BOLIN, Justice.
Capmark Bank appeals from a preliminary injunction entered in favor of RGR, LLC; MB Park, LLC; TTM MB Park, LLC; Robert G. Randall; and T. Todd
On September 27, 2007, Capmark and the limited liability companies executed a loan agreement pursuant to which Capmark agreed to loan the limited liability companies the original principal amount of $12,322,500. The limited liability companies used the loan proceeds to acquire and to rehabilitate two apartment complexes in Mobile County. The loan was evidenced by two promissory notes executed by the limited liability companies: promissory note A in favor of Capmark in the principal amount of $6,332,500, and promissory note B in the principal amount of $5,990,000. The limited liability companies were to repay the amounts set forth in the promissory notes in accordance with the terms of the loan agreement. As security for the loan, the limited liability companies executed a "Mortgage, Assignment of Rents and Leases, Security Agreement and Fixture Filing" in favor of Capmark. Pursuant to the mortgage and assignment, the apartment complexes served as collateral for the limited liability companies' obligations under the loan agreement. Additionally, the limited liability companies also granted Capmark an assignment of all rents and leases related to the properties and gave Capmark a first-priority security interest in all the limited liability companies' fixtures, goods, equipment, accounts, and general intangibles.
Simultaneous with the execution of the other loan documents, and as further security for the loan, Robert G. Randall and T. Todd Martin III, the owners of the limited liability companies,
Martin testified in his affidavit that shortly before closing on the loan, Capmark required the limited liability companies to increase their equity contribution by $540,000 and unilaterally reduced the amount of the loan by $300,000.
Pursuant to Section 2.01(a) of the loan agreement, Capmark agreed to loan the limited liability companies the "Maximum Loan Amount." Section 19.01 of the loan agreement defines the "Maximum Loan Amount" as the "maximum principal amount of $12,322,500." Pursuant to section 2.03(c) of the loan agreement, the loan matured on October 1, 2010. Section 2.06 provides that Capmark had no obligation to refinance the loan.
Section 2.04(a) of the loan agreement governs the payment terms of the loan; it provides, in part, that "all amounts due under this Loan Agreement and the other Loan Documents shall be paid without setoff, counterclaim, or any other deduction whatsoever." Article 11 of the loan agreement governs the event of default and Capmark's remedies upon an occurrence of a default. Section 11.01 provides, in part:
Section 11.02 of the loan agreement provides that, in the event of a default, Capmark may accelerate the loan by declaring the entire unpaid principal balance of the loan to be immediately due and payable, may institute foreclosure proceedings against the properties, and may apply for the appointment of a receiver, trustee, liquidator, or conservator of the properties.
Section 18.02 of the loan agreement contains a merger and integration clause, which provides as follows:
Martin testified that the loan agreement contemplated that Capmark would convert the construction financing to permanent financing once the project was complete. Martin testified that a Capmark representative informed the limited liability companies that "the benefit to doing this deal with us is that ... while the rate is a bit higher ... you're only going to have one underwriting expense. One and done...." Martin explains that the point of the statement is that the limited liability companies would incur just one underwriting expense—at the time the initial construction loan was made—but that there would be no further underwriting costs because Capmark would be the bank providing the permanent financing.
Martin testified that the limited liability companies purchased the apartment complexes and completed the rehabilitation of the complexes on December 1, 2008, on schedule and under budget. The limited liability companies then began the process of repopulating the apartments. Martin testified that as the apartments were being rehabilitated, the global financial markets crashed, which resulted in unprecedented setbacks in the local rental market. The crash of the financial markets, combined with high unemployment rates, adversely impacted the limited liability companies' ability to lease the apartments, which, in turn, negatively impacted their cash flow. Martin testified that notwithstanding these difficult circumstances near full occupancy was achieved in both apartment complexes, although certain rent concessions had to be made. The limited liability companies also made additional investments in the project in order to enhance the marketability of the apartments.
Martin testified that in the midst of the economic downturn and the limited liability companies' cash-flow problems, Capmark refused the limited liability companies' request to access the $300,000 cash-flow funding. Martin states that Capmark's refusal occurred at a time when the limited liability companies were in full compliance with their obligations under the loan agreement. Martin contends that Capmark's failure to provide the cash-flow funding as promised adversely affected the limited liability companies' subsequent ability to perform under the loan agreement.
In September 2009, the limited liability companies received a letter from Capmark advising them that the notes would mature on October 1, 2010. The letter informed the limited liability companies that they were being notified 12 months in advance of the maturity date so that refinancing arrangements may be made before the maturity date of the loan. Martin testified that the letter seemed to suggest that the limited liability companies should seek permanent financing elsewhere. Martin stated that the limited liability companies became concerned that Capmark may not honor its promise to provide permanent financing. Randall contacted Nick Liska,
On December 22, 2009, the limited liability companies received a letter from Capmark stating that they were in default of the loan agreement for failing to satisfy a financial-performance test.
However, RGR states that the Capmark representative with whom they had been working was replaced and that the negotiations then went in a different direction. In May 2010, the limited liability companies received a "Notice of Default—Demand for Payment" from Capmark stating that "events of Default" had occurred, including the failure to make all payments due in April 2010 and May 2010 and the failure to pay the $2,237,487.11 performance test pay down of principal. Also in May 2010, Capmark began charging the limited liability companies default interest. On June 16, 2010, Capmark accelerated the loan by declaring the entire unpaid principal balance with all accrued and unpaid interest and charges immediately due.
Martin testified that at about the same time Capmark started charging default interest and accelerated the loan, it also asserted the existence of the full-payment and performance guaranty discussed above in Part A of this opinion. Martin stated that much like the performance test, Capmark's assertion of the unconditional guaranty was a manufactured pretext to compel RGR to acquiesce in Capmark's demands. Martin stated that the loan was a true nonrecourse loan and that he and Randall "were never asked to, never agreed to, and did not unconditionally" guaranty the loan. Martin claims that the signature page of the full-payment and performance guaranty does not match the rest of the document because the document is identified as HOU:2720221.4 and the signature page is identified as HOU:2720221.2. Martin further supports his contention with the affidavit of Chad Hagood, Capmark's loan officer for the loan during the application negotiations with the limited liability companies. Hagood testified as follows:
Capmark also contends that Martin and Randall's repudiation of the full-payment guaranty constitutes a default pursuant to section 11.01(i) of the loan agreement.
On July 13, 2010, RGR answered Capmark's complaint, generally denying Capmark's allegations, and asserted certain affirmative defenses. RGR also counterclaimed against Capmark alleging that Capmark had fraudulently "obtained or otherwise created" the full payment and performance guaranty and had fraudulently represented that $300,000 in cash-flow funding would be provided. RGR sought to have all the loan documents rescinded based on the alleged fraud and any other equitable relief the trial court deemed just. RGR also alleged that Capmark had breached the agreement to provide the $300,000 in cash-flow funding and had breached the prenegotiation "work-out" agreement. On September 13, 2010, Capmark answered RGR's counterclaim and asserted certain affirmative defenses.
On October 27, 2010, the trial court ordered the parties to participate in mediation, which was unsuccessful. On November 15, 2010, Capmark notified RGR that it had noticed the properties for a nonjudicial foreclosure sale on December 8, 2010. On December 1, 2010, RGR moved the trial court to prevent the scheduled foreclosure and/or for a preliminary injunction, arguing that Capmark had unclean hands that prevented it from seeking the equitable remedy of foreclosure and that RGR was entitled to injunctive relief because, it said, it would suffer an irreparable injury if the properties were foreclosed on; that it had a reasonable likelihood of success on the merits of its breach-of-contract claim;
On December 2, 2010, Capmark responded to RGR's motion to prevent foreclosure and/or for a preliminary injunction, arguing that RGR had not satisfied the requirements entitling it to a preliminary injunction. On December 2, 2010, RGR filed a supplement in support of its motion to prevent foreclosure and/or for a preliminary injunction, arguing that Capmark's failure to perform its own obligations entitled RGR to enjoin the foreclosure. On December 7, 2010, the trial court entered an order granting RGR's motion for a preliminary injunction, stating:
The trial court also ordered that RGR post a $30,000 bond; ordered that all funds being held in the trust account of RGR's counsel be deposited with the clerk of the trial court; and ordered that all monthly rent revenues from the apartments be deposited with the clerk of the court. Capmark appeals.
In Holiday Isle, LLC v. Adkins, 12 So.3d 1173 (Ala.2008), this Court set forth the standard for reviewing an order issuing a preliminary injunction:
12 So.3d at 1175-76.
Capmark argues, among other things, that the trial court exceeded its discretion in granting RGR a preliminary injunction because, it says, RGR failed to establish the necessary elements required to support an injunction. A preliminary injunction should be issued only when the party seeking an injunction has established
Adkins, 12 So.3d at 1176. The party seeking the preliminary injunction bears the burden of producing evidence sufficient to support its issuance. Ormco Corp. v. Johns, 869 So.2d 1109, 1113 (Ala.2003). "If the party seeking the injunction fails to establish each of these prerequisites, then a preliminary injunction should not be entered. If the trial court enters a preliminary injunction when these prerequisites have not been met, the trial court's order must be dissolved and the case remanded." Blount Recycling, LLC v. City of Cullman, 884 So.2d 850, 853 (Ala.2003).
Capmark argues on appeal that the trial court erred in finding that RGR demonstrated a reasonable likelihood of success on the merits of its breach-of-contract claims alleging that Capmark "breached its agreement to fund a $300,000 cash flow fund" and "breached its agreement to provide permanent financing."
RGR alleged in its counterclaim that "the loan papers contemplated an additional $300,000 of funding"; that Capmark "promised at and after closing to make $300,000 available to Borrowers if cash flow shortages arose as contemplated in the loan documents"; and that when Capmark was asked to honor this promise it refused to do so. RGR argued in its motion for a preliminary injunction that the "loan papers contemplated an additional $300,000 of funding"; that Capmark promised the limited liability companies that the money would be available to them in the future if it was necessary to fund their cash-flow needs; and that Capmark ignored their request to provide the cashflow funding.
Despite RGR's assertions, it has failed to direct this Court to any provision in the loan documents to support its allegations. Indeed, nothing in a reading of the express terms of the loan documents can be construed as obligating Capmark to provide the limited liability companies an additional $300,000 in cash-flow funding. Pursuant to sections 19.01 and 2.01(a) of the loan agreement, Capmark agreed to lend the limited liability companies the maximum principal loan amount of $12,322,500. Any allegation by RGR that the loan documents obligated Capmark to lend funds beyond this amount is contradicted by the plain language of the loan documents. Accordingly, to the extent that RGR relies on the loan documents, RGR cannot establish the existence of a valid agreement obligating Capmark to provide $300,000 in cash-flow funding.
However, contrary to its position taken in earlier pleadings that the loan papers contemplated Capmark's providing RGR an additional $300,000 in cash-flow funding, RGR argues in its appellate brief that Capmark's agreement to provide the limited liability companies the $300,000 in cashflow funding was a "separate but contemporaneous" agreement. We disagree and find that there is no "separate but contemporaneous" agreement obligating Capmark to provide an additional $300,000 in cash-flow funding to the limited liability companies.
We initially note that other than the amount to be loaned, RGR has offered nothing in the way of the essential terms of the agreement, including but not limited to the interest rate to be charged, the term of the loan, and any restrictions placed on the loan.
Macon Cnty. Greyhound Park, Inc. v. Knowles, 39 So.3d 100, 108 (Ala.2009). Because the alleged agreement to provide $300,000 in cash-flow funding is silent as to its essential terms, it is unenforceable.
Further, section 18.02 of the loan agreement contains a merger and integration clause, which provides:
(Emphasis added.) This Court has stated the following with regard to merger clauses:
Ritter v. Grady Auto. Group, Inc., 973 So.2d 1058, 1062 (Ala.2007). In Ritter, this Court discussed the three-pronged test for determining whether alleged contemporaneous agreements were truly collateral and therefore outside the scope of a merger clause:
973 So.2d at 1062-63.
In this case, the alleged agreement obligating Capmark to provide the limited liability companies an additional $300,000 in cash-flow funding fails to satisfy the Mitchill v. Lath, 247 N.Y. 377, 160 N.E. 646 (1928), test. First, the alleged agreement is not "collateral in form" because it deals with the identical subject matter as that of the loan agreement and other loan documents, that being the financing of the limited liability companies' purchase and rehabilitation of the apartment complexes. See Alabama Elec. Coop., Inc. v. Bailey's Constr. Co., 950 So.2d 280, 289 (Ala.2006) (holding that an oral agreement to insure was not collateral to an insurance policy "[i]n light of the fact that the written contract dealt expressly with the subject matter of the alleged collateral oral agreement"). Second, the alleged agreement to provide $300,000 in cash-flow funding contradicts the express and implied provisions of the loan documents. In sections 19.01 and 2.01(a) of the loan agreement, Capmark agreed to loan the limited liability companies only the maximum principal loan amount of $12,322,500. Thus, an alleged promise to loan additional funds to the limited liability companies over and above the maximum loan amount of $12,322,500 directly contradicts the express provisions of the loan documents. Finally, the alleged agreement to provide $300,000 for a cash-flow fund is an agreement the parties would "ordinarily be expected to embody in the writing." Section 8-9-2(7), Ala.Code 1975, requires that "[e]very agreement or commitment to lend money, delay or forbear repayment thereof... except for consumer loans with a principal amount financed less than $25,000" must be in writing or the agreement is void.
Because the alleged agreement obligating Capmark to provide cash-flow funding cannot be considered a collateral agreement, the merger clause contained in the loan agreement would serve to invalidate said agreement. Accordingly, RGR cannot establish the existence of a separate contemporaneous agreement obligating Capmark to provide it with $300,000 in cashflow funding.
RGR argues that Capmark promised during loan negotiations that it would at the appropriate time convert the construction financing to permanent financing. Martin testified that a Capmark representative informed the limited liability companies that "the benefit to doing this deal with us is that ... while the rate is a bit higher ... you're only going to have one underwriting expense. One and done ...." Martin explains that the point of the statement is that the limited liability companies would incur just one underwriting expense—at the time the initial construction loan was made—and that there would be no further underwriting costs because Capmark would be the bank providing the permanent financing. In September 2009, the limited liability companies received a letter from Capmark advising them that the note would mature on October 1, 2010. Martin testified that the letter seemed to suggest that the limited liability companies should seek permanent financing elsewhere and that the limited liability companies became concerned that Capmark may not honor its promise to provide permanent financing. The limited liability companies contacted a Capmark representative regarding the letter and was told that the letter was a standard 12-month notice sent out before the maturity date for all loans serviced by Capmark and does not state that "Capmark will not continue with the loan agreement."
RGR's claim that Capmark agreed to provide permanent financing directly contradicts the express terms of the loan agreement. Section 2.06 of the loan agreement provides, in part, as follows: "No Exit Fee shall be due, however, if Borrower refinances this Loan with the proceeds of a loan funded for Borrower by Capmark Finance Inc. or Capmark Bank. Borrower acknowledges that neither Capmark Finance Inc. nor Capmark Bank has any obligation to make such a loan." RGR has offered nothing to the contrary. Further, any alleged promise made by Capmark during the loan negotiations would have been superseded and invalidated by the merger and integration clause in the loan agreement. Thus, we conclude that RGR cannot prove the existence of a valid and binding agreement obligating Capmark
Because RGR has failed to establish the existence of a valid and binding contract obligating Capmark to provide it with $300,000 in cash-flow funding and with permanent financing, it cannot demonstrate a reasonable likelihood of success on the merits of its breach-of-contract claims. Accordingly, we conclude that the trial court's finding that RGR had demonstrated a reasonable likelihood of success on the merits of its underlying breach-of-contract claims is not supported by the evidence,
RGR alleged and the trial court found that RGR had demonstrated a reasonable likelihood of success on the merits of its claim that Capmark had engaged in inequitable conduct such that it has unclean hands preventing it from relying on the equitable remedy of foreclosure. RGR also based this argument on its claims that Capmark had breached the agreements to provide an additional $300,000 in cash-flow funding and to provide permanent financing addressed above. This Court, having found that RGR failed to demonstrate the existence of valid binding agreements obligating Capmark to provide the cash-flow funding and the permanent financing, must also conclude that RGR cannot establish that Capmark had "unclean hands" based on the alleged breach of those nonexistent agreements such as to deny it the equitable remedy of foreclosure. Accordingly, we reverse the trial court's related holding that RGR had demonstrated a reasonable likelihood of success on the merits of its unclean-hands argument.
Based on the foregoing, we conclude that RGR has failed to establish the requisite elements entitling it to a preliminary injunction, and we reverse the trial court's judgment issuing the injunction. We also conclude that RGR failed to establish that Capmark had "unclean hands" so as to prohibit it from seeking the equitable remedy of foreclosure, and we reverse the trial court's finding as to that claim. Because we reverse the trial court on the abovementioned grounds, it is unnecessary for us to discuss the remaining issues.
REVERSED AND REMANDED.
MALONE, C.J., and STUART, PARKER, SHAW, MAIN, and WISE, JJ., concur.
WOODALL and MURDOCK, JJ., concur in the result.
