The opinion of the court was delivered by: Judge Virginia M. Kendall
MEMORANDUM OPINION AND ORDER
Plaintiffs William Harrison and Steven Stratos (collectively "Plaintiffs") filed suit against Defendant RBC Mortgage Company ("RBCM") and Pacific Guarantee Mortgage Corp. (collectively "Defendants") for breach of contract claiming that Defendants refused to pay them money they believe they are due from a settlement and mutual release agreement (the "Settlement Agreement") the parties entered into on December 20, 2002 to resolve a previous lawsuit. As part of that Settlement Agreement, Plaintiffs were to receive a certain percentage of commissions from the mortgage business and were potentially entitled to a further amount of commissions (the "Holdback Amount") if they brought a binding letter of intent from a third party investor to RBCM for the potential sale of the line of business. Plaintiffs allege that Defendants failed to compensate them for presenting a Letter of Intent from Resource Bank that complied with the terms of the Settlement Agreement and as a result they are due over $400,000. Defendants counter that the letter presented to RBCM failed to meet the requirements of the Settlement Agreement because it was neither binding nor was it jointly presented as the Settlement Agreement required. As such, they have refused to provide defendants the amount of money that was set aside for the completion of this condition of the settlement agreement. After a bench trial, the Court finds that the parties intended that the letter of intent be binding and that it be presented by both Plaintiffs. The Court further finds that the parties understood these terms at the time they entered into the Settlement Agreement and acted in accordance with that understanding. Because Plaintiffs failed to comply with those two conditions of the agreement, the Plaintiffs breached the Settlement Agreement and Defendants need not pay them the Holdback Amount.
Plaintiffs Stratos and Harrison worked in the mortgage loan origination business of RBCM, starting in 2001 where they ran what is called the Government Services Division (the "Division"). Tr. 51-54. The Division operated net branch loan origination offices (as distinct from retail loan origination conducted directly from employees of various bank branches) which solicited loans for RBCM. Tr. 52-54. The Division had formerly been part of Pacific Guarantee Mortgage. Tr. at 51-54.
In mid-2002, Harrison and Stratos and RBCM disputed the accounting for loans procured by the Division and a lawsuit ensued with both parties alleging fraud against the other. Tr. 160-161. On December 20, 2002, to resolve the pending lawsuit, the parties entered into the Settlement Agreement. Tr. 56. Pursuant to the Settlement Agreement, RBCM agreed to pay Harrison and Stratos a commission on all loans originated by the Division from November 1, 2002 through the termination of theSettlement Agreement, which was to occur when the Division was sold. Tr. 57-58. The settlement agreement provided that the division was to be sold no later than May 31, 2003. Tr. 68. Plaintiffs were further entitled to the Holdback Amount, a portion of the commission for each month from January through March of 2003, if they presented a binding letter of intent to RBCM by March 31, 2003. The Settlement Agreement stated:
On or before March 31, 2003, Claimants shall present a binding letter of intent from a bona fide third party investor (with required mortgage licenses or exemptions and a suitable warehouse line) ("Third Party Investor") that states that the investor intends to accept the Division with a closing and complete transition from the Company to the third party on or before May 31, 2003 ("Letter of Intent"). The failure to meet the March 31, 2003 date in accordance with this section for any reason shall enable Company to take any and all actions it deems necessary with respect to the Division, including reorganization, transfer or the termination of the Division, and its personnel and branches. Company shall be permitted to use the Holdback Amount to reimburse itself for incurring any sums in connection therewith, and no excess Holdback Amount shall be returned to Claimants.
Ex. 1.*fn1 The Settlement Agreement further defined "Claimants" as: "Harrison and Stratos" collectively "unless the context otherwise requires." Id.
The Settlement Agreement provided for certain compensation to be paid to Plaintiffs Harrison and Stratos. Paragraph 1(b) of the Agreement provided that Harrison and Stratos would be paid "ten (10) basis points times the principal balance of loans originated by Division personnel that are closed and funded by the Company's internal mortgage bank ... beginning November 1, 2002 and concluding on the earlier of (i) the Transition Date ... and (ii) either (x) March 31, 2003 (if the requisite Letter of Intent described in Section 4(a)(1) is not obtained by Claimants) or (y) May 31, 2003 (if the requisite Letter of Intent is obtained)." Ex. 1. Of the funds to be paid pursuant to paragraph 1(b), certain funds would be held back (the Holdback Amount) until all of the transition period obligations of Harrison and Stratos were complete. Id. The Settlement Agreement further provided that Plaintiffs would receive 12.5 of the basis points for the loan volume revenue from the Division in a given month and that amount would be tendered within 15 days of the end of each month. Id. On a monthly basis beginning in January 2003, RBCM was also required to provide a summary of the Holdback Amount to Plaintiffs. Id.; Tr. 56-62; 94-95; 117-118; 149. The Holdback Amount was Plaintiffs' sole source of monetary recovery for any claims relating to the Agreement. Ex. 1, Sec. 4.
As part of the Settlement Agreement this remaining 7.5 basis points (the Holdback Amount) would be held by the Company's attorney in escrow until the end of the term of the Settlement Agreement. Tr. 58-59; 116. However, if the Plaintiffs failed to meet the conditions of §4(a) of the Settlement Agreement, they would forfeit the Holdback Amount. Additionally, it was stipulated that if the Company breached theSettlement Agreement, then the Claimants could "seek specific performance as their remedy" in lieu of the Holdback Amount. Ex. 1: § 1 (b)(s).*fn2
In the days leading up to the March 31, 2003 deadline, Plaintiffs were separately bringing potential purchasers to the table; Stratos worked with Resource Bank as a potential buyer and Harrison worked with Pinnacle Financial Group. Tr. 82-83, 164-65. As the deadline loomed, Harrison and Stratos could not agree on which potential purchaser should be presented to RBCM. Harrison wrote an email to RBCM on March 27, 2003 and informed them that "it does not look like a LOI [letter of intent] will be forthcoming by 3/31 unless something changes. I believe Pinnacle now will bow out of this arena at least for now." Def. Ex. 23. As the business day on March 31 drew to a close, Harrison and Stratos could not agree and Harrison admitted in an email at 4:49 p.m. on that day that "Stratos and I couldn't make a deal prior to the 3/31 expiration." Def. Ex. 22.
After the close of the business day but still on the closing deadline of March 31, 2003, Plaintiff Stratos decided to present a letter of intent from Resource Bank in an effort to comply with the Settlement Agreement's deadline. Plaintiff Stratos attached a cover letter to the Letter of Intent from Resource Bank. The cover letter stated as follows:
We represent Steven C. Stratos. As you know, Steve Stratos and William Harrison entered into a Settlement Agreement and Mutual Release dated December 20, 2002 with RBC Mortgage Company and Pacific Guarantee Mortgage Corporation (the "Settlement Agreement"). Pursuant to the terms of the Settlement Agreement, Messrs. Stratos and Harrison were given until March 31, 2003 to jointly present to the "Company", as that term is defined in the Settlement Agreement, a satisfactory letter of intent showing the intent of a third party investor to accept the "Division", as that term is defined in the Settlement Agreement, with a closing and complete transition of the Division from the Company to the third party investor on or before May 31, 2003. A letter of intent from Resource Bank to Steven C. Stratos is enclosed which indicates the intent of Resource Bank to meet the Company's required timeline and undertaking. Resource Bank has the necessary licenses and has the suitable warehousing lines required by Section 4(a) or the Settlement Agreement. As you know, the Settlement Agreement contemplates a joint letter of intent between (a) both Mr. Stratos and Mr. Harrison and (b) the third party investor. At this point, Messrs. Stratos and Harrison have yet to agree to terms pursuant to which they can proceed together, so this letter of intent is being presented solely on behalf of Mr. Stratos. Mr. Stratos is leaving open the opportunity for Mr. Harrison to join him in this matter until midnight tonight pursuant to the terms most recently discussed with Mr. Harrison through his attorney, Robert P. Trout, Esquire, of Trout & Richards, P.L.L.C., and is copying both Mr. Harrison and his attorney on this letter by email so that they can contact him at any time up to midnight tonight to express acceptance of those terms. With or without Mr. Harrison, Mr. Stratos is ready to proceed to negotiate a deal between and among himself, the Company and Resource Bank which would involve a closing and transfer of the Division from the Company to Resource Bank on or before May 31, 2003. If Mr. Harrison does not agree to participate, we would ask that you treat the enclosed letter of intent as nonetheless satisfying Section 4 of the Settlement Agreement and proceed with Mr. Stratos and Resource bank in the manner and according to the terms set forth in that document.
It would be in the interests of both Mr. Stratos and the Company to have the transaction described in the letter of intent go forward. If the Company is willing to accept the letter of intent as satisfying the requirements of the Settlement Agreement, Mr. Stratos is willing to proceed to attempt to accomplish this transaction.
Def. Ex. 17. The letter was signed by an attorney representing Plaintiff Stratos and a copy of the letter was e-mailed to Plaintiff Harrison that day. The Letter of Intent that was attached to the cover letter, in relevant part, stated as follows:
If you are able to obtain PGMC's agreement to this transaction, we will conduct due diligence into the operations of the Division and, if the due diligence is satisfactory, we will attempt to negotiate a binding, definitive agreement (the "Definitive Agreement") with PGMC that will contain such terms, conditions, representations, warranties and covenants as are mutually satisfactory and are of a nature consistent with a ...