First National State Bank of New Jersey v. Commonwealth Federal Savings and Loan Association of Norristown

Mathema Developers (Mathema) (plaintiff) sought to develop a shopping mall. Conventionally, financing for commercial real estate developments came in two phases. A developer would obtain short-term construction loans from commercial banks while securing a standby commitment from a savings institution or insurance company. The standby commitment would obligate the savings institution or insurance company, upon completion of construction, to pay off the short-term loans and act as the long-term mortgagee—or permanent lender—for the development. Mathema entered into simultaneous agreements with First National State Bank of New Jersey (First National) (plaintiff) and Commonwealth Federal Savings and Loan Association of Norristown (Commonwealth) (defendant) for a construction loan from First National and a standby commitment with Commonwealth. Under the standby commitment drafted by Commonwealth, Commonwealth would be obligated to disburse a long-term mortgage loan only if Mathema constructed the entire project according to plan by a certain date. The commitment agreement did not contain a provision explicitly requiring 100 percent or perfect completion. Mathema completed construction more or less according to plan by the specified date. However, it had become clear that the mall was a financial failure. When called upon to honor its commitment, Commonwealth refused, claiming, without elaboration, that construction had not been done according to plan. First National was forced to foreclose on the mall and continued to operate the mall at a loss. First National and Mathema sued Commonwealth, seeking a remedy of specific performance that would require Commonwealth to issue the long-term loan and act as the secured lender attached to the project. The district court ordered specific performance. Among the issues Commonwealth appealed was the propriety of granting the remedy of specific performance.