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U S WEST FIN. SERVS. v. MARINE MIDLAND REALTY CRED

November 18, 1992

U S WEST FINANCIAL SERVICES, INC., Plaintiff,
v.
MARINE MIDLAND REALTY CREDIT CORPORATION and DAYS BAKERSFIELD LIMITED PARTNERSHIP, Defendants. MARINE MIDLAND REALTY CREDIT CORPORATION, Plaintiff, v. U S WEST FINANCIAL SERVICES, INC., Defendant.



The opinion of the court was delivered by: MICHAEL B. MUKASEY

 MICHAEL B. MUKASEY, U.S.D.J.

 These actions arise out of a conditional standby mortgage loan commitment by U.S. West Financial Services, Inc. to Days Bakersfield Limited Partnership ("Days"), an entity formed to construct a Days Inn hotel in Bakersfield, California. U.S. West moves for summary judgment (1) declaring that it was not required to fund the standby loan as stated in its First and Third Causes of Action in 90 Civ. 5357, and (2) dismissing claims in 91 Civ. 1837 by Marine Midland Realty Credit Corporation ("Marine"), the construction lender to Days, for breach of contract and breach of duty of good faith. In a previous opinion, familiarity with which is assumed, this Court granted summary judgment for U.S. West against other defendants. U S West Fin. Servs., Inc. v. Tollman, No. 90 Civ. 6745 (S.D.N.Y. February 28, 1992).

 On November 18, 1992 this Court denied U.S. West's motion for summary judgment in these actions. U S West Fin. Servs., Inc. v. Marine Midland Realty Credit Corp., 810 F. Supp. 1393 (S.D.N.Y. 1992). U.S. West moves for reargument of that portion of this Court's November 18, 1992 decision which pertains to the issue of damages. Because of an ambiguity in one paragraph of that decision, and because the parties overlooked -- in both their summary judgment memoranda and their initial memoranda on motion for reargument -- numerous arguments and cases, including a major Second Circuit decision on the issue of damages, Sharma v. Skaarup Ship Management Corp., 916 F.2d 820 (2d Cir. 1990) (Winter, J.), U.S. West's motion for reargument is granted, the November 18, 1992 decision is withdrawn, and this decision is substituted. Nonetheless, for the reasons stated below, U.S. West's motion for summary judgment is denied.

 I.

 This case is a dispute about three connected but conflicting documents. In the first document, a contract dated February 13, 1987, as amended on February 17, April 23 and 28, 1987 (collectively, the "Commitment"), U.S. West, for an $ 87,500 fee, committed to provide to Days, on 45 days notice before the expiration date of a loan to Days, a standby mortgage loan of up to $ 8.75 million (the "Standby Loan"), conditioned upon Days providing to U.S. West certain documents and meeting certain financial conditions. (Miller Aff. Ex. 1) In the second document, a letter dated April 23, 1987, Marine agreed to lend $ 8.45 million to Days for construction of a Days Inn hotel in Bakersfield, California. (Grant Aff. Ex. 2) In the third document, a contract also dated April 23, 1987 (the "Three-Party Agreement"), U.S. West, Days, and Marine agreed that U.S. West's obligation to fund the Standby Loan (and thereby refinance Marine's loan to Days) expired on April 23, 1990, and U.S. West agreed that "if [Days] is in default under the Agreement or the Commitment and the default is curable, . . . [U S West] shall have notified [Marine] of such default . . . and [provided] 30 days after receipt of written notice from [U S West] to cure such default . . . ." ( Grant Aff. Ex. 11 P 7.2) None of the three documents defined "default" or "curable." (Marine Rule 3(g) Statement PP 10-11)

 The Commitment is incorporated by reference into the Three-Party Agreement (Miller Aff. Ex. 2, P 1 and Recitals), and those documents should be read together. See Carvel Corp. v. Diversified Management Group, Inc., 930 F.2d 228, 233 (2d Cir. 1991) ("instruments executed at the same time, by the same parties, for the same purpose and in the course of the same transaction will be read and interpreted together").

 The Days Inn Bakersfield hotel was completed in 1988, and soon began a gradual financial decline. (U S West Mem. at 4; Marine Mem. at 12) On March 5, 1990, less than 45 days before the expiration of Marine's loan to Days, Marine requested that U.S. West fund the Standby Loan. (Grant Aff. Ex. 12) On April 17, 1990, U.S. West notified Days that its obligation to fund the Standby Loan had terminated, because Days was in default under the Commitment and the Three-Party Agreement. (Grant Aff. Ex. 13)

 U S West sought a declaration that it was not required to fund the loan. Marine never foreclosed on the loan to Days; rather, it sued U.S. West for breach of contract and breach of good faith. On October 17, 1991, Marine sold its right to foreclose on the loan to Oleifera Investments, Ltd. for $ 4.65 million. (Marine Rule 3(g) Statement P 73)

 A standby loan, also known in the banking industry as a take-out commitment, is issued expressly to enable a builder to obtain construction financing. Such a commitment is designed to encourage a construction loan by assuring a construction lender that its loan will be paid at the end of its term by the standby lender. See, e.g., First Nat'l State Bank v. Commonwealth Fed. Sav. & Loan Ass'n, 455 F. Supp. 464, 467 (D.N.J. 1978), aff'd, 610 F.2d 164 (3d Cir. 1979). Thus, subject to certain conditions, Marine was entitled to have its loan funded by U.S. West's Standby Loan on April 23, 1990. According to the contract terms, U.S. West would then assume the risk of default by Days.

 II.

 U S West claims that because "the undisputed facts show that Marine was not damaged by any alleged breach of contract," even if U.S. West breached an obligation to fund the Standby Loan, it is nevertheless entitled to summary judgment on the issue of damages. (U S West Mem. at 23)

 A.

 Under New York law, "the basic principle of recovery for breach of contract is that the injured party should be placed in the same position it would have been in had the contract been performed." Teachers Ins. & Annuity Ass'n v. Butler, 626 F. Supp. 1229, 1236 (S.D.N.Y. 1986) (citations omitted). This principle is modified by the "fundamental proposition of contract law . . . that the loss caused by a breach is determined as of the time of breach." Sharma v. Skaarup Ship Management Corp., 916 F.2d 820, 825 (2d Cir. 1990) (citing Simon v. Electrospace Corp., 28 N.Y.2d 136, 145, 269 N.E.2d 21, 26, 320 N.Y.S.2d 225, 232 (1971)). A showing of a breach of contract alone does not necessarily entitle a plaintiff to damages. See, e.g., Lincoln Nat'l Life Ins. Co. v. NCR Corp., 772 F.2d 315, 320 (7th Cir. 1985); Meteor Indus., Inc. v. Metalloy Indus., Inc., 149 A.D.2d 483, 539 N.Y.S.2d 972 (2d Dep't 1989). ...


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