Werner v. A. L. Grootemaat & Sons, Inc.

• Decision Date: 14 November 1977
• Docket Number: No. 75-720,75-720
• Citation: 259 N.W.2d 310,80 Wis.2d 513
• Parties: , 23 UCC Rep.Serv. 136 Henry J. WERNER, Valentine A. Werner, and Benjamin W. Lodwick, d/b/a WLW Investment Company, a Wisconsin partnership, Appellants, v. A. L. GROOTEMAAT & SONS, INC., Respondent, First National Bank of Waukesha, Defendant.
• Court: Wisconsin Supreme Court

Page 310

259 N.W.2d 310

80 Wis.2d 513, 23 UCC Rep.Serv. 136

Henry J. WERNER, Valentine A. Werner, and Benjamin W Lodwick, d/b/a WLW Investment Company, a Wisconsin partnership, Appellants, v. A. L. GROOTEMAAT & SONS, INC., Respondent First National Bank of Waukesha, Defendant.

No. 75-720.

Supreme Court of Wisconsin.

Submitted on Briefs Oct. 5, 1977.

Decided Nov. 14, 1977.

The appeal is from an order of the trial court denying a temporary injunction to restrain honor of a draft under a letter of credit. The action was brought by the plaintiffs-appellants Henry J. Werner, Valentine A. Werner and Benjamin W. Lodwick, doing business as WLW Investment Company, against the defendant-respondent, A. L. Grootemaat & Sons, Inc., a Wisconsin corporation, and the defendant, First National Bank of Waukesha, seeking return of a $12,560 loan origination fee, incidental damages and a permanent injunction enjoining the defendants from presenting or honoring drafts under a letter of credit. The cause of action is based on the following transactions between the appellants and respondent.

In 1973, the appellants, as individuals, purchased real estate at 1000 North Mayfair Road in Wauwatosa. They then contacted the respondent, a Milwaukee investment company, to obtain financing for the construction of a three-story office building at a construction cost of approximately $1,256,000. They requested the respondent to obtain both long-term or permanent financing and interim or construction financing.

At the respondent's direction, the appellants first applied for a permanent mortgage loan. In a letter dated January 14, 1974, the respondent committed to the appellants through the Building Trades United Pension Trust Fund, the lender, a permanent first mortgage loan for $1,256,000, to be amortized over a period of twenty-five years, under the terms and conditions set forth in the letter. This loan was to be delivered upon full completion of all improvements "in accordance with the final plans and specifications as submitted to and approved by the lender (the Fund) . . . to enable A. L. Grootemaat & Sons, Inc. to deliver the mortgage and related documents for the office building (to the Fund) no later than 7/31/75." Both sides agree that because of this condition in the commitment the appellants would lose the permanent mortgage loan if the building was not constructed by July 31, 1975. However, the conditions of the permanent loan commitment did not include a specific date for the commencement of construction.

In addition to a completion deadline, the permanent loan commitment required the appellants to pay two fees: (1) A "loan origination fee" of $12,560 (1% of principal) to be paid by the appellants to the respondent within thirty days of the date of the commitment or at the closing of the interim loan, whichever occurred earlier; and (1) a "commitment fee" of $12,560 to be refunded to the appellants in the event that the permanent loan was actually funded. Rather than escrowing the commitment fee the commitment letter required the appellants to have an acceptable bank issue an irrevocable letter of credit to respondent as beneficiary in the amount of $12,560, expiring no later than July 31, 1975. Appellants paid the loan origination fee in cash and had the defendant First National Bank of Waukesha issue an irrevocable letter of credit drawn in favor of the respondent Grootemaat in accordance with the terms of the commitment.

Once the permanent financing was arranged, appellants applied to the respondent for a construction loan. The application was accepted on June 27, 1974, and called for a construction loan in the amount of $1,256,000, an interest rate of 3% above prime and a term of twelve months. The application stated that the borrower would be a corporate entity to be formed by the appellants, but that the appellants would personally guarantee the borrowings of the corporation.

The respondent did not secure a construction loan for the appellants pursuant to this application. At the hearing on the motion for preliminary injunction the appellants introduced a letter from the respondent to the Marshall & Ilsley Bank of Milwaukee, dated September 12, 1974, rejecting a construction loan proposed by M & I Bank on the grounds that:

"A. L. Grootemaat & Sons, Inc., will not permit the construction loan to be assigned after the closing. The borrowers wanted this right for tax benefits. After the closing they would transfer the project from the incorporated entity to themselves as individuals. (Grootemaat) would not permit this because of the risk that the individuals may, at a later date, wish to use the usury laws as a basis for negating the construction loan. The second reason is a direct result of the permanent lenders (the Fund) requirement that construction be started by September 1, 1974."

The appellant Lodwick testified that he was never notified of the M & I offer and that the respondent rejected the offer without notifying the appellants. The appellants also introduced into evidence a demand for payment under the letter of credit dated September 18, 1974, which Grootemaat never presented, but which, the appellants assert, tends to show that Grootemaat rejected the M & I loan in bad faith and then decided to abandon any further attempts to obtain a construction loan for the appellants. However, Grootemaat claims that the M & I loan offer was offered to the appellants and rejected.

On July 30, 1975, one day before the expiration of the permanent loan commitment and the letter of credit, appellants filed their summons and complaint in this action. (On the same day the First National Bank of Waukesha was served.) The complaint alleged that the respondent breached its contractual agreement with the appellants to "obtain, and timely deliver, to plaintiffs the agreed to construction loan," and its contractual agreement "to timely deliver to plaintiffs a permanent mortgage loan . . . as agreed to by Grootemaat with plaintiffs on or about January 14, 1974." Appellants sought the return of the $12,560 loan origination fee, incidental damages, and a permanent injunction against the First National Bank of Waukesha and the respondent to prohibit them from presenting or honoring drafts under the letter of credit. The appellants promptly sought a temporary restraining order and a temporary injunction to restrain the respondent from obtaining payment under the letter of credit.

On July 31, 1975, the respondent presented to First National Bank of Waukesha the documents specified in the letter of credit and demanded payment thereunder. The demand was rejected by the bank on the ground that this action had been commenced to enjoin such payment. On August 1, 1975, the appellants obtained the temporary restraining order, and on September 8, 1975, a hearing was held on their motion for a temporary injunction. The trial court directed the bank to deposit the $12,560 payable under the letter of credit into the court and that upon such payment the bank be dismissed from the case.

On February 17, 1976, the trial court denied the appellants' motion for temporary injunction, but allowed the appellants the choice of amending the damages portion of their complaint to include the additional sum of $12,560 to cover the amount paid under the letter of credit. The appellants have not amended their complaint and instead have appealed the denial of the temporary injunction. (The trial court stayed pending appeal its order directing that the funds deposited by the bank be paid over to Grootemaat.)

Gerald S. Walsh, Michael A. Campbell and Walsh & Simon, Milwaukee, on brief, for appellants.

William R. Steinmetz and Reinhart, Boerner, Van Deuren, Norris & Rieselbach, S.C., Milwaukee, on brief, for respondent.

ROBERT W. HANSEN, Justice.

On this appeal the sole issue raised is the propriety of the denial of a temporary injunction.

In this state the authority for the issuance of a temporary injunction is statutory:

"When it appears from his pleading that a party is entitled to judgment and any part thereof consists in restraining some act, the commission or continuance of which during the litigation would injure him, or when during the litigation it shall appear that a party is doing or threatens or is about to do, or is procuring or suffering some act to be done in violation of the rights of another party and tending to render the judgment ineffectual, a temporary injunction may be granted to restrain such act." ¹

The denial of a temporary injunction under this statute is a matter within the discretion of the trial court, and the sole issue on appeal is whether the trial court abused its discretion. ² As to the exercise of such discretion, this court has stated the following guidelines: Injunctions, whether temporary or permanent, are not to be issued lightly. ³ The cause must be substantial. ⁴ A temporary injunction is not to be issued unless the movant has shown a reasonable probability of ultimate success on the merits. ⁵ Temporary injunctions are to be issued only when necessary to preserve the status quo. ⁶ Injunctions are not to be issued without a showing of a lack of adequate remedy at law and irreparable harm, ⁷ but at the temporary injunction stage the requirement of irreparable injury is met by a showing that, without it to preserve the status quo pendente lite, the permanent injunction sought would be rendered futile. ⁸

While standards for the granting of temporary and permanent injunctive relief differ, ⁹ the presence of irreparable injury and inadequate remedy at law are relevant factors to consider in granting either temporary or permanent injunctions for the reason that, "(I)f it appears . . . that the plaintiff is not entitled to the permanent injunction which his complaint demands, the court ought not to give him the same relief temporarily." ¹⁰ Thus, a showing of irreparable injury and inadequate remedy at law is...