The opinion of the court was delivered by: WEBER
This case, which is before the Court on cross-motions for summary judgment, involves the interpretation of a document known in the overlapping worlds of real estate development and high finance as a "Buy-Sell Agreement." The basic question is whether Defendant Aetna Business Credit, Inc., (Aetna) was obligated on August 1, 1975 to assume a loan of $ 1,850,000 made by Plaintiff Mellon Bank, N.A. (Mellon) to Plaintiff M. B. Buckeye Corporation (Buckeye) to finance the construction of an office building in Atlanta, Georgia.
The undisputed facts, as set out in the exhibits and depositions which have been submitted to the Court, are as follows:
Plaintiff Mike Goldgar initiated the project of constructing the building in question by forming Buckeye Corporation, a Georgia corporation, in the fall 1973. In November 1973, Aetna made a "Permanent Commitment" to lend Buckeye $ 1,850,000 to pay off a construction loan (to be later obtained) after satisfactory completion of the building.
The existence of "Permanent Commitment", which expired on August 1, 1975, helped Goldgar to borrow the funds necessary to construct the building from Mellon, which agreed to become the interim lender in December 1973. Under the "Construction Loan Agreement" between Mellon and Buckeye, the debt was secured by a mortgage on the property and the building under construction and was personally guaranteed by Goldgar. The critical contract is the "Buy-Sell Agreement", which Mellon, Aetna, and Buckeye signed in January 1974. The requirements for Aetna's obligation to assume or fund the loan, in effect replacing Mellon as Buckeye's creditor, are principally set out in this document.
Construction began in the spring of 1974. After Mellon received requisitions from the general contractor, the bank made monthly loans to Buckeye. The "Construction Loan Agreement" provided for a fixed contract cost for the erection of the building of $ 1,350,000 maximum, with the difference between that sum and the $ 1,850,000 representing the cost of the land, fees, and other expenses as well as the interest on the loan. Interest was pegged to Mellon's prime rate and was deducted monthly from the amount of the loan proceeds remaining to be disbursed. By the late fall of 1974, Mellon officials realized that the remaining undisbursed funds would not suffice to complete the building. In December 1974, Mellon suspended payments to Buckeye's contractor. Because the contractor was not paid, construction stopped and the contractor and others filed liens against the premises. A default in the payment of interest also occurred. On February 5, 1975, Mellon notified Buckeye that, because of various events of default, including the nonpayment of interest, it was declaring the construction loan in default and demanding payment in full of both principal and interest from both Buckeye and Goldgar, the guarantors of the note. To cure these defaults and resume construction, Mellon agreed by a contract dated March 14, 1975 to advance another $ 305,000 to Buckeye, which sum was to be secured by a second mortgage on the premises, a pledge of all of Buckeye's outstanding stock and an assignment of all cash receipts.
Through the stock pledge, Mellon acquired full voting rights and control of Buckeye's board of directors and management. Richard N. Maier, a Mellon vice-president, became president of Buckeye and a director, and other Mellon employees assumed management positions, which they held until January 1976. The March 14 agreement expressly pronounced that the default in the payment of interest on the building was cured by the infusion of these additional funds and reinstated the building loan.
Before June 1975, representatives of Mellon and of Aetna met to discuss various problems with the deal. By letter of Joseph Jackovic, a Mellon vice-president, dated June 13, 1975, Aetna advised Mellon that its proposals to resolve the problems were unacceptable and that the loan would not be funded because the terms and conditions of the "Buy-Sell Agreement" could not be met by August 1, 1975. On July 25, 1975, Mellon forwarded to Aetna certain documents and proposed to transfer the loan to Aetna on August 1. Aetna rejected the tender by letter dated July 30, 1975. On September 2, 1975, Mellon sold the property at a foreclosure sale to a wholly-owned subsidiary for $ 940,000 as approved by a Georgia court order, McGanney Affidavit, Exhibit T.
Aetna admits that it refused to fund the loan but argues its refusal was justifiable because Mellon and Buckeye did not meet certain conditions precedent to its obligation to fund. Specifically, Aetna contends that its obligation to fund the loan was expressly contingent on the fulfillment of the following conditions precedent: (1) that the construction loan to Buckeye was not to exceed $ 1,850,000; (2) that the building loan and the guaranty thereof would not be in default at the time of tender to Aetna; and (3) that Buckeye present to Aetna an Estoppel Certificate and Mellon a warranty containing certain representations. In general, Mellon responds that the $ 1,850,000 limit applies only to the amount which Aetna may be demanded to fund and is not a condition precedent to Aetna's obligation to fund under the "Buy-Sell Agreement", and that none of the applicable loan agreements were in default at the time of its satisfactory tender of the loan to Aetna. Mellon moves for summary judgment against Aetna on the ground that Aetna repudiated its obligations to fund in anticipation of the August 1, 1975 transfer date. Mike Goldgar and Buckeye move for summary judgment on the same grounds.
The resolution of the questions before the Court presented by the various motions for summary judgment involves the interpretation of the "Buy-Sell Agreement" and several other contracts entered by the parties. The interpretation and application of various contract provisions is the function of the Court if the provisions are unambiguous. Goldinger v. Boron Oil Co., 375 F. Supp. 400, 413 (W.D.Pa.1974), Aff'd 511 F.2d 1393 (3d Cir.) Cert. denied 423 U.S. 834, 96 S. Ct. 59, 46 L. Ed. 2d 52 (1975). In performing this function, the Court shall consider the writings without regard to extrinsic evidence if the contract may be construed within its four corners, Robert F. Felte, Inc. v. White, 451 Pa. 137, 302 A.2d 347 (1973), in order to discern and give legal effect to the reasonable expectations induced by the promises the parties made. See Corbin on Contracts, §§ 1, 543B, 560 (1950, Supp.1971).
At the center of the many, complicated issues raised by the cross-motions for summary judgment is the concept in contract law of "conditions precedent", namely those operative facts which trigger the existence of some particular legal duty. Although it does not dispute that it signed an agreement to fund a $ 1,850,000 loan from Mellon to Buckeye, Aetna contends that it was not obligated to do so because certain conditions precedent to its obligation did not occur, for example, Mellon loaned Buckeye more than $ 1,850,000. Because of the powerful, disruptive effect of their failure to occur on the otherwise settled, serene expectations of the contracting parties, courts demand a particular clarity of expression of the parties of their intention to create a condition precedent before construing a contractual provision as a condition precedent, see generally, 5 Williston on Contracts § 665 at pp. 132-36 (1978 Supp.).
I. AETNA'S DUTY TO FUND WAS NOT SUBJECT TO THE CONDITION PRECEDENT THAT THE CONSTRUCTION LOAN TO BUCKEYE WAS NOT TO EXCEED $ 1,850,000.
Aetna contends that their duty to fund the loan was subject to the condition precedent that Buckeye's borrowings to complete construction would not exceed $ 1,850,000. To find such a condition, Aetna looks principally to the 4th whereas clause in the "Buy-Sell Agreement":
"Buy-Sell Agreement", p. 2. McGanney Affidavit, Ex. A.
Aetna argues that the foregoing language, when read with similar statements appearing in other documents, expresses the intention of the parties that Aetna was under no duty to fund if Buckeye borrowed more than $ 1,850,000 to complete construction. The parties do not dispute that Mellon loaned Buckeye an additional $ 305,000 in March 1975.
For several reasons, we find that Aetna's duty to fund was not subject to the condition precedent that Mellon not loan Buckeye more than $ 1,850,000. First, a plain reading of the "Buy-Sell Agreement" does not indicate that the parties reasonably intended to create such a condition precedent to Aetna's duty to fund. Reference to the debt limitation as a condition precedent is conspicuously absent from the 4th paragraph of the "Buy-Sell Agreement" which unmistakably sets out several conditions precedent in the language classically used to do so.
4. Provided the conditions of the Permanent Commitment and this Agreement have been complied with and title to the Mortgaged Premises shall be free and clear of . . . liens . . ., and a certificate of occupancy and such other certificates, permits or licenses which may be required by appropriate governmental authorities have been secured and a satisfactory final certified survey showing the location of all improvements on the Mortgage Premises without any encrouchments from or on the adjoining property has been furnished Buyer (Aetna), . . . And further provided that the Improvements have been substantially completed according to the Plans as evidenced by the written certification of Borrower's (Buckeye) registered engineer or architect and, if required by Buyer (Aetna), as further evidenced by written Certification of Buyer (Aetna) . . . and in the absence of any default in the provisions of any of the Building Loan documents, Buyer (Aetna) shall accept the tender and assignment by the Seller (Mellon) of the Note, the Mortgage, the Assignment, the Guaranty, the Chattel Security and other collateral instruments, And shall pay to the Seller (Mellon) the amount then due in accordance with the Permanent Commitment, but not in excess of the amount then due and payable under the Building Loan.
"Buy-Sell Agreement", pp. 4, 5. (emphasis supplied).
If the parties intended to make any debt limitation on Buckeye a condition precedent to Aetna's duty to fund, it strains the Court's imagination to fathom why they failed to include the debt limitation in the above paragraph of conditions precedent, relying instead on an oblique reference in a whereas clause to memorialize their intent. The omission is especially striking in view of the fact that other statements made as recitals of the background of the transaction in whereas clauses were later substantially repeated as conditions precedent in the above paragraph. In the second whereas clause, for example, the parties state that Aetna is committed to loan Buckeye $ 1,850,000 upon the terms and conditions set forth in the "Permanent Commitment", and the necessity of complying with those terms and conditions is reiterated as a condition precedent in paragraph 4. The sixth whereas clause reflects the parties' understanding that Aetna will fund the loan after approving the completion of improvements on the premises but this recital is repeated as a condition precedent in paragraph 4. As a final example, in the seventh whereas clause the parties indicate their desire to complete the building free of liens on the premises, yet this recital is again enunciated as a condition precedent in paragraph 4. In short, some recitals in the whereas clauses re-emerged later in the document as unmistakable conditions precedent, and some like the one advanced by Aetna as a debt limitation did not. Considering that the whereas clauses precede the language of covenant, the Court considers the repetition of certain statements as express conditions precedent to be more than redundancy. Such repetitions and omissions reflect a clear intention of the parties to raise some events to the status of conditions precedent and to acknowledge others merely as background to the transaction at hand. In sum, a plain reading of the "Buy-Sell Agreement" and the other loan documents indicates that the parties did not intend to subject Aetna's duty to fund to the condition precedent that Buckeye not borrow additional funds, and that Aetna, on the basis of the words the parties selected, was not reasonably justified in thinking that such a condition limited their obligations.
That some whereas clause recitals reappeared in the agreement as express conditions precedent undermines Aetna's contention that the statement in the 4th whereas clause, that Mellon plans to loan Buckeye "an amount not to exceed in the aggregate the principal sum of $ 1,850,000 to defray the cost of construction", constitutes a condition precedent to Aetna's duty to fund. The inclusion of the recital in the paragraph dedicated to conditions precedent would have required so little additional effort that we can attribute its omission only to a lack of intention among the parties to establish it as a condition precedent. The parties undoubtedly understood before they signed the "Buy-Sell Agreement" that the failure of Aetna to fund would clearly have a cataclysmic effect on the outcome of the whole transaction, and anticipated that cost overruns in construction contracts were not uncommon. In view of these factors, the Court must conclude that if the parties intended to establish a debt limitation as a condition precedent, they would have done so in a manner more emphatic than a passing reference in a whereas clause. It is difficult for the Court to accept that the parties would have sandwiched such a critical condition precedent among the financial banalities set out in the other whereas clauses.
The lack of emphasis given to words in the fourth whereas clause, which Aetna contends amount to a condition precedent that Aetna was not obligated to fund if Buckeye borrowed more than $ 1,850,000, attenuates the arguments Aetna makes to excuse the failure of the parties to express the borrowing limitation as a condition precedent in the "Buy-Sell Agreement." First, Aetna argues that an examination of several loan documents reveals that the parties intended to limit Buckeye's borrowings for the purpose of completing construction. Aetna points to provisions of the "Construction Loan Agreement" between Buckeye and Mellon which tracks the fourth whereas clause of the "Buy-Sell Agreement" in providing that Mellon's loan to Buckeye is:
. . . not to exceed the aggregate sum of $ 1,850,000 to be used only for the payment of labor and material costs in the construction of the Improvements and for such other costs and expenses incidental to such construction . . .
"Construction Loan Agreement", P 10; McGanney Affidavit Ex. H.
The above passage approximates the following provision from the Mellon Commitment letter, which the "Construction Loan Agreement" incorporates by reference:
. . . At all times the unborrowed balance of the Loan (for $ 1,850,000) shall be sufficient to fully pay the costs of completing construction of the Improvements . . .
"Mellon Commitment Letter", P 13, McGanney Affidavit Ex. G.
Aetna argues that all of these excerpts chained together demonstrate that the parties agreed to subject Aetna's duty to fund to the condition precedent that Buckeye's borrowing not exceed $ 1,850,000. There are two flaws in this argument. First, the language in none of the documents even indirectly says that Aetna's duty to fund is subject to a condition precedent that Buckeye's borrowings not exceed $ 1,850,000. The cited passages say far less, namely, that Mellon is not obligated to lend Buckeye more than $ 1,850,000 Under the agreements then in effect. These passages indicate Mellon's understandable concern that Buckeye not interpret the construction loan documents to mean that Mellon is obligated to lend them any more than $ 1,850,000. Second, Aetna assumes that provisions of loan agreements involving only Buckeye and Mellon express precisely and necessarily the rights and obligations of Aetna who was not a signatory of them. Even if Aetna is given the full benefit of just the favorable inferences in other documents, the evidence of the parties' intention to subject Aetna's duty to fund to the alleged condition precedent is still grossly insufficient to overcome the failure of the parties to express such a condition precedent in the "Buy-Sell Agreement."
Aetna also argues that the Court should recognize a limitation on Buckeye's borrowing as a condition precedent, even if not set out directly, because such a limitation goes to the "economic heart of the transaction." Aetna Mem., p. 24. This argument is undermined by the deposition testimony of John Wadhams, a Senior Vice-President of Aetna, that Aetna's primary concern in evaluating prospective standby commitments is the appraised economic value of the completed building, Wadhams deposition, pp. 21-24, 30-31. Furthermore, Mellon Vice-President Richard Maier ...