Poughkeepsie Sav. Bank v. Highland Terrace Apartments
| Decision Date | 02 December 1977 |
| Citation | 352 So.2d 1108 |
| Parties | POUGHKEEPSIE SAVINGS BANK v. HIGHLAND TERRACE APARTMENTS. SC 2465. |
| Court | Alabama Supreme Court |
James J. Robinson, Birmingham, for appellant.
James M. Tingle and Robert R. Sexton, Birmingham, for appellee.
The defendant below, Poughkeepsie Savings Bank, appeals from the trial court's order which permanently enjoined Poughkeepsie's attempt to collect an irrevocable Letter of Credit established by the plaintiff, Highland Terrace Apartments.
Highland, a partnership, employed W. B. Phillips to secure permanent financing for an apartment complex on Birmingham's southside. Phillips sought a $940,000 commitment from Poughkeepsie, but got only $850,000. The commitment had a closing date in eighteen months, and contained a liquidated damages clause, requiring that an irrevocable Letter of Credit in the amount of $8,500 be established. The pertinent portion of that clause reads, as follows:
"(T)he Borrowers must deposit an additional sum of $8,500 in the form of an irrevocable Letter of Credit, with the acceptance of this commitment as a good faith deposit, which shall be forfeited as liquidated damages if the Borrower defaults under the terms and conditions of this commitment; otherwise, it shall be returned to the Borrower upon delivery the mortgage loan."
The agreement also required the personal guarantee of payment by the members of the partnership until 85% of the apartment units were occupied for one year. Interim construction financing was obtained from The First National Bank of Birmingham, which also issued the $8,500 Letter of Credit.
Due to numerous problems which arose, it was two or three months after the final loan commitment of July 22, 1975, before actual construction was begun. Heavy rains fell in Birmingham during the first few months of 1976. Highland's progress was hindered because of the steep grade and loose dirt at the building site. Evidence tended to show that progress toward completion was being rapidly made, and that the complex would be successful. Nevertheless, Phillips was asked to seek an extension of the commitment closing date and an increase in the loan commitment of $100,000. In November of 1976, Phillips sent Poughkeepsie several letters of inquiry and Poughkeepsie, after some delay, agreed to send two representatives to Birmingham on December 7, 1976, to make an on-site inspection. In a telephone conversation on December 28, 1976, a Poughkeepsie employee informed Phillips that the extension and increase in the loan commitment had been approved and that a letter would be forthcoming. The actual terms and conditions of the new loan commitment were never discussed.
The notice of the extended closing date came on January 11, 1977, in the form of a new commitment agreement which would supersede the July 22, 1975 agreement. The new commitment offer was unacceptable to Highland because it contained terms not in the earlier commitment. The new offer included clauses calling for a six-month extension, $8,500 loan fee, $850.00 processing fee, $8,500 good faith Letter of Credit and an absolute guarantee of payment by the individual partners and their spouses. Some confusion arose as to whether the fees set out in the new proposal would be in addition to the original loan commitment requirements or were restatements. The most objectionable addition was the personal guaranty requirement.
The January 22, 1977, closing deadline under the original commitment arrived and Poughkeepsie attempted to collect on the Letter of Credit. Highland sought injunctive relief. A Temporary Restraining Order was issued and Poughkeepsie counterclaimed against Highland for the amount of the Letter of Credit and filed a crossclaim against The First National Bank of Birmingham, with whom the Letter was established. In addition, Poughkeepsie sought $5,000 for the expenses incurred by it in defending against the injunction. Poughkeepsie's jury demand on the original complaint was denied and the request for a jury on the counterclaim was withdrawn.
Stating that the courts of Alabama will balance the equities, the trial judge permanently enjoined Poughkeepsie from attempting to collect the Letter of Credit, but did award it $1,750 for expenses incurred in defending the action. Stating that the loss of the $8,500 fee would not work any hardship upon a banking institution such as Poughkeepsie, and that Poughkeepsie had not suffered any additional monetary expenses, the Letter of Credit was found to be a penalty. The trial court further found that Poughkeepsie had not dealt in good faith in that it had led Highland into believing that the requested extension of time would be granted under the same conditions that existed in the original loan commitment, and that Poughkeepsie had waited until January 11, 1977, to submit an unacceptable commitment.
Poughkeepsie attacks the trial court's granting of the injunction on the ground that rainy weather does not excuse one from the terms of his contract and that the $8,500 Letter of Credit does not constitute a penalty under the facts of this case. Poughkeepsie also contends that the trial judge erred in failing to award it the sum of $5,000 as attorney's fees and costs of defending the wrongful injunction. Lastly, Poughkeepsie argues that they were wrongfully denied their right to trial by jury as to both the original complaint and counterclaim.
Breaking down the sequence of events which led to this lawsuit leaves us with the conclusion that the trial judge was in error. This is not a case where we are faced with an ore tenus problem; instead, the facts in the record before us, as a matter of law, do not support the judgment. Very simply, the parties entered into a contract on July 22, 1975, wherein Poughkeepsie promised to loan Highland $850,000 on January 22, 1977. In return, Highland promised to be in a position to close the loan on January 22, 1977, or forfeit a $8,500 Letter of Credit as liquidated damages. Because of unusual weather, and terrain conditions, Highland was running behind schedule and needed an extension. Trying to avoid payment of the Letter of Credit, and seeking to acquire additional capital, they requested Poughkeepsie to give an extension of time and an additional $100,000. After...
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