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ARMSTRONG v. RANGAIRE CORP.

June 18, 1980

EDWIN F. ARMSTRONG, JR. and MEREDITH ARMSTRONG ALDRICH, Plaintiffs, against RANGAIRE CORPORATION, Defendant.


The opinion of the court was delivered by: CONNER

OPINION AND ORDER

Plaintiffs Edwin F. Armstrong, Jr. ("Armstrong, Jr.") and Meredith Armstrong Aldrich have brought this action as successors in interest to Edwin F. Armstrong & Co., Inc. ("Armstrong Corporation" or "Armstrong") to recover the sum of $ 70,000 allegedly owed under a broker's contract between Armstrong Corporation and defendant Rangaire Corporation ("Rangaire") following Rangaire's securing of a loan of $ 7,000,000 in 1979 from Teachers Insurance and Annuity Association of America ("Teachers"). Jurisdiction is based on diversity of citizenship, 28 U.S.C. § 1332. The case is presently before the Court on defendant's motion and plaintiffs' cross-motion for summary judgment pursuant to Rule 56, F.R.Civ.P.

 Background

 The following facts are not in dispute. In early 1967, Rangaire, a diversified Texas corporation with three principal lines of business manufacture of range hoods and other appliances and lighting fixtures, limestone extraction and processing, and general construction contracting responded to an earlier solicitation from Armstrong by indicating interest in using Armstrong's services to secure financing in the amount of $ 4,000,000. Armstrong, a New York corporation specializing in corporate financings and private placements, contacted Teachers, also a New York corporation and a large institutional investor, to discuss the proposed financing.

 In late March and early April, Rangaire and Armstrong worked out the terms of their business relationship. They reached an initial understanding at a meeting in a restaurant in New York. That understanding was confirmed in a letter of March 28, 1967 from Armstrong, Jr., corporate secretary of Armstrong Corporation and one of the corporation's three shareholders *fn1" , to J. M. Hill, Vice-President and Assistant Treasurer of Rangaire ("Hill"), forwarding draft authorization forms to Rangaire; in a letter of March 31, 1967, from Armstrong, Jr. to Hill, countersigned "Accepted and Approved" by Rangaire, providing that Armstrong Corporation's

 
"fee is to be 1% of the loan amount deemed to be earned upon (Rangaire's) approval and signed acceptance of a written commitment. The same 1% fee shall be applicable on any additional amounts borrowed by your Company from the lender we provide, directly or through us, during the loan term," Complaint, Exhibit A;

 and, finally, in Rangaire's written authorization of April 3. The authorization granted Armstrong Corporation an exclusive contract to obtain a long-term loan of $ 4,000,000 for Rangaire, with the understanding that loan terms and conditions would include a limitation on Rangaire's cash dividends and stock redemptions, Rangaire's commitment to maintain working capital at a stated level, Rangaire's agreement to limit its long-term rentals, and a "Negative Pledge" that Rangaire would

 
"agree not to mortgage or enter into sale and leaseback of any of our fixed assets." Armstrong Affidavit, Exhibit 3

 On April 24, 1967, Teachers notified Rangaire, through Armstrong, that Teachers' Finance Committee had authorized the purchase of $ 4,000,000 of Rangaire promissory notes. The notification letter also recited, as a term of Teachers' authorization, that Rangaire "will agree not to mortgage or enter into sale or leaseback of any of its fixed assets." Armstrong Affidavit, Exhibit 5.

 In August 1967, the loan closed. Rangaire and Teachers signed a Note Purchase Agreement providing, among other things, that Rangaire would use the proceeds of the loan to retire a similar amount of existing indebtedness, id. at Section 2.4, and that Rangaire warranted that it had good title to, among other things, all real property reflected in its balance sheet, id. at Section 2.7. The notes, due in 1982, contain further commitments by Rangaire to, among other things, maintain, insure and pay taxes on its real property, and maintain that property free of encumbrances. Section 4.2 of the notes, the negative covenant on encumbrances, specifically provides that:

 
"Neither the Company (Rangaire) nor any subsidiary will
 
(a) Create or permit to continue in existence any mortgage, pledge, encumbrance, lien, security interest or charge (herein collectively called "liens') of any kind upon any of its property or assets, whether owned at the date hereof or hereafter acquired; or
 
(b) Transfer any of such property or assets for the purpose of subjecting the same to the payment of obligations (including without limitation obligations to pay installments upon purchase contracts or to pay rent, whether or not deemed Indebtedness) in priority to payment of its general creditors . . ."

 with exceptions for incidental liens not incurred in connection with borrowing money or obtaining credit. Section 6.1(3) provides that the notes shall become payable immediately upon demand if any default occurs "in the due observance or performance of any covenant contained in § 4.1 to § 4.12, inclusive." Armstrong Affidavit, Exhibit 6. Both the Note Purchase Agreement and the notes contain a choice of law clause providing that the agreement shall be governed by New York law.

 In accordance with its agreement, Rangaire paid Armstrong Corporation a fee in connection with this loan, at a rate adjusted to allow Rangaire to pay the fee over a ten-year period rather than ...


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