The opinion of the court was delivered by: FISHER
FINDINGS OF FACT and CONCLUSIONS OF LAW
This dispute involves the mortgage funding of a certain project with the construction of a shopping center in Camden County, New Jersey known as the Glen Oaks Shopping Mall (hereinafter "Glen Oaks" or "the shopping mall".)
Originally the action was instituted by the First National State Bank of New Jersey ("FNSB") in the Superior Court of New Jersey, Chancery Division (Essex County) and shortly thereafter another suit was filed in the Superior Court of New Jersey, Chancery Division (Camden County) by George W. Matteo, and others doing business as Mathema Developers ("Mathema"). Both actions were brought against Commonwealth Federal Savings and Loan Association of Norristown, Pennsylvania ("Commonwealth"). Thereafter, both suits were removed to this Court and consolidated for trial.
At the day of trial, Mathema did not appear and on motion by defendant, Commonwealth, Matteo v. Commonwealth Federal Savings and Loan Assoc., Civ. 75-1690, was dismissed. The suit No. 75-1712 was tried to the bench.
In accordance with F.R.Civ.P. 52 the Court herein finds relevant and credible facts and conclusions of law.
Sometime before May, 1974 Mathema began construction of a shopping center at Chews Landing-Clementine Rd. and Kelly Drive Rd., Gloucester Twp., Camden County, New Jersey. This construction was being funded at that time by Central Mortgage Company ("Central"). Reaching the limit of its borrowing capacity with Central, Mathema, through Central, applied to Commonwealth for a stand-by commitment on the Glen Oaks project. After approval by the loan committee and the Board of Directors of Commonwealth, that institution issued a mortgage commitment agreeing to loan to Mathema the sum of $ 3,500,000 for a term of one year with interest at 16% Or 6% Above "prime rate of interest." The borrower was given an option to extend for an additional six months. The commitment required that "the entire project shall be constructed according to the plans and specifications submitted to this association . . ." Commonwealth's commitment does not contain a rental achievement clause and does not require 100% Completion. (Exhibit J-2).
In consideration of its agreement to provide a permanent mortgage, pursuant to the terms of the commitment, Commonwealth received a fee from Mathema of $ 35,000 which was deposited into Commonwealth's general account.
At the time of Commonwealth's commitment for permanent lending, the shopping center was between 50 and 85% Complete. On July 23, 1974 Commonwealth amended its commitment removing the condition which required an acceptable appraisal, having then received the appraisal of George Olassin, M. A. I. The amendment also revised the expiration date of the commitment to July 23, 1975.
Meanwhile, it was proposed that plaintiff FNSB fund the construction of the shopping mall. Prior to its acceptance of the construction mortgage, FNSB received an assignment of Commonwealth's mortgage commitment and in fact relied upon the commitment when it funded the construction.
What Commonwealth had issued was a stand-by or take-out commitment which, pursuant to the general practice of the banking industry, is issued for the express purpose of enabling a builder to obtain construction financing. These so-called stand-by commitments are designed to induce construction lenders to rely upon them since the stand-by commitment assures the construction lender that its loan will be paid at the end of its term from the funds provided by the stand-by lender. Not only did Commonwealth expressly consent to the assignment of a stand-by commitment, but as heretofore found, FNSB relied upon it.
On April 23, 1975 Martin L. Van Sant, Vice-President of FNSB, wrote to the borrower with a copy to Commonwealth requesting the closing of the permanent loan be had with Commonwealth on or before May 26, 1975. There was no answering letter and on June 13, 1975 FNSB directed a letter to Commonwealth "Attention Robert A. Messa, Vice-President" requesting immediate arrangements to close the loan before July 23, 1975.
Messa then caused an inspection of the subject property by David Terry, a contractor who reported to Commonwealth that the shopping mall was incomplete. Thereafter Terry made two more inspections, the second on June 20, 1975 and the third on July 21, 1975. There seems to be some serious question as to whether Terry even looked at the plans before, during or after his inspections but it is clear from the testimony that he certainly made no comparison between the physical layout of the mall and the plans and specifications.
On July 16, 1975 the builder wrote Commonwealth requesting the mortgage arrangement be closed before July 23, 1975. Commonwealth responded by letter on July 22, 1975 to the builder taking the position that the property had not been completed in accordance with the plans and specifications and therefore the commitment would expire on July 23, 1975. The matter was discussed prior to July 23, 1975 between Messa and Van Sant. Messa refused to indicate specifically what items were incomplete. It is clear from the evidence, however, that the only work that needed completion was so-called "tenants work". Van Sant indicated to Messa that he could escrow 11/2 times the value of all such tenants work, even though FNSB or the builder were not responsible, but Messa rejected this offer. Van Sant indicated that the value of the tenants work was estimated by FNSB to be $ 22,000 and that FNSB was willing to escrow $ 40,000 to secure the performance of the work. This proposition was also rejected. Van Sant then requested that the Commonwealth inspector meet with the FNSB inspector to review the items which Commonwealth asserted were incomplete and this proposition was rejected.
FNSB then had hand delivered to Commonwealth a check in the amount of $ 17,500 together with a letter exercising the rights in the commitment of the borrower which had been assigned to FNSB to extend the commitment for six months. The check was delivered on July 22, 1975 the day before the expiration of the commitment. This was responded to on July 24, 1975, the day after the expiration of the commitment when the check was returned because it had been delivered under protest. ...