The opinion of the court was delivered by: NEAHER
This case is before the Court upon plaintiff's motion for summary judgment and defendant Borne's motion to amend the answer. It arises from three notes which evidence financial transactions related to defendants' real estate business dealings. In essence, the three counts of the complaint comprise three separate lawsuits and will be treated as such. Mindful of the context of summary judgment, the facts are related as they appear in defendants' opposing papers. Significantly, plaintiff's papers do not controvert any of the alleged facts, but do contest their legal consequences.
Robert Borne was president of Twin Ridge Properties, Inc., a subsidiary of Willow Industries, Inc. In 1972 Willow Industries, an entity in which Borne owned stock, developed, through Twin Ridge, a project of garden apartments located in Baltimore. Union Dime Savings Bank and the B.F. Saul Real Estate Investment Trust provided financing in the form of a mortgage commitment. At scheduled intervals, money would be disbursed as the project moved toward completion.
Unfortunately, the scheduled timetable could not be met. In response Twin Ridge sought an extension of the financing, to which B. F. Saul agreed if Twin Ridge would add $350,000 to the project. Similar to the prior arrangement, this money would be infused into the project in installments as the project neared completion.
Twin Ridge's source of funds was a personal loan from Borne, who consulted Warren Eichele, Vice President of the Franklin National Bank (FNB).Borne explained that B. F. Saul wanted the right to obtain the funds directly from the bank. To accommodate this requirement, Borne applied for a letter of credit on December 17, 1973, which FNB granted to B. F. Saul for the account of Twin Ridge on December 19, 1973. Under the letter, as the architects certified stages of completion of the project, FNB would disburse funds to B. F. Saul by agreeing to pay their drafts drawn on the Twin Ridge account. Apparently, to fund this account, Borne borrowed money from FNB, which funds he loaned to Twin Ridge. When Twin Ridge received this money, B. F. Saul would notify FNB to reduce the letter of credit accordingly.
Documents demonstrate partial performance of what Borne contends was the entire agreement between himself and FNB. On May 10, 1974, when the architects certified the project as 75% complete, Borne disbursed $100,000 to Twin Ridge, and B. F. Saul notified FNB to reduce the letter of credit to $250,000. This process was repeated on June 24, 1974, in the amount of $125,000, which reduced the letter of credit to $125,000. On each occasion, Borne executed a promissory note in favor of FNB. As collateral for the obligations, Borne had pledged shares of Willow Industries valued at $349,500.
Borne's FNB bank ledger reveals that on May 22, 1974 he borrowed $100,000 and on June 24, 1974, $125,000. Both notes were due Agusut 22, 1974. On that date he borrowed $225,000 on a note due September 23, 1974, which was renewed October 23, 1974, due November 22, 1974. Circumstances surrounding this last renewal provide the backdrop of events underlying the counterclaim.
Plaintiff entered the picture when FNB was declared insolvent in October 1974.Borne and Myron Friedman, an investment advisor, met with a Mr. Lebow of the FDIC. They explained the above-related arrangement and the importance of the last installment to successful completion of the project. Lebow renewed the $225,000 note and acknowledged his understanding and comprehension of the transaction. At the time, Lebow "assured me that I should renew the note and that the final installment of the letter of credit would in fact be honored." Borne affidavit P12. Having received this assurance, Borne did not look elsewhere for financing and renewed the note fully expecting plaintiff to make the last installment on the letter of credit. On October 31, 1974, however, plaintiff informed American Security and Trust Co., the successor to B. F. Saul, that it would not honor the last installment on the letter of credit. Eventually foreclosure ensued, rendering Borne's Willow Industries shares of stock worthless. Subsequently, plaintiff commenced this suit to recover on the October 23, 1974 renewal note.
Concerning the $225,000 note, which is the subject of Count I of the complaint, Borne relies on U.C.C. § 3-119(1), which provides:
"As between the obligor and his immediate obligee or any transferee the terms of an instrument may be modified or affected by any other written agreement executed as a part of the same transaction, except that a holder in due course is not affected by any limitation of his rights arising out of the separate written agreement if he had no notice of the limitation when he took the instrument."
Borne asserts that the letter of credit was a written agreement executed as part of the same transaction concerning the obligation at issue. Thus, the letter of credit modified the note and as a result, plaintiff's right of enforcement is necessarily conditioned upon its compliance with the letter of credit.
Significantly, neither the note nor the letter of credit refer to one another. See Von Blaine v. Saunders, 80 A.2d 52, 53 (D.C. App. 1951); McPherson V. Longview United Pentecostal Church, Inc., 540 S.W.2d 424, 432 (Tex. Civ. App. 1976). Without the affidavits of Borne, Friedman, and Eichele, a relationship between the note and the letter of credit could not be inferred by reading these documents alone. Borne conceded during his deposition that the letter of credit did not appear to memorialize his recollection of the entire agreement between himself and FNB. In fact, when asked, "What is your recollection of the agreement?", Borne answered, "I think it was oral." He also ...