United California Bank v. Prudential Ins. Co. of America
| Decision Date | 01 September 1983 |
| Docket Number | CA-CIV,Nos. 1,s. 1 |
| Citation | 681 P.2d 390,140 Ariz. 238 |
| Parties | UNITED CALIFORNIA BANK, a California corporation, Plaintiff-Appellee, Cross- Appellant, v. The PRUDENTIAL INSURANCE COMPANY OF AMERICA, a New Jersey corporation, Defendant-Appellant, Cross-Appellee. NAMETCO, an Arizona corporation, HRP Hotel Company, an Arizona limited partnership, the partners of which are Sam Shapiro, Barry Shapiro, Lawrence J. Shapiro, Michael Haskes, Ben Klimist, Joseph H. Filner and Nametco Corporation, Plaintiffs-Appellees, Cross-Appellants, v. The PRUDENTIAL INSURANCE COMPANY OF AMERICA, a New Jersey corporation, Defendant-Appellant, Cross-Appellee. 5135, 1 5495. |
| Court | Arizona Court of Appeals |
TABLE OF CONTENTS
page
I. Introduction 398
II. Facts 398
A. The Background of the Hotel 398
B. The Loan Transaction 399
C. The Trial Court Proceedings 404
Phase I 404
Phase II 407
Phase III 407
Phase IV 407
D. The Appeal 407
III. Prudential's Claim to an In-Fact First
Lien 408
A. Introductory Statement 408
B. The Loan Application and the
Commitment Letter: Incorporation or
Not 409
C. Partial Summary Judgment or Trial
on the Merits: Both 413
D. The Phase I Trial 414
The Five-Party Agreement 418
The Deed of Trust and Other
Collateral Loan Documents 420
Modern Mortgage Law and Practice 422
Conclusion 424
E. Ejusdem Generis 425
F. Marketable Title as an Implied
Obligation 426
G. A.R.S. § 20-1591(2) and A.R.S. §
20-1565(B) 427
H. Conclusion 428
IV. Anticipatory Repudiation 429
V. Funding into a Default and Insolvency 441
VI. Attorney-Client Privilege 444
VII. Measure of Damages 447
A. Introductory Statement 447
B. The Evidence Supports the Trial
Court's Findings 450
Prudential's In-House Appraisals 452
Owners's Opinion of Value 454
Remarks of the Trial Judge 457
C. The Claimed Interest Deduction 460
VIII. The Cross-Appeals 461
A. Prejudgment Interest 461
B. Increase in Interest Rate 462
IX. Conclusion 462
This appeal requires us to review the trial court's interpretation of agreements between Prudential Insurance Company of America (Prudential), United California Bank (UCB), and HRP Hotel Company (HRP). Prudential and UCB are both commercial lenders. UCB in this case was the interim construction lender to HRP, then owner-developer of the Hyatt Regency Hotel (Hotel), a high-rise hotel planned for downtown Phoenix. Prudential was the intended permanent or "take-out" lender on the Hotel. Prudential ultimately refused to fund the permanent loan and UCB and HRP sued, seeking relief on the issue of Prudential's obligation to fund the $25,500,000 loan.
The legal and factual issues were decided on a number of motions for partial summary judgment, several weeks of hearings, and on two separate trials to the court and one trial to the jury over a period of eight weeks. The various claims consumed 76 days of hearings and trial. During the trial proceedings hundreds upon hundreds of exhibits were marked for identification and many were admitted in evidence. Thousands of pages of testimony were taken on deposition and at trial. Pleadings, motions, memoranda, and other documents, usually with more exhibits attached, many of which had been produced and reproduced before, were filed in vast numbers.
The parties took diametrically opposed views as to the law applicable and what the evidence shows. Consequently it has been necessary to devote an inordinate amount of time examining the transcripts of testimony and exhibits and in researching the law. Prudential states in its opening brief: "This case is bulkier than it is difficult." It is both bulky and difficult. HRP states in its answering brief: "This litigation has been protracted and hard fought at every turn." This is a gross understatement. The advocacy has been intense; the quantity of work excellent. For the sake of clarity and space we have attempted to limit ourselves to the facts and proceedings pertinent to a disposition of the case. However, we may not have been totally successful in this endeavor.
Liability was found against Prudential and damages awarded HRP in the amount of $10,494,000, representing HRP's loss of equity in the Hotel. The court also awarded HRP attorneys' fees in the amount of $863,250. UCB was awarded nominal damages of one dollar, plus attorneys' fees totaling $163,550. Pursuant to an agreement executed by UCB and HRP during the pendency of the case in the trial court, UCB is entitled to approximately one half of HRP's damages. Prudential has appealed the judgment entered in the trial court. We affirm.
Sam Shapiro, after arriving in Phoenix in 1937, was involved in various business enterprises. In the late 1960's Mr. Shapiro planned the construction and development of a high-rise luxury hotel in downtown Phoenix. HRP, an Arizona limited partnership, was formed by Mr. Shapiro to carry out the plan. 1 In 1970, HRP purchased the site of the Hotel for $1,975,000. It was a parcel of unimproved real estate across the street from the Phoenix Civic Plaza. Mr Shapiro then engaged Laventhol & Horwath to study the feasibility of the project, Charles Luckman Associates to design the Hotel, Chanen Construction Company to build it, and the Hyatt Hotels Corporation to manage and operate it.
In September 1973, Prudential's Phoenix office prepared and presented to HRP a printed "Loan Application" (loan application) form for a long-term $24,500,000 loan to be secured by the proposed Hotel. The original applicant for the Prudential loan was National Properties, which for purposes of clarity will be referred to as HRP, the authorized nominee of Prudential's commitment. The standard two-page loan application has attached to it five typewritten pages, each entitled at the top in printed text "Application Rider" containing 34 typed "Conditions" (conditions). The loan application form contained a space for information on the applicant's "Present First Mortgage" and immediately below it a space for information on the applicant's "Other Financing." No information was set forth. In small print, just above the signature line, the standardized form said:
I agree to: (1) give a first mortgage; (2) pay all legal and title and closing expenses including cost of an engineer's survey; (3) furnish and maintain fire and extended coverage insurance. My title and all title, mortgage and closing documents must be satisfactory to Prudential.
A number of items were left blank on the form, including the only other reference to a "first mortgage," the standard question as to the particulars of the applicant's "present first mortgage," a question inapplicable to HRP's application for a loan on the Hotel which had not yet been constructed.
On September 21, 1973, after discussion and negotiation of the terms, HRP returned to Prudential the executed loan application and rider setting forth the conditions, with a check for $61,250 as payment of the required service charge and a $490,000 letter of credit as a non-refundable standby fee. "S. Shapiro" signed the loan application on behalf of HRP. One of the last items completed on the loan application shows that a Mr. Smith indicated "commitment recommended" by putting an "x" in a box. Other boxes, which were not completed, were provided below that recommendation for further processing by Prudential.
On October 25, 1973, Prudential extended to HRP a permanent loan commitment for $24,500,000 2 by "an offer to make a mortgage loan to you" letter (commitment letter), signed by its Associate General Manager, to which the original application rider, with some conditions modified, was attached. The two-page loan application itself was not attached. The...
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