The opinion of the court was delivered by: BECHTLE
In this diversity action, Girard Bank ("Girard") brought suit seeking specific performance of an agreement by John Hancock Mutual Life Insurance Company ("John Hancock") and Connecticut General Life Insurance Company ("Connecticut General") to pay $ 6,494,200.00 to Girard in exchange for certain Conditional Sale Agreements and security interests in railroad boxcars. John Hancock and Connecticut General counterclaimed, seeking rescission for three earlier transactions in which a total of $ 14,690,000.00 was paid to Girard in exchange for other Conditional Sale Agreements and security interests in railroad boxcard.
Following a jury trial on the issues of liability on both the claim and counterclaim, the jury, in its answers to special interrogatories submitted by the Court, returned a verdict in favor of Girard on both claims.
Presently before the Court are defendants' motions for judgment n.o.v. and/or new trial with respect to plaintiff's claim and defendants' motion for a new trial on the counterclaim. Also before the Court are plaintiff's proposed decree for specific performance and plaintiff's motion for prejudgment interest. For the reasons which follow, defendants' motions are denied, the proposed decree is adopted, and plaintiff's motion for prejudgment interest is granted at the legal rate of six percent per annum.
On August 16, 1979, John Hancock and Connecticut General (hereinafter "Insurance Companies") entered into a Participation Agreement with National Railway Utilization Corporation ("NRUC") and Pickens Railroad Company ("Pickens"), an affiliate of NRUC, to loan $ 30,000,000.00 to NRUC for the purchase of railroad boxcars from boxcar manufacturers.
NRUC was engaged in the business of assembling and selling boxcars to private investors, managing railroad boxcars owned by third parties, and renting railroad boxcars to operating railroads across the United States. Under the Agreement, both Insurance Companies agreed to finance 80% of the purchase price of the boxcars and NRUC agreed to pay the remaining 20% balance. The loan agreement provided for an 11-3/8% annual interest rate, provided that the total amount of indebtedness be repaid within fourteen years.
Under the Participation Agreement and the accompanying Conditional Sale Agreements, which covered the separate lots of newly manufactured boxcars, it was provided that the boxcar security interests would be reassigned to the Insurance Companies as security for the $ 30 million loan. NRUC also agreed, as additional security, to execute and deliver to the Insurance Companies certain Stock Purchase Warrants which entitled the holder to purchase, at its option, common stock of NRUC at $ 22.00 per share.
The Agreement provided that the monies would be loaned in separate installments at different individual closing dates, all of which were to be completed no later than March 31, 1980. One of the terms of the Agreement was that the funds would only be advanced in minimum closing amounts within a 5% range of $ 5 million. In order that NRUC would be able to take delivery of the completed boxcars in lots less than 150 boxcars (each boxcar cost approximately $ 40,000.00), the Participation Agreement provided for an "Interim Lender" to make the initial payments to the manufacturers at "Interim Closings" and later reassign the Conditional Sale Agreements and security interests to the Insurance Companies at "Reassignment Closings," in exchange for the repayment of the monies extended by the Interim Lender. Griard was selected by NRUC as the "Interim Lender" during the negotiations between NRUC and the Insurance Companies and prior to the final preparation and formal execution of the Participation Agreement. Girard's name was also inserted in the Conditional Sale Agreements and other contractual documents accompanying the Participation Agreement. In return for this interim lending service, NRUC agreed to pay Girard 110% of its prime interest rate on any indebtedness outstanding to Girard during this interim lending period. It was also agreed that Girard would receive a rate four percentage points above its prime rate on any amounts remaining unpaid after they became due and payable. Article 23, Conditional Sale Agreement.
The first "Interim Closing" was held on August 17, 1979. At this closing, Girard advanced $ 2,454,000.00 to NRUC for the purchase of a lot of 75 boxcars from the boxcar manufacturers under a separately executed Conditional Sale Agreement. Both Girard and the boxcar manufacturers also executed an Agreement and Assignment which assigned the manufacturers' security interest in the boxcars to Girard. On August 28, 1979, $ 2,454,000.00 was extended at the second "Interim Closing."
The first "Reassignment Closing" was held on September 12, 1979, between the Insurance Companies and Girard. On that date, as expected, both parties executed a Further Assignment and Agreement which assigned the Conditional Sale Agreements and boxcar security interests (acquired earlier by Girard at the "Interim Closings") to the Insurance Companies in exchange for the $ 4,908,000.00 previously extended by Girard. Subsequent "Interim Closings" were held during September, October and November, 1979. "Reassignment Closings" were also held on November 2, 1979, for $ 4,908,000.00 and November 16, 1979, for $ 4,874,800.00.
The following events led to this lawsuit. On December 3, 1979, a "Reassignment Closing" was scheduled, at which Girard was to be paid $ 4,874,800.00 -- the amount of monies extended by Girard at "Interim Closings" on November 8, 1979 ($ 1,619,400.00); November 15, 1979 ($ 1,619,400.00); and November 27, 1979 ($ 1,636,000.). This closing was postponed by the Insurance Companies to December 11, 1979. On that date, Girard tendered the necessary documents, but the Insurance Companies refused to pay. Girard filed suit for the $ 4,874,800.00 and the additional amount of $ 1,619,400.00 paid under a separate Conditional Sale Agreement acquired at the second "Interim Closing" on November 27, 1979. The Insurance Companies, in their answer, defended their refusal to pay the amounts claimed and, in addition, counterclaimed for rescission of the three earlier "Reassignment Closings."
II. Motion for Judgment N.O.V.
Defendant Insurance Companies move the Court, pursuant to Fed. R. Civ. P. 50(b), for a judgment n.o.v. with respect to Girard's claim. To grant a motion for judgment n.o.v., the Court must find, as a matter of law, that the plaintiff failed to present sufficient evidence to justify the verdict. Neville Chemical Co. v. Union Carbide Corp., 422 F.2d 1205, 1210 (3d Cir.), cert. denied, 400 U.S. 826 (1970). Such a motion "may be granted only when, without weighing the credibility of the evidence, there can be but one reasonable conclusion as to the proper judgment." 5A Moore's Federal Practice P50.07 at 50-77 (2d ed. 1974).
The Insurance Companies contend that Girard has failed to establish, by sufficient evidence, that it has standing to enforce the Participation Agreement as either a direct party or third-party beneficiary under the Agreement. Paragraph 7 of the Participation Agreement specifically provides that the Insurance Companies would pay "to the Builder, or the Interim Lender, as the case may be,... an amount equal to the Conditional Sale Indebtedness...." Although the Participation Agreement did no specifically mention Girard as a formal party to the lending arrangement, it still provided for an "Interim Lender" and Girard's name was inserted in the contractual documents accompanying the Participation Agreement, the Conditional Sale Agreement, Agreement and Assignment, and Further Assignment and Agreement. In each of the above-mentioned documents, it was provided that it was "contemplated" that Girard would reassign the Conditional Sale Agreements and boxcar security interests to the Insurance Companies in return for the repayment of the monies extended by Girard. Girard was both chosen and consulted during the negotiations between NRUC and the Insurance Companies with respect to its role as "Interim Lender" both prior to and after the formal execution of the Participation Agreement.
The course of dealings and conduct of both Girard and the Insurance Companies plainly evidence a contractual relationship between these parties. The Court firmly believes that the intent of the parties to undertake this contractual relationship can be ascertained from the "contemplation" language found in the Participation Agreement and accompanying documents. Von Lange v. Morrison-Knudsen Co., 460 F. Supp. 643, 647-49 (M.D. Pa.), affirmed, 609 F.2d 504 (3d Cir. 1978). Even if such evidence were insufficient to establish the existence of an express agreement between Girard and the Insurance Companies, the course of dealings and conduct of both parties clearly establish the existence of an implied-in-fact contract. Elias v. Elias, 428 Pa. 159, 237 A.2d 215, 217 (1968). At a minimum, Girard is a third-party beneficiary under the Participation Agreement. See In re Gebco Investment Corp., 641 F.2d 143, 146-47 (3d Cir. 1981).
B. Conditions Precedent for December 11, 1979 Reassignment Closing
The Insurance Companies contend that Girard had failed to sufficiently establish that all conditions precedent to the Insurance Companies' obligation to accept the reassignment of the November Conditional Sale Agreements had been satisfied. The final paragraph of Section 6 of the Participation Agreement lists the conditions precedent to the Insurance Companies' obligation to pay the "Interim Lender" (i.e. Girard) the amounts of monies extended at "Interim Closings." The Court finds that there is sufficent evidence that all of the necessary documents specified in the last paragraph of Section 6 were received by Girard and that Girard was ready, willing and able to forward these documents to the Insurance Companies at the rescheduled December 11, 1979 "Reassignment Closing." The Insurance Companies nevertheless contend that even if Girard were able to produce the required documents, Girard had failed to sufficiently show that the documents were both truthful and accurate with respect to their contents. However, Section 9 of the Agreement and Assignment specifically provides that the reassignment of any documents required by Girard at the "Interim Closings" would be made "without any representation or warranty." Furthermore, Girard's only obligation with respect to these documents was contained in Section 5(c) of the Further Assignment and Agreement in which Girard warranted that "to the best of its knowledge, no event of default has occurred under the Conditional Sale Agreement." Accordingly, this defense is not applicable. Girard has clearly demonstrated that all conditions precedent to the obligation of the Insurance Companies to pay Girard had been satisfied.
C. Conditions Precedent for Payment of the Additional $ 1,619,400.00
The Insurance Companies contend that Girard failed to establish that Girard had sufficiently satisfied all the conditions precedent necessary for reimbursement of the second November 27, 1979, interim payment of $ 1,619,400.00. Essentially, the Insurance Companies contend that Girard had failed to tender the required documents and had also failed to extend further monies to NRUC in order to reach the minimum closing amount within a 5% range of $ 5 million which was necessary for repayment. This argument, however, is completely without merit. "Interim Closings" were scheduled for December 6, 1979 and December 13, 1979. The Insurance Companies, however, notified Girard that the December 3, 1979 "Reassignment Closing" would be postponed and therefore, put Girard on notice that the Insurance Companies might not perform. Girard, after being informed that the Insurance Companies would no longer lend any money to NRUC, correctly refused to make further payments under the scheduled "Interim Closings." (N.T. 1.98). Secondly, the Insurance Companies refused to pay Girard at the rescheduled "Reassignment Closing" on December 11, 1979. (N.T. 4.162). Therefore, the conduct of the Insurance Companies amounted to an anticipatory breach of the Agreement with Girard. Thus, Girard was excused from further performance at the December 6, 1979 and December 13, 1979 scheduled "Interim Closings." William B. Tanner Co., Inc. v. WIOO, Inc., 528 F.2d 262, 268-71 (3d Cir. 1975); Wolgin v. Atlas United Financial Corp., 397 F. Supp. 1003, 1014 (E.D. Pa. 1975), affirmed, Blumenfeld v. Atlas United Financial Corp., 530 F.2d 963 and 530 f.2d 966 (3d Cir. 1976).
D. Revolving Credit Arrangement
The Insurance Companies contend that a revolving credit arrangement entered into between Girard and NRUC constituted "senior debt" in violation of Section 9 of the Participation Agreement. Briefly stated, Girard advanced $ 4,000,000.00 to NRUC on August 30, 1979, which was repaid on September 10, 1979, and advanced an additional $ 2,223,000.00 to NRUC on September 11, 1979, repaid on September 25, 1979. Each of these loans was made and repaid, respectively, within a two week period. This revolving credit arrangement between Girard and NRUC, as a matter of law, cannot excuse the Insurance Companies' obligation to perform. The record clearly indicates that this short-term credit arrangement did not prejudice the interests of the Insurance Companies under the long-term financing arrangement with NRUC. (N.T. 4.166-4.167). Indeed, the revolving credit was helpful because it aided in alleviating a short-term cash flow problem incurred by NRUC during September, 1979. Even if these short-term loans amounted to a breach of the ...