First Sec. Sav. Bank v. Aitken
| Decision Date | 04 November 1997 |
| Docket Number | Docket No. 183203 |
| Citation | 226 Mich.App. 291,573 N.W.2d 307 |
| Parties | FIRST SECURITY SAVINGS BANK, Plaintiff/Counter-Defendant/Appellee, v. Ian AITKEN and Marilyn Aitken, Defendants/Counter-Plaintiffs/Appellants. |
| Court | Court of Appeal of Michigan — District of US |
Beier Howlett, P.C. by Mark W. Hafeli, Bloomfield Hills, for Plaintiff/Counter-Defendant/Appellee.
H. Rollin Allen, Southfield, for Defendants/Counter-Plaintiffs/Appellants.
Before GRIBBS, P.J., and YOUNG and W.J. CAPRATHE *, JJ.
Defendants Ian and Marilyn Aitken appeal as of right from the lower court's orders granting plaintiff First Security Savings Bank's motions for summary disposition and attorney fees. We affirm.
The Aitkens borrowed money from First Security Savings Bank (FSB) under a construction loan agreement. This money financed the construction of a model condominium at a condominium development promoted by the joint venture, Rattle Run Development Company (Rattle Run Development or the development). The Aitkens were participants in the joint venture, both as purchasers of a condominium and as investors in the development. The Aitkens defaulted on the loan, and FSB filed a default action against them.
As a defense and counterclaim to the default action, the Aitkens alleged that FSB breached its contract with Rattle Run Development, which, in turn, precipitated the default of their loan. Specifically, the Aitkens allege that FSB breached its obligation to issue construction loans to other borrowers and that this refusal caused the development to fail. The Aitkens claim that, as third-party beneficiaries, they were entitled to damages stemming from FSB's breach because they detrimentally relied on FSB's promise to Rattle Run Development that FSB would provide other construction loans.
Importantly, the Aitkens do not dispute that FSB granted their construction loan and disbursed funds on that loan. Instead, the Aitkens seek to hold FSB liable for Rattle Run Development's problems that the Aitkens claim resulted from FSB's refusal to continue issuing construction loans to other borrowers. Inasmuch as the Aitkens are raising claims that involve dealings between Rattle Run Development and FSB, they must first establish their legal entitlement, i.e., standing, to raise these claims and the bases for the damages they seek.
Accordingly, in this appeal we must address (1) whether the Aitkens have standing as third-party beneficiaries to enforce an agreement between Rattle Run Development and FSB, and (2) given their claim of detrimental reliance, whether the Aitkens can base liability on an estoppel theory. Lastly, we address the Aitkens' claim that FSB was not entitled to attorney fees under the FSB/Aitken loan agreement. 1
Rattle Run Development was a joint venture formed to promote a condominium development in China Township. The Rattle Run Development joint venture partners were Rattle Run Real Estate Company, Rattle Run Investment Company, H. Rollin Allen, Edward Powers, and Fay Knoll. Amos Knoll was hired as a consultant for the joint venture. As stated, the Aitkens were participants in the joint venture as purchasers of a model condominium and as investors in the development.
In 1989, Amos Knoll worked to obtain financing arrangements for construction, bridge, and end loans for the development. To that end, he entered negotiations with Nels Rouleau, then an employee of Interfirst Bank. Interfirst subsequently agreed to provide these loans, and had approved certain loans when Nels Rouleau left Interfirst and became an employee of FSB. At that point, Mr. Rouleau contacted the development to solicit the joint venture's business from Interfirst to FSB, which solicitation proved successful.
After negotiations, 2 FSB Senior Vice President Mark Hammond sent a letter dated January 3, 1990, to the attention of Amos Knoll, stating:
First Security Savings Bank will provide construction draw and end loan residential first mortgages to qualified borrowers in the new Rattle Run Site condominium subdivisions. First Security will require at all times a minimum of 20% down payment in all buildings before a closing can occur and before draws will be disbursed. First Security will only lend to qualified owner occupant borrowers. Before First Security will close any end loan mortgages, the condominiums will have to have all common amenities fully completed and meet First Security's site condominium guidelines.
First Security will also finance condominium units for construction draw loans with a minimum of 25% downpayment [sic] on an entire building to qualified owner occupants. Before First Security will close any end loan mortgages, the condominiums will have to fully satisfy all of First Security's condominium guidelines. This will include, but not be limited to, satisfying a 70% presold requirement and meeting all necessary fidelity bond coverage.
In all situations, First Security will require a first lien position on all pieces of property.
H. Rollin Allen, president of H.R. Allen Realty Co., notified the Aitkens and other prospective purchasers that "[a]rrangements have been made with FIRST SECURITY SAVINGS BANK to process all construction loans for the development." (Emphasis added.) The Aitkens, along with other condominium purchasers, applied for financing from FSB with Nels Rouleau, who was then working as FSB's loan originator.
Rattle Run Development also proceeded to negotiate with China Township to obtain building permits and to bring to the project site water and sewer service that were required both by the township and FSB. The development and the township subsequently entered into a planned unit development agreement (PUD) on June 7, 1990. As a condition of the PUD, Rattle Run Development was obligated to obtain an irrevocable letter of credit to finance the installation of sewer and water systems. Significant to this case, the PUD stated that all construction would cease unless Rattle Run Development obtained the letter of credit. After the PUD was executed, China Township issued complete building permits for three model condominiums, including the Aitkens' condominium.
FSB closed on the Aitkens' condominium loan along with two additional construction loans and began to disburse funds on all three. FSB thereafter approved construction loans for at least fifteen other applicants, and issued commitment letters to that effect. The commitment letters provided that closing on the loan was, in part, conditioned on issuance of a building permit. The evidence indicates that when the commitment letters were issued, the township had not issued complete building permits to build more condominiums, but would issue only restricted permits allowing the construction of basements.
Thereafter, Rattle Run Development ran into problems with the township when the development was unable to obtain the irrevocable letter of credit within the time required by the PUD. The township would not issue complete building permits for any additional condominiums. On November 20, 1990, Amos Knoll wrote to the township stating that a bank had committed to issue a letter of credit to finance the construction of water and sewer facilities. Knoll explained that the letter of credit had not been obtained at that time because the bank required a twenty percent fee to issue the letter of credit, and he requested that the township inform him of the final amount that the project would cost in order to calculate the fee that the letter of credit would entail. In the letter, Knoll wrote, "I do not want to pay such exorbitant fees."
In April and May 1991, FSB learned that Rattle Run Development was having trouble bringing sewer and water service to the development site. Consequently, on May 28, 1991, FSB declared that any commitment letters issued to borrowers were null and void because these amenities had not been provided to the development site. Then, in August 1991, China Township advised Rattle Run Development that, pursuant to the terms of the PUD, construction should cease and that it would issue no further building permits. The township cited the development's failure to obtain the letter of credit to finance the construction of sewer and water service as its reason for refusing to issue additional building permits. 3
The Aitkens entered a joint venture agreement with Rattle Run Real Estate Company in late 1989. In the agreement, the Aitkens agreed to obtain eighty percent financing for a model condominium and pay a twenty percent down payment to Rattle Run Real Estate Company, a partner in the joint venture. Rattle Run Real Estate agreed to build and decorate the model. In addition, the Aitkens agreed to lease the property to Rattle Run Real Estate for a year from the date of closing. In exchange, Rattle Run Real Estate promised to pay the mortgage payments, insurance, utilities, and prorated property taxes.
On January 31, 1990, the Aitkens met with Nels Rouleau, FSB's loan originator, to apply for the construction loan. Marilyn Aitken testified in her deposition that Rouleau indicated that FSB would provide construction and end loans to qualified borrowers. On July 11, 1990, the Aitkens loaned Rattle Run Development $50,000, and later an additional $25,000, on August 17, 1990, to help finance the construction of condominiums pending receipt of construction loans from FSB. On September 19, 1990, the Aitkens and FSB closed on the construction loan, and subsequently, FSB disbursed funds to finance the construction of the Aitkens' model condominium.
According to the Aitkens, after the development ran into the problems detailed above, Rattle Run Development could not afford to continue or make payments on the...
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