United California Bank v. Prudential Insurance Co. of America

Citations: 681 P.2d 390; 140 Ariz. 238; 1983 Ariz. App. LEXIS 699Docket: 1 CA-CIV 5135, 1 CA-CIV 5495

Court: Court of Appeals of Arizona; September 1, 1983; Arizona; State Appellate Court

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The case involves United California Bank (UCB) and HRP Hotel Company (HRP) suing Prudential Insurance Company of America (Prudential) over Prudential's refusal to fund a $25,500,000 permanent loan for the Hyatt Regency Hotel project in Phoenix. UCB served as the interim construction lender while Prudential was expected to provide the permanent financing. The trial court's interpretation of the agreements between the parties is under review. The litigation involved extensive proceedings, including multiple motions for partial summary judgment, two court trials, and one jury trial, totaling 76 days of hearings. A significant amount of documentary evidence and testimony was presented throughout the case. Key legal issues include Prudential's obligations under the loan agreements and the implications of anticipatory repudiation. The document outlines various phases of the trial and the claims made by the parties, as well as the procedural history leading up to the appeals.

The parties involved in the litigation held fundamentally opposing views regarding the applicable law and the evidence presented, necessitating extensive examination of testimony transcripts and legal research. Prudential characterized the case as "bulkier than it is difficult," while HRP described it as "protracted and hard fought," indicating significant advocacy and effort from both sides. Ultimately, liability was determined against Prudential, resulting in a damages award of $10,494,000 to HRP for its loss of equity in the Hotel, along with attorneys' fees of $863,250. UCB received nominal damages of one dollar and attorneys' fees of $163,550, and is entitled to approximately half of HRP's damages due to an agreement made during the trial. Prudential has appealed the trial court’s judgment, which has been affirmed.

The background involves Sam Shapiro's establishment of HRP in the late 1960s for the development of a luxury hotel in downtown Phoenix, following the purchase of a site for $1,975,000. In 1973, Prudential presented HRP with a loan application for a $24,500,000 loan secured by the proposed hotel. The application included a standard form with attached conditions but left several sections blank, including information on a "present first mortgage," which was not applicable since the hotel had yet to be constructed. After negotiations, HRP submitted the executed application along with a service charge payment and a non-refundable standby fee. The application was signed by Shapiro, and preliminary processing steps were indicated by Prudential's representative.

On October 25, 1973, Prudential issued a permanent loan commitment of $24,500,000 to HRP through a commitment letter signed by its Associate General Manager, Mark F. Smith. The letter included an application rider with modified conditions, although the original two-page loan application was not attached. Key terms of the loan included a 9.5% interest rate, a 360-month term, and monthly payments of $206,045 for principal and interest. The offer was personal and non-transferable without Prudential's consent and would expire if not accepted within 10 days.

HRP accepted the offer on October 31, 1973. Among the 34 conditions in the application rider was the requirement for an ALTA title insurance policy, ensuring the lien of the Deed of Trust as a first encumbrance, and that the security not have subordinate liens unless approved by Prudential. The commitment letter did not specify that Prudential’s deed of trust would have "first mortgage" priority. The conditions of the commitment letter included significant changes from the original application, such as the deletion of a requirement for Prudential to collaborate with Valley National Bank on the construction loan, and the introduction of a requirement for HRP and acceptable equity investors to invest $8,500,000 in the hotel project. Additionally, terms regarding the "Prepayment Privilege" were also substantially altered.

On February 19, 1975, Prudential and HRP amended a previous mortgage loan offer from October 25, 1973, specifically altering conditions 6 and 9. Condition 6 now requires Prudential to receive an affidavit confirming no liens or security interests exist on furnishings or fixtures related to the security, except as allowed under Condition 9. Condition 9 establishes that Prudential will hold a first lien on all furnishings, fixtures, and equipment owned by the applicant and located on the security, with the applicant responsible for providing fire insurance and a current inventory evidencing full payment and absence of liens. If titles to these items are not vested in the applicant at closing, the security interest will attach upon their acquisition. Additionally, the applicant may lease certain furniture and equipment up to $2,000,000 for ten years, with provisions allowing Prudential to cure lease defaults or purchase the equipment, and stipulating that lease defaults will constitute defaults under the Deed of Trust. Proceeds from the sale of limited partnership interests must be applied to prepay the lease obligation. Prudential's commitment letter mandated that HRP start construction within six months, which did commence in December 1973. The financing process involved an initial construction phase funded by HRP before securing interim financing. According to A.R.S. 33-992, mechanics' and materialmen's liens have priority based on the construction start date, potentially complicating the priority of Prudential's deed of trust due to HRP's early construction activities. By early 1975, HRP had completed 20 stories, investing over $6,000,000 of its own funds.

HRP sought a construction loan from UCB, leading to the execution of the Five-Party Agreement on May 2, 1975, involving HRP, UCB, and Prudential. Under this agreement, UCB would provide construction financing, while Prudential consented to assign its loan proceeds to UCB contingent upon HRP fulfilling specific obligations outlined in the agreement. The obligations included a mortgage loan commitment from Prudential to HRP for $25.5 million, secured by a Trust Deed on the Hotel Property and a first lien on HRP's rights related to the Parking Facility. The agreement incorporated the commitment letter and its amendments as Exhibit C, along with additional exhibits detailing legal descriptions of the properties, a loan agreement with Nametco Corp., and an acknowledgment from Prudential regarding the conditions of the commitment. 

During negotiations, all parties recognized that construction had begun prior to securing the interim or permanent loan, which could result in mechanics' and materialmen's liens taking precedence over later recorded encumbrances. To address this issue, UCB sought assurances regarding their and Prudential's first lien positions. Arizona Title Insurance and Trust Company agreed to issue title insurance policies protecting UCB and Prudential against potential priority issues, contingent upon receiving an indemnity agreement from HRP's general partner and reinsurance from reputable title insurance companies. Prudential preapproved a title insurance policy on May 1, 1975, confirming that its issuance would meet a specified condition of the commitment letter, allowing loan proceeds to be disbursed once the title policy was issued.

HRP paid title insurance premiums for policies covering both interim and permanent loans, including protection against mechanics' and materialmen's liens, in 1975 before the interim loan closed. These policies were preapproved by Prudential, and HRP executed several collateral loan documents, including a deed of trust asserting that the title to the property was clear. HRP agreed to a construction loan of $25,500,000 with UCB, which was secured by a deed of trust intended to be insured as a first lien on the property, although Prudential was not a party to this agreement. HRP committed to providing a title insurance policy satisfying UCB's requirements and to notifying UCB of any mechanics' or materialmen's liens, which HRP would be obligated to discharge upon UCB's demand. Disputes among HRP, the general contractor, and subcontractors led to approximately $7,000,000 in mechanics' and materialmen's liens being filed against the Hotel shortly after it opened in January 1976, with the unduplicated total estimated at about $2,900,000. HRP hesitated to bond against the liens due to the high bonding requirement despite the lower actual lien total.

UCB contended that HRP was required under the construction loan agreement to either provide a bond or settle lien claims to facilitate the loan transfer to Prudential. UCB reminded HRP of its obligation to complete the project free of liens by March 31, 1976, to enable Prudential's loan funding. Due to HRP's intention to dispute subcontractor billings, UCB emphasized the importance of securing bonds to avoid default. On November 8, 1976, representatives from HRP, UCB, and Prudential convened to address the pending requirements of an expiring commitment letter. Prudential asserted its entitlement to a "first mortgage" and indicated it would not fund the permanent loan until all mechanics' liens were resolved. Although construction was nearing completion and UCB had funded nearly the entire $25,500,000 loan, Prudential extended the loan closing deadline to June 30, 1977. On February 8, 1977, HRP and UCB presented evidence of compliance with the commitment letter, which Prudential rejected, claiming non-compliance. UCB subsequently sought a declaratory judgment, asserting that Prudential was obligated to fund the loan, with HRP later joining the action. A final attempt to satisfy the commitment terms on June 30, 1977, was again met with refusal from Prudential due to outstanding mechanics' liens. UCB completed foreclosure on January 18, 1978, assuming ownership of the Hotel, while HRP lost its stake. The litigation proceeded to trial, culminating in an August 29, 1979, judgment favoring UCB and HRP. Key issues included whether the loan application was incorporated into the commitment letter and whether Prudential was entitled to an in-fact first lien. The trial court ruled that the commitment letter was unambiguous and did not incorporate the loan application.

Pending motions addressed whether Prudential was entitled to an actual first lien or merely a title insurance policy insuring a first-lien position. On November 4, 1977, the trial court denied these motions but granted partial summary judgment, ruling that the loan application was not incorporated by reference in Prudential's commitment letter. The parties on appeal disagree on whether this determination was made as a matter of law in the summary judgment or as a matter of fact after trial. HRP and UCB argue it was a factual determination made at trial, while Prudential contends it was a legal ruling from the summary judgment.

Before the trial of Phase I, Prudential submitted a trial memorandum asserting its right to an actual first mortgage based on the original loan application and related documents executed on May 2, 1975. Prudential argued that the borrower first promised a first mortgage and then agreed to insure it with a title insurance policy. The memorandum posed a rhetorical question to HRP and UCB regarding the validity of Prudential's lien on fixtures relative to the structure and ground, suggesting their interpretation was flawed.

In a joint pretrial statement, Prudential identified contested issues, including whether the loan commitment letter incorporated the loan application and if all parties understood Prudential's entitlement to an actual first mortgage lien as a condition for funding. Prudential maintained its right to a trial on the incorporation issue despite the earlier court ruling. A five-day trial began on December 13, 1977, focused on whether Prudential was entitled to an actual first lien or merely an insured first lien under the commitment letter.

Before the trial, the court determined that Condition 2 of the Commitment letter was unambiguous, requiring an insured first position rather than an actual first position. The court had already addressed the incorporation of the loan application into the commitment letter and the implications of Condition 2, but the Phase I trial was primarily focused on whether Condition 9 granted Prudential an in-fact first lien on the Hotel. Despite objections from UCB and HRP, the trial court allowed the loan application and several related documents to be admitted as evidence. Witnesses testified about the loan application, its connection to the commitment letter, and other agreements, as well as their understanding of the "first mortgage" provision and the relevant conditions.

After the trial, Prudential proposed findings suggesting that the loan application should be interpreted as part of the commitment letter, asserting that the lack of physical attachment did not preclude incorporation by reference, given the shared subject matter. Prudential contended that if the October 25, 1973 commitment letter did not alter the September 21, 1973 loan application agreements, those agreements were implicitly included in the commitment letter.

The trial court, however, rejected Prudential's proposed findings. Prudential then filed a motion for judgment, arguing that the determination of its entitlement to an actual first mortgage lien was not solely dependent on Conditions 2 or 9 and emphasized the relevance of the loan application and related agreements from 1975. On March 24, 1978, the court issued formal findings concluding that the loan application dated September 21, 1973 was not incorporated by reference into the commitment letter dated October 25, 1973.

The court determined that Prudential's commitment letter did not grant it a first lien on the Hotel but only a deed of trust insured as a first encumbrance. By May 2, 1975, Prudential was aware that unresolved mechanics' or materialmen's liens would take priority over any deed of trust filed later. The collateral loan documents associated with the Five-Party Agreement did not impose additional conditions on Prudential’s obligation to fund its loan. Prudential was required to fund the loan within 15 days after meeting the commitment letter’s conditions, showing reliance on title insurance for protection against liens. The court found that any ambiguity in the commitment letter would be construed against Prudential, confirming that it was not entitled to an in-fact first lien. Prudential’s argument that condition 9 of the commitment letter entitled it to an actual first lien was rejected, as that condition pertained only to personal property. Ultimately, the existence of mechanics' liens did not relieve Prudential of its obligation to fund the loan. Prudential later sought a declaratory judgment from the Arizona Supreme Court for a "first mortgage lien position," but the court declined jurisdiction. In subsequent jury trials, HRP and UCB prevailed, with findings that Prudential's demand for an in-fact first lien constituted an anticipatory breach and that HRP's ability to perform the contract conditions did not require actual performance. HRP's damages were assessed at $10,494,000, and UCB was awarded nominal damages of $1.00 plus costs and attorneys' fees in the final phase. Prudential filed a 46-page appeal brief, while HRP and UCB collaborated through a master settlement agreement during the trial proceedings.

HRP and UCB submitted separate yet effectively joint appellee's answering briefs, each approximately 50 pages long, addressing different issues raised by Prudential. Both parties adopted each other's briefs by reference, resulting in a combined length exceeding the permitted limit for joint briefs. Prudential criticized this approach as "cutesiness" but did not object or move to strike the briefs prior to oral argument. The court disapproved of the strategy of splitting issues and filing separate briefs without prior approval. 

Prudential's appeal challenges the judgment favoring UCB and HRP, raising five issues related to the trial court's determinations regarding the nature of the lien on the Hotel, the characterization of Prudential's actions as an anticipatory breach, the obligation to fund the loan despite HRP's insolvency, questions involving attorney-client privilege, and the measure of damages applied. Prudential argues that a reasonable lender would require a first lien, while the trial court concluded that the relevant contract documents did not support Prudential's claim for an in-fact first lien and that its refusal to fund constituted an anticipatory breach.

UCB and HRP filed cross-appeals, with HRP's appeal specifically addressing its entitlement to prejudgment interest. The court noted that the commitment letter and related documents formed an integrated contract, which did not include the initial loan application’s first mortgage provision, thus affirming the trial court’s findings.

The primary issue in this appeal is whether Prudential had the right to demand that the property be free of liens, in addition to the conditions outlined in the commitment letter, at the time of closing the permanent loan. UCB and HRP argue that Prudential was only entitled to a title insurance policy confirming its deed of trust as a valid first lien. A key determination is whether the commitment letter incorporates the two-page loan application by reference, as ruled by the trial court. If incorporation is not found, the court must evaluate the nature of the Phase I trial and whether the trial court's finding—that Prudential was entitled only to a deed of trust insured as a first lien—was supported by the evidence.

Prudential’s appeal asserts that the language in Condition 2 of the commitment letter does not require a first encumbrance but merely a title insurance policy. A prior communication from Prudential asserted that the title insurance policy's requirement would be satisfied by a specific policy. Prudential claims no conditions in the commitment expressly promised a first mortgage, arguing that the "first mortgage provision" in the loan application was incorporated by reference into the commitment letter. Prudential contends that HRP's commitment to providing a "first mortgage" was understood by both parties and confirmed by collateral documents. They assert that the trial court erred by excluding this promise from the contract and that the language of the commitment letter is clear and unambiguous regarding the incorporation of the loan application terms. Prudential seeks to reverse the trial court's decision and have judgment entered in its favor.

The interpretation of contracts is primarily a legal question, with case law establishing that the language of a commitment letter must be clear and unambiguous. In this case, the trial court determined that Prudential's commitment letter from October 25, 1973, did not incorporate the loan application by reference, despite the letter referencing conditions outlined in application riders attached to the loan application dated September 21, 1973. The commitment letter explicitly includes the application riders but refers to the loan application solely for identification purposes. Conditions 1 through 34 in the commitment letter do not promise a first mortgage on the property, which is only stated in a separate loan application. The trial court affirmed that the commitment letter is clear and does not incorporate the loan application, following the principle that if a contract’s meaning can be determined from its own language without ambiguity, extraneous documents are irrelevant. Disagreements between parties regarding contract language do not create ambiguity. Additionally, contract interpretation follows the Restatement of Contracts, focusing on how a reasonably intelligent person would understand the language in light of all relevant circumstances.

Ambiguities in a contract are interpreted against the drafter only after primary interpretation methods have failed to clarify the meaning. A document may be incorporated by reference without physical attachment or specific language, provided there is clear intent to include it as part of the contract. If determining incorporation requires speculation, the court will not rewrite the contract. Courts rely on the plain meaning of words in context when interpreting contracts, asserting that a clause cannot be deemed ambiguous solely because it may have multiple interpretations in isolation. Past cases, such as *Industrial Commission v. Arizona Power Co.* and *Climate Control, Inc. v. Hill*, established that language referring to another document can incorporate its terms into the contract. However, such references must be for specific purposes, as indicated in the contract, and do not allow for open-ended incorporation. A precedent from *Short v. Van Dyke* illustrates that a reference for a particular purpose does not extend to incorporating a document beyond that specified purpose.

A written contract may incorporate another document if the reference clearly indicates an intent to include its contents as part of the agreement; otherwise, it is only considered part of the contract for a specified purpose. References made solely for descriptive purposes, as demonstrated in *Frierson v. International Agricultural Corp.*, do not incorporate prior agreements into a new contract. The court emphasized that the intention of the parties, expressed in the later agreement, determines whether a subsequent contract is independent or related to prior agreements. In this case, the language of the October commitment letter did not demonstrate a clear intention to incorporate the September loan application, as the reference served merely to identify conditions attached to the commitment letter. Furthermore, the lack of a physical attachment to the loan application supports this interpretation. Prudential's argument for automatic incorporation of prior writings based on any reference was countered by the court's observation that previous cases, like *Crabtree v. Elizabeth Arden Sales Corp.*, addressed specific statutory concerns not present here. The conditions of the loan application had been modified significantly before being attached to the commitment letter, reinforcing the notion that references to the loan application were historical rather than integrative.

Prudential claims that a clause from the loan application, specifically the "first mortgage" clause, is incorporated into the commitment letter, but does not assert that any other critical provisions from the loan application are missing from the commitment letter. Even if Prudential could prove that the incorporation clause is ambiguous, such ambiguity would be interpreted against Prudential as the drafter. The determination of ambiguity requires factual analysis of the parties' intent, which is the trial court's responsibility. Additionally, if a party asserts that its own ambiguous language functions as a condition precedent to performance, it must demonstrate that the parties intended to create such a condition at the time of contracting.

The trial court correctly concluded through partial summary judgment that the incorporation clause in the commitment letter is not ambiguous and does not incorporate the loan application. While the court ruled on the incorporation issue as a matter of law, it later permitted Prudential to present the loan application and evidence on the meaning of "first mortgage." Prudential contends that the ruling on the incorporation was purely legal, while HRP and UCB argue it was litigated and resolved after a full trial. The appeal must clarify this dispute, as both positions are supported by the case's procedural posture.

Confusion existed regarding the specific issues to be tried in Phase I of the trial, but not about the issues that were actually addressed. The trial court clarified that the focus was on interpreting Condition Two and Condition Nine from a commitment letter dated October 25, 1973, rather than on compliance with those conditions. The judge ruled that Condition Two was clear and required only a first-position insured status, without needing to reference other documents. However, after several days of testimony on Condition Nine and previously decided issues, the judge expressed doubts about the initial ruling on Condition Two, stating it might have been premature and acknowledging a belief that all parties had sought clarification on its ambiguity before the testimony began. 

The court's earlier ruling on partial summary judgment indicated that the loan application’s "first mortgage" provision was not incorporated into the commitment letter, yet it allowed evidence regarding the interpretation of "first mortgage" and its relevance to the overall transaction. The trial court examined the context of the loan application and subsequent sale of the hotel, referencing the case Smith v. Melson, Inc. Prudential did not claim any new evidence that could change the outcome of Phase I, and the court ultimately determined that Prudential was not entitled to a first lien and that the loan application was not intended to be part of the commitment letter. The judge ruled on incorporation as a partial summary judgment but later permitted testimony and exhibits related to Prudential's claims during Phase I, despite objections from HRP and UCB.

Prudential Insurance Company's motion for judgment sought a ruling that a loan application was incorporated into a commitment letter, but the trial court ruled against Prudential. On appeal, Prudential argued that this ruling was merely a partial summary judgment, a claim the court rejected. The affirmations of the trial court include that the commitment letter, dated October 25, 1973, contained thirty-four conditions and was accepted by National Properties on October 31, 1973. The findings noted that construction of the Hyatt Regency Phoenix Hotel began in December 1973 without interim financing recorded. The commitment letter was deemed clear regarding Prudential's entitlement, stating it was only entitled to a Deed of Trust insured as a first encumbrance, contrary to claims of a first lien in fact. The court determined that any ambiguity in the letter must be construed against Prudential since it drafted the document. Additionally, a written statement from Robert Wheeler on May 1, 1975, confirmed that an ALTA title insurance policy would satisfy one of the conditions of the commitment letter. Prudential also acknowledged in a May 2, 1975 agreement that the commitment letter was still effective, despite knowing that construction had begun and that any liens would take priority over the deed of trust. The court concluded that subsequent loan documents executed on May 2, 1975, did not impose additional conditions on Prudential's obligation to fund the permanent loan commitment.

The Prudential commitment letter dated October 25, 1973, accepted by National on October 31, 1973, is deemed a fully integrated contract between the parties. The letter is clear and unambiguous, mandating that National Properties or its nominee, HRP, provide Prudential with a Deed of Trust insured by a title insurance policy as a first encumbrance on the property securing Prudential’s loan. If ambiguity exists, it must be construed against Prudential, as it drafted the letter. The loan application form completed by National on September 21, 1973, was not incorporated into the commitment letter. The presence of mechanics and materialmen's liens does not alter Prudential's obligation to fund its loan commitment.

The scope of review follows Rule 52(a) of the Rules of Civil Procedure, stipulating that findings of fact can only be overturned if clearly erroneous, with deference to the trial court's credibility assessments. The Arizona Supreme Court's standard of appellate review requires that evidence supporting the trial court’s actions be viewed favorably to sustain its findings, without weighing conflicting evidence.

Relevant facts indicate no prior discussions between Prudential and HRP about the "first mortgage" provision before Mr. Sam Shapiro signed the loan application. While he read the application and expected to provide a "first mortgage," there were no discussions regarding the incorporation of the loan application into the commitment letter. Barry Shapiro testified that he referred to the Prudential permanent loan as a "first mortgage loan" to differentiate it from other mortgages, but the trial court is responsible for assessing the credibility of this testimony. When a contract's language allows for multiple interpretations, the court must consider the circumstances at the time of contracting to determine its meaning, ensuring a reasonable and probable construction of the contract.

The commitment letter executed by Prudential and HRP reflects their agreement at that time, with no claims from Prudential seeking to modify it to include the loan application or a "first mortgage" provision. When the Five-Party Agreement was executed, visible construction had commenced, which influenced UCB's decision regarding an interim construction loan. UCB would not have relied on a permanent loan commitment that required an actual first lien, as this could lead to mechanics' liens taking precedence over the mortgage. Prudential, by entering into the Five-Party Agreement and providing certain assurances to UCB, effectively relinquished any argument for insisting on an actual first lien. The contract interpretation indicates that Prudential was to receive a valid deed of trust insured as a first lien, relying on reinsured title insurance for protection. Prudential would have received what it bargained for if it had deposited the loan proceeds as per escrow instructions. The excerpt references the Arizona Supreme Court case Crone v. Amado, which found ambiguity in a construction contract due to external circumstances affecting the agreement's intent. In that case, the court deemed it implausible for a contractor to agree to a fixed price without having seen plans or specifications, especially during a time of material scarcity. Similarly, Prudential did not indicate during negotiations that it expected an actual first lien until significant changes in lending conditions and the filing of mechanics' liens occurred post-project completion, suggesting a shift in position rather than an original intent.

Prudential contends that the stipulation to "give a first mortgage" is a standard expectation in lending and thus does not require explicit mention, arguing it is unthinkable for a lender to issue a $25 million loan without a first lien. However, evidence presented at trial contradicts this assertion, indicating that title insurance covering a deed of trust as a first lien, alongside Prudential's restriction on secondary financing, is a recognized protective measure used by lenders in similar circumstances. The phrase "first mortgage" must be interpreted within the entire context of the loan application. When contextualized, its meaning becomes evident as the parties intended for Prudential to possess an insured first lien. Key terms regarding security are outlined in conditions 2 and 12 of the loan application, which were also included in the commitment letter. The interpretation of "first mortgage" in the loan application is clarified by condition 2, which is directly incorporated into the commitment letter, reflecting the parties' understanding up until the onset of the dispute in November 1976.

The interpretation of the agreement, as demonstrated by the parties' actions and conduct prior to any disputes, holds significant weight and should be upheld by the court. The parties' actions prior to the emergence of any conflicts provide the best insight into ambiguous contractual terms. This principle applies only to conduct occurring before disputes arise. The case shows that the loan application played a minor role between the commitment letter in October 1973 and the emergence of litigation in November 1976. References to "first mortgage" primarily appeared in letters from Barry Shapiro to potential investors, indicating the intention for Prudential to have a secured interest but not defining "first mortgage." The loan application was first mentioned over three years after the commitment letter was executed, just before Prudential claimed a right to an actual first lien on November 8, 1976, at which point Prudential's own counsel had not previously reviewed the loan application.

Prudential, represented by its attorney from Lewis and Roca, confirmed that it did not require a lien-free project. Prudential referenced a letter from Robert Fiddaman of UCB to support this position, although the letter pertained to an interim construction loan agreement between HRP and UCB, in which Prudential was not involved. UCB's agreement mandated a lien-free construction, but Fiddaman clarified that this requirement is specific to interim loans. The trial court found that neither the UCB agreement nor Fiddaman's letter could impose additional conditions on Prudential's commitment letter. 

The integration of agreements between HRP and Prudential, as well as UCB and Prudential, involves the loan application, commitment letter with rider, and the Five-Party Agreement. The commitment letter, which is an integrated contract, was executed in October 1973 and is supported by a modified rider. The Five-Party Agreement, executed in May 1975, is also an integrated contract, with Section 1.3 specifying Prudential's commitment includes documents attached as Exhibit C. This commitment concerns a permanent loan of $25,500,000 and defines security as a valid Trust Deed on the Hotel Property and other interests. The language used in both the commitment letter and the Five-Party Agreement supports the interpretation that an "in-fact first lien" on the Hotel was not intended. Condition 2 of the commitment letter requires the deed of trust lien to be insured, and Section 1.3 of the Five-Party Agreement specifies that Prudential's loan is to be secured by a valid Trust Deed on the Hotel Property.

Condition 9(a) of the commitment letter establishes that Prudential holds a valid first lien and security interest in all furnishings, fixtures, and equipment owned by HRP. Section 1.3 of the Five-Party Agreement specifies that the permanent loan is additionally secured by a valid first lien and security interest in HRP's rights and leasehold estates related to the Parking Facility, along with other collateral referenced in the Commitment. Both documents describe security on real property as a deed of trust without priority indication, while Prudential's security interest in other assets is explicitly termed a "valid first lien." 

Section 1.5 acknowledges UCB's commitment to lend $25,500,000 relying on the Commitment. Section 5.3 states that Prudential's sole obligation is to lend to HRP per the Commitment terms. The attachment of application riders as part of Exhibit C during the confirmation of terms indicates intent, while the absence of the loan application suggests it was not intended to be part of the commitment. The trial court's finding that there was no clear and unambiguous incorporation of the loan application by reference is supported by evidence. 

Contract law requires that for a document to be incorporated by reference, the reference must be clear, unequivocal, and known to the parties. Mere descriptive references do not suffice for incorporation. In this case, the distinction between a clear reference to critical components and a vague mention of the loan application indicates that the latter was not intended to be part of the commitment, further supported by the specific writings listed in the Five-Party Agreement that exclude the loan application.

The court rejected the defendant's request to consider letters exchanged with the Industrial Commission regarding insurance coverage for interpreting the insurance policy, emphasizing that all prior negotiations and communications were merged into the written contract. It reiterated that parol evidence cannot alter the clear and unambiguous terms of a written contract, citing the parol evidence rule. The loan application, part of earlier negotiations, was deemed inadmissible to modify the terms of the subsequent commitment letter and the Five-Party Agreement. Furthermore, Prudential argued it was entitled to an in-fact first lien based on the deed of trust and other collateral documents expected upon loan funding. However, the trial court determined that these documents did not impose additional conditions on Prudential's obligation to fund the loan, which was governed solely by the commitment letter. The Five-Party Agreement specified that it did not relieve other parties of their obligations under the Construction Loan Agreement or the Commitment letter. Prudential claimed that preapproved collateral loan documents should be integrated into the contract, but these documents were not attached to the agreement. The deed of trust included standard language warranting clear title to the property, which Prudential cited in support of its claim for a first lien.

A covenant of warranty of title is fundamentally compensatory, obligating the covenantor to indemnify the beneficiary for any defects in the conveyed property interest. Under this covenant, the covenantor agrees to compensate the grantee for losses stemming from a failure of title, specifically covering future losses. Prudential, as the beneficiary, secured an additional layer of protection from HRP, who agreed to "forever warrant and defend" against all claims, excluding those outlined in Schedule A. Since Schedule A did not account for mechanics' or materialmen's liens, Prudential had the right to expect HRP to defend against such liens. 

Prudential's assertion that "first deed of trust" implies an actual deed rather than an insured one, constituting a condition precedent to loan funding, lacks support from the relevant documents, evidentiary record, or legal standards. The deed of trust anticipates statutory encumbrances and obligates HRP to remove any such liens. Furthermore, the deed specifies remedies if any action affecting the trust property or title is pending at closing, allowing Prudential and the trustee to engage legal counsel and manage any adverse claims.

Even if the warranty of title offers extra protection, it does not grant Prudential a property interest beyond what is stipulated in the commitment letter and Five-Party Agreement. The Texas Supreme Court has characterized the warranty's purpose as indemnifying the purchaser against losses from defects in the vendor's title, clarifying that it does not enhance or alter the title conveyed. The deed of trust activates at closing, marking the establishment of the trust.

Paragraph 5 of the deed of trust acknowledged the possibility of pending legal actions affecting the trust property or title, including mechanics' and materialmen's liens. Prudential's assertion that its loan documents invalidated the existence of such liens was deemed inconsistent with the deed of trust and unsupported by legal precedent. The trial court determined, based on substantial evidence, that the collateral loan documents did not impose additional conditions on Prudential's obligation to fund its permanent loan. These documents were preapproved and did not alter the terms established in the commitment letter and the Five-Party Agreement. The court's findings confirmed that any discrepancies between the commitment letter and the loan application did not add new conditions to Prudential's funding obligations. Under contract law, the commitment letter was treated as a counteroffer, requiring acceptance on the same terms as the original offer. Prudential's position, which suggested that the loan application should be considered part of the commitment letter, was contrasted with a precedent case where the court ruled that differing terms in an acceptance constituted a new offer.

The new offer incorporated the terms of the original offer as long as the new conditions were consistent with the original. Both the original application and the new proposal play a crucial role in understanding the contractual relationship between the parties involved. In this case, HRP signed Prudential's loan application, which included proposed conditions for a permanent loan. After extensive negotiations, these conditions were modified, and Prudential attached the revised terms to its loan commitment letter. The borrower accepted this offer, thus forming a contract. Any ambiguity regarding the original loan application’s inclusion in the permanent commitment was clarified by Prudential’s representations in the Five-Party Agreement, which outlined the documents constituting the commitment.

The analysis aligns with the traditional view that both the application and the commitment together form the contract. The application serves as an offer by the mortgagor to accept a mortgage loan, which the commitment subsequently accepts. If the commitment alters any terms, it becomes a counter-offer that requires the landowner’s agreement to establish a contract. The application should specify terms in detail as it defines the loan conditions. However, modern practices show that the importance of the application has diminished, with the commitment being viewed as the primary contract. The application now primarily serves as preliminary information for the lender to determine if the loan is viable, with the actual loan terms detailed in the commitment, which can significantly differ from the application, effectively acting as a counter-offer. Thus, while traditionally an application is viewed as an offer, in practice, its legal status can vary, particularly for construction loans where the application may lack detail.

An offer requires the offeree's consent to finalize the agreement, necessitating both the application and commitment to be complete and certain for enforceability. An application for a loan functions as a "feeler" to elicit a commitment from the lender rather than as a definitive offer. In this context, a loan application serves primarily as a sales presentation, supported by various legal or non-legal documents. The takeout lender (TL) is expected to provide a detailed commitment if it decides to proceed with the loan, allowing the borrower to suggest modifications. Once all parties reach a final agreement, the borrower accepts and signs TL's modified commitment. Following the construction lender's (CL) commitment, TL, CL, and the borrower will execute a buy-sell agreement for the sale and assignment of the interim mortgage upon project completion.

The loan transaction between HRP and Prudential aligns with this framework. HRP signed a two-page loan application, which lacks a signature line for Prudential's acceptance, as the second page is designed for Prudential's appraisers to input valuation opinions. The conditions outlined in Prudential's October commitment letter differ significantly from those in the loan application. The commitment letter constitutes an independent counteroffer to HRP, which rejects the original application due to the differing terms. The letter includes a signature line for acceptance by HRP, indicating that it is an offer rather than an acceptance of the loan application. Consequently, the loan application is considered part of preliminary negotiations and does not survive the execution of the commitment letter.

Additionally, when interpreting contracts with both general and specific provisions, the specific terms take precedence over the general language, as specified in legal precedents. This principle indicates that specific provisions can modify or nullify broader terms when inconsistencies arise.

The rule of "ejusdem generis" is an interpretative principle applied in contract interpretation when general terms are followed by specific enumerations related to the same subject. It limits the general terms to items of the same nature as those listed unless there is a clear contrary intent. In the context of a loan application, the specific terms outlined in a rider clarify three broad provisions: 

1. **First Mortgage**: The requirement for a first mortgage is detailed, emphasizing that HRP must provide a deed of trust as a first encumbrance without exception, prohibiting secondary financing.
   
2. **Payment of Expenses**: The obligation to pay all legal, title, and closing expenses is further specified, requiring the applicant to cover all escrow, recording, and title charges and to pay any special counsel fees deemed necessary by Prudential.

3. **Insurance Requirements**: The provision for fire and extended coverage insurance is explicitly defined, setting a minimum coverage amount and stipulating that the insurance must be with companies acceptable to Prudential, citing its interest.

Additionally, all title, mortgage, and closing documents must meet Prudential’s satisfaction, with further specifications provided in various conditions listed in the loan application.

The lien of the Deed of Trust must be insured by an ALTA title insurance policy with LTAA Endorsement No. 3R and 5, covering at least the loan amount and issued by a title company approved by Prudential. This insurance is required to confirm the Deed of Trust as a first encumbrance, barring exceptions unless specifically approved by Prudential. At loan disbursement, the security must be free from secondary or subordinate liens unless Prudential approves otherwise. These stipulations are reiterated in a rider attached to the commitment letter.

The term "first mortgage" used in Prudential's loan application is viewed as a general term that does not accurately represent the Deed of Trust arrangement, which is meant for permanent financing. Prudential's claim that the distinctions between first mortgage and deed of trust are merely technical is countered by the precise language in the commitment letter defining the parties' rights and responsibilities. Under contract law principles, specific provisions prevail over general language.

The trial court found that Prudential sought "insurable title," not "marketable title," and this distinction was not contested at trial. Prudential's assertion that it is unusual for lenders to accept an insured first lien instead of an actual first lien is contradicted by testimony from a Prudential employee, who confirmed that the company often relies on title insurance to safeguard its interests in situations where there are existing liens, such as mechanic's liens from construction activities.

The testimony indicates that the expectation for title companies is to provide protection against issues related to broken priorities, supported by established industry practices. Prudential's commitment letter specified an insured first lien, which was affirmed when UCB was prompted to issue an interim loan for the Hotel's construction. Prudential claims a legal right to more than just an insured first lien, referencing the case of Sabin v. Rauch, which is deemed irrelevant here as it pertains to real estate sales and implies an obligation to deliver marketable title—an obligation not applicable since there was no sale involved. Prudential had agreed to an insured first position and would have received what it contracted for if it had funded the loan. Changing the commitment terms would unfairly harm HRP and UCB, who invested heavily based on those agreements.

Prudential argues that accepting title insurance from Arizona Title is illegal under state statutes A.R.S. 20-1591(2) and A.R.S. 20-1565(B), claiming these laws require the exclusion of identifiable title defects, such as mechanics' liens, from coverage and prohibit guarantees of payment for obligations. However, Prudential's interpretation lacks support in the statutes, which primarily aim to ensure that title insurers use approved policy forms and do not mandate state approval for specific coverages in individual policies. The statutes do not prohibit title insurers from insuring against certain risks as Prudential contends.

Issuance of title insurance for specific risks is not prohibited, as determining whether a risk should be insured involves business judgment rather than legal constraints. Prudential's interpretation of A.R.S. 20-1591(2) to prevent title insurers from covering ascertainable risks is flawed; such a reading would hinder the insurance of risks that buyers seek protection against, including those negligently overlooked during title searches. Additionally, Prudential's reliance on A.R.S. 20-1565(B) is incorrect. This statute does not prohibit title insurers from covering mechanics' liens and is instead focused on the scope of services title insurers can provide. While subsection A allows expansive operations for title insurers, subsection B restricts them from guaranteeing debt repayments, distinguishing between insuring title and guaranteeing payment.

The trial court correctly granted partial summary judgment, affirming no incorporation and supporting its findings with substantial evidence. In terms of anticipatory repudiation, a party's insistence on terms not in the contract qualifies as such. The court found that Prudential's claim to an actual first lien, beyond the insured first position on the Hotel realty per the commitment letter and Five-Party Agreement, constituted an anticipatory breach. For a breach to be established, there must be a clear indication from the repudiating party of their intent not to perform when due. Prudential contends that its misinterpretation of the contract does not equate to anticipatory breach, arguing that a genuine dispute over contract rights does not constitute an anticipatory repudiation.

Anticipatory repudiation is recognized in Arizona as a type of breach of contract, requiring a clear and unequivocal indication from one party that they will not fulfill their contractual obligations when due. In the case of Diamos v. Hirsch, the Arizona Supreme Court affirmed that such an action could be maintained if the repudiation is evident. Prudential cites New York Life Ins. Co. v. Viglas to illustrate that a breach occurs if an insurer mistakenly terminates payments, but the Supreme Court distinguished this case, noting that the insurer did not entirely renounce the contract but was awaiting proof of continued disability. The court ruled that had the insurer unequivocally refused to pay in the future under the contract's terms, it would have constituted anticipatory repudiation. Prudential also references American Continental Life Ins. Co. v. Ranier Construction Co., where the court found that the refusal to make a final payment was based on the failure to meet a contractual condition, not a total denial of payment. The court concluded that a final certificate of payment was a necessary condition precedent to receiving the final payment.

American did not assert an unjustified demand but sought adherence to the contract's terms, leading the court to dismiss claims of repudiation against American. In contrast, Prudential indicated a refusal to fulfill its contractual obligations by insisting on a non-existent first lien as early as November 1976, signifying anticipatory repudiation. The legal principle maintains that a party’s insistence on terms not included in a contract constitutes anticipatory repudiation, regardless of whether the insistence arises from a misinterpretation of the contract. The Restatement, along with leading contract law authorities, supports this view, stating that a party may be liable for repudiation even if their interpretation of the contract is mistaken. Arizona courts generally adhere to the Restatement unless established otherwise. The principle emphasizes that the consequences of a dispute regarding contract interpretation should fall on the mistaken party, reinforcing that a mere disagreement does not equate to repudiation. However, a clear demand for performance not stipulated in the contract signifies a repudiation. Prudential's consistent refusal to provide a permanent loan without first securing a first lien from November 8, 1976, until June 1977 exemplifies this repudiation.

Prudential explicitly stated it would not fulfill its contractual obligations without an actual first lien, indicating a refusal to perform, which constitutes anticipatory breach. According to Corbin, if one party demands performance to which it has no right and threatens non-performance if the demand is not met, this amounts to anticipatory repudiation. A dispute over contract interpretation does not itself constitute anticipatory breach unless there is a clear intent not to perform under any other interpretation. Prudential's position attempts to introduce a "good faith" defense to anticipatory repudiation, which, if accepted, could undermine established contract law by suggesting that any breach could be justified by a good faith misunderstanding. This would blur the lines of contractual obligations and lead to confusion. The trial court properly found anticipatory repudiation based on Prudential's consistent refusal to proceed with the loan unless an actual first lien was provided, leading to the granting of summary judgment in favor of the non-breaching party.

The trial court granted partial summary judgment ruling that Prudential's demand for an in-fact first lien constituted anticipatory repudiation, as there was no factual dispute regarding this matter. Prudential's position, expressed during a meeting on November 8, 1976, and reiterated in subsequent communications, indicated that it would not fund the loan without a first lien. Despite Prudential's arguments against anticipatory repudiation based on contract interpretation, it failed to present evidence of a factual dispute, which led the court to uphold the summary judgment. Additionally, Prudential's claim of waiver was rejected, as the Arizona Supreme Court has established that a non-breaching party can continue to perform despite an anticipatory repudiation, but this does not permit them to take a contrary position later. Relevant Arizona cases cited by Prudential did not involve anticipatory repudiation but rather straightforward breaches of contract.

In the Mackey case, the Supreme Court of Arizona indicated that even if a party has lost the right to rescind a contract, they may still seek some form of relief. The prevailing rule in Arizona and most jurisdictions allows an innocent party facing anticipatory repudiation to treat the contract as still in effect and demand performance from the repudiating party without forfeiting their right to sue for the repudiation. The Kammert Brothers case reinforces this view, clarifying that a party should not be penalized for attempting to enforce a contract despite receiving a clear repudiation. The court emphasized that a breach is not deemed anticipatory until it is accepted as such by the injured party, who retains the option to cease demanding performance and initiate legal action before the repudiating party retracts their repudiation.

Corbin’s commentary on recent cases supports this modern interpretation, arguing that the repudiating party retains the right to retract their repudiation if the injured party has not substantially altered their position. A timely notice of retraction can negate the effects of anticipatory repudiation, and an offer to perform can also serve as a retraction. The Restatement of Contracts adds that the injured party's intent to allow performance despite repudiation does not nullify the breach's effect. Prudential's claim that HRP "waived" its anticipatory repudiation claim by urging performance is contested; demonstrating willingness to meet contractual conditions is a legitimate effort to enforce the contract, consistent with Kammert Brothers.

In Highlands Plaza, Inc. v. Viking Inv. Corp., the Washington Supreme Court addressed anticipatory repudiation in a real estate contract dispute. The defendant seller's demand for early closing was deemed an anticipatory repudiation of the contract. The court clarified that the purchaser's potentially defective performance was irrelevant to their right to recover due to the seller's breach. It established that no tender of performance by the purchaser is necessary when anticipatory repudiation occurs. 

The court noted that HRP's attempts to perform did not waive its claim for anticipatory repudiation, even if HRP made an incomplete tender on February 8, 1977. Evidence was permitted regarding HRP's tender to establish their ability to perform within the month, and Prudential's proposed stricter standard for the innocent party was rejected, as it would unjustly penalize that party for not treating the contract as terminated. 

Prudential's argument that HRP's acceptance of a six-month extension waived their right to sue for anticipatory repudiation was dismissed. The court found that the extension, granted by Prudential despite HRP's position on lien types, was valid and binding without the need for consideration. The court upheld that HRP and UCB could prove their ability to fulfill the contract's conditions during the extension period.

The commitment letter was extended to June 30, 1977, and did not expire at the end of 1976 or terminate due to anticipatory repudiation. Prudential was in continuous breach by insisting on an in-fact first lien from November 1976 through June 1977, particularly during February 1977 when HRP and UCB demonstrated their capability to perform. HRP's initial waiver of the November 1976 breach did not extend to subsequent breaches. A waiver requires the intentional relinquishment of a known right, which HRP did not do, as it explicitly notified Prudential that accepting the extension did not imply agreement to Prudential's lien claim. Prudential's argument that the extension was solely for lien discharge is unsupported by the extension’s language, which merely provided HRP additional time to fulfill its obligations. HRP invested further resources based on this extension, and despite Prudential's breach, HRP’s decision to accept the extension was a strategic move to protect its investment and avoid foreclosure by UCB. The jury in Phase II supported that HRP and UCB could comply with the commitment letter's conditions. An anticipatory repudiation constitutes a breach allowing the non-breaching party to seek damages without the obligation to tender performance, as performance is excused when the breaching party indicates it will not be accepted.

To recover damages for anticipatory breach, the injured party must demonstrate the ability to fulfill their obligations under the contract. In this case, plaintiffs HRP and UCB did not dispute the need for HRP to make a valid tender and show present ability to meet all conditions of the loan commitment for Prudential to fund the loan. However, HRP only exhibited a conditional ability to perform, which is legally insufficient. The distinction between "present ability to perform" and "tender of performance" is crucial, as an anticipatory repudiation allows the non-breaching party to establish a breach without having to perform first.

Prudential argued that HRP and UCB lacked sufficient evidence to prove their ability to perform obligations under the commitment letter and Five-Party Agreement, particularly because they needed to show enforceable third-party agreements for key aspects such as title insurance and operational payments. However, this position is flawed for two reasons: HRP and UCB did not need to provide proof of third-party agreements, and the rules Prudential referenced do not apply to anticipatory repudiation cases. Under the commitment letter, HRP and UCB were not required to obtain third-party agreements before Prudential's obligation to place the loan proceeds in escrow arose, which was contingent upon fulfilling certain conditions outlined in the agreements.

UCB had an independent right under the agreement to ensure conditions of the commitment letter were met, including requiring Prudential to deposit loan funds in escrow. The trial court instructed the jury accordingly. Since Prudential did not deposit the funds, the conditions for releasing those funds to UCB were never triggered. Prudential cannot argue that HRP and UCB did not fulfill their obligations due to its own breach, which prevented the conditions from maturing. 

Condition 2 of the commitment letter mandated that HRP and UCB provide Prudential with a title insurance policy upon receiving the loan proceeds. However, as per the trial court's interpretation of the escrow instructions—unchallenged on appeal—HRP and UCB's obligation to secure a title policy arose only after Prudential deposited the funds. The escrow instructions explicitly state that the title policy issuance and other conditions must occur only after the loan proceeds are deposited. 

The trial court found that the commitment letter, escrow instructions, and five-party agreement were clear, establishing that Prudential was to deposit loan proceeds in escrow before the title policy obligation arose. If the title company, acting as the escrow agent, could not issue the pre-approved title policy, it could not disburse the loan proceeds to UCB. Prudential accepted this risk as part of the documentation. 

The escrow instructions provided the sole order of performance regarding the title insurance issue, leading the trial court to rule that HRP and UCB were not required to prove an enforceable agreement with Arizona Title, only that the title policy would have been issued had Prudential deposited the loan proceeds in escrow. The trial court's interpretation of the loan documents was not contested.

Prudential's obligation to deposit loan funds in escrow was a condition precedent to HRP and UCB's duties, meaning that since Prudential failed to perform this duty, HRP and UCB were not required to demonstrate performance to recover. They only needed to show that a title policy would have been issued if Prudential had funded the loan, which the jury found sufficient evidence to confirm. At the time of the Five-Party Agreement, Prudential had preapproved the title policy and reinsurance agreements from Arizona Title. Arizona Title, along with its parent company First American Title, issued an interim policy and reinsurance to UCB, and HRP prepaid for both interim and permanent policies. 

In February 1977, Arizona Title provided written assurance that it would issue a title policy to Prudential, which was acknowledged positively by Prudential's real estate officer. Expert testimony supported HRP and UCB's position, indicating Prudential acted unreasonably by rejecting this assurance. Arizona Title later reiterated its commitment to issuing the pre-approved policy and confirmed its readiness to meet Prudential's demands. Testimony from reinsurers indicated they would have provided reinsurance as required, and Prudential acknowledged that similar testimony would have been given by other reinsurers. The jury's findings should not be overturned unless compelling reasons exist, as they are best positioned to assess the truth of disputed facts.

In Burns v. Wheeler, the court found that the evidence supporting the issuance of a title policy was clear and uncontradicted by Prudential. Even with conflicting evidence, the appellate court defers to the jury's determination of witness credibility and evidence weight, as established in prior cases. The trial court instructed the jury that HRP and UCB needed to prove their ability to settle disputed claims related to the Hotel's operation at closing. Prudential claimed that HRP and UCB needed to raise between $850,000 and $1,200,000, while HRP and UCB contended the figure was $460,000. Prudential argued that HRP and UCB failed to demonstrate binding agreements with third parties for the required funds; however, it was determined that since Prudential did not fund, proof of such agreements was unnecessary. HRP and UCB testified they could make the payments without third-party commitments, providing sufficient evidence for the jury to find that UCB had the ability to pay. The court held that the weight of conflicting evidence is for the trier of fact. If UCB had the ability to pay, both UCB and HRP could recover. The appellate court must affirm the trial court's decision if any reasonable interpretation of the evidence supports the judgment. Testimony revealed that HRP had access to necessary funds through National Metals, despite Prudential's objection regarding the lack of a binding commitment for those funds.

Sam Shapiro, as CEO and owner of National Metals, directed the company to loan over $5 million to HRP in 1975 and 1976. National Metals was wholly owned by Nametco, a partner of HRP, which Shapiro controlled through personal and trust ownership. The argument against HRP's recovery due to a lack of a formal "commitment" from National Metals is criticized as an unreasonable technicality. Prudential contends that National Metals' financial status is irrelevant, referencing Sargent v. Wekenman, which deemed the financial condition of stockholders inadmissible in assessing a company's lease obligations. Unlike in Wekenman, where no evidence of stockholder support was presented, Shapiro testified that National Metals would supply necessary funds. HRP and UCB provided substantial evidence of their ability to raise $850,000 to finalize the loan, independent of an executed agreement, which was not required until Prudential showed willingness to fund, a condition it did not fulfill. Prudential’s appeal also included a claim about HRP’s capacity to alleviate its debt to UCB, but this issue was neither pled nor preserved for appeal and is now too late to litigate. UCB's vice president testified that they would lift their encumbrance on the hotel if they received loan proceeds from Prudential, even though this would not fully satisfy their claim. The jury had sufficient evidence to determine that UCB and HRP could meet their obligations under the commitment letter. Prudential’s assertion that ability to perform requires a third-party commitment lacks merit, as HRP and UCB demonstrated sufficient capability to fulfill the commitment independently. The brokerage commission cases cited by Prudential do not apply to anticipatory repudiation cases, as they pertain to actual performance rather than preemptive breaches.

The seller rejects the buyer due to an insufficient purchase price and a lack of a firm loan commitment. The broker sues for commission, asserting the buyer was "ready, willing and able." Some courts require an enforceable loan contract for the buyer's tender to be adequate, while others evaluate the buyer's overall ability to perform based on evidence. In broker commission cases, the buyer must tender performance, unlike in anticipatory breach cases where the non-breaching party is relieved of this obligation and only needs to show readiness to perform if not for the breach. Prudential contends it should not fund into a default, citing an express warranty in the Deed of Trust requiring clear title. Since HRP had not removed mechanics' liens at the time of loan tender, closing the loan would have resulted in an immediate default. Therefore, Prudential was legally justified in not funding into that default due to HRP's breach of warranty.

The trial court's ruling was incorrect, as this court has previously established that Prudential did not possess an in-fact first lien based on the collateral loan documents, including the deed of trust. Prudential's claims fail to acknowledge that both the commitment letter and the Five-Party Agreement necessitate an insured first lien and not simply lien-free completion of the Hotel. Additionally, HRP and UCB took significant measures to ensure title insurance protection against any potential liens, and UCB extended a loan of $25,500,000 relying on Prudential's explicit assurance to take out UCB if the commitment letter's conditions were met.

The trial court found that the Prudential-HRP collateral loan documents from May 2, 1975, did not impose any additional conditions precedent to Prudential's obligation to fund the permanent loan commitment. Since the conditions for Prudential's funding were specifically established, the court cannot introduce new conditions that would alter the transaction's nature or the risks assumed by HRP and UCB.

Prudential claimed as an affirmative defense that it was not obligated to fund HRP due to HRP's insolvency, which HRP denied. The trial court dismissed this defense, noting the absence of an "insolvency clause" in the relevant agreements. Prudential argued that HRP's ongoing solvency was a "constructive condition" unrelated to the need for an insolvency clause. Prudential's broader defense was that HRP's insolvency during the hotel's start-up phase would hinder repayment of loan installments, leading to default and foreclosure, thus jeopardizing the hotel's potential viability.

The court referenced the Restatement of Contracts regarding insolvency but determined it has a narrower application than Prudential suggested. The agreed exchange in this case is HRP's fulfillment of the loan commitment conditions in return for Prudential funding. The jury found that HRP could meet these conditions. Therefore, Prudential's argument that HRP's post-funding insolvency could excuse its obligation to fund was rejected, as Prudential would still have recourse against the security provided.

Prudential's loan to HRP was structured as a non-recourse loan, meaning there was no personal liability for HRP. Even if the "agreed exchange" included future loan payments, Prudential was obligated to fund the permanent loan if payment was secured. The jury found that HRP and UCB could meet the commitment letter's conditions. A precedent was referenced involving Arizona Title, where contractors relied on misrepresentations regarding payment while the development company was insolvent. The court held that the contractors were not required to continue supplying labor and materials due to the company's insolvency, making Arizona Title's misrepresentation actionable despite the contractors' contractual obligations. In contrast, the Leiter case involved a seller who could not deliver a deed due to lack of title, which excused the buyer's performance. However, HRP and UCB had the capacity to meet their commitments to Prudential. The ability of HRP to make future payments was deemed irrelevant to Prudential's duty to fund the loan. Additionally, UCB was induced to provide an interim loan based on Prudential's commitment for permanent financing. The commitment letter outlined the conditions for Prudential's obligation to fund the $25.5 million permanent loan, which was further detailed in the Five-Party Agreement.

Once certain conditions were met, the financial risk associated with HRP's non-payment transitioned from UCB to Prudential, which accepted the foreseeable risk of HRP's future solvency when it issued a commitment letter to HRP. This commitment was subsequently reaffirmed in the Five-Party Agreement with UCB. The court emphasized that it cannot impose a "constructive condition" that fundamentally alters the parties' contractual obligations, referencing Shattuck v. Precision-Toyota, Inc. The principle articulated in a law review article asserts that once a lender has made a commitment and accepted consideration, they cannot evade their obligation simply because the loan commitment later appears unwise. Although lending on a project with uncertain viability can lead to significant risks, the interests of the lender and third parties who relied on the lender's promise are equally important. Specific enforcement of the lender's promise to lend does not create undue hardship, as the lender is merely being compelled to fulfill their initial promise. Prudential's claim that HRP's alleged insolvency releases it from its funding obligation is countered by Cuna Mutual Ins. Soc'y v. Dominguez, which upheld a credit union's obligation to disburse loan proceeds despite the death of a borrower. The court noted that the loan agreement had no express contingencies related to the borrower's death, and similarly, HRP's insolvency should not affect Prudential's duty to provide the permanent loan.

The addition of a "constructive condition" to Cuna would undermine the parties' original intentions and improperly shift risks that Prudential had accepted when agreeing to provide permanent financing for the Hotel. During Phase II of the six-week jury trial, Prudential presented its case with three witnesses: Lyman A. Manser from Lewis and Roca, Prudential's house counsel Robert Wheeler, and company official Kenneth Jackson. Prudential invoked attorney-client privilege approximately twenty times while these witnesses testified, with the trial court sustaining each objection. Prudential argues that the court erred by compelling it to repeatedly assert this privilege in front of the jury, citing general prejudice without specifying how any particular question harmed its case. The trial judge had instructed HRP and UCB not to pose leading questions regarding communications between Prudential and its attorneys, which appeared to be followed. Relevant testimony included discussions of meetings and loan conditions, where the privilege was again invoked. At the trial's conclusion, the court rejected proposed jury instructions on the attorney-client privilege, dismissing both HRP and UCB's request for an adverse inference and Prudential's caution against such inferences, ultimately opting to provide no instruction on the matter. Notably, the invocation of privilege was anticipated before the trial, as HRP and UCB were informed that Mr. Manser would testify.

HRP and UCB filed pre-trial motions against Prudential, arguing that Prudential invoked attorney-client privilege excessively during Mr. Manser's deposition. They sought to bar Messrs. Manser and Wheeler from testifying or to disqualify their attorneys, Lewis and Roca. Alternatively, they requested that if Prudential called these witnesses, it should be considered a waiver of the privilege. The trial court denied all motions, allowing Prudential to call its attorneys without waiving the privilege. It permitted HRP and UCB to cross-examine witnesses in a way that could lead to privilege claims. Prior to Mr. Manser's cross-examination, Prudential expressed uncertainty about claiming privilege. The court had previously ruled that witnesses who refused to answer discovery questions based on privilege could not be questioned directly by Prudential on those matters, but could be subjected to questioning by other parties if the privilege was waived. Prudential cited two cases in its defense, but the court noted that the circumstances in a civil case differ significantly from those in a criminal case, where the privilege is more strictly upheld. The court emphasized the jury's right to understand why certain evidence was not presented, asserting that HRP and UCB should not be hindered from addressing relevant questions to witnesses.

Prudential successfully invoked a valid privilege to refuse certain questions during the trial, consistent with the precedent set in Vilardi. In Vilardi, a husband sought an annulment based on his wife's fraudulent representation regarding her ability to bear children. During the trial, although the wife answered cross-examination questions about her medical treatment, she asserted her physician-patient privilege when her hospital records were introduced, leading the court to deny their admission. The trial court ruled that the wife had not waived her privilege by testifying in cross-examination and could still invoke it to block the admission of medical records.

The principle established is that a party cannot compel an opposing party to waive their privilege through cross-examination about privileged matters. The trial court held broad discretion in managing claims of attorney-client privilege, especially when a party calls their own attorney as a witness. The court permitted questions regarding communications between Prudential's attorneys and other Prudential representatives, as the jury likely had similar inquiries.

The trial court found no error in its handling of privilege claims, noting that Prudential did not emphasize these claims during closing arguments, suggesting no prejudice resulted from the trial's proceedings. The jury was instructed to focus solely on admitted evidence and disregard any questions or testimony ruled inadmissible, with no indication that they failed to follow these instructions. UCB contended that references to Prudential’s attorneys were frequent during the trial, reflecting their involvement in securing funding for a permanent loan.

UCB contends that Prudential's case presentation led the jury to expect testimony from two Prudential attorneys, Manser and Wheeler, which was limited due to attorney-client privilege. Prudential asserts that the repeated mention of these attorneys' names by plaintiffs' counsel—over 173 instances during the trial—was a tactic by opposing counsel. The extensive review of trial transcripts indicates that the attorneys' names were relevant to foundational issues regarding meetings and statements made during the case. The court found no evidence of prejudice from these mentions and concluded that any potential error in allowing related questions was harmless, as it did not likely affect the verdict. The court cited precedents affirming that harmless errors do not justify reversing a jury's verdict if substantial justice was served. 

In the damages phase of the trial, the court determined that HRP could recover its "loss of equity" in the hotel, defined as the difference between the hotel's fair market value at the time of foreclosure and the encumbrances on it. Prudential did not dispute this method of calculating damages, which aligns with traditional measures for breach of contract. The definition of damages has evolved to encompass loss of equity when a breach results in the loss of ownership of assets.

In the legal proceedings referenced, the Sallas case establishes that compensation to a landowner for loss of property is based on the value of their equity at the time of title loss, not the purchase price. The equity value reflects current market conditions and may differ from the original purchase price. The trial court determined the fair market value of a hotel in January 1978 to be $35,994,000, leading to a calculated loss of equity for HRP of $10,494,000 after accounting for a loan from Prudential of $25,500,000. Prudential contested this valuation and the trial court's decision to exclude costs and liens from the fair market value, arguing insufficient evidence supported HRP's damage claim. The trial court limited HRP's claims to lost equity, rejecting lost profits and reliance damages, and required proof based solely on the hotel’s market value at foreclosure minus saved expenses. HRP presented evidence including investment costs and projected income to establish the hotel’s market value. The trial court’s findings included the acceptance of uncontested facts relevant to the damage assessment.

HRP acquired a downtown Phoenix property in 1972 for $1,975,000, plus an existing mortgage of approximately $100,000, and an alley for $31,700, totaling over $2,000,000. The property spans one square block, approximately 90,000 square feet, and features a modern, convention-oriented hotel with 734 rooms, constructed at a cost exceeding $35,500,000. By January 1978, when UCB foreclosed on its deed of trust, the hotel's fair market value was $35,994,000. HRP's equity in the hotel was $10,494,000, as the court did not deduct interest owed or mechanics' liens.

The measure of damages for a breach of a loan contract typically reflects the difference between the contracted interest rate and the increased rate the borrower faces in securing a new loan. Exceptions exist when the loan's specific purpose is communicated and the borrower proves special damages resulting from the breach. In general, damages can be awarded based on foreseeable injuries at the time of contract formation. However, losses from foreclosure due to a breach may not be recoverable unless the borrower can demonstrate that the funds could not have been secured in time to prevent the loss, unless those losses were within the contemplation of the parties when the contract was made.

Compensation for a landowner's loss is determined by the value of their equity in the property, which constitutes their actual loss. The aim of compensatory damages in contract law is to calculate the net losses incurred and the gains that were not realized due to a breach. The court's review focuses on whether there is sufficient record support for the trial court's findings rather than on potential miscalculations. According to Rule 52(a) of the Rules of Civil Procedure, findings of fact are upheld unless clearly erroneous, requiring the appellate court to defer to the trial court's credibility assessments. This principle mandates that evidence be viewed favorably towards the prevailing party, affirming the trial court's decision if reasonable facts can support it.

In this case, HRP presented evidence of a $46,842,497 investment in the hotel, utilizing replacement cost as one of three standard methods for determining market value, alongside income and market approaches. Replacement cost is deemed most accurate when other market data is limited. Prudential disputes this method's appropriateness for income-generating properties, referencing a prior case where market value based solely on reproduction costs was challenged when buyers typically rely on income approaches.

The court deemed the replacement cost valuation unacceptable due to a lack of concrete testimony supporting its relevance for the property in question. Prudential’s valuation expert, John T. Hansen, M.A.I., submitted an appraisal report on June 7, 1979, based primarily on income and market approaches, disregarding the cost approach, which he considered "virtually irrelevant." Although he did not rule out the utility of the cost approach entirely, he did not analyze the hotel's plans or specifications and failed to assert that it would not provide relevant evidence of market value. Hansen appraised the hotel’s market value at $23,000,000, significantly lower than the $35,994,000 determined by the trial court. He noted that the hotel's operational performance did not justify the high construction costs, attributing its functional obsolescence to its location. The evidence did not demonstrate that luxury hotel owners rely exclusively on income or market approaches while ignoring reproduction costs. Prudential’s representatives acknowledged that replacement cost is a common method for estimating market value. In contrast, HRP presented evidence of replacement cost through civil engineer Charles D. Raines, who estimated it at $46,842,497, exceeding the court's market value determination by over $11,000,000. Raines's estimate was based on actual construction costs provided by Sam Shapiro and confirmed by Merle Bird, an audit partner from Price-Waterhouse, with no disputes over the accuracy of these figures.

Prudential did not provide evidence to challenge Mr. Raines' replacement cost estimate of $46,842,497 during Phase III. Prudential criticized Raines' testimony as "meaningless" for failing to deduct depreciation, yet it did not cite any legal authority requiring such a deduction in estimating replacement costs for a new luxury hotel. The court deemed the omission of depreciation as having minimal impact, given that the hotel had been recently constructed and occupied. Both parties acknowledged that cost alone does not dictate fair market value, and the court suggested all appraisal methods—cost, income, and market—should be utilized for a comprehensive valuation. Mr. Hansen's analysis revealed significant discrepancies among these methods, ultimately concluding a market value of $23,000,000. The trial court did not rely solely on reproduction cost but considered various valuation evidence, including multiple appraisals conducted by Prudential's in-house experts using income and replacement cost methodologies. The court upheld that reproduction cost was appropriately included as relevant evidence in determining the hotel's market value.

Prudential's appraisals are significant as they demonstrate the company's reliance on both replacement and income methods for determining fair market value. Conducted by in-house experts prior to litigation, these appraisals reflect a conservative approach to estimating the property's value, consistent with Prudential's policy to lend no more than 75% of the underlying security's value. The appraisals indicate that the Hotel's value ranged from $7,000,000 to $10,000,000 above the trial court's valuation of $35,994,000.

The appraisals detail the following valuations:
1. September 1973: $32,675,000; adjusted to $44,550,000 by January 1978 due to a 6% annual inflation rate and a nearly 50% increase in construction costs.
2. May 1974: $34,660,000; adjusted to $42,600,000 by January 1978.
3. April 1974: $36,430,000; adjusted to $44,770,000 by January 1978.
4. August 1975: $36,812,000; adjusted to $45,240,000 by January 1978.

Additionally, Charles Blenkhorn, Prudential's Phoenix Production Office manager, estimated the Hotel's value between $36,000,000 and $40,000,000 during discussions about funding a permanent loan, anticipating HRP's default and a potential acquisition for $25,500,000. Despite conflicting evidence from Prudential's trial expert, Mr. Hansen, the four appraisals provide sufficient support for the damages awarded by the trial court. The admissibility of valuation evidence does not diminish with the passage of time, as affirmed in Altschul v. Salt River Project, where older purchase evidence was deemed relevant despite the time lapse.

Prudential's in-house appraisals were conducted in the five years leading up to January 1978. Mr. Hansen's income approach analysis in his 1979 report utilized actual income figures from 1976-78 and projected income for 1979-83, identifying 1983 as the peak operational year for the Hotel. Hansen noted that the Hotel would continue to improve after 1978 and reach its performance potential by 1983. The trial court considered appraisals prior to the valuation date, actual costs, and post-valuation income projections, aligning with guidance from Grossman regarding the valuation of new versus mature income properties. The court accepted these appraisals as evidence, emphasizing that it was in a better position to weigh evidence than appellate courts, particularly where conflicting evidence exists.

Prudential argued against the admissibility of owner Sam Shapiro's valuation opinion, claiming it undermined the trial court's award. However, established Arizona case law supports an owner's right to express their property's value. Shapiro, the lead witness for HRP, provided extensive testimony about his integral role in the Hotel's development and construction, highlighting his deep involvement beyond his title as general partner, including conceiving the luxury hotel project in downtown Phoenix.

Mr. Shapiro acquired the land in 1970 and was actively involved in securing both interim and permanent financing for the project. His group employed consultants to assess project feasibility and selected an architect and construction company for the development of a 734-room hotel. Subsequently, Mr. Shapiro chose the Hyatt Corporation to manage the hotel, drawing on his investigations of Hyatt locations in other cities. He was responsible for all construction-related payments and estimated the hotel's value at $43,800,000 as of January 1978. This valuation considered HRP's investment, UCB's interim loan, and adjustments based on the Consumer Price Index, alongside factors like projected hotel income, location advantages, and regional growth, although he did not assign monetary values to these factors.

Prudential contends that Mr. Shapiro's valuation opinion is inadmissible for three reasons: (1) he does not qualify as an "owner" under the relevant rule; (2) the owner-opinion rule has been superseded by Rules 602 and 701 of the Rules of Evidence; and (3) he lacks actual knowledge of the hotel's value. However, Mr. Shapiro is considered a general partner in HRP and an officer, director, and shareholder of Nametco, a general partner in HRP. The Arizona Supreme Court has established that non-expert corporate officers, directors, and shareholders may testify about corporate property valuation. In Atkinson v. Marquart, the court affirmed that such individuals could be deemed owners and thus could estimate property value regardless of their expertise. Prudential attempts to downplay Atkinson’s ruling by arguing that the court did not cite authority for considering corporate officers as owners and that the case focused on goodwill rather than real property. However, the court's assertion that an owner may estimate the value of real or personal property is central to its holding and remains applicable across different property types.

Subjectivity in valuing intangible assets, such as a hotel, is acknowledged, and Mr. Shapiro's testimony regarding the hotel's value is deemed appropriate. Prudential argues that Mr. Shapiro lacks the necessary knowledge of the hotel’s fair market value, contrasting with the corporate officer in the Atkinson case who was familiar with the business. However, Mr. Shapiro's detailed testimony on the hotel's construction costs and its potential as a successful business in a growing area provides sufficient evidence of fair market value, as replacement cost is relevant. The owner-opinion rules do not require the owner to be an expert appraiser or familiar with specific valuation techniques.

Prudential cites Rules 602 and 701 of the Rules of Evidence, asserting that Mr. Shapiro lacks direct personal knowledge of the market value of the Hyatt Regency Phoenix. Nevertheless, the record indicates his personal knowledge of the hotel's costs and future prospects, allowing his value opinion under the rules. The trial court must evaluate the weight of Mr. Shapiro's testimony, which is supported by his expertise as a managing general partner, giving him insight into the hotel's quality, cost, and condition. Legal precedent supports that property owners can testify regarding their property's value based on their knowledge, and this principle remains unchanged by the adoption of the Rules of Evidence.

Prudential argues against the admissibility of Mr. Shapiro's valuation opinion, claiming he lacked personal knowledge of the property's value and that his opinion was derived from someone else's input. However, Mr. Shapiro detailed his calculation of the property’s value at $43,800,000, which included $13,500,000 in initial investment, $25,500,000 borrowed, and a 6% appreciation based on the Consumer Price Index over two years. His assertion of this amount as his own opinion lacked contradiction in the record. According to Arizona law, an owner's opinion can support a damage award, and Shapiro's valuation provided sufficient evidence for the trial court's findings. HRP presented three independent theories supporting a higher damage award, with one theory—replacement cost—being uncontradicted. The difficulty in precisely calculating market value does not undermine the claim for damages, as the law favors allowing courts or juries to estimate damages when injuries are evident. The trial court's judgment, supported by substantial evidence, must stand despite Prudential's claims of an improper damage calculation method, as the sufficiency of evidence was not contested.

The challenge presented does not hinge on the trial court's factual findings or legal conclusions but rather on comments made by the trial judge during a post-trial hearing, occurring two months after the trial's conclusion. The judge acknowledged a discussion regarding the calculations of damages, prompted by Mr. Irish representing Prudential. The judge clarified his reliance on Mr. Hansen's testimony, specifically the use of a gross room multiplier rate of 4.5, and elaborated on the valuation process. The judge asserted that a willing seller would not sell the hotel for less than its potential value, taking into account an initial adjustment period for the hotel's operations.

The judge referenced specific figures from Hansen's reports, noting an optimal year for valuation in 1983, and explained how he arrived at the final valuation of $35,994,000. He emphasized that the valuation was influenced by the potential of the hotel rather than its current state. Mr. Meyers, representing HRP, interjected to ensure that the court's remarks did not imply that all considerations had been captured in the judge's statement, to which the court agreed, indicating that not all factors had been discussed.

The final valuation figure was derived from multiple calculations consistently falling within a range of approximately $37 million to $41 million, based on various evidence presented during the trial. The court emphasized that it utilized multiple methods to arrive at this figure and did not rely solely on the gross rent multiplier technique or any single approach. Prudential contended that the trial court erred by improperly combining the gross rent multiplier with the capitalization of future income method and by applying a gross rent multiplier to projected future income rather than current income. However, the court clarified that its definitive ruling on value was not limited to this methodology and reflected a comprehensive analysis of all presented evidence. The trial judge acknowledged using several estimates and stated that he made at least five different assessments of market value, all of which were congruent with the trial evidence, even if the specific process behind each estimate was not disclosed. The reviewing court cannot reverse the decision simply because the precise formulas used for calculating damages are not fully articulated, provided that competent evidence supports the final valuation.

A litigant in Arizona can appeal a judgment but not separate remarks or statements made by a trial judge outside of formal findings. In Grummel v. Hollenstein, the court determined that the validity of the judgment should be assessed based on the record of the formal judgment, not on informal remarks in a memorandum opinion. The plaintiff, Schwartz, incorrectly based his assignments of error on these informal statements rather than on specific findings of fact or conclusions made at the judgment's entry. Established case law, including Schwartz v. Schwerin and Robinson v. Herring, reinforces that memorandum opinions do not constitute part of the record for appeals and cannot be assigned as errors. The court further clarified that a trial judge's spontaneous remarks made after the deliberative process cannot form the basis for an appeal if there is credible evidence supporting the judgment. In relation to the claimed interest deduction, Prudential argued that the trial court erred by not deducting certain costs from the fair market value, specifically mentioning the UCB costs and accrued interest. Prudential’s claim evolved in its reply brief, reducing the amount sought for deduction.

Accrued interest is deemed part of the construction loan secured by the lien of the construction mortgage, with the argument that such interest, arising from HRP's default, should be treated equally with the principal in calculating net damages. Prudential's reliance on F.B. Collins Inv. Co. v. Sallas is criticized for misinterpreting contract damages law. The Supreme Court of Arizona emphasizes that compensatory damages aim to reflect the net losses caused by a breach, which aligns with the Restatement of Contracts. HRP's lost equity, linked to the Hotel's value, should be calculated by deducting saved expenses due to Prudential's failure to fund the permanent loan. The court established that the Hotel's market value, as per the Phase III rulings, represents the maximum loss from Prudential's breach, from which savings of $25,500,000 (the loan indebtedness to UCB, eliminated by foreclosure) must be deducted. However, HRP remains liable for unpaid interim interest on the construction loan, which is not offset by Prudential's breach, as HRP had contracted with UCB to assign part of any recovery from this lawsuit to cover that obligation. The trial court's determination to not subtract this interest from HRP’s recovery is deemed correct, as Prudential's breach did not relieve HRP of this responsibility.

Prudential argues that, according to F.B. Collins Inv. Co. v. Sallas, interest on lien indebtedness should be subtracted from land value only when a breach of contract discharges the interest obligation; since no discharge occurred in this case, the opposite rule applies. There is no case law supporting the deduction of undischarged lien interest from the property’s market value, as this would unjustly penalize HRP, forcing it to pay the UCB interest obligation twice and benefiting Prudential, the breaching party. 

UCB's cross-appeal challenges the trial court's dismissal of several claims, including those for breach of good faith, punitive damages, interference with contractual relations, and issues related to damages awarded. This cross-appeal is conditional upon a reversal of the judgment, which has not occurred, leading to its withdrawal. 

HRP also raises six issues in its cross-appeal, five of which are conditional. These include disputes over evidence related to lost profits, reliance damages, expert witness testimony, attorney-client privilege, and the sufficiency of fraud claims. As the court affirmed the trial court’s judgment, HRP’s conditional claims are likewise deemed withdrawn. However, HRP asserts one unconditional issue regarding prejudgment interest. The trial court awarded HRP $10,494,000 but denied prejudgment interest from the date of UCB's foreclosure, citing Arizona law that does not allow prejudgment interest on unliquidated amounts. Despite HRP's arguments for a change in this rule, the court affirms the trial court’s denial of prejudgment interest.

A judgment favoring HRP and UCB was entered by the trial court on August 29, 1979, specifying a six percent interest rate. Prudential appealed on September 25, 1979. Subsequently, on December 14, 1979, an amendment to A.R.S. 44-1201(A) increased the interest rate for legal indebtedness from six to ten percent per annum. This led to a second appeal, 1 CA-CIV 5459, consolidated with 1 CA-CIV 5135. HRP and UCB requested permission to file a Rule 60 motion to modify the judgment, which was granted by the court, allowing them to seek an increase in interest. However, this motion was denied by the trial court. 

The issue was thoroughly briefed, and following the filing of briefs, the Supreme Court ruled in McBride v. Superior Court, stating that interest on a judgment is a statutory obligation and changes in the interest rate by statute affect existing judgments. The Court concluded that HRP and UCB were entitled to six percent interest from the judgment date until December 14, 1979, and ten percent thereafter, affirming that the judgment was modified by operation of law to reflect the statutory amendment.

The trial was extensive, lasting approximately 20 months with 110 volumes of transcripts and numerous exhibits, and the trial court was commended for conducting a fair trial without reversible error. The judgment was ultimately affirmed. Additional notes clarify the composition of HRP, the increase in the original loan amount, and details regarding a condition related to title insurance in the loan agreement.

Counsel for Prudential argued that they do not seek title insurance on fixtures under condition 9, but rather a valid first lien on those fixtures, which could not be provided due to existing mechanics' liens. Title insurers are required to file all forms of title policies and contracts with the director before issuance. Such filings may be submitted by title insurance rating organizations on behalf of their members, and insurers cannot issue policies until 30 days after filing unless approved earlier. If the director does not disapprove a filing within 30 days, it is deemed approved. Certain forms of title policies specifically exclude reinsurance contracts, known title defects, and exceptions based on limitations imposed by the insurance applicant. Additionally, title insurers may offer services related to land title business but cannot guarantee payment for bonds or obligations. The answering brief from UCB, supported by HRP, does not reference the Restatement or the Leiter case, mentioning Arizona Title only in a footnote.