank Donnelly, the Senior Vice President of D&N Bank's Commercial Lending Division, later explained D&N Bank's view on the prepayment issue, differentiating between the terms "closed to prepayment" and "prepayment penalty" as they appeared in the promissory note.He stated that if a loan agreement provided that the loan was closed to prepayment, D&N Bank would not accept prepayment at all.On the other hand, if a loan agreement provided for a prepayment penalty, then D&N Bank would allow prepayment if the borrower paid a penalty.

In Crown Technology's case, Donnelly said, the promissory note was closed to prepayment and D&N Bank's loan committee, and the insurance company that...