Title: Capmark Bank v. RGR, LLC
Citation: N/A
Docket Number: 1100318
State: Alabama
Issuer: Alabama Supreme Court
Date: September 30, 2011

REL:09/30/2011
Notice: This opinion is subject to formal revision before publication in the advance
sheets of Southern Reporter.  Readers are requested to notify the Reporter of Decisions,
Alabama Appellate Courts, 300 Dexter Avenue, Montgomery, Alabama 36104-3741 ((334)
229-0649), of any typographical or other errors, in order that corrections may be made
before the opinion is printed in Southern Reporter.
SUPREME COURT OF ALABAMA
SPECIAL TERM, 2011
_________________________
1100318
_________________________
Capmark Bank
v.
RGR, LLC, et al.
Appeal from Mobile Circuit Court
(CV-10-901460)
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 Martin III (hereinafter
referred to collectively as "RGR") enjoining Capmark from
1100318
2
foreclosing on certain real property serving as the primary
collateral for a loan from Capmark to RGR, LCC, MB Park, LLC,
and TTM MB Park, LLC (hereinafter referred to collectively as
"the limited liability companies").  We reverse and remand.
Facts and Procedural History
A. The Loan
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
1100318
According to the documents in the record, Randall is the
1
sole member of RGR, LLC; Martin is the sole member of TTM MB
Park, LLC; and both Randall and Martin are the members of MB
Park, LLC.
3
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,  
executed 
three 
separate 
guaranty
1
agreements in favor of Capmark: (1) the full-payment and
performance guaranty pursuant to which Randall and Martin
irrevocably and unconditionally guaranteed the prompt payment
to Capmark when due of all obligations and liabilities under
the loan agreement and other loan documents; (2) the
completion and lien-free performance guaranty pursuant to
1100318
The limited liability companies had been seeking a loan
2
amount in excess of the $12,322,500 actual principal amount of
the loan.
4
which Randall irrevocably and unconditionally guaranteed the
full and timely completion of all construction work in
accordance with the terms of the loan agreement free of any
liens and the full and timely payment of all contractors and
material suppliers; and (3) the exception to nonrecourse
liability guaranty pursuant to which Randall and Martin
irrevocably and unconditionally guaranteed the prompt payment
to Capmark when due of all obligations and liabilities for
which Randall and Martin become personably liable under
Article 12 of the loan agreement and the other loan documents.
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 $300,000.2
Martin stated that Capmark's requirement that the limited
liability companies increase their equity contribution and the
unilateral reduction of the loan amount came just as their
purchase option for the apartments was about to expire,
leaving the limited liability companies with little time to
1100318
5
seek other arrangements.  Martin testified that the limited
liability 
companies 
specifically 
informed 
Capmark 
that
reducing the loan amount while also requiring an increase in
its equity contribution would likely result in cash-flow
shortages early in the project.  Martin stated that Capmark
assured the limited liability companies that funds would be
available as a contingency if needed to address any cash-flow
shortages.  He stated that Capmark acknowledged in writing
that it had agreed to provide $300,000 in cash-flow funding
and that the limited liability companies closed the loan based
on that representation.  Martin and Randall contributed
$1,540,000 of their own money at the closing of the loan and
have since invested an additional $750,000 in the project.
B. The Loan Agreement
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
1100318
6
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:
"The occurrence of any one or more of the
following 
events, 
shall 
at 
Lender's 
option,
constitute an 'Event of Default' hereunder:
"(a) If any payment of principal and
interest (or interest if the Loan is
interest-only) is not paid in full on or
before the Payment Due Date on which such
payment is due; 
"....
"(c) If unpaid principal, accrued but
unpaid interest and all other amounts
outstanding under the Loan Documents are
not paid in full on or before the Maturity
Date;
"....
"(i) If any Guarantor repudiates or revokes
the Guaranty or Environmental Indemnity; 
"....
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7
"(t) If the Mandatory Performance Test
Paydown is not paid in full when required
in accordance with Section 2.05(f) of this
Loan Agreement."
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:
"Entire 
Agreement; 
Modifications; 
Time 
of
Essence. This Loan Agreement, together with the
other 
Loan 
Documents, 
contain[s] 
the 
entire
agreement between Borrower and Lender relating to
the Loan and supersede[s] and replace[s] all prior
discussions, representations, communications and
agreements (oral or written).  If the terms of any
of the Loan Documents are in conflict, this Loan
Agreement shall control over all of the other Loan
Documents unless otherwise expressly provided in
such other Loan Document.  No Loan Document shall be
modified, 
supplemented or terminated, nor any
provision thereof waived, except by a written
instrument 
signed 
by 
the 
party 
against 
whom
enforcement thereof is sought, and then only to the
extent expressly set forth in such writing.  Time is
of the essence with respect to all of the Borrower's
obligations under the Loan Documents."
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8
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.
C. Alleged Defaults and Breaches of the Loan Agreement
1. The Cash-Flow Fund
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
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9
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
1100318
10
adversely 
affected 
the 
limited 
liability 
companies' 
subsequent
ability to perform under the loan agreement.
2. Permanent Financing
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, a
Capmark representative, and specifically addressed the letter
and the issue of permanent financing.  Liska responded that
the letter was  a standard 12-month notice that is 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." Capmark never provided the limited liability
companies with permanent financing. 
1100318
Section 2.05(f) of the loan agreement provides: 
3
"Mandatory Performance Test Paydown. On each
Performance Test Date the Property shall be required
to meet the following performance tests (each, as
applicable, a 'Performance Test'): the Debt Service
Coverage Constant Ratio on a trailing three (3)
month basis shall be no less than (i) 1.00:1.00 on
the 
first 
(1st) 
Performance 
Test 
Date, 
(ii)
1.07:1.00 on the second (2nd) Performance Test Date,
and (iii) 1.15:1.00 on the third (3rd) Performance
Test Date.  In the event the Property does not meet
the Performance Test for the applicable Performance
Test Date, Borrower shall, within ten (10) days of
written demand therefor, pay to Lender the amount,
as reasonably determined by Lender, which is
necessary to be applied to the outstanding principal
balance of the Loan in order for the Property to
meet the immediately preceding Performance Test
(such 
amount, 
a 
'Mandatory 
Performance 
Test
Paydown'), together with the Exit Fee due upon the
prepayment made with such Mandatory Performance Test
Paydown.  Failure by Borrower to deliver the
Mandatory Performance Test Paydown within ten (10)
days of written demand therefor shall be an Event of
Default hereunder." 
11
3. The Performance Test
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.  
 
Martin 
stated 
that 
the
3
performance test was based on a "complete fiction" because, he
says, the interest rate applied by Capmark had no relevancy to
1100318
12
the then current markets.  Martin testified that the interest
rate applied by Capmark for the performance test was an
artificially high 8% when the then current interest rate was
closer to 3%.  Martin stated that Capmark essentially invented
a default and then demanded, pursuant to the pay-down clause
in the loan agreement, that the limited liability companies
reduce the principal balance of the loan by $2,237,487.11. The
limited liability companies protested and, according to
Martin, Capmark initially represented that the demand letter
was merely a formality and that a loan modification could be
"worked out." On March 9, 2010, Capmark and the limited
liability companies entered into a prenegotiation agreement
pursuant to which the parties agreed to participate in good-
faith discussions concerning the status of the loan and a
possible modification or other resolution.  The agreement
provided that either party had the right to terminate the
"work-out" discussions upon written notice to the other party
specifying the effective date of the termination of the
discussions.  
However, RGR states that the Capmark representative with
whom they had been working was replaced and that the
1100318
13
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.  
Capmark contends that the limited liability companies are
in default of section 11.01(t) of the loan agreement for
failing to make the mandatory pay down of principal on the
loan.  Capmark further alleges that the limited liability
companies ceased making the monthly debt-service payments on
the loan in April 2010, which constitutes a default under
section 11.01(a) of the loan agreement.  Additionally, Capmark
alleges that the loan matured on October 1, 2010, and that the
limited liability companies did not repay the loan at that
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14
time, which constitutes a default of the loan agreement under
section 11.01(c) 
4. The Guaranty
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:
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15
"The Loan in this case was offered to the
Borrowers as Capmark non-recourse interim loan
structure.  I assisted in preparing, and signed,
with approval from Capmark's New York office, the
Loan application. ... The non-recourse paragraph on
page 3 of the Loan application reflects the general
non-recourse 
structure 
and 
the 
'carve-out'
conditions of the non-recourse provisions for the
Capmark loan.
"I never asked Mr. Martin or Mr. Randall to
provide an unconditional guaranty of the Loan.
Moreover, no one from Capmark, including the Capmark
credit committee, ever asked me to even discuss with
Mr. Martin or Mr. Randall the possibility of
unconditionally guarantying the Loan.  Furthermore,
if an unconditional guarantee was a condition to the
Loan's final approval, I was specifically not
informed of this material change and have no
knowledge of any discussions internally at Capmark
relating to the change in question.  In fact, to the
best of my knowledge and belief, the non-recourse
structure, without unconditional 
personal 
guarantees
(with the exception of the standard 'carve-out'
matters), was specifically offered, structured, and
priced in the interest rate for this Loan.
"....
"As I was not involved in the preparation,
review, negotiations or execution of the loan
documents, I have no knowledge regarding whether, or
how, a signature for Mr. Martin or Mr. Randall would
be found on a Full Payment and Performance Guaranty.
Such a guaranty would not be consistent with the
transaction 
that 
Capmark's 
underwriting 
group
presented to me and I, in turn, presented to Messrs.
Martin and Randall."
1100318
16
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 June 25, 2010, Capmark sued RGR alleging that the
limited liability companies were in default of the loan
agreement and sought the appointment of a receiver for the
apartment complexes that served as collateral for the loan.
Additionally, Capmark sought certain injunctive relief and
asserted breach-of-contract claims against RGR, for which it
sought the amounts allegedly due under 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-
1100318
RGR made no argument in this motion as to the lack of "an
4
adequate remedy at law" prong of the test for a preliminary
injunction.  Also, RGR made no argument in the motion
regarding the "likelihood of success on the merits" of  its
fraud claims.  See discussion of Holiday Isle, LLC v. Adkins,
12 So. 3d 1173 (Ala. 2008), in "Standard of Review," infra.
17
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;  and
4
that the hardship imposed upon it by the foreclosure would
unreasonably outweigh any hardship to Capmark caused by
granting the injunctive relief.  RGR also argued that it was
1100318
18
entitled 
to 
certain 
equitable 
relief, 
including 
the
reformation of the loan documents. 
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: 
"This Court, having 
considered 
[RGR's] 
Motion 
to
Prevent Foreclosure Scheduled for December 8, 2010,
and/or for Preliminary Injunction, along with the
pleadings, 
supporting 
arguments, 
exhibits, 
and
related documents, makes the following preliminary
findings:
"1. Without an injunction preserving the status
quo with regard to said foreclosure, [RGR] will
suffer immediate and irreparable injury, including,
but not limited to, damage to [its] ongoing
business, damage to [its] reputation, damage to
[its] relationship with [its] tenants, and loss of
[its] equity in the Project.
"2. The injunction is necessary because, in
light of the foregoing items of damage, [RGR has] no
adequate remedy at law.
1100318
The issuance of a preliminary injunction is an appealable
5
order. See 4(a)(1)(A), Ala. R. App. P.
19
"3. 
[RGR 
has] 
demonstrated 
a 
reasonable
likelihood of success on the merits of this case,
including, without limitation, (i) proving that
Capmark breached its agreement to fund a $300,000
cash flow fund; (ii) proving that Capmark breached
its agreement to provide permanent financing; and
(iii) proving that Capmark engaged in inequitable
conduct such that it has unclean hands and is
prevented from relying on equitable remedies.
"4. The hardship suffered by [RGR], should the
injunction not issue, will be much greater than any
hardship experienced by Capmark if the request for
injunctive relief is in fact granted.  Indeed, this
Court has previously determined that the Project is
being properly preserved, well managed, and is not
being subjected to any waste."
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.5
Standard of Review
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:
"We have often stated: 'The decision to grant or
to deny a preliminary injunction is within the trial
1100318
20
court's sound discretion. In reviewing an order
granting 
a 
preliminary 
injunction, 
the 
Court
determines whether the trial court exceeded that
discretion.' SouthTrust Bank of Alabama, N.A. v.
Webb–Stiles Co., 931 So. 2d 706, 709 (Ala. 2005).
"....
"To the extent that the trial court's issuance
of a preliminary injunction is grounded only in
questions of law based on undisputed facts, our
longstanding rule that we review an injunction
solely to determine whether the trial court exceeded
its discretion should not apply. We find the rule
applied by the United State Supreme Court in similar
situations to be persuasive: 'We review the District
Court's legal rulings de novo and its ultimate
decision to issue the preliminary injunction for
abuse of discretion.' Gonzales v. O Centro Espirita
Beneficente Uniao do Vegetal, 546 U.S. 418, 428, 126
S.Ct. 1211, 163 L.Ed.2d 1017 (2006); see also
Justice Murdock's special writing while sitting as
a judge on the Court of Civil Appeals in City of
Dothan v. Eighty–Four West, Inc., 871 So. 2d 54, 60
(Ala. Civ. App. 2003) (Murdock, J., concurring
specially on application for rehearing) (cited with
approval in McGlathery v. Richardson, 944 So. 2d
968, 970 (Ala. Civ. App. 2006))."
12 So. 3d at 1175–76.
Discussion
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
1100318
21
preliminary injunction should be issued only when the party
seeking an injunction has established
"'"(1) that without the injunction the
[party] would suffer irreparable injury;
(2) that the [party] has no adequate remedy
at law; (3) that the [party] has at least
a reasonable chance of success on the
ultimate merits of his case; and (4) that
the hardship imposed on the [party opposing
the 
preliminary 
injunction] 
by 
the
injunction would not unreasonably outweigh
the benefit accruing to the [party seeking
the injunction]."'
"Ormco Corp. v. Johns, 869 So. 2d 1109, 1113 (Ala.
2003) (quoting Perley v. Tapscan, Inc., 646 So. 2d
585, 587 (Ala. 1994))."
Adkins, 12 So. 2d at 176.  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).  
A. Likelihood of Success on the Merits
1100318
RGR asserted two counts of breach of contract in its
6
counterclaim against Capmark.  In the first count, RGR alleged
that Capmark breached its agreement to provide the limited
liability companies $300,000 in cash-flow funding.  In the
second count, RGR alleged that the limited liability companies
had a prenegotiation agreement with Capmark to participate in
good-faith discussions regarding the status of the loan and
that Capmark breached this agreement by exercising remedies
under the loan documents without first terminating the
prenegotiation agreement in writing.  However, in support of
its motion for a preliminary injunction, RGR argued that it
had a reasonable likelihood of success on its claim alleging
a breach of the agreement to provide $300,000 in cash-flow
funding and, rather than arguing that it had a reasonable
likelihood of success on its claim alleging a breach of the
prenegotiation agreement, RGR argued that Capmark had breached
an agreement to convert the loan from construction financing
to permanent financing.  Following a hearing on the motion for
a preliminary injunction, a transcript of which is not
contained in the record, the trial court found that RGR had
established a reasonable likelihood of success on the merits
of its breach-of-contract claim alleging a breach of the
agreement to provide permanent financing.  On appeal, the
parties have framed the issue as being whether RGR had
sufficiently demonstrated that it had a reasonable likelihood
of success on the merits of its breach-of-contract claim
alleging a breach of the agreement to provide permanent
22
Breach-of-Contract Claims
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."  In order to recover on a
6
1100318
financing.  Although it is not entirely clear from the record,
it appears that RGR has abandoned its breach-of-contract claim
alleging a breach of the prenegotiation agreement and amended
its pleadings pursuant to Rule 15, Ala. R. Civ. P., to assert
the claim alleging a breach of an agreement to provide
permanent financing.  Accordingly, we will analyze this
element of the preliminary injunction based on the alleged
breach of the agreement to provide permanent financing.   
23
breach-of-contract claim, a party must establish: (1) the
existence of a valid contract binding the parties; (2) the
plaintiff's 
performance 
under 
the 
contract; 
(3) 
the
defendant's nonperformance; and (4) damages.  Reynolds Metals
Co. v. Hill, 825 So. 2d 100, 105 (Ala. 2002).  Capmark argues
that RGR cannot establish the existence of a valid agreement
obligating Capmark to provide cash-flow funding of $300,000
and to provide permanent financing.
1. Alleged Cash-Flow-Funding Breach
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
1100318
24
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 cash-flow 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.
1100318
25
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 cash-
flow 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.  
"[A]ny contract must express all terms essential to
the transaction with definiteness sufficient to
enable a court to enforce the parties' agreement.
White Sands Group, L.L.C. v. PRS II, LLC, 998 So. 2d
1042, 1051 (Ala. 2008).  '"[A] contract that
'"leav[es] 
material 
portions 
open 
for 
future
agreement 
is 
nugatory 
and 
void 
for
indefiniteness."'"'  Id. (quoting Miller v. Rose,
138 N.C. App. 582, 587-88, 532 S.E.2d 228, 232
(2000), quoting in turn MCB Ltd. v. McGowan, 86 N.C.
App. 607, 609, 359 S.E.2d 50, 51 (1987))."
1100318
26
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:
"Entire 
Agreement; 
Modifications; 
Time 
of
Essence. This Loan Agreement, together with the
other 
Loan 
Documents, 
contain[s] 
the 
entire
agreement between Borrower and Lender relating to
the Loan and supersede[s] and replace[s] all prior
discussions, representations, communications and
agreements (oral or written).  If the terms of any
of the Loan Documents are in conflict, this Loan
Agreement shall control over all of the other Loan
Documents unless otherwise expressly provided in
such other Loan Document.  No Loan Document shall be
modified, 
supplemented or terminated, nor any
provision thereof waived, except by a written
instrument 
signed 
by 
the 
party 
against 
whom
enforcement thereof is sought, and then only to the
extent expressly set forth in such writing.  Time is
of the essence with respect to all of the Borrower's
obligations under the Loan Documents."
(Emphasis added.)  This Court has stated the following with
regard to merger clauses:
"A merger clause creates 'a presumption that the
writing represents an integrated, that is, the final
and complete, agreement of the parties.' Ex parte
Palm Harbor Homes, Inc., 798 So. 2d 656, 660 (Ala.
2001). A merger clause invokes the parol evidence
rule, which precludes a court from considering
extrinsic evidence of prior or contemporaneous
1100318
27
agreements 
in 
order 
to 
'change, 
alter, 
or
contradict' the terms of the integrated contract.
Palm Harbor Homes, 798 So. 2d at 660.
"A merger clause, however, does not bar evidence
of contemporaneous collateral agreements between the
parties. See Alabama Elec. Coop., Inc. v. Bailey's
Constr. Co., 950 So. 2d 280, 288 (Ala. 2006) ('"'It
is only when the instrument shows that it does not
contain all the terms of the contract as to both
parties to it that evidence may be offered to show
further stipulation than those expressed, unless it
is proposed to prove an engagement independent of
and collateral to the matters embraced in such
written instrument.'"' (quoting Hartford Fire Ins.
Co. v. Shapiro, 270 Ala. 149, 153, 117 So. 2d 348,
352 
(1960), 
quoting 
in 
turn 
Woodall 
v.
Malone-Harrison Motor Co., 219 Ala. 366, 368, 122
So. 357, 358 (1929) (emphasis added in Shapiro)));
and Southern Guar. Ins. Co. v. Rhodes, 46 Ala. App.
454, 459, 243 So. 2d 717, 721 (1971) ('This
[merger-clause] 
principle 
does 
not 
prohibit
negotiation of more than one agreement at the same
time.... If such agreements are clearly collateral,
separate and distinct as to subject matter there is
no 
problem 
presented. 
They 
are 
two 
separate
contracts and are to be considered as such.')."
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:
"In Hartford Fire [Insurance Co. v. Shapiro, 270
Ala. 149, 117 So. 2d 348 (1960)], this Court quoted
various tests used by other courts to determine
whether an agreement is collateral and therefore
1100318
28
outside the scope of a merger clause. The Court
quoted Mitchill v. Lath, 247 N.Y. 377, 160 N.E. 646
(1928), 
a 
'leading 
case,' 
which 
gave 
three
requirements for an agreement to be beyond the scope
of a merger clause: '"(1) The agreement must in form
be a collateral one; (2) it must not contradict
express or implied provisions of the written
contract; (3) it must be one that parties would not
ordinarily be expected to embody in the writing."'
Hartford Fire, 270 Ala. at 154, 117 So. 2d at 353
(quoting Mitchill v. Lath, 247 N.Y. at 381, 160 N.E.
at 647). The Court also quoted Professor Wigmore, IX
Wigmore, Evidence § 2430, 98 (3d ed.): '"This intent
[to form a collateral agreement] must be sought
where always intent must be sought ..., namely, in
the conduct and language of the parties and the
surrounding circumstances."' 270 Ala. at 154, 117
So. 2d at 353. In Southern Guaranty [Insurance Co.
v. Rhodes, 46 Ala. App. 454, 243 So. 2d 717 (1971)],
the Court of Civil Appeals looked to the 'conduct
and language of the parties, the surrounding
circumstances and the written instrument' in order
to determine 'whether it was the intent of the
parties that the written instrument embody all of
the prior negotiations ... or whether ... it was
intended there be an additional, collateral and
separate oral agreement.' 46 Ala. App. at 459, 243
So. 2d at 721. That court also looked to the
Mitchill test to evaluate the collateral nature of
the agreements.
"We held in Alabama Electric Cooperative[, Inc.
v. Bailey's Construction Co., 950 So. 2d 280 (Ala.
2006),] 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.' 950 So. 2d at 289. The oral
agreement 'was one the parties would naturally have
included in the written agreement.' 950 So. 2d at
289. Similarly, we held in Hartford Fire that an
oral agreement to insure was not collateral to an
1100318
29
insurance policy because it was 'closely bound to
the written one, and no doubt intended to be made
part and parcel thereto.' 270 Ala. at 155, 117 So.
2d at 354. The Court of Civil Appeals held in
Southern Guaranty that the oral agreement to insure
met none of the three factors of the Mitchill test
and, therefore, was not a collateral agreement."
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
1100318
Assuming the alleged agreement obligating Capmark to
7
provide the limited liability companies cash-flow funding was
a separate and collateral agreement definite in terms, we
conclude that, based on the evidence contained in the record
and the arguments presented by the parties' on appeal, such an
alleged agreement would violate § 8-9-2(7), Ala. Code 1975,
and would be unenforceable.  However, because we have
concluded that RGR has not established the existence of a
separate and contemporaneous agreement, we need not address
this issue in detail. 
30
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.   Every aspect of the
7
parties' agreement is embodied in the numerous loan documents,
1100318
31
including the loan agreement, which alone exceeds 70 pages.
Considering the requirement in § 8-9-2(7) that agreements to
lend money in excess of $25,000 be evidenced by a writing, the
fact that the parties had evidenced every other aspect of
their agreement in writing, and the closely related nature of
the loan documents and the alleged agreement to provide cash-
flow funding, the alleged agreement obligating Capmark to
provide $300,000 in cash-flow funding is one the parties would
"ordinarily be expected to embody in the writing." Ritter, 973
So. 2d at 1062. 
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
cash-flow funding.
2. Alleged Permanent-Financing Breach
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
1100318
32
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." 
1100318
33
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 to provide the limited liability
companies permanent financing.
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
1100318
As stated above, RGR also asserted fraud claims in its
8
counterclaim.  However, in its motion for a preliminary
injunction RGR offered little to no argument that it had a
reasonable likelihood of success on the merits of its fraud
claims.  In the trial court's order granting the preliminary
injunction, an order drafted by RGR, the trial court made no
finding as to the reasonableness of RGR's likelihood of
success on the merits of the fraud claims.  We, as an
appellate court, cannot address this question without the
trial court in the first instance having ruled upon the issue.
See Smith v. Smith, 928 So. 2d 287 (Ala. Civ. App. 2005)
(holding that a trial court should not be held in error for
matters that it neither ruled upon nor was provided the
opportunity to rule upon).
34
RGR had demonstrated a reasonable likelihood of success on the
merits of its underlying breach-of-contract claims is not
supported by the evidence,  and we hold that the trial court
8
exceeded its discretion in issuing the preliminary injunction.
Having determined that RGR has failed to establish a
reasonable likelihood of success on the merits of its breach-
of-contract claims, it is unnecessary for this Court to
determine whether RGR has proven the remaining elements
necessary to 
entitle it to a preliminary injunction.
Therefore, we pretermit any discussion of those issues.
 B. Unclean Hands
RGR alleged and the trial court found that RGR had
demonstrated a reasonable likelihood of success on the merits
1100318
35
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.
Conclusion
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
1100318
36
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 above-mentioned
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.