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Suburban Transfer Service Inc. v. Beech Holdings Inc.

decided: September 7, 1983.


Appeal from the United States District Court for the District of New Jersey.

Hunter, Higginbotham, Circuit Judges, and Stapleton,*fn* District Judge.

Author: Hunter


HUNTER, Circuit Judge:

1. Suburban Transfer Service, Inc. ("Transfer") brought this action against Beech Holdings, Inc. ("Beech") claiming that Beech was liable for the cost of certain capital improvements made to facilities at the Teterboro Airport, Teterboro, New Jersey. Transfer made its claim as a third-party beneficiary to an agreement entered into by Suburban Aviation Service, Inc. ("Aviation"), Pan American Airways, Inc. ("Pan Am"), and Beech. On cross-motions for summary judgment, the district court entered summary judgment for Beech and dismissed Transfer's complaint. We will affirm.


2. Pan Am operates the Teterboro Airport in Teterboro, New Jersey under an agreement with the Port Authority of New York and New Jersey. On December 1, 1974, Pan Am, Aviation, and Beech entered into a Use and Occupancy Agreement ("Agreement") under which Pan Am granted Aviation the right to use and occupy specified areas of the Teterboro Airport until December 31, 1999. At the time the Agreement was entered into Aviation was a retail dealer of aircraft manufactured by Beech Aircraft Corporation, the parent corporation of Beech. In addition to its retail operations, Aviation also serviced and stored aircraft, provided flight instructors, and sold aircraft parts and equipment.

3. Under section 35 of the Agreement, Beech undertook an obligation to enter into a new, but substantially identical, use and occupancy agreement with Pan Am (the "New Agreement") in the event of a termination of the Agreement between Pan Am and Aviation. App. at 67. The New Agreement was to be only for a two-year term. At Beech's option, however, the New Agreement could be extended for the balance of Aviation's original term through December 31, 1999. Id.

4. As a condition of its occupancy under the Agreement, Aviation was required to make certain capital improvements to render the premises suitable for its purposes and business operations. App. at 38, 73. In anticipation that Aviation might have to obtain a loan to finance those improvements, section 34 of the Agreement provided:

For purposes of this Agreement User's loan (hereinafter referred to as the "Loan") shall mean borrowing of an amount not in excess of Two Hundred Thousand Dollars ($200,000.00), the proceeds of which are to be used by the User for the purposes of performing any construction authorized to be performed by User under this Agreement. The Loan shall be repaid over a term of at least ten (10) years but in no event for a period exceeding the term of this Agreement, with equal installments covering payment of principal and interest, provided, however, that the Loan shall be in the form of a Note and Security Agreement as set forth in Exhibit C attached hereto and made a part hereof, shall be made no later than December 31, 1977 and the financing entity granting the Loan shall hereinafter be referred to as "the Lender."

App. at 67 (emphasis added). The Agreement further provided in section 35.4 that if Pan Am terminated its agreement with Aviation, Beech would pay the monthly installments on Aviation's loan for the two-year period covered by the New Agreement Beech was required to enter into with Pan Am. App. at 68. In the event Beech elected to extend its occupancy until 1999, it was required under section 35.5 of the Agreement either to pay off the loan or to assume and pay the regular equal installments covering principal and interest on the loan for the remainder of the loan's term. Id.

5. Aviation began occupying the Teterboro Airport in December of 1974. By July of 1975, however, it still had not obtained a loan to cover the cost of the capital improvements it was required to make under the Agreement. Apparently unable to obtain funds from other sources, Aviation began to borrow funds from an affiliate corporation, Transfer, sometime in late 1975. Transfer advanced the funds through a common fund controlled by Industrial Leasing Corporation, the parent company of both Aviation and Transfer. At no time, however, did Aviation and Transfer execute the Note and Security Agreement ("Note") referred to in section 34 of the Agreement. App. at 180.

6. On October 10, 1975, a vice-president of Beech wrote to Aviation and requested information concerning Aviation's plans for borrowing funds and improving the facilities under the Agreement. On October 23, 1975, Richard Brown of Aviation responded, stating in pertinent part: "For the time being, we are borrowing all our money from Suburban Transfer Service, Inc., an affiliated company which is temporarily to be considered as the secured party. I will forward you more plans on our long term borrowing when I am able to get back to work on a full time basis." App. at 162.

7. Aviation allegedly continued its efforts to find a commercial lender but was unsuccessful. Transfer continued to advance its funds, however, and construction of the improvements at the airport progressed. Following internal discussions by Transfer concerning its status under the Agreement, see app. at 199, 201, on September 23, 1976, counsel for Aviation wrote a letter to the Port Authority of New York and New Jersey, with a copy to Beech, stating: "[We] do hereby advise that 'the Lender ' to be inserted in the Note and Security Agreement referred to as Exhibit 'C ' in the referred to Use and Occupancy Agreement is Suburban Transfer Service, Inc." ...

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