Kaufman v. Mellon National Bank and Trust Company
| Decision Date | 23 September 1966 |
| Docket Number | No. 14975.,14975. |
| Citation | 366 F.2d 326 |
| Parties | Benjamin KAUFMAN, Nathan P. Jacobs, Philip Kessler, Morris Rapoport and Martin Bruce, Appellants, v. MELLON NATIONAL BANK AND TRUST COMPANY. |
| Court | U.S. Court of Appeals — Third Circuit |
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John L. Laubach, Jr., Sanford M. Lampl, Pittsburgh, Pa., for appellants.
Edmund K. Trent, Pittsburgh, Pa., (Steven A. Stepanian, II, Reed, Smith, Shaw & McClay, Pittsburgh, Pa., on the brief) for appellee.
Before McLAUGHLIN, HASTIE and SMITH, Circuit Judges.
This is an action in which the claims for damages are based on fraud, breach of contract and promissory estoppel. At the close of the evidence the defendant moved for a directed verdict in its favor and decision thereon was reserved. The issues were submitted to the jury on special interrogatories, as authorized by Fed.Rules Civ.Proc., rule 49, 28 U.S.C.A. The jury reported its inability to agree and was then discharged.
Thereafter the defendant moved for judgment in accordance with its earlier motion. The motion was granted and this appeal followed. The question for decision is whether the evidence, viewed in the light most favorable to the plaintiffs, was sufficient to preclude the entry of judgment on the motion and to require submission of the case to another jury.
Early in 1955, East Crossroads Center, Inc., (Center) undertook the development of a regional shopping center on a tract of land which it owned in suburban Pittsburgh. The property was subject to a mortgage given to the defendant as security for a construction loan in the amount of $807,000. By letter of commitment dated November 13, 1957, John Hancock Mutual Life Insurance Company (Mutual) agreed to lend Center the sum of $5,200,000, upon completion of the project, the loan to be secured by a first mortgage which would supplant the mortgages to which the property was then subject. The other terms and conditions of this agreement are not relevant to the issues now before us.
Thereafter Center obtained from the defendant a loan commitment by the terms of which the defendant agreed to lend Center for construction purposes a sum not to exceed $4,100,000; the amount was later increased to $4,500,000. The terms and conditions of the commitment were made the subject of a construction loan agreement dated March 11, 1958. Thereunder Center was entitled to borrow or to have advanced on its account such sums as were required for construction purposes, subject however to the right of the defendant to verify Center's requirements by audit, site inspection, or otherwise. The loan was secured by a first mortgage in the amount of $5,200,000.
Section 3.3 of the construction loan agreement contains this pertinent clause:
"Nothing herein contained shall prohibit Lender from advancing larger amounts hereunder or making advances more frequently than herein specified if Lender shall deem such deviations necessary for the protection of the Mortgaged Premises, the Improvements and Lender\'s interest therein, it being agreed that all such advances shall for all purposes be evidenced by the Note and secured by the Mortgage."
This clause, as we construe it, reserved to the defendant the discretion to make such advances as it deemed necessary to protect the mortgaged premises and Center's interest therein.
Under a contract dated March 11, 1958, Mellon-Stuart Company (Stuart) agreed to complete construction of the shopping center at a fixed price of $3,650,000, including specifically enumerated reimbursable costs. Performance of the construction contract was secured by a bond executed by Stuart, as principal, and Seaboard Surety Company, as surety; the defendant was named in a rider as a co-obligee. The provision as to reimbursable costs was modified by a supplemental agreement entered into contemporaneously with the general contract. Thereunder Center became obligated to pay to Stuart all reimbursable costs in excess of the contract price; later Stuart agreed to look solely to Center, and not to the project, for the payment of any excess. The supplemental agreement was duly recorded in Allegheny County.
The price was payable to Stuart in semi-monthly installments upon requisition by Stuart and the architect's certificate. However, the plan of payment was subject to the escalator clause, supra, contained in the loan agreement.
While the work on the project was in progress Stuart experienced some unforeseen difficulties which increased the costs of construction. These difficulties were made known to the defendant which, in January of 1958, agreed to make payments to Stuart on requisition and without regard to percentage of completion. Thereafter several payments were made to Stuart pursuant to the discretionary authority reserved to the defendant under the escalator clause. However, it should be noted that the said payments were made from funds advanced by the defendant and not from funds later furnished by the plaintiffs.
As the result of information received in the latter part of 1958, the plaintiffs became interested in the project as investors. They conducted an investigation and, after a series of negotiations, entered into a contract with Center pursuant to the terms of which they agreed to purchase the shopping center on or before October 19, 1959, the expected completion date, and to lease the property to Center for a period of thirty years at an annual net rental of $610,750. The contract expressly provided that time was not of the essence and that either party would be entitled to adjourn the closing date for not more than ninety days after October 19. The transaction was finally consummated on January 19-21, 1959. Thereafter the plaintiffs were made co-obligees on the performance bond.
The agreed purchase price was $1,250,000 over and above the amount of the first mortgage held by the defendant. The price was payable as follows: $250,000 to Center upon consummation of the agreement on January 19, 1959; $500,000, in installments, to be deposited with the defendant as disbursing agent for the plaintiffs; $500,000 to Center on the closing of title. The amount of $750,000, characterized as a loan, was made the subject of a separate agreement which provided that the amount was to be used solely to defray construction costs. As security for the so-called loan, Center executed and delivered to the plaintiffs a note and second mortgage. The separate agreement also provided that if Center failed to prosecute the construction of the shopping center with diligence plaintiffs would have the right to enter upon the mortgaged premises and to complete the work at the expense of Center.
The sums to be deposited with the defendant were to be advanced to Center in accordance with the schedule of payments set forth in the construction loan agreement between Center and the defendant. The disbursement plan was the subject of a supplemental contract between the plaintiffs and defendant. When this contract was entered into the defendant had already advanced to Center, or on its behalf, the sum of $2,991,616.52, pursuant to the terms of its commitment. The supplemental agreement provided that with each disbursement made on behalf of the plaintiffs the defendant would disburse from its own funds a sum not less than that disbursed on behalf of the plaintiffs.
The plaintiffs paid $250,000 to Center upon consummation of their agreement. Thereafter, between February and June of 1959, they deposited with the defendant the sum of $303,181.42, representing $325,000, less interest and attorneys fees, which they retained. This sum was advanced to Stuart in six installments which were paid between February 10 and June 24, 1959, inclusive. During the same period, and simultaneously with disbursements made on behalf of the plaintiffs, the defendant disbursed from its own funds a total of $733,142.92. The disbursements made by the defendant from its own funds exceeded those made from funds provided by the plaintiff by $429,961.50.
Some time in March 1959, Stuart informed the defendant that the estimated cost of completion would exceed its prior estimates by $600,000; by the end of June the projected deficiency increased to $857,000. The plaintiffs and defendant were informed that unless additional funds were made available Stuart could not complete the construction work. However, Stuart was unable to furnish a firm estimate as to the completion costs. Absent such an estimate the parties were unwilling to advance additional funds. Construction work was discontinued on September 18, 1959.
Pursuant to an informal understanding the plaintiffs on August 18, 1959, instituted proceedings to foreclose their respective mortgages. Decrees of foreclosure were entered but the sale of the property thereunder, initially scheduled for September 18, was stayed under restraining orders granted in actions commenced by Center. In the action against the defendant the stay was vacated and the sheriff's sale was then scheduled for October 5, but was adjourned to October 9, at the request of the plaintiffs. Additional facts relating to the foreclosure proceedings are hereinafter summarized.
The defendant purchased the property at the sheriff's sale and took title in the name of East Hills Center, Inc., (East Hills). Thereafter all the stock of East Hills was sold for $5,637,487.47, of which $437,487.47 was paid in cash; the balance due on the purchase price was secured by a note and mortgage.
We find it difficult to ascertain from the complaint the specific theory upon which this claim for damages was predicated. However, it appears from a somewhat equivocal pretrial statement filed by the plaintiffs that they sought to recover $575,000, the total of sums advanced on account of the purchase price, and $3,000,000,...
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