On appeal from the Superior Court of New Jersey, Law Division, Essex County.
Approved for Publication November 20, 1997.
Before Judges Dreier, P.g. Levy and Wecker. The opinion of the court was delivered by Dreier, P.j.a.d.
The opinion of the court was delivered by: Dreier
The opinion of the court was delivered by
Plaintiff Norwalk Hotel Associates ("Norwalk" or "plaintiff"), a partnership, appeals from a summary judgment in favor of defendant Midlantic National Bank ("Midlantic" or "defendant") by its successor in interest, PNC Bank, N.A., *fn1 because the trial Judge found that Norwalk ratified Midlantic's assignment of Norwalk's loan to defendant Starwood Apollo Hotel Partners III, L.P. ("Starwood"), which assignment was made in contravention of an anti-assignment clause in the loan documents. Prior to April 1987, plaintiff entered into a long-term lease of commercial property located in Norwalk, Connecticut on which it intended to build a Days Inn Hotel. By a commitment letter dated April 10, 1987, defendant agreed to provide $5,500,000 in construction and interim financing to plaintiff for development of this property.
Pursuant to the commitment letter, plaintiff and defendant executed a construction loan agreement dated July 14, 1987. The loan was non-recourse as to plaintiff and its partners. At the same time, plaintiff delivered to defendant a promissory note in the amount of $5,500,000, with a maturity date of July 1, 1990. Plaintiff had the option of extending the maturity date for two one-year periods upon the payment of $27,500 for each such extension.
The note was secured by, among other things, a leasehold mortgage, deed and security interest covering plaintiff's leasehold interest in the property, and the guaranty of Garden State Buildings ("Garden State"), an affiliate of Norwalk, as well as of others. Pursuant to the loan agreement, plaintiff delivered to defendant an unconditional and irrevocable letter of credit in the amount of $1,375,000 to secure its obligations under the agreement. Garden State secured such a letter of credit from First Fidelity Bank, naming defendant as the beneficiary. The letter of credit originally matured on August 1, 1990, and was renewed four times with a final expiration date of August 1, 1994.
The hotel was completed and operational in 1988. Plaintiff obtained two extensions of the loan maturity date such that it was to mature on July 1, 1992. However, plaintiff was unable to pay off the loan at maturity and defaulted on the loan, because of "drastically changed" market conditions "relating to commercial real estate in general and hotels in particular." As a result, plaintiff and defendant negotiated and executed a Construction Loan Modification Agreement (referred to throughout the parties' briefs by the acronym "CLAMA," a practice which we, albeit idiosyncratically, decline to follow), as of July 1, 1992. Pursuant to section 2.1 of the Modification Agreement, the maturity date of the loan was extended to July 1, 1995, and defendant was released from its obligation to make any further advances under the loan. At the same time, plaintiff executed and delivered to defendant an amended and restated promissory note, dated as of the modification date, and a mortgage modification agreement. Garden State and the other guarantors executed their consents and reaffirmed their guaranties in mid-December 1992.
Plaintiff contends that the Modification Agreement was unusual because it gave defendant "broad powers ... over the Disposition of hotel revenues." Defendant also required as part of the security package an escrow agreement and escrow documents, including an assignment of plaintiff's leasehold interest in the property, a bill of sale covering the personal property located on the property, and a deed covering the hotel and other improvements on the property. Plaintiff was additionally required to maintain with defendant an operating account and a "FF&E Fund." *fn2 Plaintiff was required to deposit into or cause to be deposited into the operating account all collected funds in its accounts, all fees paid by the management company to plaintiff, and all other revenues received from any other source. With the exception of certain specified expenditures, no disbursements were permitted to be made from this account or any other accounts without defendant's approval.
Section 11.2 of the Modification Agreement provided, in pertinent part:
This Letter Agreement, the Mortgage Modification and the 1992 Note encompass all the modifications to the Loan, notwithstanding any oral communications between the parties. No further modification shall be deemed effective, unless in writing, executed by both parties.... No amendment or waiver of any provision of this Letter Agreement, the Mortgage Modification or the 1992 Note, nor consent to any departure by Borrower therefrom, shall in any event be effective unless the same shall be in writing and signed by the Lender, and such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given.
In addition, section 11.15 reiterated that "to avoid any confusion or misunderstanding, this Letter Agreement may only be amended in writing."
Section 11.3 of the Modification Agreement contained the non-assignability clause. It stated:
The terms and provisions of the Lending Documents shall be binding upon the parties hereto, their successors and permitted assigns. No party hereto shall assign this Letter Agreement (or assign any right or delegate any obligation contained herein) without the prior written consent of the ...