Pleasant Place, Inc. v. Levinson

Singley, J., delivered the opinion of the Court. It was perhaps an understatement when the trial court (Menchine, J.) characterized this as a “lengthy, somewhat complicated, contract action” which began when the seller sued the purchasers at law for damages for breach of a contract to purchase a partially completed apartment house. Sometime in 1962, Pleasant Place, Inc., (Pleasant Place or the Seller), the creature of Nachman Gerber and his wife, Miriam (the Gerbers), undertook to construct a 13-story apartment building at 8 East Pleasant Street in Baltimore. Construction financing was obtained on the commitment of The Equitable Life Assurance Society (the Equitable) to make a mortgage loan of $600,000 secured by a first deed of trust.

The project was ill-starred from the outset, however. The construction schedule fell behind; subcontractors were not being paid and began to assert mechanics’ liens; the general contractor became insolvent, and ultimately, the Gerbers had another of their corporations continue the work. The Gerbers, finding themselves short of funds, ar ²⁸¹ ranged to borrow $125,000 from Real Estate Capital Corporation (Real Estate Capital), whose president was one Samuel M. Fox. This borrowing was evidenced by the note of Pleasant Place, dated 3 December 1963.

The note, which provided for interest at 12% and called for 60 monthly payments of $1,793.37 each, commencing 3 January 1964, with the balance payable 3 December 1968, was secured by a second deed of trust on the apartment building. Payment of principal of and interest on the note was personally guaranteed by the Gerbers. By the spring of 1964, the Gerbers had lost much of their enthusiasm for the project. The building was not entirely complete and was attracting tenants slowly.

The Gerbers’ personal liability on the construction loan had been released when the first deed of trust had been assigned to the Equitable in January, but the Gerbers were concerned about their personal liability on the loan from Real Estate Capital. Fox, the president of Real Estate Capital, was equally concerned about the loan, he had made. Together, they decided to look for a purchaser for the apartment house. Jack Levinson, his brother and two cousins, who were also brothers (the Levinsons or the Buyers), appeared on the scene.

In due course, after some weeks of negotiations, a contract was prepared by the Levinsons’ counsel and signed by the parties on 8 June 1964. Although the contract was between Pleasant Place as Seller, and the Levinsons as Buyers, Fox, as trustee, and Real Estate Capital as beneficiary of the second trust were joined as parties, for reasons which will be developed. The contract had several novel features. The first was that it called for settlement on or before 10 June, two days after it was signed.

Another was that Real Estate Capital agreed to lend Pleasant Place an additional sum of $10,000, to be secured by a third deed of trust to be executed at the closing. The Buyers would then take title subject to the first trust held by Equitable, and the second and third trusts, held by Real Estate Capital. As a condition precedent to the Buyers’ bargain, the Equita ²⁸² ble’s notes were to be modified to provide that only interest would be payable quarterly for one year from the date of closing, and that thereafter principal and interest would be paid in quarterly installments of $12,330 (the same quarterly payments as had been stipulated prior to the proposed one year moratorium) until the debt was repaid in full. The contract also provided that the note held by Real Estate Capital evidencing the indebtedness secured by the second trust was to be modified to reduce the interest rate from 12% to 9% ; to provide that only interest would be paid for a year following the closing, and that thereafter, monthly installments of $1,123.75 would be paid, with a final maturity eight years from the closing.

The deed of trust securing the Real Estate Capital note was also to be modified by deleting a provision which increased amortization payments in the event of an increase in real estate taxes. The Buyers were to be relieved of any personal liability on the notes secured by the second and third deeds of trust after payments in reduction of principal had aggregated $20,000. Hovering somewhere off stage, but not stipulated in the contract or known to the Buyers, according to their testimony, was the idea that the Gerbers, once the sale had been made, would be absolved by Fox from liability on their guaranty of the loan from Real Estate Capital. It will be recalled that the contract of sale was dated 8 June 1964.

Paragraph 6 provided that closing was to be had on or before 10 June, at which time the Seller was to produce, among other documents: “(a) Certificate or letter from the Building Engineer of Baltimore City that any and all violations or defects in said building have been fully corrected and remedied. (b) All drawings, plans, specifications, as well as details of drawings of the electrical and plumbing work and installations, all warranties and guarantees pertaining to the roof, building and any and all heating, refrigeration and other ²⁸³ fixtures and appliances installed and used upon or in connection with the premises. (c) A full and complete inventory of all fixtures and appliances and other chattels located upon the premises and owned by Seller. (d) All permits and licenses of every nature which shall be assigned to the Buyers.” The last numbered paragraph of the contract provided: “All representations and warranties made or contained herein and any terms and conditions contained herein which have not been performed or carried out by any of the parties hereto at the time of closing or which are to be performed or carried out after the closing hereunder shall survive the said closing.” On 10 June, the date fixed for settlement by the contract, Mr. Fox went to the office of Emanuel Gorfine, Esq., counsel for the Levinsons, and presented a draft of a guaranty agreement, which was intended to reflect the provisions of the contract of sale respecting the second and third deeds of trust.

The draft contained three paragraphs which were unacceptable to Gorfine, who believed that they enlarged the scope of the obligation which the Levinsons had agreed to assume In the contract of sale since the contract explicitly provided that the Buyers were not to be personally liable in the event of a default on any of the deeds of trust after the payment of $20,000 on the second and third deeds of trust. Quoted below are the paragraphs which Mr. Gorfine found unacceptable: “NO'W, THEREFORE, in consideration of the premises, mutual covenants, obligations, and of other good and valuable considerations, receipt of all of which is acknowledged, the aforesaid First Parties [the Buyers] jointly and severally, do hereby guarantee unto Second Party [Real Estate Capital] the payment of Twenty Thousand ($20,000.00), to be applied against the principal debts of the Notes secured by the afore ²⁸⁴ said Second and third Deeds of Trust, provided, however, that if the aforesaid monthly payments of $1,123.25 on said Second Deed of Trust, and $89.90 on the aforesaid third Deed of Trust are each paid when due, and without default, then the obligation of this Guarantee shall be void and of no effect when the sum total of payments against the principal of the aforesaid Notes securing the Second and Third Deeds of Trust total in the aggregate $20,000.00; “Except, however, it is further provided that said Guarantee shall remain and continue in full force and effect unless, at the time the principal payments thereunder total $20,000.00, there shall be no default or failure to perform any of the obligations, covenants or agreements contained in the aforesaid First, Second and Third Deeds of Trust, “And provided further, that it is hereby agreed and covenanted by the First Parties [the Buyers] that they will pay in full for all obligations incurred by them during their ownership of and with respect to 1 the property, including accruals of unpaid taxes and interest to the First, Second and Third Deeds of Trust to the date of sale, or other disposition of property by them.” When Fox declined to retreat from his position, Gorfine called off the settlement. Later on the day of 10 June, Fox changed his mind, and settlement was rescheduled for 15 June. When the Levinsons announced that adjustments would have to be made as of 15 June instead of 10 June, it was then Gerber who balked, but ultimately capitulated.

Early on the morning of 15 June, in anticipation of the closing, the Levinsons visited the property and deter ²⁸⁵ mined that the air conditioning system had not been completely connected, and was inoperable. Later in the day, the parties met at the office of Monumental Title Company, which was to issue the title policy, and an argument commenced, which went on and on. The controversy revolved around four points: (i) The contract provided that the Seller would produce at settlement a “certificate or letter from the Building Engineer of Baltimore City that any and all violations or defects in said building have been fully corrected and remedied.” It is abundantly clear that there were such violations, albeit minor ones, and that the Seller had no such certificate or letter on 15 June. (ii) The situation with respect to the air conditioning.

Gerber said that the system could be completed at a cost of $1,250, which he wanted the Levinsons to pay, and offered to be responsible for any cost in excess of this figure. This was rejected by the Levinsons, who viewed it as an effort to increase the purchase price, although the contract of sale was clearly for the sale of a building which was in an unfinished condition. (iii) The failure of the Seller to produce a roof guaranty which the Levinsons demanded under the contract provision that they were to be furnished with all warranties and guarantees pertaining to the roof. (iv) The Seller’s failure to produce plans and specifications in a form approved by the City’s Building Engineer, which may not have been called for by the requirement that “all plans, drawings, specifications” be furnished.

It would appear that the argument which raged for nearly four hours over these items precluded a consideration of two much more serious problems. The sales contract imposed upon the Seller the duty of modifying the ²⁸⁶ notes held by the Equitable so that interest only would be payable in quarterly installments for one year and that thereafter quarterly installments of $12,330 should be made until all principal and interest had been paid. On the afternoon of 15 June, Gerber had copies of teletypes and may have had a letter from the Equitable advising him that interest only would be payable for one year but that quarterly payments would be increased to $12,545 and that there would be no extension of the loan’s 22 year maturity. Equitable had signed no formal documents, which Equitable expected the Seller to prepare.

Gerber had with him the guaranty agreement which Mr. Gorfine had rejected on 10 June. The objectionable language had been stricken but the paper had not been signed by Fox or Real Estate Capital. Gerber also had in his possession what appears to be an incomplete copy of the proposed third deed of trust submitted by Fox. The document introduced in evidence was one of five pages, without a signature page.

As drawn, it provided that payments in amortization of