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Dovenmuehle Inc. v. K-Way Associates

January 10, 1968


Schnackenberg, Kiley and Cummings, Circuit Judges. Schnackenberg, Circuit Judge (dissenting in part and concurring in part).

Author: Cummings

CUMMINGS, Circuit Judge.

In this diversity action, Dovenmuehle, Inc., a Chicago-based mortgage banking concern, sued K-Way Associates, a New York limited partnership, and four general partners to recover a 1% service fee and various expenditures. After a bench trial, the District Court entered detailed findings of fact and conclusions of law in plaintiff's favor and dismissed defendants' counterclaim. We agree with this disposition.

The findings, reflecting the record, reveal these facts: Prior to March 1963, defendants planned to erect two shopping centers in Arizona. They had acquired Hayden Plaza East in Tempe and had obtained an option to purchase Hayden Plaza West in Phoenix. They also had entered into a lease with Woolco, F.W. Woolworth Company's leasing corporation, providing for Woolco and Woolworth to be a major tenant of both shopping centers.

On March 1, 1963, defendants applied to Dovenmuehle for mortgage financing. These loan applications were for $4,800,000. The applications provided a 1% service fee for Dovenmuehle, 1% if defendants did not perform, and a 1% good faith deposit. The applications were subject to Dovenmuehle's ability to arrange a $500,000 loan to K-Way for the purchase of Hayden Plaza West and for construction at Hayden Plaza East. These applications were not approved by Dovenmuehle in the space provided. The approval line on each application read:

"Assigned W.J.H. [William J. Hoppe] Approved (1) * * * (2) * * *."

In March and April or May 1963, defendants borrowed a total of $500,000 from the First National Bank of Albuquerque, New Mexico, to purchase Hayden Plaza West and to commence construction on Hayden Plaza East.

On April 23, 1963, defendants applied to New York Life Insurance Company for loans on these two properties in the total amount of $4,700,000. The applications provided that the defendants would pay New York Life 1% of the amount of the loans if defendants should not accept a commitment issued by New York Life. These applications were endorsed by Dovenmuehle as broker but were not approved by New York Life. Dovenmuehle is a correspondent of New York Life. From time to time, Dovenmuehle tenders proposed loans to New York Life for their acceptance. After New York Life purchases loans, Dovenmuehle services them for a fee paid by New York Life.

On May 31, 1963, Dovenmuehle obtained a commitment from New York Life to advance a first mortgage loan of $3,525,000 (or, alternatively, $4,400,000 on additional conditions) on the two Arizona shopping centers. One of the conditions of the commitment was that K-Way must first obtain certain leases in both centers. The commitment required Dovenmuehle to deposit a $22,200 check and a $22,200 note payable to New York Life to serve as liquidated damages in the event of default. May 1, 1964, was the expiration date of this commitment.

On June 3, 1963, Dovenmuehle wrote K-Way and agreed to make either the $3,525,000 or $4,400,000 mortgage "On the basis of compliance by K-Way Associates with the conditions set forth" in New York Life's May 31, 1963, attached letter to Dovenmuehle. Dovenmuehle agreed to supply "interim construction funds" to K-Way when the conditions of New York Life's May 31 commitment were fulfilled by K-Way. In its letter to K-Way, Dovenmuehle adverted to New York Life's requirement of a cash deposit of $22,200 and a $22,200 promissory note. In this connection, Dovenmuehle specifically referred K-Way to the liquidated damages provision contained in New York Life's May 31, 1963, commitment. Dovenmuehle's letter also stated that its service fee in procuring New York Life's commitment would be $44,400 (1% of the loan) plus travel expenses and counsel fees and disbursements. Dovenmuehle required from K-Way a $22,200 check and a $22,200 note, both payable to New York Life. The check and note were in turn to be deposited with New York Life under the liquidated damage provision contained in its May 31, 1963, commitment to Dovenmuehle. Defendants accepted the Dovenmuehle commitment on June 6, 1963, and sent Dovenmuehle the prescribed check and note payable to New York Life. On June 10, 1963, Dovenmuehle in turn accepted the New York Life commitment.*fn1

On July 17, 1963, Dovenmuehle sent K-Way a detailed report listing the unfilled conditions that would have to be met before New York Life's $3,525,000 loan would issue. Defendants did not comply with these conditions. However, in July 1963, with Dovenmuehle's consent and cooperation, defendants used the 1963 commitments of Dovenmuehle and New York Life to obtain a $4,400,000 construction loan from Valley National Bank of Phoenix, Arizona.

On August 6, 1963, Dovenmuehle submitted a "superseding" commitment letter, providing, inter alia, that the conditions of New York Life's commitment letter of May 31, 1963, were applicable to K-Way. Defendants accepted this superseding commitment on August 9, 1963. Dovenmuehle's August 6 commitment did not provide for any interim construction loan to K-Way, for K-Way had already received such a loan, in the sum of $4,400,000, from Valley National Bank of Phoenix.

After the issuance of the 1963 commitments, Dovenmuehle explained to defendants that the 1%, or $44,400, deposited with New York Life would be retained by that company as liquidated damages in the event of default. Dovenmuehle also explained that an additional 1% fee and certain expenses were due from K-Way as Dovenmuehle's charge for procuring the New York Life commitment.

From January through March 1964, defendants admitted that they would be unable to meet the conditions of the 1963 commitment before its May 1, 1964, expiration date. On March 24, 1964, K-Way requested Dovenmuehle to negotiate an increase in the mortgage commitment to $4,865,000 and an extension until November 15, 1964.

On April 28, 1964, Dovenmuehle was able to obtain a New York Life commitment for a $4,640,000 mortgage on the two shopping centers. The new deadline for meeting New York Life's conditions was November 15, 1964. The commitment required an additional $2,000 as liquidated damages.

The next day Dovenmuehle issued its commitment letter to K-Way, agreeing to make the mortgage loan "On the basis of compliance by K-Way Associates with the conditions set forth" in the April 28, 1964, commitment letter of New York Life Insurance Company, Dovenmuehle's commitment stated that those conditions "shall apply to K-Way Associates." Dovenmuehle's letter called defendants' attention to the liquidated damages provision of New York Life's commitment and stated:

"By your acceptance of this commitment letter you agree that the second paragraph on Page 4 of the New York Life Insurance Company [April 28, 1964] commitment letter relating to the liquidated damage obligation is incorporated herein by reference and is made a part hereof, and that the obligation therein shall apply to the payment of the $44,400 heretofore made by you, as well as to the additional $2,000 you are returning along with the accepted copy of this commitment."

Dovenmuehle's April 29 letter also advised K-Way that it was to pay Dovenmuehle a 1% (or $46,400) fee for procuring the initial and subsequent commitments, with Dovenmuehle's travel expenses, outside counsel's $10,000 fee and expenses also to be paid by defendants.

On May 1, 1964, K-Way accepted the new commitment and arranged for the additional $2,000 in liquidated damages to be forwarded to Dovenmuehle from defendants' New York Office.

In August 1964, defendants acknowledged their obligation to pay Dovenmuehle its 1% service fee but told Dovenmuehle that they could not afford to pay the fee at that time.

Defendants were unable to meet the lease requirements of the April 28, 1964, New York Life commitment and were still in default on the November 15, 1964, expiration date thereof. New York Life terminated its commitment on November 17, 1964, and retained as its liquidated damages the $46,400 that had been deposited with it.

Defendants refused to pay Dovenmuehle the following amounts:

$46,400.00 (or 1% of the loan) for

Dovenmuehle's services in

procuring the commitments

935.11 for Dovenmuehle travel ex-


10,000.00 for services of Doven-

muehle's outside counsel

454.58 for disbursements of out-

side counsel


The District Court entered judgment for Dovenmuehle in this amount. This appeal followed.

The defendants' three-count counterclaim was dismissed by the District Court. Defendants insist that under Count I of the counterclaim they are entitled to $400,000 damages for increased construction costs resulting from Dovenmuehle's alleged failure to make "front money" and construction loans to K-Way. The other counts of the counterclaim are no longer pressed.

March 1963 Mortgage Applications

K-Way first argues that its March 1, 1963, signed applications to Dovenmuehle for mortgage financing constituted binding contracts between K-Way and Dovenmuehle. The trial court held to the contrary and we agree that there was substantial evidence to support its factual findings that Dovenmuehle did not accept these offers. Therefore, its conclusion, based on such findings, that there were no contracts cannot be set aside. Greiner v. Chicago and Eastern Illinois Railroad Company, 360 F.2d 891, 895 (7th Cir. 1966). Our examination of both applications shows that the approval line in each was left blank by Dovenmuehle. The trial court saw the witnesses and chose to believe Dovenmuehle Vice Chairman William J. Hoppe's testimony that he did not promise to produce the requested $4,800,000 loans and that he had advised defendants that Dovenmuehle was still negotiating with New York Life for the loan that was eventually offered to K-Way. Consistently with the blank approval line on each application, Hoppe also testified that these applications had never been approved by Dovenmuehle. Consequently, it is immaterial that Hoppe and K-Way partners Frederick W. Kretzer and Donald Levine initialed various changes in the applications. The evidence is surely sufficient to support the District Court's finding that Dovenmuehle had not accepted or approved the March 1963 applications, thus justifying the conclusion that they were not contracts.

Defendants rely on Calo, Inc. v. AMF Pinspotters, Inc., 31 Ill.App.2d 2, 176 N.E.2d 1 (1961), but there the nonsigning offerees were held bound because offer. Here, as seen, the District Court's their acts showed their acceptance of the contrary finding is permissible on this record. Banking-Trading Corporation v. Floete, 257 F.2d 765, 769 (2d Cir. 1958). In the two other Illinois cases relied upon by defendants, the parties had signed the contracts with the intention of binding themselves. See First National Bank of Elgin v. Husted, 57 Ill.App.2d 227, 205 N.E.2d 780 (1965), and Fink v. Schleuter, 206 Ill. App. 159 (1917). As stated in 1 Williston on Contracts (3d Ed.1957) ยง 22a, the courts should "guard against abuse of this doctrine [implying consent] as a means of thrusting contracts upon people."

Since we are not disturbing the District Court's conclusion that the March 1963 applications were not contracts, we need not consider defendants' ensuing argument that under these "contracts" they had only agreed to pay Dovenmuehle a service fee of ...

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