As to Ypsi-Ann's contention that the fee was excessive, I note initially that the fee was certainly not disproportionate to the total loan, because it amounted to 1% of the loan principal. Although it may be that the "services" rendered by First Pennsylvania personnel do not have a value of $ 26,750 when computed at an hourly rate, it is plain that in obtaining the commitment letter Ypsi-Ann received more than simply services. It also received an enforceable promise from the bank to provide the construction loan which made it possible for Ypsi-Ann to proceed with the project. Conversely, First Pennsylvania gave up more than just services: as noted above, by making the commitment to Ypsi-Ann, as Vice-President John Jemison testified, it may have lost the opportunity to make loans to other borrowers. (Jemison deposition, p. 61). It is, of course, impossible to affix a definite value to lost potential business opportunities, but it is precisely because of the difficulty in doing so that the courts have recognized compromise estimates by parties to a contract in the form of liquidated damages provisions. In light of the reasonable amount of the fee in this case, the "value" received by Ypsi-Ann in securing a firm commitment, and the uncontradicted testimony presented by First Pennsylvania that the fee was in part compensation for possible lost opportunities, there is no basis for Ypsi-Ann's claim that the fee was unreasonable.
Likewise, there is no merit to Ypsi-Ann's claim that the commitment fee is invalid because it is a penalty. First, the very fact that the fee is for a reasonable amount weighs against a finding that it is a penalty. In Re Plywood Company of Pennsylvania, 425 F.2d 151, 155 (3d Cir. 1970); 5 Corbin, Contracts, § 1057, pp. 332-334 (1964). Second, the provision for a commitment fee in this case does not meet the definition of a "penalty" as that term has evolved in contract law. A penalty is fixed " "as a punishment, the threat of which is designed to prevent the breach,' " In Re Plywood Company, 425 F.2d at 155, or, in the words of Professor Corbin, "(penalties) are said to be in terrorem to induce performance as promised." Corbin, supra, § 1058, p. 340. The commitment fee in this case by its very nature is not a penalty in the classical sense, because Ypsi-Ann was required to pay the fee regardless of whether the loan closed. By definition the fee was not a deterrent to breach, because First Pennsylvania "earned" the fee merely by issuing the commitment. The provision that the fee was to be retained by First Pennsylvania as "liquidated damages" was in effect the parties' way of saying that the fee was non-refundable. Inasmuch as the parties contemplated at all times that Ypsi-Ann would have to pay the fee to First Pennsylvania as consideration for the bank's issuance of a loan commitment, and came to terms as to the value of the commitment to Ypsi-Ann, $ 26,750, I am not persuaded that the fee becomes a penalty simply because Ypsi-Ann failed to close the loan. First Pennsylvania's motion for summary judgment on Count V will be granted.
In Count VII of the complaint, Ypsi-Ann claims that the loan commitment fee was invalid because First Pennsylvania was prohibited by federal banking law from lending construction funds for the project once John Hancock withdrew, and First Pennsylvania should not be permitted to retain consideration for a contract which it could not perform. See § 277, Restatement of Contracts (1932).
Ypsi-Ann goes to great length in its motion for summary judgment to demonstrate that under 12 U.S.C. § 371, issuance of the loan to Ypsi-Ann in the absence of a permanent lender prepared to "take out" the loan at the completion of construction would have placed First Pennsylvania in violation of the law governing reserves for commercial banks. As First Pennsylvania points out, regardless of whether Ypsi-Ann's interpretation of § 371 is correct, its argument must fail, because the commitment fee was not consideration for the issuance of funds, but rather for issuance of the commitment letter, and First Pennsylvania had fully performed its obligation in this regard well before Hancock withdrew.
Ypsi-Ann's premise in Count VII is that First Pennsylvania could not advance funds after Hancock's withdrawal. However, as repeatedly noted above, the commitment letter plainly provided that the commitment fee was consideration for issuance of the commitment letter, and was earned once the commitment letter was issued. The commitment letter was agreed to in December, 1978, and Hancock did not withdraw from the project until April, 1979. Since First Pennsylvania had earned its fee as of December, 1978, subsequent events purportedly affecting its ability to advance funds under the contract are irrelevant.
Accordingly, Ypsi-Ann's motion for summary judgment on Count VII will be denied, and First Pennsylvania's will be granted.