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Kaufman v. Mellon National Bank and Trust Co.

decided: September 23, 1966.

BENJAMIN KAUFMAN, NATHAN P. JACOBS, PHILIP KESSLER, MORRIS RAPOPORT AND MARTIN BRUCE, APPELLANTS,
v.
MELLON NATIONAL BANK AND TRUST COMPANY



McLaughlin, Hastie and Smith, Circuit Judges.

Author: Smith

Opinion OF THE COURT

WILLIAM F. SMITH, Circuit Judge.

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.

FACTS

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 ...


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