Summary
echoing "cautious enterprise" language
Summary of this case from Dunlap v. State Farm Fire and Cas. Co.Opinion
C.A. No. 00C-11-016
Date Submitted: March 22, 2002
June 26, 2002
Thomas G. Whalen, Jr., Esquire, Stevens Lee, P.C., 300 Delaware Avenue, Wilmington, Delaware 19801.
Gerry Gray, Esquire, Houghton, Holly Gray, L.L.P., 13 East Laurel Street, Georgetown, Delaware 19947.
David M. McCanney, Esquire, Sevens Lee, P.C., 111 North Sixth Street, Reading, Pennsylvania 19603.
William J. Wheeler, Esquire, The Wheeler Building, 1800 Callowhill Street, Philadelphia, Pennsylvania 19130.
Dear Counsel:
Wilmington Trust Company's Motion for Summary Judgment is granted for the reasons set forth herein.
FACTUAL BACKGROUND
Several promissory notes serve as the basis for this litigation. On November 14, 1997, Wilmington Trust ("WT") issued a commitment letter for a $242,000 loan (the "First Loan") to issue to Seville Motor Corporation ("Seville Motor"). The commitment letter required the unconditional guaranties of Kenneth W. Keith, Florence L. Keith and Kenneth J. Keith (the "Keiths"). These guaranties were to be secured by a first mortgage on real property located on Route 13 in Seaford, Delaware (the "Seaford Property"), and a second mortgage on the Keiths' residence, located at 307 Pond Road in Millsboro, Delaware (the "Millsboro property").
WT also extended a $125,000 line of credit to Seville Motor by way of a commitment letter dated November 14, 1997 (the "Second Loan"). The Keiths unconditionally guaranteed this line of credit and secured it with a second lien on the Seaford Property, a third lien on the Millsboro Property, and a lien on the corporate assets of Seville Motor.
The parties executed the documents pertaining to both of these loans at a closing held on November 20, 1997. The Keiths were represented by counsel at the closing.
Seville Motor apparently continued to have cash flow problems. Seville Motor enlisted Ashland Capital Group, L.L.C. ("ACG") to assist Seville Motor with the management of its financial problems. By letter dated November 18, 1998, ACG requested additional funds for Seville Motor from WT. ACG offered an assignment of accounts from Credit Acceptance Corporation ("CAC") as collateral. At the time of the letter, ACG claimed a balance due from CAC in the amount of $701,365.17.
By letter dated December 31, 1998, WT agreed to extend a line of credit in the amount of $105,000 to Seville Motor (the "Third Loan"). Pursuant to the commitment letter sent to the Keiths regarding terms of the loan, the Third Loan would be secured by an assignment of the CAC receivables, a fourth mortgage on the Seaford Property, a second mortgage on the Millsboro Property, and a lien on Seville Motor's assets.
The closing with respect to the Third Loan occurred on January 4, 1999. The Keiths were represented by counsel at the closing. After the closing, WT and Seville Motor executed an Assignment of Proceeds prepared by the Keiths' attorney.
CAC refused to execute the initial assignment and requested that changes be made to the documents. Per the amended assignment, the amount of accounts due to Seville Motor totaled $468,708.00, subject to collection costs. Although this amount differed substantially from the amount originally discussed, WT did not revoke the $105,000 line of credit from Seville Motor.
Seville Motor failed to make loan payments as required by the various loan agreements. WT requested a meeting with CAC and the Keiths. At the meeting held on February 21, 2000, CAC asserted that no payments were due at that time. The parties were unable to resolve the issue of payment.
The loans became past due and WT demanded payment in full in October of 2000 from Seville Motor. WT filed this Complaint against the Keiths on November 22, 2000. The Keiths assert a three-pronged bad faith defense against WT. In addition, the Keiths accuse WT of tortious interference with business relations between Seville Motor and potential creditors. WT defends, asserting that no facts in evidence support the allegations.
MOTION FOR SUMMARY JUDGMENT A. Standard of Review
This Court will grant summary judgment only when no material issues of fact exist, and the moving party bears the burden of establishing the non-existence of material issues of fact. Moore v. Sizemore, 405 A.2d 679, 680 (Del. 1979). Once the moving party meets its burden, the burden shifts to the non-moving party to establish the existence of material issues of fact. Id. at 681. Where the moving party produces an affidavit or other evidence sufficient under Superior Court Civil Rule 56 in support of its motion and the burden shifts, the non-moving party may not rest on its own pleadings, but must provide evidence showing a genuine issue of material fact for trial. Super.Ct.Civ.R. 56(e); Celotex Corp. v. Catrett, 477 U.S. 317, 322-323 (1986). If, after discovery, the non-moving party cannot make a sufficient showing of the existence of an essential element of his or her case, summary judgment must be granted. Burkhart v. Davies, 602 A.2d 56, 59 (Del. 1991), cert. denied, 504 U.S. 912 (1992); Celotex Corp., supra. If, however, material issues of fact exist or if the Court determines that it does not have sufficient facts to enable it to apply the law to the facts before it, then summary judgment is inappropriate. Ebersole v. Lowengrub, 180 A.2d 467, 470 (Del. 1962).
B. The Debts
The Keiths unconditionally guaranteed the three loans at issue in this case. Nonetheless, the Keiths allege that questions of fact remain, specifically: (1) whether WT engaged in fraud in the execution of the First Loan to the Keiths, (2) whether WT committed fraud by failing to seek collection from CAC under the Assignment of Proceeds, and (4) whether WT tortiously interfered in the business relationships of Seville Motor.
1. Allegations of Fraud
Regarding the principle of good faith in general, the Supreme Court has recognized the "occasional necessity of implying such terms in an agreement so as to honor the parties' reasonable expectations. But those cases should be rare and fact-intensive, turning on issues of compelling fairness." Cincinnati SMSA Ltd. P'ship v. Cincinnati Bell Cellular Sys. Co., 708 A.2d 989, 992, (Del. 1998). Indeed, "implying obligations based on the covenant of good faith and fair dealing is a cautious enterprise." Id. An action based on the breach of a good faith covenant usually is pled with fraud, deceit or misrepresentation. Id. The Cincinnati SMSA case applied the analysis of the term "good faith" in the employment context to contract law, generally, specifically the area of partnership agreements. It follows that these principles apply in this case.
In order to sustain an action in fraud, the Keiths must establish: (1) WT made a false representation of a material fact, (2) WT knew the representation to be false, (3) the representation was made with the intent that the Keiths believe it to be true and rely on it, and (4) the Keiths believed the misrepresentation, acted upon it, and were damaged thereby. Brzoska v. Olson, 668 A.2d 1355, 1366 (Del. 1995); see also Wilmington Trust Co. v. Amrhein, Del. C.C.P., C.A. No. 90-12-0021, Trader, J. (Apr. 7, 2000). Delaware law provides for a legal presumption of good faith. Murphy v. T.B. O'Toole, Inc., 87 A.2d 637, 638 (Del.Super. 1952). If the circumstances relied upon as indicia of fraud are "of a doubtful nature, or are susceptible of an innocent interpretation, or are calculated to raise but a bare suspicion of fraud . . ., they will not amount to sufficient evidence to establish the fact." Id. (internal quotation marks and citation omitted).
First, the Keiths assert that WT, despite awareness of the Keiths' desire to the contrary, identified Seville Motor as the Borrower in the First Loan documents. The Keiths allege WT intentionally disregarded the Keiths' instructions to have the mortgage on the Seaford Property placed in the name of Florence Keith ("Mrs. Keith"). The Keiths argue the ultimate structure of the loan damaged Seville Motor by limiting its ability to borrow additional funding after 1997 from other lending institutions. Because Seville Motor was incapable of acquiring further financing, it was forced to default on its payments to WT. Thus, the Keiths assert WT brought about Seville Motor's default by engaging in fraud.
WT sent the Keiths a commitment letter dated November 14, 1997, summarizing the terms of the First Loan. The first paragraph of the letter identified the Borrower as Seville Motor. The letter set forth the loan amount, the interest rate, the loan repayment term and conditions, the security for the loan, and all related fees, among other details. Mrs. Keith signed and accepted the terms of this letter on November 18, 1997. A closing was conducted on November 20, 1997. The Keiths were represented by counsel at the closing. Mrs. Keith had ample information and time to request that the arrangement terms be changed prior to the closing. There is no evidence that Mrs. Keith questioned the structure of the loan until after the closing. WT's failure to change the documents in light of the foregoing does not rise to the level of fraud, nor does it excuse the Keiths' obligations under the executed First Loan agreement.
The contention the Keiths failed to read the loan documents is ignored. Pellaton v. Bank of New York, 592 A.2d 473, 477 (Del. 1991); Graham v. State Farm Mut. Auto. Ins. Co., 565 A.2d 908, 913 (Del. 1989).
In their counterclaim, the Keiths assert that they were unhappy with the structure of the First Loan because it limited the borrowing capacity of Seville Motor. In support of their contention that they contacted WT on several occasions to request that the form of the loan be changed, the Keiths cite two letters sent to WT after the closing on the First Loan. These letters do not indicate an interest in securing future financing on behalf of Seville Motor but express concern regarding the personal tax liability of Mrs. Keith.
Second, the Keiths allege that WT fraudulently secured the First Loan with a mortgage on both the Millsboro and Seaford Properties, as opposed to only the Seaford Property. This claim is without merit. As previously noted, the November 14, 1997, commitment letter detailed the terms of the First Loan. This letter clearly delineated the parties, the loan amount, and the collateral security required for the loan to issue. The Keiths signed the commitment letter, the mortgage, and the security documents. "A party to a contract cannot silently accept its benefits and then object to its perceived disadvantages, nor can a party's failure to read a contract justify its avoidance." Graham, 565 A.2d at 913.
In their third allegation of fraud, the Keiths assert that WT's failure to seek indemnification from CAC constitutes a violation of the Assignment of Proceeds. It is a tenet of contract law that a debtor remains liable for monies owed until the debt is repaid or repayment is excused by the creditor. The Assignment of Proceeds entered into and agreed to by WT, the Keiths and CAC did not waive WT's entitlement to the full sum owed under the existing loans. See Layne v. Fort Carson Nat'l Bank, 655 P.2d 856, 857 (Colo.Ct.App. 1982) (holding bank did not violate the good faith requirement of the UCC when it stood on its rights under the security agreement). The Assignment did not change the nature of the unconditional guaranties executed by the Keiths. Nor did the Assignment create an affirmative duty on the part of WT to recover the funds assigned from CAC.
Because the Third Loan was secured by an assignment of proceeds, the Uniform Commercial Code is implicated. 6 Del. C. § 1-201 (19) ("`Good faith' means honesty in fact in the conduct or transaction concerned.").
Guaranty contracts are governed by the fundamental theory that the intent of the parties must prevail. Wilmington Northern R.R. Co., Del. Super., C.A. No. 97C-09-297, Quillen, J. (Mar. 30, 1999) at 9-10. When the intent of the parties is reasonably clear, there is no room for construction. Id. The guaranties signed by the Keiths contained the following provisions, among others:
• This Guaranty will . . . continue in full force until all indebtedness shall have been fully and finally paid and satisfied and all other obligations of Guarantor under this Guaranty shall have been performed in full.
• Guarantor has established adequate means of obtaining from Borrower on a continuing basis information regarding Borrower's financial condition. Guarantor agrees to keep adequately informed from such means of any facts, events, or circumstances which might in any way affect Guarantor's risks under this Guaranty, and Guarantor further agrees that, absent a request for information, Lender shall have no obligation to disclose to Guarantor any information or documents acquired by Lender in the course of its relationship with Borrower.
• Guarantor also waives any and all rights or defenses arising by reason of . . . any defenses given to guarantors at law or in equity other than actual payment and performance of the indebtedness.
• Guarantor further waives and agrees not to assert or claim at any time any deductions to the amount guaranteed under this Guaranty for any claim of setoff, counterclaim, counter demand, recoupment or similar right, whether such claim, demand or right may be asserted by the Borrower, the Guarantor, or both.
• [The Keiths] absolutely and unconditionally guarantee and promise to pay to WILMINGTON TRUST COMPANY ("Lender") . . ., on demand, in legal tender . . . the indebtedness . . . of SEVILLE MOTOR CORPORATION ("Borrower") . . . .
The Keiths availed themselves of the assistance of an attorney for the purpose of acquiring financial assistance from WT. As the President of Seville Motor, Mrs. Keith is an experienced businesswoman. The intent of the parties is clear: the Keiths committed assets to WT with the hope that the loan funds would insure the future solvency of Seville Motor. Although both the Keiths and WT worked to insure the continued success of the business, Seville Motor folded. The Keiths are now liable for the debts they secured.
2. Tortious Interference
The Keiths allege that WT tortiously interfered with its business relationships by refusing to release collateral for its loans to allow the Keiths to offer these assets as collateral for another loan from a different lending institution. "A claim for tortious interference with business relations must allege: (a) the reasonable probability of a business opportunity, (b) the intentional interference by defendant with that opportunity, (c) proximate causation, and (d) damages." Malpiede v. Townson, 780 A.2d 1075, 1099 (Del. 2001) (internal quotation marks and citation omitted). When considering these factors, the Court takes into consideration the accused party's privilege to compete and protect his business interests in a lawful fashion. Id.
The Keiths fail to present any evidence of these elements. The reference to Seville Motor's missed business opportunities is vague at best. Furthermore, the withholding of collateral by a creditor does not rise to the level of "interference" with its debtor's other financial relations. The Keiths surrendered this collateral in order to secure a loan. The very purpose of collateral is to provide a creditor with something of value lest the debtor default on his obligations. Creditors are not required to release their collateral unless and until the loan obligations are satisfied. This defense fails as well.
C. Conclusion
In light of the foregoing, WT's Motion for Summary Judgment is granted. It is the Court's understanding that the Keiths dispute only whether the loans are enforceable and not the amount due under the executed notes. The parties are directed to submit an order reflecting the total sum due within ten days.
IT IS SO ORDERED.