Opinion

United California Bank v. Prudential Insurance Co. of America

140 Ariz. 238
681 P.2d 390
1983 Ariz. App. LEXIS 699

Court: Court of Appeals of Arizona
Filed: Sep 1, 1983
Status: Published
Author: Corcoran
On the bench: Corcoran, Ogg, Froeb
Cited by: 202 cases
Authority: More cited than 98.1%

explaining that where a contract includes general terms that accompany specific terms covering the same subject matter, “the meaning of the general terms is presumed to be limited [by] the enumerated specific terms and to include only those things of the same nature as those specifically enumerated”

How later courts described this case

explaining that where a contract includes general terms that accompany specific terms covering the same subject matter, “the meaning of the general terms is presumed to be limited [by] the enumerated specific terms and to include only those things of the same nature as those specifically enumerated”
explaining that the parties’ treatment of terms after the contract is executed but before a dispute as to meaning arises PURE WAFER V. CITY OF PRESCOTT 49 “is entitled to great weight” as evidence of the parties’ intended meaning for those terms
stating that 17 changing the terms of the offer, converts the offer to a counteroffer, which can still be 18 accepted by the party that made the original offer and form the basis of a valid contract
holding "that the interpretation of a contract is a question of law or, at most, a mixed question of law and fact, neither of which is binding on this court on review"

Written by the judges who cited it.

The opinion

TABLE OF CONTENTS

page

I. Introduction 246

II. Facts 246

A. The Background of the Hotel 246

B. The Loan Transaction 247

C. The Trial Court Proceedings 252

Phase I 252

Phase II 255

Phase III 255

Phase IV 255

D. The Appeal 255

III. Prudential’s Claim to an In-Fact First Lien 256

A. Introductory Statement 256

B. The Loan Application and the Commitment Letter: Incorporation or Not 257

C. Partial Summary Judgment or Trial on the Merits: Both 261

D. The Phase I Trial 262

The Five-Party Agreement 266

The Deed of Trust and Other Collateral Loan Documents 268

Modern Mortgage Law and Practice 270

Conclusion 272

E. Ejusdem Generis 273

F. Marketable Title as an Implied Obligation 274

G. A.R.S. § 20-1591(2) and A.R.S. § 20-1565(B) 275

H. Conclusion 27 6

IV. Anticipatory Repudiation 277

V. Funding into a Default and Insolvency 289

VI. Attorney-Client Privilege 292

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VII. Measure of Damages 295

A. Introductory Statement 295

B. The Evidence Supports the Trial Court’s Findings 298

Prudential’s In-House Appraisals 300

Owner’s Opinion of Value 302

Remarks of the Trial Judge 305

C. The Claimed Interest Deduction 308

VIII. The Cross-Appeals 309

A. Prejudgment Interest 309

B. Increase in Interest Rate 310

IX. Conclusion 310

OPINION

CORCORAN, Judge.

I. INTRODUCTION

This appeal requires us to review the trial court’s interpretation of agreements between Prudential Insurance Company of America (Prudential), United California Bank (UCB), and HRP Hotel Company (HRP). Prudential and UCB are both commercial lenders. UCB in this case was the interim construction lender to HRP, then owner-developer of the Hyatt Regency Hotel (Hotel), a high-rise hotel planned for downtown Phoenix. Prudential was the intended permanent or “take-out” lender on the Hotel. Prudential ultimately refused to fund the permanent loan and UCB and HRP sued, seeking relief on the issue of Prudential’s obligation to fund the $25,500,-000 loan.

The legal and factual issues were decided on a number of motions for partial summary judgment, several weeks of hearings, and on two separate trials to the court and one trial to the jury over a period of eight weeks. The various claims consumed 76 days of hearings and trial. During the trial proceedings hundreds upon hundreds of exhibits were marked for identification and many were admitted in evidence. Thousands of pages of testimony were taken on deposition and at trial. Pleadings, motions, memoranda, and other documents, usually with more exhibits attached, many of which had been produced and reproduced before, were filed in vast numbers.

The parties took diametrically opposed views as to the law applicable and what the evidence shows. Consequently it has been necessary to devote an inordinate amount of time examining the transcripts of testimony and exhibits and in researching the law. Prudential states in its opening brief: “This case is bulkier than it is difficult.” It is both bulky and difficult. HRP states in its answering brief: “This litigation has been protracted and hard fought at every turn.” This is a gross understatement. The advocacy has been intense; the quantity of work excellent. For the sake of clarity and space we have attempted to limit ourselves to the facts and proceedings pertinent to a disposition of the case. However, we may not have been totally successful in this endeavor.

Liability was found against Prudential and damages awarded HRP in the amount of $10,494,000, representing HRP’s loss of equity in the Hotel. The court also awarded HRP attorneys’ fees in the amount of $863,250. UCB was awarded nominal damages of one dollar, plus attorneys’ fees totaling $163,550. Pursuant to an agreement executed by UCB and HRP during the pendency of the case in the trial court, UCB is entitled to approximately one half of HRP’s damages. Prudential has appealed the judgment entered in the trial court. We affirm.

II. FACTS

The Background of the Hotel

Sam Shapiro, after arriving in Phoenix in 1937, was involved in various business enterprises. In the late 1960’s Mr. Shapiro planned the construction and development of a high-rise luxury hotel in downtown Phoenix. HRP, an Arizona limited partnership, was formed by Mr. Shapiro to carry out the plan.

In 1970, HRP purchased the site of the Hotel for $1,975,000. It was a parcel of unimproved real estate across the street from the Phoenix Civic Plaza. Mr.

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Shapiro then engaged Laventhol & Hor-wath to study the feasibility of the project, Charles Luckman Associates to design the Hotel, Chanen Construction Company to build it, and the Hyatt Hotels Corporation to manage and operate it.

The Loan Transaction

In September 1973, Prudential’s Phoenix office prepared and presented to HRP a printed “Loan Application” (loan application) form for a long-term $24,500,000 loan to be secured by the proposed Hotel. The original applicant for the Prudential loan was National Properties, which for purposes of clarity will be referred to as HRP, the authorized nominee of Prudential’s commitment. The standard two-page loan application has attached to it five typewritten pages, each entitled at the top in printed text “Application Rider” containing 34 typed “Conditions” (conditions). The loan application form contained a space for information on the applicant’s “Present First Mortgage” and immediately below it a space for information on the applicant’s “Other Financing.” No information was set forth. In small print, just above the signature line, the standardized form said:

I agree to: (1) give a first mortgage; (2) pay all legal and title and closing expenses including cost of an engineer’s survey; (3) furnish and maintain fire and extended coverage insurance. My title and all title, mortgage and closing documents must be satisfactory to Prudential.

A number of items were left blank on the form, including the only other reference to a “first mortgage,” the standard question as to the particulars of the applicant’s “present first mortgage,” a question inapplicable to HRP’s application for a loan on the Hotel which had not yet been constructed.

On September 21, 1973, after’discussion and negotiation of the terms, HRP returned to Prudential the executed loan application and rider setting forth the conditions, with a check for $61,250 as payment of the required service charge and a $490,-000 letter of credit as a non-refundable standby fee. “S. Shapiro” signed the loan application on behalf of HRP. One of the last items completed on the loan application shows that a Mr. Smith indicated “commitment recommended” by putting an “x” in a box. Other boxes, which were not completed, were provided below that recommendation for further processing by Prudential.

On October 25,1973, Prudential extended to HRP a permanent loan commitment for $24,500,000

by “an offer to make a mortgage loan to you” letter (commitment letter), signed by its Associate General Manager, to which the original application rider, with some conditions modified, was attached. The two-page loan application itself was

not

attached. The commitment letter states:

Re: Application No. 2 167 536

Gentlemen:

Pursuant to an authorization by this Company on October 23,1973, we hereby offer to make a mortgage loan to you, as applicant, on the following terms and conditions:

Applicant: National Properties, or Nominee

Security: 100 North Second Street, Phoenix, Arizona

Amount of Loan: $24,500,000

Interest Rate: 9’/2%

Term: 360 Months

Payments: $206,045 on account of interest and principal.

Prepayment Privilege: Pursuant to Attached Rider

This offer is subject to Conditions # 1 through # 34 as set forth in the attached application riders submitted to Prudential with your Application for Mortgage Loan dated September 21,1973 which are made a part of this offer.

This offer to make a mortgage loan is personal to applicant and is not assignable or transferable without the written consent of Prudential. If this offer is

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not accepted and returned to Prudential within 10 days from the date hereof, at Prudential’s option, this offer shall be null and void and of no further force and effect.

Sincerely,

THE PRUDENTIAL INSURANCE

COMPANY OF AMERICA

By Mark F. Smith

Mark F. Smith

Associate General Manager, REI

The acceptance was provided by Prudential and completed by HRP:

This offer to make a mortgage loan and all terms and conditions thereof are accepted this

31st

day of

October,

1973.

NATIONAL PROPERTIES

By S. Shapiro

Among the 34 conditions set forth in the application rider attached to Prudential’s commitment letter were the following:

’ 2. The lien of the Deed of Trust shall be insured by an ALTA policy of title insurance, with ALTA endorsement number 3-R and 5, in an amount not less than the amount of the loan, issued by a title company approved by Prudential, insuring the deed of trust as a first encumbrance without exception, unless that exception is specifically approved by Prudential.

12. At the time of disbursement of the loan, the security shall not be encumbered by secondary or subordinate liens given to secure additional financing, unless approved by Prudential.

Neither the commitment letter nor any amendment to it provided for a “first mortgage” or referred in specific terms to any priority that Prudential’s deed of trust was to receive. Negotiations preceded the loan application and continued thereafter. The commitment letter conditions contained material changes from those attached to the loan application. Condition 33 to the loan application which required Prudential to participate with the Valley National Bank in the construction loan was deleted. Condition 33 to the commitment letter required HRP “and equity investors acceptable to Prudential” to invest $8,500,000 in “developing and operating” the Hotel. Terms of the “Prepayment Privilege” were also substantially modified.

On February 19, 1975, Prudential and HRP modified “Prudential’s offer to make a mortgage loan dated October 25, 1973,” by deleting conditions 6 and 9 and substituting therefor:

6. Prudential shall be furnished with a satisfactory affidavit that no chattel mortgage, conditional bill of sale, security agreement, financing statement, lease agreement or other title retention agreement, except as provided or permitted under Condition No. 9, has been made or executed with respect to any fixture or furnishing attached to or used in conjunction with any portion of the security.

9. (a) Prudential shall have a valid first lien on and security interest in all furnishings, fixtures and equipment owned by applicant, located on the security and used in conjunction with the improvements thereon, and applicant shall provide Prudential with satisfactory fire insurance thereon. Prior to disbursement, applicant shall provide Prudential with a then current inventory of said furnishings, fixtures and equipment and satisfactory evidence that the same have been paid for in full and that there are no liens existing against the same. In the event title to all such items is not vested in applicant at closing, the security interest shall attach to each such item upon subsequent acquisition of title by applicant.

(b) Applicant may, however, lease certain enumerated furniture and equipment in an amount not to exceed the initial total cost of $2,000,000 for a term of ten (10) years. The lease shall provide that if the lessee be in default under the lease, Prudential at its option may cure the default or purchase the equipment. Prudential’s Deed of Trust shall provide that a default under the lease shall constitute a default under the Deed of Trust.

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(c) Applicant shall apply the proceeds from the sale, as it occurs, of each individual share of the limited partnership interest in the ownership of the hotel, so as to prepay the lease obligation of $2,000,000, enumerated in Condition No. 9(b).

Prudential’s commitment letter required HRP to begin construction within six months (condition 18) and in fact construction commenced in December, 1973..

In many real estate developments, financing is accomplished in two steps — a short-term construction loan and a long-term permanent loan. In this case, however, financing became a three-step process because HRP, as owner-developer, began construction with its own funds before obtaining interim construction financing. A.R.S. § 33-992 provides that mechanics’ and materialmen’s liens will relate back to the date construction commences rather than to the time of actual filing and will; therefore, have automatic priority over a subsequently recorded deed of trust. The “broken priority” which resulted from HRP’s commencement of construction before recordation of any encumbrances securing either an interim or permanent loan, was known to Prudential at the time construction commenced.

By early 1975, HRP had substantially completed 20 stories of the superstructure, after spending in excess of $6,000,000 of its own funds in construction costs. HRP then approached UCB for a construction loan on the project and negotiations ensued among HRP, UCB and Prudential, culminating in what became known as the Five-Party Agreement (agreement) executed May 2, 1975.

Under this agreement, UCB agreed to provide the needed construction financing and Prudential agreed to permit the assignment of its loan proceeds to UCB upon compliance by HRP with its obligations as defined by the agreement. The agreement defined those obligations in the following terms:

Prudential has issued to National Properties, a partnership [HRP], a mortgage loan commitment evidenced by a letter [commitment letter] dated October 25, 1973, as amended by letters, respectively dated October 29, 1.973, October 16, 1974, February 19, 1975, and March 4, 1975, from Prudential to National [HRP], copies of which are attached hereto as Exhibit C and made a part hereof by this reference (hereinafter called “the Commitment”), for a permanent loan in the principal sum of $25,500,000.00 ... to be secured by a valid Trust Deed on the Hotel Property, including improvements being erected and to be erected thereon, a valid first lien and security interest in the rights and leasehold estates of HRP with respect to the Parking Facility, and the other collateral security referred to or described in the Commitment.

The agreement referred to and had attached to it as Exhibit C the commitment letter (including the 34 conditions) and all amendments to it, which were “made a part hereof by this reference.” Further exhibits attached to the Five-Party Agreement are: A, the legal description of the real property on which the Hotel is situated; B, the legal description of the real property on which the parking garage is located; D, the letter from Prudential to HRP by which Prudential consented to HRP’s designation as nominee of National Properties pursuant to the commitment letter; E, a loan agreement between HRP and Nametco Corp. regarding construction of the Hotel; and F, an acknowledgement by Prudential identifying the commitment letter and each amendment to it by date as “the ‘Commitment’ ” and setting forth those conditions which had been wholly or partially satisfied or waived. For instance, Prudential acknowledged that amended condition 9(e) of the commitment letter quoted above had been waived. Except for the reference in the commitment letter to the loan application which has been previously quoted, there was no reference to the loan application in the agreement and it was not at

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tached either as an exhibit or as an exhibit to an exhibit.

During the negotiations of the Five-Party Agreement, all parties were aware that construction had commenced prior to recording an instrument securing either the interim or permanent loan and that as a result any mechanics’ and materialmen’s liens filed as to the construction would have priority as a matter of law over any subsequently recorded encumbrance.

Because of the broken priority, UCB took steps to assure both itself and Prudential that acceptable title companies would insure the positions of UCB and Prudential as first lien positions despite the broken priority. After receiving an indemnity agreement from the general partner of HRP, Arizona Title Insurance and Trust Company (Arizona Title) agreed to issue policies insuring UCB and Prudential against any mechanics’ and materialmen's lien which would have statutory priority over their lenders’ liens. Prudential and UCB also required that the policies be rein-sured by a group of substantial title insurance companies.

By letter of May 1, 1975, Prudential pre-approved a specimen form of title insurance policy. The letter indicated that the approved policy would satisfy condition 2.

You are hereby advised that the issuance to us [Prudential] of a legally effective policy in the form and content attached hereto will satisfy Condition No. 2 of our Commitment [letter]____

Prudential also notified Arizona Title that it could disburse the proceeds of its loan once Arizona Title had issued to Prudential the title policy in the same form and content as the specimen which it had approved.

HRP paid the title insurance carriers the premiums necessary to purchase identical title insurance policies insuring both the interim and the permanent loans, including the agreement to insure over subsequently filed mechanics’ and materialmen’s liens. The premiums were paid in 1975, before the interim loan closed, and after the title policy and reinsurance agreements had been preapproved by Prudential.

Contemporaneously with the execution of the Five-Party Agreement, HRP executed in favor of Prudential a number of collateral loan documents, including a deed of trust which stated:

Trustor [HRP] warrants that the title to all property conveyed by this Deed of Trust [the Hotel] is clear, free, and unencumbered.

Others of the collateral loan documents indicated that Prudential “issued ... its written commitment, dated October 25, 1973, pursuant to which [HRP] ... agreed to make ... a loan secured by a first deed of trust.” These documents included an Assignment of Management Agreement, acceptance of assignment, assignment and security agreement, and others. The collateral loan documents were deposited in escrow with Arizona Title to be dated and recorded or distributed on closing of the permanent loan by Prudential.

On the date of execution of the Five-Party Agreement, May 2, 1975, and in reliance upon Prudential’s commitment, UCB and HRP entered into and executed a construction loan agreement for $25,500,000 evidenced by a promissory note secured by a deed of trust which was “to be insured as a first lien upon the real property described in said deed of trust____” Prudential was not a party to and is not bound by this construction loan agreement. Nor does Prudential claim to be a beneficiary of this agreement. In this construction loan agreement HRP agreed:

To furnish to Lender [UCB] upon rec-ordation of the Deed of Trust and prior to any disbursement hereunder, a title insurance policy in such form, and by such company or companies, and with such reinsurance provisions as Lender may require, ensuring said Deed of Trust to be a first lien on said real property, subject only to such exceptions as Lender may approve.

Borrower [HRP] shall give immediate notice to Lender [UCB] of any recorded mechanics’ or materialmen’s liens affecting the real property encumbered by the aforementioned Deed of Trust and upon

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demand by Lender [UCB], Borrower [HRP] shall cause such lien to be discharged pursuant to the procedure set forth in Arizona Revised Statutes § 33-1004 or otherwise, and failure of Borrower [HRP] to effect the discharge of such lien within five (5) days from the date of such demand shall at the sole option of Lender [UCB], constitute a default hereunder.

UCB further provided for discharge of any liens resulting from HRP contesting any bills for labor or material. The construction loan agreement further stated:

Borrower [HRP] may contest any bill for labor material which it believes in good faith to be improper or unjustified; provided, however, that in the event any lien is filed with respect thereto Borrower [HRP] shall notify Lender [UCB] of such lien, and upon demand by Lender [UCB], shall cause such lien to be discharged by bond or otherwise____

Both before and after the execution of the Five-Party Agreement, Barry Shapiro of HRP described the Prudential permanent loan as a “first mortgage loan” in soliciting financing.

In January 1976 the Hotel opened for business. However, because of disputes between the general contractor, the subcontractors, and HRP, substantial numbers and amounts of mechanics’ and material-men’s liens were filed against the Hotel in' February 1976. By the time the statutory period for filing all such liens had expired, the total amount of liens approximated $7,000,000. The lien total after elimination of multiple filings, however, was approximately $2,900,000.

HRP, for its part, was unwilling to remove the liens by bonding because liens in the amount of $7,000,000 would require a bond of $10,000,000 despite the fact that the unduplicated lien total was less than $3,000,000.

UCB’s position was that HRP was obligated under the

construction loan agreement

either to provide a bond or make other appropriate arrangements or to pay off the lien claims in order to allow transfer of the loan to Prudential. UCB stated to HRP:

We wish to remind you of your obligation to complete the project free of liens by March 31, 1976 in order to permit funding of Prudential’s loan by that date. Considering your indicated intent to dispute final billings with several sub-contractors and the contractor, your ability to cover potential liens with bonds will be important to avoid default.

On November 8, 1976, representatives from HRP, UCB and Prudential met in Prudential’s home office in Newark, New Jersey, to discuss what remained to be done to satisfy the commitment letter which was going to expire the following month. Prudential took the position at this meeting and ten days later in a letter that it was entitled to a “first mortgage” under the

loan application,

and that the loan application was incorporated by reference into the commitment letter. Prudential indicated that it was not going to fund the permanent loan until it received an in-fact first lien, which would have required that all mechanics’ and materialmen’s liens be paid or otherwise satisfied before the loan could close.

Construction of the Hotel was nearly completed and virtually the entire amount of the construction loan, $25,500,000, had been funded by UCB. HRP had invested almost $10,000,000 in the Hotel. As a result of the meeting in Newark, Prudential agreed to extend the deadline for closing the permanent loan until June 30, 1977.

On February 8, 1977, HRP and UCB delivered to Prudential evidence of satisfaction of the terms of the commitment letter. This was rejected on the ground that it failed to comply with the terms of the commitment; Prudential refused to fund the permanent loan.

UCB filed a declaratory judgment action against Prudential the following week, seeking a declaration that Prudential’s commitment letter conditions had been met and that Prudential was therefore obligated to fund the permanent loan. HRP later

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joined in the action. A final tender of compliance was made on June 30, 1977, and again Prudential refused to fund based in part on the presence of mechanics’ liens. The Prudential permanent loan was not closed.

Finally, on January 18, 1978, UCB completed foreclosure on the deed of trust securing its construction loan and became the owner of the Hotel. HRP lost the Hotel.

The litigation, which had already been initiated, proceeded to trial in due course and results in this appeal.

The Trial Court Proceedings

The trial court entered judgment on August 29, 1979, in favor of UCB and HRP following protracted trial proceedings.

The threshold and related issues before the trial court were: (1) Whether the loan application of September 21, 1973, which refers to a “first mortgage,” was incorporated by reference into the commitment letter of October 25, 1973; and (2) whether Prudential was entitled to an in-fact first lien on the Hotel by the terms of the commitment letter, as opposed to an insured first lien. The first issue was decided by the trial court as a matter of law, in the first instance, on partial summary judgment before trial. The second issue was tried to the court sitting without a jury in “Phase I” of the trial. Because there were numerous hearings and four separate trials, the trial court and the parties adopted the practice of referring to the separate trials as phases.

On the first issue of whether the loan application was incorporated into the commitment letter by reference, the court ruled as a matter of law that the commitment letter was unambiguous and that it did

not

incorporate the loan application. There were motions pending at that time focusing on the issue of whether Prudential was entitled to an actual first lien or only to a policy of title insurance insuring a first-lien position. The trial court denied the motions on November 4, 1977, but granted partial summary judgment in determining that “the [loan] application is not incorporated by reference by the commitment letter issued by Prudential.”

The parties on appeal have taken diametrically opposed views of whether the trial court determined that the loan application was not incorporated in the commitment letter as a matter of law on partial summary judgment, or as a matter of fact after trial to the court. HRP and UCB take the position that this issue was tried to the court. Prudential adheres to the position that it was determined by the court on partial summary judgment. We shall set forth in detail the position that Prudential took

after

the trial court ruled that the loan application was not incorporated by reference by the commitment letter and

before

the trial of Phase I through the entry by the court of findings of fact and conclusions of law regarding that phase.

Phase I.

In a lengthy trial memorandum for Phase I submitted by Prudential on December 9, 1977, it summarized its position as follows:

Prudential’s position in this court is that the promise in the original loan application to give a first mortgage coupled with the surrounding circumstances and the express language in numerous [collateral loan] documents executed on May 2, 1975 [the same date as the Five-Party Agreement] are the basis for Prudential’s right to, an actual first mortgage. Condition 2 to the Commitment [letter] simply evidences and reinforces that underlying right to an actual first deed of trust. In other words, the borrower

first

agreed to give Prudential a first mortgage and

second

to insure that first mortgage as being of first priority with a title insurance policy which the borrower obtains.

The rhetorical question which must be put to UCB and to HRP [regarding Condition 9] is just how was Prudential to have a valid first lien on the fixtures (i.e. part of the real estate) and not have a valid first lien on the structure and the

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ground? They argue for an absurd, indeed impossible interpretation.

In the joint pretrial statement, which all of the parties filed on the same date as Prudential’s trial memorandum, Prudential listed as contested issues of fact that it deemed material the following:

(1) The Prudential loan commitment [letter] of October 25, 1973,

incorporated

the terms of the National Properties [HRP] loan application (a)

by reference,

(b) by implication or (c) by practice and usage.

(2) At the time the permanent loan commitment [letter] was entered into and at all times thereafter both Prudential and National Properties and its successor [HRP] understood and intended that Prudential was entitled to receive as a condition of funding the permanent loan an actual first mortgage lien encumbrance on the property.

(8) All of the parties understood and intended that the use of the phrase “first mortgage” as it appeared in the loan application meant an actual first mortgage lien encumbrance on the real property and that Prudential was entitled to an actual first mortgage lien encumbrance on the real property as a condition of funding.

Prudential clearly asserted a right to trial on the issue of incorporation by reference notwithstanding the earlier ruling by the court.

A five-day trial to the court commenced on December 13, 1977, in which the issues were stated by the court to be limited to whether Prudential was entitled to an in-fact first lien or an insured first lien under the commitment letter, specifically under conditions 2 and 9.

However, immediately before the trial, the court ruled on the record as a matter of law “that Condition 2 of the Commitment [letter] is clear, standing alone and by itself without reference to anything else, and requires only an insured first position as opposed to an actual first position.”

The questions regarding the incorporation of the loan application into the commitment letter and the effect of condition 2 had ostensibly been decided by the court’s rulings before trial. Although the Phase I trial was supposed to be limited to the remaining question of whether condition 9 entitled Prudential to an in-fact first lien on the Hotel, the trial court, at the behest of Prudential and over objection by UCB and HRP, admitted the loan application in evidence. The commitment letter, the Five-Party Agreement, the collateral loan agreements, and numerous other exhibits were also admitted in evidence. The witnesses were examined regarding the loan application, their understanding of its relationship to the commitment letter and the other agreements, their understanding of the “first mortgage” provision, their understanding of conditions 2 and 9, and, in sum, the surrounding circumstances and negotiations regarding the whole transaction.

On January 10, 1978, after the trial, Prudential submitted proposed findings of fact and conclusions of law which, if adopted by the trial court, would have found as a matter of law and as a matter of fact from the evidence presented during Phase I that the loan application provision referring to a “first mortgage” should be read into the commitment letter and, along with conditions 2 and 9, among others, require that HRP provide Prudential with an in-fact-first lien. The proposal included:

11. With respect to (a) the September 21, 1973 loan application which was signed by National [HRP] (and the agreement or promise contained therein of National to give a first mortgage to Prudential); (b) the October 12, 1973 signed application riders; and (c) the October 25, 1973 offer-to-loan [commitment] letter and its annexed application riders; they need not all be physically annexed or attached one to the other to be integrated or incorporated by reference. A sufficient connection between the papers is established simply by a reference in them to the same subject matter or transaction.

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15. If the subsequent or later offer-to-loan [commitment] letter of October 25, 1973 did not vary the agreements contained in the September 21, 1973 loan application, then the agreements and promises in the loan application are made part of the subsequent commitment letter by implication or as a matter of law.

The trial court rejected Prudential’s proposed findings and conclusions.

On January 12, 1978, Prudential filed a motion for judgment and indicated:

No matter how one slices the loaf, Prudential’s entitlement or non-entitlement to an actual first mortgage lien is not and cannot be dependent solely upon Conditions 2 or 9 nor was the recent trial restricted to that narrow, isolated and meaningless determination. The contents of the September 21, 1973 loan application and the written [collateral loan] agreements reached by the parties on or about May 2, 1975, are relevant, significant and dispositive and cannot be ignored. The Court, to do its job properly, must look at all those matters in order to determine whether Prudential was entitled to an actual first lien____

To conclude Phase I of the trial, the court entered formal findings and conclusions on March 24, 1978, pursuant to Rule 52, Rules of Civil Procedure. Specifically:

8. The printed form of [loan] application as completed and signed by National [HRP] on September 21, 1973 was not incorporated by reference in or made a part of the contract [commitment letter] dated October 25, 1973.

The court also found: The commitment letter was “clear and unambiguous with respect to Prudential’s claimed entitlement to a first lien in fact on the realty instead of only a deed of trust insured as a first lien.” The commitment letter entitled Prudential only to a deed of trust insured as a first encumbrance and no provision of the commitment letter gave Prudential a right to an in-fact first lien on the Hotel. On or before May 2, 1975, the date of execution of the Five-Party Agreement, Prudential knew that priority had been broken and that any mechanics’ or materialmen’s liens filed against the Hotel which remained unresolved would have priority over any deed of trust that would be filed then or thereafter, since construction of the Hotel had begun before any deed of trust or other security agreement was recorded by HRP in favor of UCB or Prudential. The collateral loan documents executed concurrently with the Five-Party Agreement “were not intended to and did not create any additional conditions precedent to Prudential’s obligation to fund its permanent loan commitment.” Prudential agreed in the Five-Party Agreement to fund the permanent loan within 15 days after compliance with the conditions of the commitment letter. In so doing, Prudential was required under the terms of the agreement to fund its loan before the end of the statutory period for filing of liens and thus demonstrated its willingness to rely upon title insurance to protect its position.

The court found in the alternative that had Prudential’s commitment letter not been clear and unambiguous it would nevertheless construe any ambiguity against Prudential as the drafter of the commitment letter.

The court again found that Prudential was not entitled, as it had argued, to an in-fact first lien by virtue of condition 2 of the commitment letter, but only to a deed of trust insured by a title insurance policy as a first encumbrance. Prudential had also argued that it was entitled to an actual first lien on the real property pursuant to condition 9 of the commitment letter. The court found that the provisions of that condition related only to personal and not real property.

In sum, the court found that the existence of mechanics’ and materialmen’s liens did not affect Prudential’s obligation to fund its permanent loan.

Thereafter, Prudential filed a petition for special action in the Supreme Court of Arizona (No. 13810-SA) requesting the Court to take jurisdiction and direct the trial court to enter a declaratory judgment that Prudential was entitled to a “first mort

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gage lien position” as a condition of its permanent loan. The Supreme Court declined to accept jurisdiction.

Phase II.

The issues of liability were tried to a jury in a lengthy trial which resulted in verdicts on May 23, 1979, in favor of HRP and UCB following the court’s rulings that (1) Prudential’s demand for an in-fact first lien was an anticipatory breach of the contract; (2) HRP’s continued performance did not constitute a waiver of the anticipatory breach; (3) HRP need only demonstrate that it had the ability to perform the conditions of the contract rather than prove actual performance; and (4) HRP’s prospective inability to perform because of insolvency could not be claimed by Prudential as a defense to an action for anticipatory breach.

Phase III.

The issues relating to HRP’s damages were tried to the court sitting without a jury. The court found HRP’s damages to be its loss of equity in the Hotel, totalling $10,494,000.

Phase IV.

The final phase of the trial was decided on partial summary judgment in which the court awarded UCB nominal damages of $1.00 plus costs and certain attorneys’ fees.

The Appeal.

Prudential filed a printed appellant’s opening brief containing 46 pages. A maximum of 50 pages is permitted by rule 14(b), Rules of Civil Appellate Procedure. HRP and UCB, through their master settlement agreement executed during the pend-ency of the case in the trial court, had joined forces and shared a joint interest in the common pursuit of the same claims against Prudential. In an act of legerdemain HRP and UCB filed separate appel-lee’s answering briefs, each printed, and each almost 50 pages long (not including their separate cross-appellants’ opening briefs). HRP and UCB divided the issues raised by Prudential between them and each addressed only those separate issues. HRP and UCB then provided in their separate briefs that they were “adopting by reference” each other’s briefs. HRP and UCB have effectively filed one joint brief under two covers which is twice the length of that permitted by rule 14(b) and twice the length of that permitted to and filed by Prudential. See rules 8(b) and 13(f) regarding a joint brief.

Prudential refers to this tactic as “cutesiness.” However, Prudential did not object or file a motion to strike the briefs. The court was not aware of this maneuver until preparation for oral argument was well underway. This court specifically disapproves of two parties who have a joint interest in the appeal splitting issues which are applicable to both between themselves and filing separate briefs each in the maximum number of pages permitted. An appropriate order of this court should first have been sought before these appellees’ briefs were filed.

Prudential appeals from the judgment in favor of UCB and HRP. No separate issue is raised, however, regarding the award of attorneys’ fees.

Prudential has raised five particular questions. However, numerous facets of each question were presented to and considered by the court. Although they are not specifically designated, they have been disposed of by our discussion of the legal principles in this decision. The claims made by Prudential are that: (1) The trial court erroneously determined that it was not entitled to an in-fact first lien on the Hotel but only to a deed of trust insured as a first lien; (2) the trial court erroneously ruled that Prudential’s insistence on an in-fact first lien on the Hotel was an anticipatory breach of the contract; (3) the trial court erroneously ruled that Prudential must fund the loan even if it was “funding into a default” and even if HRP was insolvent; (4) the trial court committed reversible error in the trial to the jury when it permitted questioning of Prudential’s witnesses to which Prudential invoked the attorney-client privilege; and (5) the trial court applied an incorrect measure of damages to determine Prudential’s liability. We will address the issues in that order.

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UCB and HRP have also filed cross-appeals and a separate appeal which are largely conditional upon a ruling by this court reversing the judgment below. The only unconditional issue raised on the HRP cross-appeal is HRP’s entitlement to prejudgment interest.

III. PRUDENTIAL’S CLAIM TO AN IN-FACT FIRST LIEN

Introductory Statement

We begin with the proposition that “[I]n the transactions of business life, sanity of end and aim is at least a presumption, albeit subject to be rebutted.”

Outlet Embroidery Co. v. Derwent Mills, Ltd.,

254 N.Y. 179, 183 , 172 N.E. 462, 463 (1930). Prudential argues on appeal that no reasonable and prudent lender would have committed to lend $25,500,000 without what it terms the “rock hard security” of an “in-fact first lien.” The trial court, however, determined that the contract, which consisted of a commitment letter, the attached application rider containing specific conditions, and a number of amendments, did not include the initial loan application form and its “first mortgage” provision. For the purpose of this opinion, we are assuming that “first mortgage” is synonymous with an in-fact first lien.

In finding that the commitment letter dated October 25, 1973, constituted a fully integrated contract as between Prudential and HRP, the court also found that the collateral loan documents executed at the time of the Five-Party Agreement dated May 2, 1975, were not intended to and did not create additional conditions precedent to Prudential’s obligation to fund the permanent loan. It further found that Prudential’s claim to an in-fact first lien was unsupported by any conditions of the commitment letter or the record in Phase I and found Prudential’s refusal to fund the loan was therefore an anticipatory breach of the contract.

The threshold issue with which we are presented in this appeal is the question of whether Prudential was entitled to require that the property be free of liens in addition to compliance with the conditions of the commitment letter at the time of closing the permanent loan, or if it was, as UCB and HRP contend, only entitled under the commitment letter to a policy of title insurance insuring its deed of trust as a valid first lien on the property.

At the outset, we must determine whether the words which appear in the commitment letter operate to incorporate by reference the two-page form loan application itself. If the commitment letter does not incorporate the loan application by reference, as found by the trial court, this court must determine the character of the Phase I trial. If the incorporation by reference issue was tried to the court, the question is then whether the trial court’s holding that Prudential was entitled under the commitment letter only to a deed of trust insured as a first lien was supported by the evidence on the record.

Whatever Prudential’s position as to the effect of condition 2 at trial,

its position on appeal is clear.

Nobody ever contended that the language of Condition 2 (the requirement of a title insurance policy) was what re

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quired an actual first encumbrance. It was the Application’s promise to “give a first mortgage” which required one. All Condition 2 required was a title insurance policy. The letter of May 1, 1975, from a Prudential representative said that Condition 2’s requirement of a title insurance policy would be satisfied by a certain policy. It would.

Prudential has never contended and does not say now that Condition 2 required anything beyond what Condition 2 purports to require. Prudential does not rest its claim of a right to insist on a first lien position on Condition 2 at all.

Whatever Prudential’s position as to the effect of condition 9 and the other conditions regarding a first lien at trial,

Prudential’s position on appeal is clear:

No Condition from 1 through 34 expressly promised to give a first mortgage on the property.

In this appeal, the linchpin of Prudential’s argument is that the “first mortgage provision in the loan application was incorporated by reference in the loan commitment.” Prudential states in its brief:

HRP’s promise to “give a first mortgage” was incorporated by reference in the loan commitment [letter]. The parties expressed their understanding that this was one of the terms of the agreement in collateral documents they signed. HRP told others it was bound to give Prudential a “first mortgage” and UCB confirmed HRP’s duty to complete the project free of liens in order to permit funding of the Prudential loan. It was only when HRP met obstacles to its giving a first lien that plaintiffs below [HRP and UCB] began casting about for a way to evade the agreement. As a matter of law, the court below erred in reading out of the contract a key promise which was part of it from the beginning.

Prudential takes the position on appeal that “this is ... a plain incorporation by reference case,” and that the language in the commitment letter is clear and unambiguous in incorporating not only the application riders but also the loan application itself. Prudential does not take the position that the language of incorporation is ambiguous and that therefore a trier of fact should determine the intent of the parties. Its position is that the trial court erred in determining that the language in the commitment letter did not incorporate the terms of the loan application and that therefore the judgment should be reversed and the trial court directed to enter judgment for Prudential.

The Loan Application and the Commitment Letter: Incorporation or Not.

It is fundamental that the interpretation of a contract is a question of law or, at most, a mixed question of law and fact, neither of which is binding on this court on review.

Schuldes v. Wubbolding,

15 Ariz. App. 527 , 489 P.2d 1229 (1971);

Guirey Srnka & Arnold, Architects v. City of Phoenix,

9 Ariz.App. 70 , 449 P.2d 306 (1969);

Bowen v. Watz,

5 Ariz.App. 519 , 428 P.2d 694 (1967).

The language relevant to our primary determination of whether Prudential’s commitment letter of October 25, 1973, is ambiguous is as follows:

The trial court ruled on partial summary judgment prior to trial that the above language was not ambiguous and that the commitment letter did not, as a matter of

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law, incorporate the loan application by reference.

The commitment letter does

not

state “this offer is subject to the loan application, dated September 21, 1973, including conditions # 1 through # 34 as set forth in the application rider, which is made a part of this offer.” The commitment letter is specifically drawn to include by reference the application rider which sets forth the conditions and to refer to the loan application only for the purpose of identifying the application rider. The

conditions

attached to the loan application are made a part of the commitment letter; the

loan application

is not. Prudential, in its opening brief, described clearly the distinction which the trial court made between the loan application and the loan commitment.

No Condition from 1 through 34 expressly promised to give a first mortgage on the property. [Loan] [application No. 2 167 536, however, did. The trial court construed the commitment letter to

include

conditions # 1 through # 34, but to

exclude

the Application____

Exactly. We agree with the trial court that the commitment letter is clear and unambiguous and does not incorporate the loan application by reference.

If the meaning of a contract can be determined from the four corners of the document and cannot reasonably be construed in more than one sense, extraneous documents are irrelevant and the court must give effect to the language of the agreement.

See Associated Students of University of Arizona v. Arizona Board of Regents,

120 Ariz. 100 , 584 P.2d 564 (App.1978), cert. denied, 440 U.S. 913 , 99 S.Ct. 1226 , 59 L.Ed.2d 462 (1979);

Hofmann Co. v. Meisner,

17 Ariz.App. 263 , 497 P.2d 83 (1972). The mere fact that the parties disagree as to the meaning of language contained in the agreement is not sufficient to create an ambiguity.

Giovanelli v. First Federal Savings and Loan Ass’n,

120 Ariz. 577 , 587 P.2d 763 (App. 1978).

Associated Students, supra.

In interpreting the language of the commitment letter, we are guided by the primary rules of interpretation as set forth in the

Restatement:

The standard of interpretation of an integration, except where it produces an ambiguous result, or is excluded by a rule of law establishing a definite meaning, is the meaning that would be attached to the integration by a reasonably intelligent person acquainted with all operative usages and knowing all the circumstances prior to and contemporaneous with the making of the integration, other than oral statements by the parties of what they intended it to mean.

Restatement of Contracts

§ 230 at 310 (1932).

See also Arizona Land Title & Trust Co. v. Safeway Stores, Inc.,

6 Ariz. App. 52 , 429 P.2d 686 (1967). Only when the meaning of the contract remains uncertain after application of the primary standards of interpretation cited above may the court apply the rule, of construction that ambiguity of language is to be construed against the drafter of the contract.

See Phelps Dodge Corp. v. Brown,

112 Ariz. 179 , 540 P.2d 651 (1975);

Polk v. Koerner,

111 Ariz. 493 , 533 P.2d 660 (1975); 1

Restatement of Contracts

§ 236(d) at 328 (1932).

Although neither physical attachment nor specific language is necessary to incorporate a document by reference, the incorporating instrument must clearly evidence an intent that the writing be made part of the contract.

See Industrial Commission v. Arizona Power Co.,

37 Ariz. 425 , 295 P. 305 (1931);

Beedy v. San Mateo Hotel Co.,

27 Cal.App. 653 , 150 P. 810 (1915); 17A C.J.S.

Contracts

§ 299 at 136 (1963). When the question of whether another paper or term has been incorporated by reference depends on “the exercise of speculation, surmise and conjecture” the court will refuse to rewrite the contract.

Home Insurance Co. v. Lomax,

17 Ariz. App. 520, 524 , 498 P.2d 594, 598 (1972).

See also Federal Ins. Co. v. P.A.T. Homes, Inc.,

113 Ariz. 136 , 547 P.2d 1050 (1976).

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In ascertaining the parties’ intent, the court will look to the plain meaning of the words as viewed in the context of the contract as a whole.

A judicial interpretation of a contract does not reach a point where the meaning of some clause can be said to be in doubt upon merely arriving at a conclusion that such clause may, as an abstract proposition, be given either of two meanings. A clause in a contract, if taken by itself, often admits of two meanings, when from the whole contract there is no reasonable doubt as to the sense in which the parties use it.

Climate Control, Inc. v. Hill,

86 Ariz. 180, 188 , 342 P.2d 854, 859 (1959), appeal dismissed, 364 U.S. 409 , 81 S.Ct. 180 , 5 L.Ed.2d 185 (1960).

Prudential relies on two cases, each of which construed identical language contained in a state-issued workmen’s compensation policy. “[T]he rate or rates of premium for this policy shall be subject to the experience rating plan of The Industrial Commission of Arizona____”

Industrial Commission v. Arizona Power Co.,

37 Ariz. at 428 , 295 P. at 306 ;

Climate Control, Inc. v. Hill, supra.

The Supreme Court found in each case that the language was sufficient to incorporate the provisions of the experience rating plan, citing the rule in its most general form that “[i]f one writing refers to another, the intention of the parties is to be gathered from the two instruments.”

Industrial Commission v. Arizona Power Co.,

37 Ariz. at 431 , 295 P. at 307 . The court used similarly broad language in

Climate Control Inc. v. Hill

for the same general proposition that “[mjatters contained in other writings which are referred to are to be regarded as part of the contract and properly to be considered in the interpretation of the contract.” 86 Ariz. at 188 , 342 P.2d at 859 .

Neither

Arizona Power

nor

Climate Control,

however, stands for the proposition that reference to a document for any purpose is sufficient to incorporate the document by reference into the contract: A reference made for a particular purpose, which purpose is clear from the contract, will operate to incorporate the document only for that particular purpose.

Short v. Van Dyke,

50 Minn. 286 , 52 N.W. 643 (1892), the Minnesota Supreme Court rejected the argument that a list of land

endorsed on the contract

was thereby incorporated by reference. The court held:

In a written contract, a reference to another writing, if the reference be such as to show that it is made for the purpose of making such writing a part of the contract, is to be taken as a part of it just as though its contents had been repeated in the contract.

But if the reference be made for a particular purpose, expressed in the contract, it becomes part of it only for that purpose.

50 Minn, at 289, 52 N.W. at 644 (emphasis added).

A reference to an earlier document for descriptive purposes will not operate to make the earlier document a part of the later agreement. In

Frierson v. International Agricultural Corp.,

24 Tenn.App. 616 , 148 S.W.2d 27 (1940) the parties had executed separate contracts at different times, all of which dealt with the same subject matter. In answer to the argument that the later contract’s references to the former agreements operated to incorporate the former provisions into the latter, the court held:

A reference to a former paper for descriptive purposes is in no sense a re-adoption of the former provisions; and it certainly cannot have the effect of importing into a new contract the conditions and limitations of the former agree-ment____ We are of [the] opinion that this limited reference is of moment in determining the question as to whether the provisions of the old contract were to be kept alive. If such was the understanding of the parties, why was there not inserted a specific provision to that effect? Whether a later contract is to be deemed an independent one or to become incorporated with or correlated to the old agreement is to be determined by the

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intention of the parties as expressed in the later agreement.

24 Tenn.App. at 629 , 148 S.W.2d at 35 .

In this case the language of the October commitment letter does not clearly and unequivocally evidence an intent that the September loan application be made part of the contract. The reference to the loan application is, to the contrary, clearly descriptive in nature, serving only to identify the “conditions ... set forth in the attached application riders ... which are made a part of this offer,” which conditions had been modified and were physically attached to the commitment letter. The absence of a physical attachment is not dispositive of the issue of incorporation where the reference to the other writing clearly evidences an intent that it be made a part of the contract.

Industrial Commission v. Arizona Power Co., supra.

The language of the commitment letter in this case, however, does not clearly evidence such an intent and the absence of a physical attachment of the loan application is consistent with the plain meaning of the words used and with the conclusion that the parties intended the reference for descriptive purposes only.

Prudential urges adoption of the rule that any reference to a former writing for any purpose operates perforce to adopt the former writing as part of the later agreement. As support for its proposition Prudential cites

Crabtree v. Elizabeth Arden Sales Corp.,

305 N.Y. 48 , 110 N.E.2d 551 (1953) as holding that the mere reference in one document to another acts to create one contract whenever both involve the same general subject matter.

Crabtree

is a statute of frauds case. As UCB correctly points out, the court adopted a more liberal incorporation test to avoid the risk that valid agreements may not be enforced because of technical non-compliance with the writing requirement of the statute. We are not faced with such a concern in this case.

That the loan application was not incorporated into the commitment letter is a conclusion made even more compelling in light of the fact that the commitment letter’s “attached application riders” were

not

the same riders originally attached to the loan application form itself. The conditions attached to the loan application were substantially changed and then attached to the commitment letter. The conclusion is more compelling that the reference to the “attached application riders” with reference to the loan application was simply for historical purposes just as the reference to the “application No. 2 167 536” would refer to the prior history of the transaction out of which the commitment letter arose.

Although Prudential argues that the loan application is incorporated in the commitment letter, the only provision in the loan application that it seeks to incorporate is the “first mortgage” clause. Prudential does not argue that there is any other material provision or information which the commitment letter lacks which is provided by the loan application.

Of course, even if Prudential were able to demonstrate that the incorporation clause of the commitment letter which it drafted is ambiguous, such a demonstration would be self-defeating because ambiguities will be construed against the drafter.

See, e.g., Covington v. Basich Bros. Construction Co.,

72 Ariz. 280 , 233 P.2d 837 (1951);

Equitable Life & Casualty Ins. Co. v. Rutledge,

9 Ariz.App. 551 , 454 P.2d 869 (1969). This is particularly true when a party is attempting to impose an obligation on another where otherwise such an obligation would not exist.

See Galbraith v. Johnston,

92 Ariz. 77 , 373 P.2d 587 (1962);

Morgan v. Firestone Tire & Rubber Co.,

68 Idaho 506 , 201 P.2d 976, 983 (1948). Additionally, any ambiguity in the documents is subject to a factual determination concerning the intent of the parties and is to be resolved conclusively by the trier of fact which, in this case, was the trial court.

Where a party claims that his own ambiguous language constitutes a condition precedent to his performance, he is not entitled to such a favorable construction unless it is established that the parties

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intended to create a condition at the time of contracting.

South Division Credit Union v. Deluxe Motors, Inc.,

42 Ill.App.3d 219, 222 , 355 N.E.2d 715, 718-19 (1976).

See also, Cuna Mutual Ins. Soc’y v. Dominguez,

9 Ariz. App. 172 , 450 P.2d 413 (1969) (loan contract).

We conclude that the trial court properly determined on partial summary judgment that the “incorporation clause” in the commitment letter is not ambiguous and that it did not incorporate the loan application.

Partial Summary Judgment or Trial on the Merits: Both

The object of all rules of interpretation is to arrive at the intention of the parties as expressed in the contract.

Phelps Dodge Corp. v. Brown,

112 Ariz. 179 , 540 P.2d 651 (1975). While the primary purpose of any judicial interpretation of a contract is to ascertain the parties’ intentions, it is the duty of the trial court in the first instance to determine if the parties intended the writing to be a complete and accurate integration of the terms of their agreement.

See Nashem v. Jacobson,

6 Wash.App. 363 , 492 P.2d 1043 (1972). A presumption exists that a contract complete on its face integrates the final intention of the parties, but the presumption does not apply when the writing is ambiguous or uncertain. 2

Restatement (Second) of Contracts

§ 214 (1981); 17 Am.Jur.2d

Contracts

§ 260 at 664 (1964).

The trial court in this instance ruled on partial summary judgment that the language of Prudential’s commitment letter was not ambiguous and that it did not incorporate the loan application by reference. Despite this ruling, however, the trial court subsequently allowed Prudential to introduce into evidence the loan application and testimony as to the meaning of the phrase “first mortgage” as contained in the loan application.

Prudential contends now on appeal that the court’s ruling on the incorporation issue was strictly one of law following motions for summary judgment; HRP and UCB take the contrary position that the matter was litigated and determined after full trial to the court. We must therefore resolve the dispute.

See Southwest Forest Industries, Inc. v. Westinghouse Electric Corp.,

422 F.2d 1013, 1015 (9th Cir.), cert. denied, 400 U.S. 902 , 91 S.Ct. 138 , 27 L.Ed.2d 138 (1970). The posture of the case as it is before us on appeal supports

both

positions. The trial record reflects some confusion as to what issues were supposed to be tried but no confusion as to what issues were in fact tried. At the beginning of Phase I, the trial court stated:

Now, it’s my understanding that we are here today to try two issues which center around Condition Two and Condition Nine of the Commitment [letter] issued October 25, 1973. We are not here to determine, if I understand correctly, whether or not there has been a compliance for those two conditions but simply what the two conditions require ____

The judge then went on to make a summary disposition of one of those issues:

I am prepared to so rule at this time that Condition Two of the Commitment is clear, standing alone by itself without reference to anything else — without reference to necessarily what might or might not be incorporated in by implication, by law, that the paragraph two standing alone by itself is clear and unambiguous on its face and requires only an insured first position as opposed to an actual first position.

Following several days of testimony on not only condition 9 but also on the issues previously decided as matters of law — condition 2 and the role played by the loan application in the transaction — the trial judge expressed concern that his earlier ruling on condition 2 at the beginning of the trial may have been premature:

I want to say one thing on the record ---- As to the prematurity of my ruling at the commencement of the case, that the condition is, in and of itself, clearly ambiguous [sic], that is a ruling I would not have made by any stretch of the imagination if we' were dealing with a

*262

normal case. We had at least, I expect, at least a minimum of an hour, close to an hour and a half in argument in chambers off the record, and it was my understanding that both sides were urging me to make that ruling. That’s the only reason. It is not something that is the prime reason. But I was under the impression that all three parties in this lawsuit wanted me to rule that it was ambiguous, or it was not ambiguous, before the testimony came in. And I therefore ruled, in my opinion, it was unambiguous.

The dispute as to whether the incorporation issue was decided on partial summary judgment or was in fact litigated and determined after trial to the court in Phase I could have significance with regard to our standard of review on this issue if it was determined only on partial summary judgment.

The record reflects that the trial court, despite its prior ruling on partial summary judgment that the loan application and its “first mortgage” provision had not been incorporated into the commitment letter, allowed the introduction of evidence at trial on the meaning of the phrase “first mortgage” as contained in the loan application and on the role played by the loan application in the whole transaction. In going beyond the four corners of the commitment letter, the court heard testimony on commercial lending practices and the course of dealing between and among the parties. The trial court considered the context and surrounding circumstances of the whole transaction from the time of the loan application through the sale of the Hotel.

See Smith v. Melson, Inc.,

135 Ariz. 119 , 659 P.2d 1264 (1983). Prudential does not assert that there is any evidence not already in the record of Phase I that could be produced at a new trial which would influence the outcome of Phase I. Following Phase I, the court found that under all of the facts and circumstances, Prudential was not entitled to an in-fact first lien and that the parties did not intend that the loan application be part of the commitment letter.

The trial court first ruled on the issue of incorporation as a matter of partial summary judgment. Then, at the behest of Prudential, and over the objection of HRP and UCB, the trial court in Phase I heard testimony and received exhibits relating to the issues raised by Prudential in its trial memorandum and the pretrial statement. See the summary of Phase I in the description of the trial court proceedings. After the conclusion of the Phase I trial, Prudential in its findings and conclusions and in its motion for judgment sought to have the court rule that the loan application was incorporated in the commitment letter. The trial court found against Prudential. On appeal Prudential takes the position that the trial court ruled on the incorporation issue only as a matter of partial summary judgment. We do not agree with that interpretation of the record and therefore proceed to review the Phase I trial. Since we affirm both the granting of the partial summary judgment and the findings and conclusions that the loan application was not incorporated in the commitment letter, any issue as to the standard of review applicable to summary judgment is moot.

The Phase I Trial

As a result of the Phase I trial, the trial court entered the following findings of fact and conclusions of law:

FINDINGS OF FACT

5. The Prudential Insurance Company of America (hereinafter referred to as “Prudential”) issued to National [HRP] a permanent loan commitment evidenced by an offer-to-loan [commitment] letter dated October 25, 1973. That commitment [letter] had attached thereto thirty-four (34) conditions.

6. Prudential’s offer-to-loan [commitment] letter to National Properties of October 25,1973, was accepted in writing by National Properties on October 31, 1973.

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11. Work commenced on the construction of the Hyatt Regency Phoenix Hotel in December of 1973 and at that time no interim construction financing had been obtained and no interim construction or permanent mortgage had been recorded.

12. The Prudential commitment letter of October 25, 1973 ... was drafted by Prudential.

13. The commitment letter ... is clear and unambiguous with respect to Prudential’s claimed entitlement to a first lien in fact on the realty instead of only a Deed of Trust insured as a first lien.

(a) By virtue of [the commitment letter] ..., Prudential is only entitled to receive a Deed of Trust insured as a first encumbrance.

(b) Condition 2 ... is clear and unambiguous on its face and requires only that Prudential receive the defined ALTA title insurance policy insuring the Deed of Trust as a first encumbrance.

(c) No other provision of [the commitment letter] ... provides that Prudential is entitled to receive a first lien in fact on the realty.

(f) Taking into account that FF & E [furniture, fixtures and equipment] is a term of art, Condition 9 ... is clear and unambiguous and refers only to personal property and not to real property.

(g) Alternatively, even if the loan commitment letter ... could be argued to contain an ambiguity, it was drafted by Prudential and must be construed against Prudential with respect to any such claimed ambiguity.

16. On May 1, 1975, Robert Wheeler, authorized to and acting for and on behalf of Prudential, stated in writing ... that the issuance to Prudential of a legally effective ALTA title insurance policy would satisfy Condition 2 of Prudential’s commitment letter of October 25, 1973.

17. Prudential represented in writing [in the Five-Party Agreement] on May 2, 1975, that Prudential’s commitment [letter] of October 25, 1973 remained in full force and effect.

22. On or before May 2, 1975, Prudential knew that construction of the Hyatt Regency Phoenix Hotel had commenced and that priority had been broken, and that any mechanics or material-men’s liens filed against the project would be prior to any deed of trust then or thereafter recorded.

24. The Prudential-HRP [collateral] loan documents executed on or about May 2, 1975 were not intended to and did not create any additional conditions precedent to Prudential’s obligation to fund its permanent loan commitment.

CONCLUSIONS OF LAW

2. The Prudential commitment letter of October 25, 1973 ... which was accepted by National on October 31, 1973 constitutes a fully integrated contract between those parties.

3. Prudential’s commitment letter of October 25, 1973 ... is clear and unambiguous and as a matter of law requires that National Properties or its nominee [HRP] provide Prudential only with a Deed of Trust insured by a policy of title insurance as a first encumbrance and not in fact a first encumbrance on the real property which serves as security for Prudential’s loan.

4. Even if Prudential’s commitment letter of October 25, 1973 ... were not clear and unambiguous, it was drafted by Prudential and any ambiguity contained therein must be construed against Prudential.

8. The printed form of [loan] application as completed and signed by National [HRP] on September 21, 1973 was not incorporated by reference in or made a

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part of the contract [commitment letter] dated October 25, 1973.

12. The existence of mechanics and materialmen’s liens do not affect Prudential’s obligation to fund its permanent loan commitment.

The scope of our review is limited by rule 52(a), Rules of Civil Procedure.

Findings of fact shall not be set aside unless clearly erroneous, and due regard shall be given to the opportunity of the trial court to judge the credibility of witnesses.

With regard to the court’s rulings on issues litigated during trial to the court in Phase I, the Arizona Supreme Court has defined the standard of appellate review as follows:

No principles are better settled in Arizona than, first, that the duty of a reviewing court begins and ends with the inquiry whether the trial court had before it evidence which might reasonably support its action viewed in the light most favorable to sustaining the findings, and, second, that the reviewing court will not weigh conflicting evidence on appeal.

O’Hair v. O’Hair,

109 Ariz. 236, 240 , 508 P.2d 66, 70 (1973).

The relevant facts which have not already been set forth are as follows:

The record supports the conclusion that there was no discussion between Prudential and HRP regarding the “first mortgage” provision before Mr. Sam Shapiro signed the loan application, and there was no discussion regarding that provision before Prudential submitted the commitment letter to Mr. Shapiro which he signed. Mr. Shapiro read the loan application before he signed it and expected to give a “first mortgage.” There were no discussions regarding whether the language of incorporation in the commitment letter included the loan application as opposed to the application riders.

Mr. Barry Shapiro testified that on behalf of HRP he described the Prudential permanent loan as a “first mortgage loan” in soliciting financing. This had been done both before and after the execution of the Five-Party Agreement. His explanation was that the description “first mortgage” simply distinguished that mortgage from a second mortgage or a third mortgage. The credibility and weight of such testimony is for the trial court to evaluate.

Lehman v. Whitehead,

1 Ariz.App. 355 , 403 P.2d 8 (1965).

It is fundamental that if the language of a contract is susceptible to more than one reasonable interpretation, the circumstances existing at the time of contracting must be considered by the court in ascertaining the meaning of the contract.

Sam Levitz Furniture Co. v. Safeway Stores, Inc.,

105 Ariz. 329 , 464 P.2d 612 (1970);

Rental Development Corp. v. Rubenstein Constr. Co.,

96 Ariz. 133 , 393 P.2d 144 (1964), and that a contract should be construed in a manner so as to be reasonable and probable under those circumstances.

Ball v. Stokely Foods, Inc.,

37 Wash.2d 79 , 221 P.2d 832, 835 (1950).

The circumstances which existed at the time of the execution of the commitment letter by Prudential and HRP indicate that it represented

the agreement

between them. We are not faced with a claim by Prudential that the commitment letter should be reformed to include the loan application or the “first mortgage” provision. Further, the circumstances which existed at the time of execution of the Five-Party Agreement, particularly the visible commencement of construction, were such that UCB would not have made an interim construction loan in reliance on a permanent loan commitment which, as a condition of funding, required an in-fact first lien, as opposed to an insured first lien. As Krato-vil and Werner note:

It is obvious that if visible construction actually begins before the mortgage is recorded or becomes a lien, some or probably all of the mechanics’ liens will be prior and superior to the mortgage.

R. Kratovil & R. Werner,

Modem Mortgage Law and Practice

§ 25.27(b) at 394

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(2nd ed. 1981). Under these circumstances, if Prudential had insisted on an in-fact first lien its permanent loan “commitment” would have been more illusory than real, inasmuch as the filing of

any

mechanics’ or materialmen’s liens, a likely prospect, would have allowed Prudential to walk away from the project.

Prudential surrendered any such possible argument when it entered into the Five-Party Agreement and gave UCB the assurances which it did. The rational interpretation of the contract is that Prudential was to be provided with a valid deed of trust

insured

by Arizona Title and the reinsur-ers as a first lien. The evidence showed that Prudential was relying on this rein-sured title insurance to protect its position, and that it would have received everything for which it bargained if it had deposited the loan proceeds in escrow as required by the parties’ escrow instructions.

Crone v. Amado,

69 Ariz. 389 , 214 P.2d 518 (1950), the Arizona Supreme Court concluded that the parties’ written construction contract was ambiguous and that it could look to the surrounding circumstances for aid in determining the parties’ intent concerning whether the subject contract was on a' cost plus or on a fixed price basis. The court considered the following circumstances to be relevant: (a) neither of the parties to the agreement had seen any of the plans or specifications at the time the agreement was signed; (b) no survey had been made regarding the proposed building site; (c) building materials were scarce at the time, and the building materials available were being rationed under OPA regulations. In light of those circumstances, the court concluded:

It does not seem plausible that any contractor in this situation would agree to build a building for a fixed price.

A contract must be deemed to have been made with reference to the state of things existing at the time it was made ...

There was no intimation that it was not a cost-plus job until the defendants ran out of funds.

69 Ariz. at 397, 398 , 214 P.2d at 523, 524 (emphasis added).

See also

Corbin

§ 973 at 910; 11

Williston

§ 1323 at 136-38. None of these treatises advocates adopting an exception to the anticipatory repudiation rule for a “good faith,” but erroneous, interpretation of contract. Whatever the breaching party’s “state of mind,” the impact on the innocent party, who also presumably acted in good faith, is the same — he faces total loss of the repudiator’s performance, to which the contract entitled him. In fairness, the adverse effects of a dispute over the meaning of a contract shall be borne by the mistaken party, even if acting in good faith, and not by the party insisting upon proper performance.

Concededly, a mere disagreement over the terms of a contract is not itself an anticipatory repudiation, nor is a mere offer to perform on terms other than those contained in the agreement, at least if the offer is made in good faith. 4

Corbin on Contracts

§ 973 at 911 (1951). Otherwise, contracting parties would be constantly appearing in court with anticipatory repudiation claims. However, if one party clearly insists upon a performance to which he is not entitled, that is a repudiation.

From at least November 8,1976, through June 1977, Prudential unequivocally refused to make a permanent loan without first securing an in-fact first lien. Prudential did not merely suggest or offer to perform on the basis of an actual first encumbrance; rather, it made absolutely clear that it would not perform without such an in-fact first lien. As

Corbin

expresses it:

If one party to a contract, either wil-fully or by mistake, demands of the other a performance to which he has no right under the contract and states definitely that, unless his demand is complied with, he will not render his promised performance, an anticipatory breach has been committed. Such a repudiation is conditional in character, it is true; but the condition is a performance to which the repudiator has no right____

Where the two contracting parties differ as to the interpretation of the contract or as to its legal effects, an offer to perform in accordance with his own interpretation made by one of the parties is not in itself an anticipatory breach. In order to constitute such a breach, the offer must be accompanied by a clear manifestation of intention not to perform in accordance with any other interpretation.

Corbin on Contracts

§ 973 at 910-11 (1951).

The rationale of all these authorities is that a repudiation based upon a reading of a contract is not fundamentally different from any other repudiation. The non-breaching party is confronted with a refusal to abide by the terms of the contract between the parties. If that refusal, however clothed, occurs prior to the time for the repudiator’s performance, it constitutes an anticipatory repudiation.

In essence, Prudential has asked this court to engraft a vague fault principle onto one branch of settled contract doctrine. If a “good faith” contract interpretation is made as a defense to a claim of breach by anticipatory repudiation, then it should also be a defense where the repudiating party believes wrongly but in “good faith” that there is no contract at all or that the contract has been terminated, modified, or rescinded. Viewed from the perspective of either the breaching or non-breaching party, there is no significant difference between such eases and a repudiation based upon an asserted “interpretation” of a contract. In all such situations, the repudiation may rest upon the breaching party’s “good faith” understanding of his agreement, or lack of one, with the non-breaching party. That, standing alone, does not alter the fact that the latter has been deprived of the benefit of his bargain.

Moreover, if “good faith” is a defense to an anticipatory repudiation claim, the same reasoning would compel adoption of such a defense for all claims of breach of contract. Anticipatory repudiation is nothing more than a species of contract breach in which the offending party states “that he will not render the promised per

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formance when the time fixed for it in the contract arrives.”

Diamos v. Hirsch,

91 Ariz. 304, 307 , 372 P.2d 76, 78 (1962). The logical extension of Prudential’s position is that all contract breaches should be subject to a good faith defense. Needless to say, this would fundamentally alter the law of contracts and create endless confusion.

The trial court correctly applied the doctrine of breach by anticipatory repudiation to the facts of this ease.

The trial court correctly granted summary judgment finding an anticipatory repudiation because Prudential conceded it had demanded an in-fact first lien.

Prudential has assumed the unvarying position in the trial court and on appeal that from at least November 1976 through June 1977 it refused to fund the permanent loan on the Hotel without an actual first lien. Having ruled that a demand for — and unequivocal insistence upon — an in-fact first lien would as a matter of law constitute an anticipatory repudiation, the trial court correctly granted partial summary judgment on that issue because there was no factual dispute concerning the matter.

Prudential quotes

Pacific Coast Engineering Co. v. Merritt-Chapman & Scott Corp.,

411 F.2d 889 (9th Cir.1969), for the proposition that a party’s mere offer to perform in accordance with its interpretation of a contract is not necessarily a repudiation if the offer appears to be made in the good faith belief that it is correct. Prudential did not simply offer to perform its loan commitment if HRP would provide a first encumbrance; Prudential demanded an in-fact first lien and insisted that it would not fund the loan without one. Thus, at the Newark meeting on November 8, 1976, with HRP and UCB representatives, Prudential took the position that there would be no loan without a first lien. That was reiterated in a subsequent letter to HRP. Prudential’s vice president stated that from November 1976 through June 1977 Prudential continuously insisted upon a first lien. In fact, Prudential did not fund the permanent loan because it did not get an in-fact first lien.

Summary judgment is an appropriate vehicle for resolving disputes over the legal meaning or effect of facts or conduct not in dispute.

Morrell v. St. Luke’s Medical Center,

27 Ariz.App. 486 , 556 P.2d 334 (1976). In opposing HRP’s motion for partial summary judgment on anticipatory repudiation, Prudential did not, as required by rule 56(e), Rules of Civil Procedure, submit any affidavit showing a factual dispute over whether Prudential had unequivocally demanded an in-fact first lien. Prudential argues that the doctrine of anticipatory repudiation is inapplicable where the repudiation is based on an interpretation of contract — even if the party insists upon that interpretation and refuses to perform without it. Since Prudential failed to contravene the conceded fact that it demanded a first lien as a condition of its own performance, the trial court properly rendered summary judgment on that issue.

Mobile Home Estates, Inc. v. Levitt Mobile Home Systems, Inc.,

118 Ariz. 219 , 575 P.2d 1245 (1978).

Prudential’s claim of waiver has been expressly rejected by the Arizona Supreme Court.

An original feature of the English doctrine of anticipatory repudiation, still followed in England and Georgia, is that a party continuing performance in the face of an anticipatory repudiation thereby waives the breach and can only sue on a subsequent breach, if any, occurring at the time when performance is due. 4

Corbin on Contracts

§ 981 (1951). Because the non-breaching party treats the contract as remaining in effect despite the repudiation, the theory is that the parties cannot hereafter take a contrary position.

Prudential relies on

Concrete Materials of Georgia, Inc. v. Smith & Plaster Co.,

127 Ga.App. 817, 825 , 195 S.E.2d 219, 225 (1973), in which the court said:

[Wjhere, in a continuing contract, one side refuses to perform, the other may accept the tender of the breach of contract, refuse to perform further and sue for damages, but if he does not do so the contract continues in effect as to the obligations of both parties.

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Prudential also relies upon the following Arizona cases to support the position adopted in Georgia:

Weatherford v. Adams,

31 Ariz. 187 , 251 P. 453 (1926);

Hunter Contracting Co. v. Sanner Contracting Co.,

16 Ariz.App. 239 , 492 P.2d 735 (1972);

Mackey v. Philzona Petroleum Co.,

90 Ariz. 272 , 367 P.2d 632 (1961), vacated, 93 Ariz. 87 , 378 P.2d 906 (1963). However, these Arizona cases do not involve anticipatory repudiation. The cases involved breaches of contract.

Weatherford

involves a straightforward breach of contract.

Hunter Contracting

involves “a material breach in a partially performed construction contract” not an anticipatory repudiation. In the

Mackey

case our Supreme Court implied that even where a party might have lost his right of rescission, he “may have a claim for some relief even if he cannot rescind.” 90 Ariz. at 275 , 367 P.2d at 634-35 .

The modern rule, followed in Arizona and most other jurisdictions, is that an innocent party, confronted with an anticipatory repudiation, may continue to treat the contract as operable and urge performance by the repudiating party without waiving any right to sue for that repudiation.

Kammert Brothers Enterprises, Inc. v. Tanque Verde Plaza Co.,

102 Ariz. 301 , 428 P.2d 678 (1967).

See generally

Restatement of Contracts

§ 280 (1932); 4

Corbin

§ 981 at 938-39; 11

Williston

§ 1334 at 178-79. The basis for the American rule is cogently set forth by our supreme court in

Kammert Brothers:

The seller claims there can be no anticipatory repudiation here since the buyer failed to immediately treat the repudiation as a breach and bring suit. We believe that it is not necessary to say that a breach is not an anticipatory breach until it has been accepted as such by the injured party. A party that has received a definite repudiation by the other party to the contract should not be penalized for his efforts to make the other party live up to his end of the bargain, and can cease urging performance and bring suit for the breach at any time before the other party retracts his repudiation.

102 Ariz. at 306-07 , 428 P.2d at 683-84. Commenting upon modern cases such as

Kammert Brothers,

Corbin writes:

In a number of well-considered recent cases, this doctrine that an anticipatory repudiation is not a breach until it is accepted as such by the injured party has been repudiated. Their reasoning is convincing and they should now be accepted as having established the law. In repeating the older forms of statement, the courts did not sufficiently analyze a complex situation and give due consideration to its separate aspects. In the first place, the repudiator has a power of retraction as long as there has been no substantial change of position by the injured party; and the latter’s continuing to urge performance may be properly held to keep this power of retraction alive. A notice of retraction, seasonably given, nullifies the effect of the anticipatory repudiation; and an offer to perform, before any change of position by the injured party, is operative as a retraction. Some of the cases in which the older language is repeated can be supported on this ground.

Corbin on Contracts

§ 981. The

Restatement of Contracts

further supports the modern rule:

Manifestation by the injured party of a purpose to allow or to require performance by the promisor in spite of repudiation by him, does not nullify its effect as a breach or prevent it from excusing performance of conditions and from discharging the duty to render a return performance.

Restatement of Contracts

§ 320 at 482 (1932).

See also Utex Exploration Co. v. Garwood,

246 F.2d 547 (10th Cir.1957);

French v. Nabob Silver-Lead Co.,

82 Idaho 120 , 350 P.2d 206 (1960).

Prudential attempts to distinguish this case from

Kammert Brothers

by asserting that HRP “waived” its anticipatory repudiation claim because, subsequent to Prudential’s repudiation, it not only urged

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Prudential to perform but also made efforts of its own to fulfill the conditions of the commitment letter. This is a distinction without a difference. In the case of an outstanding loan commitment to be performed subject to certain conditions by the borrower, there is no better way for a borrower, confronted by his lender’s anticipatory repudiation, to “urge performance” than to demonstrate his own willingness to perform the conditions of the loan commitment. This is the strongest sort of “effort [by the borrower] to make the other party live up to his end of the bargain,” within the meaning of

Kammert Brothers.

Highlands Plaza, Inc. v. Viking Inv. Corp.,

72 Wash.2d 865 , 435 P.2d 669 (1967), a defendant seller of realty anticipatorily repudiated its contract with the plaintiff purchaser by demanding that the deal close before performance was actually due. The purchaser tendered an arguably defective performance, which the seller later urged as a defense in an action by the purchaser based upon anticipatory breach. The Washington Supreme Court summarily rejected the seller’s position:

It is further the rule that, where such a breach [anticipatory repudiation] occurs, no tender of performance by the promisee (appellant) is necessary to his right to recovery against the promisor who has breached the contract. See 5 S. Williston on Contracts § 699 (3rd ed.). Therefore, appellant’s defective tender of performance (if, in fact, it was defective, a question we do not reach on this appeal) is of no consequence.

435 P.2d at 677 .

By continuing its efforts to perform according to the terms of the commitment letter, HRP, in the words of

Kammert Brothers

did nothing more than endeavor to make Prudential live up to its end of the bargain. That HRP failed in its endeavor to induce Prudential to perform should not be held a waiver of an anticipatory repudiation claim that would have been preserved had HRP done nothing at all except to sit on its hands and urge Prudential to fund without an in-fact first lien. Even assuming that HRP made an incomplete tender of performance on February 8, 1977, that does not demonstrate that HRP or UCB lacked the ability to make a proper tender several days later or at some other time in February, when, under the trial court’s instructions, the jury could find that HRP and UCB were able to perform. Since Prudential’s promise to fund remained in effect throughout that month and through June 30, HRP and UCB were entitled to prove that they could have fulfilled the conditions of the commitment letter and Five-Party Agreement at any time during that period. All parties were permitted to, and did, put before the jury evidence concerning HRP’s February 8 tender as probative of whether HRP and UCB had the ability to perform at any time during that month.

Prudential’s proposed rule — testing the innocent party’s right to prevail by his actual tender — would be contrary to

Kam-mert Brothers

in yet another respect. It would penalize the innocent party by imposing upon him a stricter standard of proof (actual tender) than would apply had that party treated the repudiation as ending the contract and brought suit (ability to tender). This would be a penalty for keeping the contract open, which

Kammert Brothers

prohibits.

Prudential asserts that HRP’s acceptance of the six-month extension offer was a waiver of any right to sue for anticipatory repudiation during that period. Alternatively, it contends that the commitment letter expired on December 31, 1976, before HRP was able to comply with all of the loan conditions. We reject Prudential's contention that, if acceptance of the extension was not a waiver of Prudential’s anticipatory repudiation, “the court should have treated the contract as terminated as of the date of the repudiation.” Prudential does not explain how HRP’s refusal to waive its position on the in-fact first lien versus the insured first lien issue terminated the contract or the extension. Notwithstanding HRP’s announced position, Prudential granted the extension, and HRP and UCB

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relied on it.

See

Restatement of Contracts

§§ 45, 90 (1932). Moreover, an extension agreement requires no consideration to make it binding upon Prudential. For those reasons, the commitment letter was extended by the terms of the extension letter to June 30, 1977, and did not expire at the end of 1976 or terminate on the date of the anticipatory repudiation.

Prudential wrongfully insisted upon an in-fact first lien from at least November 1976 through June 1977 and was therefore in a continuing breach throughout that period and, in particular, during February 1977, when HRP and UCB proved their ability to perform. Thus, even if HRP waived the initial November 1976 breach, it did not thereby waive the continuing breach thereafter.

For a waiver, there must be the relinquishment of a known right of conduct which would warrant an inference of an intentional relinquishment.

American Continental Life Ins. Co. v. Ranier Constr. Co.,

125 Ariz. 53, 55 , 607 P.2d 372, 374 (1980). Far from relinquishing a known right, HRP expressly notified Prudential that by accepting the extension it did

not

acquiesce in the view that Prudential was entitled to an in-fact first lien. This was not a relinquishment; it was the preservation of a right.

Prudential suggests that enforcement of the extension agreement would be unfair because the purpose of the extension was to permit HRP to discharge the mechanics’ liens and provide Prudential with an actual first lien position. There is no language in the extension which supports the assertion that the discharge of the liens was the only purpose of the extension. The parties recognized the existence of a critical dispute on the in-fact first lien question. The extension did nothing more than provide HRP with additional time to perform its obligations as defined by the commitment letter and the Five-Party Agreement. In reliance upon the extension, HRP made an intensive investment of additional time, effort, and capital in the project.

Prudential implies that, even if there was no waiver, HRP somehow acted unfairly by accepting an extension and at the same time maintaining its position on the first lien issue. HRP faced a dilemma in the closing months of 1976. Prudential had breached the commitment letter. One possible course of action for HRP was to treat the contract as terminated and file suit for anticipatory breach. But HRP then ran the risk that UCB, as the interim lender, would foreclose on its mortgage and HRP would lose the Hotel. In an effort to preserve its investment, HRP accepted the extension and UCB agreed to postpone its threatened foreclosure in reliance upon the extension. By securing additional time both HRP and UCB were able to entertain the hope that Prudential might, in the end, honor the commitment letter by funding the loan and accepting an

insured

first position. However, Prudential did not relent. HRP did not act unfairly-

The record supports the jury’s verdict in Phase II that HRP and UCB had the ability to comply with the conditions of the commitment letter and the Five-Party Agreement.

An anticipatory repudiation is a breach of contract giving rise to a claim for damages and also excusing the necessity for the non-breaching party to tender performance.

Kammert Brothers Enterprises, Inc. v. Tanque Verde Plaza Co.,

102 Ariz. 301 , 428 P.2d 678 (1967); 2

Restatement (Second) of Contracts

§ 277 (1981); 4

Corbin on Contracts

§ 977 (1951). A repudiating party is not entitled to demand performance from the innocent party or use the latter’s failure to tender as a defense to the claimant. Stated another way, tender is excused where a party indicates it will not be accepted because the law does not require the nonbreaching party to do a futile or useless act.

Kammert Brothers, supra,

102 Ariz. at 306 , 428 P.2d at 683;

Lee v. Nichols,

81 Ariz. 106 , 301 P.2d 1022 (1956). Thus, to recover damages for anticipatory breach, the injured party need only show that he had the ability to perform his own obliga

*284

tions under the agreement.

Woliansky v. Miller,

135 Ariz. 444 , 661 P.2d 1145 (App. 1983).

Prudential states:

Plaintiffs [HRP and UCB] did not dispute that, in order for them to recover because of Prudential’s refusal to perform in response to their February, 1977 “tender,” it was necessary for HRP to make a valid tender first,

i.e.,

have and demonstrate a present ability to perform all conditions of the loan commitment if Prudential would fund the loan. A diversity case coming from Arizona on the point is

Monroe Street Properties, Inc. v. Carpenter,

407 F.2d 379 (9th Cir.1969);

see also Huszar v. Certified Realty Co.,

266 Or. 614 , 512 P.2d 982 (1973). But at best, HRP had and demonstrated only conditional and tentative ability to perform, and as a matter of law that was not sufficient.

The “present ability to perform,” which HRP agrees it had to prove, is not the same as a “tender of performance”; if it were, there would be no substance to the rule that an anticipatory repudiation excuses the non-breaching party from having to perform in order to establish either a breach of contract or its right to recover damages.

Monroe Street Properties,

which Prudential cites, does not involve an anticipatory repudiation; it involves the adequacy of an actual tender of performance. The

Huszar

case also involves actual performance.

Prudential’s position is that plaintiffs, HRP and UCB, failed to put before the jury

legally sufficient

evidence to justify the jury’s finding that plaintiffs had the ability in February 1977 to perform their obligations under the commitment letter and the Five-Party Agreement. We note at the outset that no general complaint is made that the evidence was insufficient to justify the verdict. Rather, Prudential makes the much narrower claim that the case of HRP and UCB must fail because, when proof of ability to perform requires a showing that some party other than HRP and UCB would render part or all of the needed performance, proof is insufficient as a matter of law unless they can show a legally “binding and enforceable commitment” from that third party to render the necessary performance. The assertion is then made that Prudential was entitled to a directed verdict at the end of HRP and UCB’s liability case because they did not prove the existence of enforceable agreements for (1) provision of title insurance, (2) payment under certain collateral agreements involving the operation of the Hotel, and (3) payment of HRP’s obligations to UCB.

Prudential’s position is incorrect for two independent reasons. First, it is based on the erroneous premise that HRP and UCB needed proof of third-party agreements. They did not. Second, the rule for which Prudential contends has no application to an anticipatory repudiation case.

Under the commitment letter, HRP and UCB were not required to procure agreements with third parties before the time at which Prudential was obligated to place the loan proceeds in escrow.

To appreciate Prudential’s argument, it is necessary to refer to the structure of the various agreements. Under the commitment letter and the Five-Party Agreement, Prudential was obligated to place the amount of its permanent loan, $25,500,000, in escrow with Arizona Title if, at any time during the period when the commitment letter was outstanding, either HRP or UCB satisfied certain conditions of the commitment letter as issued in 1973 and reaffirmed in the agreement. It must also be remembered that under the agreement, UCB had a right independent of HRP to satisfy the conditions of the commitment letter and require that Prudential deposit the loan funds in escrow. The trial court so instructed the jury. Once Prudential deposited its funds, Arizona Title was obligated to release the funds to UCB, but if, and only if, certain other conditions were met. Prudential never deposited the loan funds in escrow and hence the time for performance of these conditions subsequent never arrived. This agreed-upon or

*285

der of performance is important. Prudential cannot be heard to complain that HRP and UCB failed to prove they had consummated arrangements to perform those conditions when, on account of Prudential’s own breach, the duty to satisfy those conditions never matured.

We turn first to the question of when Prudential was entitled to receive a title insurance policy. Condition 2 of the commitment letter required HRP and UCB to provide Prudential with a title policy insuring Prudential’s secured interest in the Hotel as a first encumbrance. However, under the escrow instructions to Arizona Title, as interpreted by the trial court in a ruling unchallenged on appeal, HRP and UCB’s obligation to secure a title policy did not arise until after Prudential deposited the loan proceeds in escrow. The escrow instructions state in relevant part:

At such time as Prudential, pursuant to the commitment [letter] and the terms and conditions of the Five-Party Agreement referred to in paragraph 17 of Schedule A may be required to fund the Loan, the proceeds of the Loan will be deposited by Prudential, in escrow, with you [Arizona Title]. At such time as you have issued to prudential an ALTA Title Insurance Policy, in the amount of the Loan, - with ALTA Endorsements Nos. 3R, 5, 7 and 7, and with a Reinsurance Agreement, all in the same form and content as the specimen which has been approved by Prudential’s letter to you dated May 1, 1975, and have duly completed, recorded and filed the documents described in Schedule A, as therein directed, and are in a position to deliver to us those documents specified in Schedule A for delivery to us at the closing, you are authorized to apply and to disburse the proceeds of the loan as follows:

Before the Phase II trial, pursuant to HRP’s motion for partial summary judgment, the trial court found, with regard to the order of performance that:

The Commitment [letter], the escrow instructions and the five-party agreement are clear and unambiguous. In sum and substance Prudential agreed that at such time as it was required to fund the loan that Prudential would deposit the loan proceeds in escrow and that at such time as the subject preap-proved policy had issued (and the requirements of Schedule A to the escrow instructions had been complied with) the escrow agent was authorized to “apply and disburse the proceeds of the loan” according to the escrow instructions. Had the title company, acting as escrow agent, been unable to issue the subject pre-approved title policy, it would not have been authorized to disburse the loan proceeds. While this may have involved a substantial financial risk, that is what Prudential, according to the documentation before the court, had agreed to.

The escrow instructions are the only loan documents prescribing an order for performance on the title insurance issue. Since those instructions were clear and unambiguous, the trial court properly ruled as a matter of law that the duty to provide a title policy did not arise until after Prudential placed the loan proceeds in escrow.

See Shattuck v. Precision-Toyota, Inc.,

115 Ariz. 586 , 566 P.2d 1332 (1977).

Given the order of performance fixed by the agreement among the parties, the trial court correctly held that HRP and UCB need not prove the existence of a “binding and enforceable” agreement requiring Arizona Title to issue a policy but only, as the jury was instructed, that “the title policy would have issued if Prudential had deposited the loan proceeds in escrow.” This instruction followed by necessity from the trial court’s construction of the loan documents which is not challenged here. Since Prudential’s duty of performance (depositing the loan funds in escrow) came first but Prudential did not perform, HRP and UCB’s duty of performance never arose, and they cannot now be required to demonstrate as a condition of their recovery a performance they were never obligated to make. In traditional contract terms, Pru

*286

dential’s performance was a condition precedent to plaintiffs’ duty to procure a title insurance policy. 1

Restatement of Contracts

§ 250(a) (1932). On the contrary, at most they needed to prove only what they did prove — that a title policy would have issued had Prudential funded the loan.

The evidence in Phase II was more than sufficient for the jury to conclude that a title policy would have issued. At the time of the Five-Party Agreement, Prudential preapproved the form and substance of Arizona Title’s policy and the attached reinsurance agreements. At the same time, Arizona Title, along with its parent First American Title and other reinsurers, issued the interim policy and reinsurance to UCB. HRP not only paid Arizona Title for the UCB interim policy but also prepaid the premium for the permanent policy and reinsurance for Prudential. In February 1977, in response to Prudential’s request for written assurances, a vice president of Arizona Title confirmed in writing that the company, in conjunction with its reinsurers, would issue “a policy to the Prudential Life Insurance Company insuring that its mortgage is a first lien____” This same letter was read over the telephone to Prudential’s real estate officer in Newark by First American Title’s Senior Vice President and General Counsel, and the Prudential officer indicated satisfaction with it. Two real estate loan closing experts who testified for HRP and UCB stated that Prudential was unreasonable in refusing to accept this February 1977 letter from Arizona Title as adequate assurance that a title policy would in fact issue. Also probative of HRP and UCB’s ability to procure a policy is the fact that in March 1977 Arizona Title made an even more formal commitment, when Prudential for the first time demanded such a document, and in June 1977 reiterated its willingness to issue the pre-ap-proved policy in whatever form Prudential desired.

In addition, a representative of First American Title and Arizona Title testified unequivocally that they were ready, willing, and able to issue the title policy in February 1977 and to obtain the reinsurance agreements pre-approved by Prudential from the other reinsurers with indemnities, if necessary, from First American. If one or more of the other reinsurers proved unwilling, he could have obtained reasonable substitutes as permitted by the loan agreement. Representatives of four of the reinsurers testified that their companies would have reinsured, some with and some without indemnities. By stipulation, Prudential agreed that the testimony of the other four reinsurers would be to the same effect. The two largest reinsurers, Lawyers Title and TICOR, confirmed that, had some reinsurers backed out, they would have taken up any slack. Moreover, Prudential’s own representatives involved in the loan transaction stated they believed that Arizona Title and the reinsurers would in fact issue the pre-approved policy.

A jury’s verdict ought not be set aside except for the most cogent reasons.

Young Candy & Tobacco Co. v. Montoya,

91 Ariz. 363, 370 , 372 P.2d 703, 707 (1962). This is so because the correctness and truth of disputed facts are peculiarly within the province of the jury.

Burns v. Wheeler,

103 Ariz. 525, 528 , 446 P.2d 925, 928 (1968);

Harris v. Murch,

18 Ariz.App. 466 , 503 P.2d 821 (1972). Here, the evidence that a title policy would have issued was unequivocal and uncontradicted by any significant evidence presented by Prudential. But even assuming there was conflicting evidence, the reviewing court will not substitute its judgment as to credibility of witnesses and weight of evidence for that of the jury.

Burns v. Wheeler, supra; Leone v. Precision Plumbing & Heating of Southern Ariz., Inc.,

121 Ariz. 514 , 591 P.2d 1002 (App.1979). Rather, a verdict based upon conflicting evidence is binding upon the appellate court,

Tom Reed Gold Mines Co. v. Brady,

58 Ariz. 44 , 117 P.2d 484 (1941), so long as there is substantial evidence to support it.

Leone v. Precision Plumbing, supra.

The evidence presented in the trial court of HRP

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and UCB’s ability to obtain a title policy more than meets the sufficiency test.

Another issue at trial was whether HRP and UCB had the ability at the time of closing to resolve certain disputed claims involving collateral agreements related to the operation of the Hotel.

Prudential presented evidence that HRP and UCB needed to raise $850,000-$l,200,-000 to bring various contracts current. HRP and UCB asserted that the amount in issue was $460,000. The trial court instructed the jury that HRP and UCB needed to prove that either of them had the ability to pay these obligations at the time of closing if Prudential had deposited the permanent loan funds in escrow. Prudential again urges that HRP and UCB’s proof was legally insufficient because they did not show the existence of binding and enforceable agreements with third parties to provide the necessary funds. First, as with title insurance, the duty to make these payments never arose because Prudential refused to fund; therefore, proof of a binding commitment was unnecessary. Second, HRP and UCB themselves testified they could have made the necessary payments to close the loan. In other words, no third-party agreements were required.

The evidence was disputed but was nevertheless sufficient for the jury to conclude that UCB itself had the ability to make these payments. The weight to be given conflicting evidence is for the trier of fact, not a reviewing court.

Lehman v. Whitehead,

1 Ariz.App. 355 , 403 P.2d 8 (1965). Under the court’s instructions, if UCB did have the ability both UCB and HRP were entitled to recover. Thus, even assuming the trial court’s ruling on the “binding and enfo

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