First Pennsylvania Mortg. Trust v. Dorchester Sav. Bank

• Decision Date: 08 August 1985
• Citation: 395 Mass. 614,481 N.E.2d 1132
• Parties: FIRST PENNSYLVANIA MORTGAGE TRUST et al. 1 v. DORCHESTER SAVINGS BANK et al. 2 (and a companion case 3 ).
• Court: United States State Supreme Judicial Court of Massachusetts Supreme Court

Page 1132

481 N.E.2d 1132

395 Mass. 614

FIRST PENNSYLVANIA MORTGAGE TRUST et al. ¹

v.

DORCHESTER SAVINGS BANK et al. ² (and a companion case ³).

Supreme Judicial Court of Massachusetts,

Suffolk.

Argued April 3, 1985.

Decided Aug. 8, 1985.

Thomas D. Burns, Boston, (Gael Mahony, Boston, for Hallwood Group, Inc., intervener, and Alan K. Posner, Boston, with him) for plaintiffs.

Jerome P. Facher, Boston, (John G. Fabiano and Michelle D. Miller, Boston, with him) for defendants.

Before HENNESSEY, C.J., and LIACOS, ABRAMS, NOLAN, and LYNCH, JJ.

ABRAMS, Justice.

This action arises out of a participation agreement executed among colenders in February, 1972, to share in financing the construction of a rental apartment project in Weymouth. A judge of the Superior Court held the plaintiff First Pennsylvania Mortgage Trust (FPMT) liable to the defendants Dorchester Savings Bank (DSB) and National Bank of North America (NBNA) in the amount of $1,116,446 "and interest thereon from when [FPMT] reneged on the deal, i.e., August 15, 1973." The plaintiff appeals. We affirm.

We summarize the facts as found by the judge. In 1970, the Weymouthport Corporation (Weymouthport) first approached DSB seeking a loan for a residential development to be built on land owned by the company in Weymouth. Initially refused by DSB, the company turned to NBNA with the same request. Ridgely Ware, then NBNA's senior vice president, was about to depart from NBNA to become the president of Associated Advisers, Inc., an entity established to manage the investments of FPMT. Ware asked Robert Dombal, an NBNA vice president, "to reserve for [FPMT] a portion of any investment by NBNA" in Weymouthport's project. Shortly thereafter, DSB agreed to participate in NBNA's construction loan to Weymouthport. Ware, on behalf of FPMT, and Dombal, on behalf of NBNA, continued negotiations. They agreed orally that NBNA "would advance [FPMT's] share of the loan until such time when [FPMT] was in a position to do so." Pursuant to the oral agreement, NBNA advanced $773,669 on behalf of FPMT, prior to the execution of a formal participation agreement.

In February, 1972, DSB, NBNA, and FPMT entered into such an agreement, dated "as of July 14, 1971." The agreement provided that the three participants would "make an interim construction loan" of $8.5 million to Weymouthport. Of that $8.5 million, DSB would contribute $1.5 million (17.65%), NBNA would provide $4 million (47.06%), and FPMT's share would be $3 million (35.29%). As "principal," DSB was to administer disbursements of the loan to Weymouthport as well as repayments of the loan to NBNA and FPMT. ⁴ Pursuant to paragraph 8 of the agreement, "all loss or losses and expenses other than bookkeeping and ministerial cost [would] be borne by the parties in accordance with their respective rateable undivided interests in the Bank Loan." The participation agreement further provided as follows: "Without the prior written consent of the Participants, Principal shall not make or consent to any modification of any said documents or make or consent to any release of the Borrower from any liability thereunder or waive any claim against the Borrower...."

Over the next year, it became clear that earlier cost projections had been highly optimistic: Severe cost overruns resulted from unanticipated labor problems and difficulties in the preparation of concrete modules for use in the project. In February, 1973, FPMT and DSB joined in an additional mortgage loan to Weymouthport of $2 million as a stop-gap measure. Even this proved insufficient.

In May, 1973, Dombal--now deeply concerned about serious cost overruns--requested, with the approval of DSB and FPMT, "a special study of the current status of the ... project to determine causes of direct cost overruns and to attempt to forecast the ultimate direct cost of the completed project." The result of the study was an estimated "total direct cost for the project of $11,228,700," an "increase of 30% over the original estimate prepared in mid-1971." On May 22, 1973, a meeting of representatives of DSB, NBNA, FPMT, and Weymouthport took place at DSB. The judge found that, at that meeting, "[a]ll agreed that it was appropriate and necessary to refinance the project and a consensus was reached that the then construction loan amount limit of $8.5 million would have to be increased to $12,550,000."

On June 1, 1973, Dombal sent letters to Ware and to Arthur Shaw, Jr., president of DSB, "enclosing ... a rough draft of the restructuring of the Weymouthport construction loan...." The draft proposed "a $4,050,000 increase over the original approval of $8,500,000. Participants ... will share in the increased portion on the same pro-rata share as the original participation...." In the letters, Dombal also wrote: "After you've had a chance to read this, please give me a call on ... June 5th or 6th." When Ware did not telephone as requested, Dombal telephoned him. The judge specifically found "that after some discussion Ware, on behalf of AAI and [FPMT], then agreed that [FPMT] would participate as suggested during their discussions." ⁵ Shaw, on behalf of DSB, also agreed to the increase in the construction loan. During the summer, then, Dombal initiated the preparation of the appropriate legal documents, sought consultations with regard to accounting, financial planning, and marketing, and retained a well-known developer to finish the project. ⁶

On August 15, 1973, DSB and Weymouthport signed a written amendment to the original loan agreement extending the amount of the loan from $8,500,000 to $12,550,000. Weymouthport concurrently executed a note in the amount of $12,550,000 as well as a series of mortgages. Thus, "[t]he 'deal' increasing the amount of the construction loan to Weymouthport 'closed' on August 15, 1973." Over the ensuing months NBNA and DSB advanced substantial funds to Weymouthport pursuant to the agreement to increase the construction loan. At one point, Dombal became concerned that he had not yet received a signed participation agreement from Ware. Ware assured Dombal that he "was in on the deal" and requested that Dombal "cover for him."

In late September or early October, 1973, Ware became "evasive" about FPMT's fulfilling its newly-incurred financial obligation. On October 10, 1973, Ware wrote Dombal as follows: "After considerable thought and with much trepidation about the future of this project, I must inform you that because of past happenings ... I am unable to recommend to our Trustees the approval of any further increases in the above loan."

"For good business and financial reasons," the judge observed, "the project ultimately had to be restructured as a condominium development...." In 1974, DSB, with the approval of NBNA, accepted a deed from Weymouthport in lieu of foreclosure. Construction was completed in 1975 and the last condominium was sold in 1979. The total costs of the completed project were $24,005,800. The project realized $11,426,095 from the sales of condominium units, $250,943 in rental income, and $26,424 from the sale of equipment.

On June 20, 1974, FPMT filed suit in the Superior Court against the defendants seeking a declaratory judgment "that Dorchester by its conduct ha[d] (a) breached its obligations under the Participation Agreement, and (b) violated its fiduciary duties, as trustee, to protect the undivided interest of [FPMT] in the construction loan." ⁷ On September 16, 1974, DSB and NBNA filed an answer and counterclaim. The counterclaim alleged that FPMT had breached the amended participation agreement of August 15, 1973, and had made false representations to DSB and NBNA. The jury-waived trial commenced on July 6, 1982, and concluded on September 3, 1982.

The judge rendered his decision on March 14, 1983. ⁸ That decision embraced four rulings of law: First, the judge held that DSB and NBNA had fulfilled all their obligations pursuant to the agreement with FPMT. Second, DSB had performed its duties toward NBNA, FPMT, and Weymouthport "in good faith" and with "good business judgment." Third, FPMT was responsible for its pro rata share of the project's losses, pursuant to the loan agreement, in the amount of $1,116,446. Last, even were the Statute of Frauds applicable to FPMT's oral agreement to the increase of the loan from $8,500,000 to $12,550,000, FPMT was "bound thereby on the basis of equitable and promissory estoppel." The plaintiff filed a notice of appeal in the Appeals Court. We transferred the appeal to this court on our own motion.

On appeal, FPMT raises several categories of error: It alleges that the judge's findings of fact were clearly erroneous; it maintains that the judge erred as a matter of law in deciding that FPMT could be held to have participated in the August 15, 1973, increase of the original loan in the absence of a written agreement; and it challenges the judge's calculation of damages. ⁹ We address each category of alleged error in turn.

1. Allegations of factual error. The thrust of FPMT's argument is that--whether as a matter of fact or as a matter of law--the judge erred in holding that FPMT did, through its agent, commit itself to participate with NBNA and DSB, despite the lack of a writing, in the additional $4,050,000 loan which closed on August 15, 1973. The plaintiff's initial basis of attack is that there was insufficient evidence to find that FPMT promised orally to participate in the $4,050,000 August 15, 1973, loan. ¹⁰ The plaintiff states that in relying on portions of Dombal's testimony, the judge "strain[ed] credulity to unreasonable limits." The plaintiff then goes on to suggest a fact pattern from the evidence which supports its version of these events. The plaintiff's argument misperceives the scope of appellate review.

On appeal, we may not set aside findings of fact "unless clearly erroneous, and due regard shall be given to the opportunity of the trial court to...