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MELLON BANK, N.A. v. BARCLAYS AMERICAN/BUSINESS CR

December 2, 1981

MELLON BANK, N.A., M. G. Buckeye Corp., and Mike Goldgar, Plaintiffs,
v.
BARCLAYS AMERICAN/BUSINESS CREDIT, INC., Defendant; MELLON BANK, N.A., Plaintiff, v. M. G. BUCKEYE CORP



The opinion of the court was delivered by: WEBER

The above cases are presently before the court on motions for judgment on the pleadings and a motion to dismiss counterclaim filed by plaintiff, Mellon Bank, N.A. against defendant, M. G. Buckeye Corp. We are not wholly unfamiliar with this matter. This action has been in litigation before us for several years and has twice been the subject of opinions by this court. See Mellon Bank, N.A. v. Aetna Business Credit, Inc., 500 F. Supp. 1312 (W.D.Pa.1980); Mellon Bank, N.A. v. Aetna Business Credit, Inc., 468 F. Supp. 656 (W.D.Pa.1979). Accordingly we are fully familiar with the facts surrounding the business dealings of the parties in these actions. Briefly summarized those facts are as follows:

In the fall of 1973 Mike Goldgar, a real estate developer, and M. G. Buckeye Corp., a corporation formed by Goldgar, began to make plans for the construction of a large office complex near Atlanta, Georgia. This project, called Buckeye Tower II, was to be built at an estimated cost of $ 1,850,000. As part of their financing of the project Goldgar and Buckeye applied to Aetna Business Credit, Inc. *fn1" for a permanent loan commitment. In November of 1973 Aetna agreed to provide a permanent loan commitment for this project. Under the terms of this permanent commitment, upon satisfactory completion of the building, Aetna would provide Buckeye $ 1,850,000 to pay off all construction loans.

 Armed with this permanent commitment from Aetna, Goldgar and Buckeye sought out interim construction financing. In December of 1973, Mellon Bank N.A. agreed to become the interim lender for the project. The construction loan agreement between Mellon and Buckeye provided for a fixed contract cost for the erection of the building of $ 1,350,000, with the difference between that sum and the $ 1,850,000 representing the cost of land, fees and other expenses as well as interest on the loan. The loan agreement also provided that the unpaid balance of the loan would become due and payable to Mellon on August 1, 1975. This loan was secured by a mortgage on the property and building under construction and was personally guaranteed by Goldgar.

 Construction on the project began in the spring of 1974. By the fall of 1974, however, Mellon officials recognized that the remaining undisbursed funds would be insufficient to complete construction. Accordingly, 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. Buckeye also defaulted on its interest payments under the construction loan agreement.

 On February 5, 1975, Mellon notified Buckeye that it was declaring the construction loan in default and demanded payment in full of both the principal and interest on that loan.

 Buckeye and Goldgar, however, succeeded in curing this default. By a note dated March 14, 1975, Mellon agreed to advance an additional $ 305,000 to Buckeye in order to allow Buckeye to resume construction on this project. Under the terms of this agreement Mellon's loan was secured by a second mortgage on the premises, a pledge of all of Buckeye's outstanding stock and an assignment of all cash receipts. This second agreement also provided that the unpaid balance of the loan was due and payable to Mellon on August 1, 1975. Moreover the March 14, 1975 loan agreement expressly pronounced that the default in the payment of interest on the first loan was cured by this additional loan. See, Mellon Bank, N.A. v. Aetna Business Credit, Inc., 500 F. Supp. 1312, 1314 (W.D.Pa.1980). In addition the agreement provided that the first loan would be reinstated by this second loan.

 On July 21, 1975, Mellon made a third loan to Buckeye in the amount of $ 20,000. As was the case with the prior two loans, payment of the balance due on this note was to be made on August 1, 1975.

 On July 25, 1975, Mellon forwarded certain documents to Aetna along with a proposal that Aetna assume the loan on August 1, 1975. Aetna rejected the tender of this loan by letter dated July 30, 1975. In fact no transfer ever occurred. On September 2, 1975, Mellon sold the Buckeye Tower property at a foreclosure sale for $ 940,000.

 On September 10, 1975, Mellon commenced an action against Aetna in the United States District Court for the Western District of Pennsylvania. In this action Mellon sought to recover from Aetna the damages it incurred as a result of Aetna's refusal to assume the construction loans on the Buckeye Tower II project. Buckeye and Goldgar joined in this action against Aetna.

 On July 31, 1981, Mellon filed a motion to amend its complaint in this action. In this amendment Mellon sought to assert a cross claim against M. G. Buckeye Corp. In addition, on July 31, 1981, Mellon filed a separate civil action against Buckeye.

 Review of the complaint filed in this new civil action and of the amended complaint in the original action reveal that they are substantially the same. In both Mellon alleges that Buckeye has defaulted on the three construction loans made by Mellon on the Buckeye Tower projects. As a result of these defaults Mellon claims damages in the amount of $ 1,235,000 plus interest, and attorneys' fees on the amount of ten percent of the unpaid balance of the loans.

 In its answers in both actions Buckeye admits that it is in default on these notes in the amount of $ 1,235,000. The defendant asserts, however, that Mellon's claims are barred under the statute of limitations. The defendant has also filed a counterclaim with its answers and has moved to amend its complaint to assert a cross claim against Mellon. In these pleadings Buckeye demands that it be subrogated to any claims that Mellon possesses against Aetna. Mellon has responded by filing motions for judgment on the pleadings and a motion to dismiss Buckeye's counterclaim. These motions have been fully briefed and are now ripe for our resolution.

 In our view, these motions present two distinct legal issues. First, is Mellon Bank's claim for damages barred by the statute of limitations? Second, does M. G. Buckeye have any right to be ...


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