Frederick W. Berens, Inc. v. Fidelity Mutual Life Insurance

Smith, J., delivered the opinion of the Court. When judgment by confession was entered against appellee Laurel Plaza, Incorporated (Laurel Plaza), by appellee and appellant Fidelity Mutual Life Insurance Company (Fidelity), on a note, it proceeded on the theory that the best defense was an offense. Therefore, in addition to moving to vacate the judgment, it filed a counter ¹⁷⁰ claim in which it claimed damages of $1,500,000.00. Fidelity brought in appellant Frederick W. Berens, Inc. (Berens), as a third party defendant.

The matter was submitted on issues to a jury in Prince George’s County, the total time involved in trial having covered ten days, six of which were in the taking of evidence. As a result of its findings, a judgment was entered in favor of Laurel against Fidelity in the amount of $747,000.00 and in favor of Fidelity against Berens in the same amount. Berens and Fidelity each moved for judgment n.o.v. or, in the alternative, for a new trial. The motions were denied.

We shall reverse the action of the trial court. Laurel Plaza was the developer of a shopping center near Laurel in Prince George’s County. Berens is a Washington, D. C., mortgage broker and mortgage loan correspondent. It has on occasion placed loans, with Fidelity and serviced those loans.

On December 9, 1963, Berens on behalf of Laurel Plaza submitted to Fidelity a request for a loan in the amount of $950,000.00 on the proposed shopping center of Laurel Plaza. The proposal was detailed. There were listed a number of proposed tenants. These were divided into what were labeled as “major tenants” and “local tenants”.

The analysis showed the proposed term of the various leases, the square foot area to be leased, the minimum rental from the various leases, estimated operating expenses, an appraisal of the land, an appraisal of the proposed buildings, etc. On January 28, 1964, “based upon the statements as set forth in [Berens’] submission” Fidelity made a commitment to take the loan based, as always in such matters, upon a number of conditions. The commitment was good until September 29,1964. There were a number of extensions of the mortgage commitment. Perhaps the most significant of these were extensions to November 22, 1965, and December 30, 1965, although there was a subsequent extension to April 1, 1966.

On October 22, 1965, Berens requested the extension to November 22, 1965, giving as its reason that ¹⁷¹ its general counsel had so many loans scheduled for closing that he felt it physically impossible to complete this matter by October 30, the then expiration date. Pursuant to the extension to December 30, Berens submitted a letter to Fidelity under date of December 7, 1965, in which it recognized deviation from the data submitted prior to the original commitment. Equitable Trust Company appeared on the original proposal with an indication that its lease would be for 10 years for 5000 square feet with a minimum rental of $20,000 per year. All leases were to be assigned to Fidelity as additional collateral.

In this letter Berens said: “Shortly after the commencement of construction, Equitable Trust Company requested that [Laurel Plaza] lease a 30,000 sq. ft. site at the Southwest corner of the property to them so that they could construct their own free-standing building. On August 23, 1965, Equitable entered into a fifteen-year lease with the owner for this site at an annual net rental of $10,800. Construction on the new facility has begun.” The land upon which the Equitable building was erected was outside the area originally proposed to be included in the deed of trust securing the loan of Fidelity. The December 7 letter proposed that the new Equitable building area be added to the deed of trust subordinate to a prior lien on it held by Equitable.

There was no proposal for assignment of the lease as additional collateral as other leases were assigned. The letter also said: “During the course of concluding the leasing arrangements, the two store areas reserved for occupancy by shoe companies were leased to other retail tenants due to conflicts between the companies and their subsequent failure to execute the proposed leases. The overall character of the national tenants in occupancy has altered due to the loss of the shoe companies and the ¹⁷² relocation of the bank property to an adjacent site. * * * * ❖ ❖ “We believe that the present security for the mortgage is an improvement over the original proposal due to the increased land and building areas, the improvement of the total income produced by the Center, the related increase in the overall valuation of the project, and the additional security of the mortgage position covering the bank site. Each of the foregoing factors have been realized without any additional dollar investment on the part of Fidelity Mutual.” As a matter of fact, a summary of the tenancy is as follows: On the basis of these facts Fidelity advised Berens that it could only loan $550,000.

Goodwill was not regarded by Fidelity as a satisfactory “major” tenant. Two of the conditions of the commitment were: “3. A refundable 2% standby fee ($19,000.) is to be deposited with this office, within two weeks, to be retained until loan is closed according to the terms of this commitment. If on the expiration date of this commitment, loan ¹⁷³ has not been closed and the expiration date not extended as explained elsewhere in this letter, then The Fidelity Mutual Life Insurance Company will retain this entire fee. ❖ * * “12.

All leases covering the proposed shopping center are to be forwarded to this office for review by the Law Department prior to start of construction. All leases are to be assigned as additional collateral for this loan. The list of tenants and the terms are to be as mentioned in the original mortgage submission.” At the end of the conditions it is stated: “This mortgage commitment, subject to the above conditions, will extend for a period of nine months, or until September 29th, 1964, unless the date under Paragraph #13 above, is in advance of this date — whichever is sooner, unless these conditions are amended by this Company in writing. Any request for an amendment must be received by this office in writing at least thirty (30) days prior to the expiration date or commencement of the lease, whichever is sooner.” The confessed judgment note for $9,500.00 upon which judgment was entered against Laurel Plaza in favor of Fidelity was a paid; of the $19,000.00 standby fee.

The counterclaim brought by Laurel Plaza against Fidelity alleged the mortgage commitment, the construction of the shopping center as a result of this commitment, the breach on the part of Fidelity of the commitment and the resulting loss to Laurel by way of foreclosure, with damages claimed in the amount of $1,500,000.00. The third-party claim of Fidelity against Berens stated that there had been no breach by Fidelity of its agreement “and that any waiver or modification of the terms or conditions of the said agreement which would purportedly obligate Fidelity to perform were either not made at all, ¹⁷⁴ or were made by Frederick W. Berens, Inc., Third Party, without the authority or apparent authority of Fidelity” and prayed judgment against Berens for the amount of any judgment which might be rendered against Fidelity. By stipulation, in the trial of the case Laurel Plaza was regarded as plaintiff and Berens and Fidelity as defendants. Berens and Fidelity both appear in this Court as appellants from the entry of judgment against them as a result of the jury’s verdict.

Fidelity appears as appellee insofar as there is judgment in its favor against Berens. It is not necessary for us to consider the reasons raised by Berens as to why it has no liability to Fidelity because there could only be liability from Berens to Fidelity if Fidelity were liable to Laurel Plaza. We conclude, for the reasons we shall hereafter indicate, that there is no liability on the part of Fidelity to Laurel Plaza. Since we consider this case on the basis of the motion of Fidelity for a directed verdict and its subsequent motion for judgment n.o.v., the evidence and all reasonable inferences to be drawn therefrom must be considered in the light most favorable to Laurel Plaza.

P. Flanigan & Sons v. Childs, 251 Md. 646, 653 , 248 A. 2d 473 (1968). It is obvious that the tenants and the terms of their leases do not conform with those mentioned in the original mortgage submission. Therefore, there can be no liability on the part of Fidelity to Laurel Plaza unless Fidelity has waived the conditions of the mortgage commitment either directly or through Berens or unless there is conduct on the part of Fidelity which would estop it from raising the deviation. It also is obvious that Fidelity has earned the standby fee which is the subject of the note.

It, therefore, is entitled to judgment on that note unless it is determined that it is indebted to Laurel Plaza in a greater sum. It is apparent that in this case Berens acted as a mortgage broker on behalf of Laurel, and also that Berens and Fidelity intended for Berens to act ultimately in this matter as the mortgage loan correspondent of Fidelity. Accordingly, that which Chief Judge Bruñe ¹⁷⁵ said for this Court in Hill v. Benevicz, 224 Md. 79 , 167 A. 2d 104 (1961), is pertinent by way of explanation of the difference between the two terms and the acts performed by them: “Rouse’s usual practice appears to be to submit applications to the F.H.A. for mortgage insurance in its own name, but to place the mortgage, when a commitment for insurance has been obtained, with one or another of the lending institutions for which it acts as mortgage correspondent, and which are themselves F.H.A. approved mortgagees. Rouse then takes the mortgage in its own name, assigns it to the lending institution and services the mortgage under a contract between Rouse and the lender, pursuant to which Rouse receives compensation.

Rouse thus performs several functions in the transaction. It acts partly in its own interest, partly as agent for the lending institution and partly for the benefit of the prospective mortgagor and partly also for the benefit of the would-be seller, for without the mortgage financing the sale probably would not produce the cash consideration which he is seeking. All of these functions are well known in the business, and there is no question of an agent secretly serving his own interest or the interest of one principal to the detriment of another.” Id. at 84 . I. Laurel says that in this case Fidelity expressly waived the requirements of paragraph 12 of the commitment letter.

The basis of this contention on the part of Laurel is a telegram from Fidelity to Berens dated June 25, 1964, in which it was said: “Laurel Plaza leases have our approval.” That telegram must be placed in its proper context, however. It was sent in reply to a telegram from Berens to Fidelity on June 25 which said, “Please confirm by wire your approval of leases submitted on Laurel ¹⁷⁶ Plaza for construction lender.” This was after a letter dated June 5, 1964, from Berens to Fidelity which said: “I am pleased to enclose for your company’s review and approval, copies of the following leases covering the first section of the above shopping center, your commitment dated January 28,1964: Tenant Space Term Rental Grand Union 21,000 17% $35,000 Drug Fair 18,000 20 . 26,250 H.F.C. 1,750 3 7,000 Highs 1,750 10 5,250 Beauty Shop 1,750 10 5,950 Aristo. 1,400 5 4,200 Barber 1,190 10 4,800 Sears Roebuck 4,200 5 8,400 TOTALS: 51.040 $96,850 “Under the terms of your