232 Mich. App. 662 | Mich. Ct. App. | 1998
Lead Opinion
Defendants appeal as of right from a November 1994 trial court judgment awarding them $351,991.80. Defendants had filed a multiple-count counterclaim against plaintiff alleging misconduct relating to plaintiffs long-term relationship lending defendants money to support their farming operations. The jury found for defendants on several counts. Plaintiff cross appeals as of right from the November 1994 judgment.
Plaintiff is a federally created entity that makes loans to its borrowers/members for use in conducting agricultural activities. Defendants are farmers who, since the fall of 1980, have received numerous loans from plaintiff. From 1980 to 1990, plaintiff loaned defendants $839,805, of which defendants themselves received $460,000, with plaintiff, at defendants’ direction, paying the difference to defendants’ third-party suppliers and creditors. Although the parties agreed that their business relationship was initially very satisfactory, the relationship deteriorated from 1988 through 1990 because defendants became increasingly unable to repay their debt. Plaintiff eventually foreclosed on various mortgages and other security interests that it possessed in defendants’ property and equipment.
Regarding plaintiff’s complaint, the parties in July 1994 entered into a consent judgment for defendants’ deficiency. The judgment awarded plaintiff $249,458.81 plus interest and ordered defendants to surrender various items of farm equipment pledged as collateral.
With respect to the counterclaim, the trial court granted plaintiff’s motions for a directed verdict regarding several counts, including counts v (invalid foreclosure), vm (tortious interference), and x (fraud). The remaining claims proceeded to verdict. The jury returned verdicts for defendants in the amounts of $315,000 on count I (bad-faith refusal to advance to defendants 1991 operating funds) and $500,000 on combined counts H and vi (plaintiff’s bad-faith breach of contract and breach of fiduciary duty in refusing defendants’ January 2, 1990, request that it apply a portion of a crop-proceeds check to a mortgage held by the Federal Land Bank [flb], another creditor of defendants). The jury also found for defendants on count vn (plaintiff obtained May 1990 mortgage on a property known as the Partaka farm by duress), but awarded no damages on this count. However, the trial court set aside the jury’s verdict for defendants with regard to this count as inconsistent with the jury’s award of damages to defendants for the loss of the
Pursuant to the parties’ agreement, the trial court reduced defendants’ award for loss of real estate by deducting from it the amount of outstanding liens and encumbrances on defendants’ property. Specifically, the trial court subtracted from defendants’ award $513,599.28 in liens, encumbrances, and taxes, resulting in a preinterest net judgment of $301,400.72 for defendants.
Defendants first contend that the trial court erred in granting plaintiff a directed verdict with regard to count v of defendants’ countercomplaint, which alleged that plaintiff did not have a valid mortgage on a property known as the Hudson farm, and therefore improperly foreclosed on this property. We review de novo the trial court’s grant of a directed verdict. Meagher v Wayne State Univ, 222 Mich App 700, 708; 565 NW2d 401 (1997). In reviewing the trial court’s ruling, we examine the testimony and all legitimate inferences that may be drawn in the light most favorable to the nonmoving party. Kubczak v Chemical Bank & Trust Co, 456 Mich 653, 663; 575 NW2d 745 (1998). Directed verdicts are appropriate only when no factual question exists with regard to which reasonable minds may differ. Meagher, supra.
Defendants argue that the trial court improperly granted plaintiff a directed verdict when a question of fact existed regarding the interpretation of a clause in the mortgage plaintiff held on the Hudson farm. The trial court concluded that the mortgage contained a
While the trial court erred in neglecting to consider the documents executed by the parties contemporaneously with the mortgage for the purpose of determining whether the mortgage represented a complete integration of the parties’ agreement, this error was harmless. A finding that the parties intended a written instrument to be a complete expression of their agreement concerning the matters covered is a prerequisite to the application of the parol evidence rule. NAG Enterprises, Inc v All State Industries, Inc, 407 Mich 407, 410; 285 NW2d 770 (1979). Extrinsic evidence of prior or contemporaneous agreements or negotiations is admissible as it bears on this threshold question whether the written instrument is such an integrated agreement. Id. In this case, the mortgage itself refers to supplementary documents evidencing plaintiff’s September 1982 $15,000 loan to defendants:
In consideration of the loan(s) by [plaintiff] to [defendants], and to secure the repayment of the loan(s) made by [plaintiff] to [defendants] in the aggregate principal sum of*670 $15,000.00, together with interest thereon, evidenced by a Basic Loan Agreement between the parties or Promissory Note dated 9-3-821 and any Supplementary Loan Agreements or Promissory Notes (the Basic Loan Agreement, the Supplementary Loan Agreements and Promissory Notes are hereinafter collectively called “Loan Agreement”), and any renewals, extensions or modifications thereof, together with all other additional or future loans, advances or readvances heretofore or hereafter made by [plaintiff] to [defendants], together with interest thereon, and to secure the performance and observance by [defendants] of each and every term, covenant, agreement and condition contained herein or in the Loan Agreement, [defendants] do[] hereby mortgage, warrant, grant, convey and assign unto [plaintiff] . . . the following described real estate. . . . [Emphasis added.]
Defendants thus correctly suggest that the trial court erred to the extent that it declined to review a loan application, two supplementary loan agreements, and a notice of defendants’ right of rescission of the mortgage, executed together with the mortgage, to determine to what extent the parties intended the mortgage’s terms to govern their agreement.
However, the trial court did not err in granting plaintiff’s motion for a directed verdict because none of the contemporaneously executed documents cited by defendants contradicted the mortgage’s language regarding future advances. The supplementary loan agreements executed with the mortgage address only various loan disbursement and repayment terms and
Next, defendants raise several challenges to the trial court’s setoffs against their damages awards. Plaintiff’s cross appeal asserts that the trial court erred in denying its motions for judgment notwithstanding the verdict (jnov) regarding the jury’s verdicts for defendants. Because plaintiff’s cross appeal raises issues dispositive of defendants’ remaining arguments on appeal, we consider plaintiff’s arguments first.
Plaintiff contends that the trial court erred in denying its motion for jnov with regard to count I of
As a matter of law, defendants presented insufficient evidence from which a jury could have found that plaintiff, in bad faith, breached an agreement between the parties that it would finance defendants’ 1991 farming operations. In October 1990, loan officers of plaintiff visited defendants’ farm to contemplate restructuring defendants’ outstanding debt. Conflicting testimony was presented at trial concerning the specificity and definiteness of plaintiff’s alleged promise to lend 1991 operating funds. While lenders and borrowers frequently enter into preliminary discussions of whether a loan will be refinanced or further credit will be extended, neither general discussions of extending credit nor past renewals of credit should lead a borrower to reasonably believe
However, even assuming that the essential terms of the alleged agreement could be substantiated from the parties’ Basic Loan Agreement and course of dealing or lending history, defendants’ claim that plaintiff, in bad faith, refused to advance 1991 operating funds must still fail as a matter of law. The Basic Loan Agreement governing the parties’ various supplemental loans and disbursements, dated November 20,
3.4 Conditions for Loans and Disbursements
Each of the following provisions shall condition the obligation of [plaintiff] to make loans and Loan Disbursements hereunder:
A. [Plaintiff] has the right to review the loan eligibility and credit worthiness of [defendants] before each loan and Loan Disbursement requested. If as the result of such review [plaintiff] deems itself insecure, or if it would become insecure by such loan or Loan Disbursement, then in [plaintiff]’s sole discretion, it need not make any further loan or Loan Disbursement hereunder.
* * *
6.0 Default
The occurrence of any of the following shall constitute a default by [defendants] in all loans outstanding hereunder which shall authorize and permit [Plaintiff] to (a) demand immediate payment of all Indebtedness hereunder, (b) refuse further loans and/or Loan Disbursements ....
A. Failure of [defendants] to comply with or perform any of the terms and conditions contained herein or in any mortgage, pledge, security agreement, supplementary loan agreement or other written document executed by [defendants] in connection herewith....
* * *
C. If [defendants] fail[] to pay all Indebtedness as and when demanded by [plaintiff] ....
D. If [defendants] [are] in default in any Indebtedness to [plaintiff] under any loan not otherwise governed by the terms hereof.
*675 F. If [plaintiff] should at any time in good faith deem itself insecure.
Our review of the record indicates that by 1990 and 1991 defendants had undisputedly defaulted on outstanding loans, having missed payments on separate loan obligations despite several repayment extensions granted by plaintiff. Defendants had outstanding debt in October 1990, at the time plaintiff allegedly promised to supply defendants’ 1991 operating funds. According to the parties’ supplementary loan agreements of record, by the beginning of 1991 defendants owed $79,692.50 plus interest on loan #10003. Defendants also owed by the beginning of 1991 approximately $200,000 on loan #20001, the entirety of which had come due earlier in 1990 when defendants defaulted on an outstanding installment. In November 1990, plaintiff had granted defendants extensions on the repayments of loans #10003 and #20001, requiring payments of $89,440.88 on loan #10003 and $75,060.81 on loan #20001 by February 1, 1991. Defendants failed to make these payments. Thus, whatever the agreement regarding operating funds plaintiff may have made with defendants in October 1990, plaintiff’s refusal to lend or disburse 1991 operating funds was a proper exercise of a bargained-for right under the parties’ Basic Loan Agreement, ¶ 6.0. No applicable law would obligate plaintiff to advance defendants further operating funds despite defendants’ repeated breaches of their repayment obligations, breaches occurring both before and after plaintiff’s alleged promise to lend 1991 operating funds. In our view, plaintiff has not assumed a duty to continually and endlessly fund defendants’ operations. To perpetually
Additionally, given defendants’ extreme debt and default, plaintiff’s 1991 refusal to provide further operating funds cannot as a matter of law constitute bad faith. See Commercial Union Ins Co v Liberty Mut Ins Co, 426 Mich 127, 136-137; 393 NW2d 161 (1986) (Good-faith denials, offers of compromise, or other honest errors of judgment are not sufficient to establish bad faith. Further, claims of bad faith cannot be based on negligence or bad judgment, as long as the actions were made honestly and without concealment. Bad faith is reflected by conduct that is arbitrary, reckless, indifferent, or that intentionally disregards the interests of the person to whom a duty is owed.). In light of defendants’ growing debt and missed repayments, plaintiff’s denial to advance more funds cannot be considered arbitrary. Because plaintiff’s refusal to loan further funds does not constitute bad faith as a matter of law, the jury should not have been permitted to address count I of defendants’ countercomplaint.
Plaintiff next argues that the trial court erred in denying its motion for jnov regarding count n of defendants’ countercomplaint, which alleged that
The duty of good faith imposed upon contracting parties does not compel a lender to surrender rights which it has been given by statute or by the terms of its contract. Similarly, it cannot be said that a lender has violated a duty of good faith merely because it has negotiated terms of a loan which are favorable to itself. As such, a lender generally is not liable for harm caused to a borrower by refusing to advance additional funds, release collateral, or assist in obtaining additional loans from third persons. [Creeger Brick & Building Supply, Inc v Mid-State Bank & Trust Co, 385 Pa Super 30, 36-37; 560 A2d 151 (1989).]
See also Van Arnem Co v Manufacturers Hanover Leasing Corp, 776 F Supp 1220, 1223 (ED Mich, 1991) (A line of credit lender is not by definition “the borrower’s fiduciary. The lender remains entitled to advance its own interests by enforcement of contract terms, and is not required to forego enforcement of contract terms to put the borrower’s interests ahead of its own.”); Price v Wells Fargo Bank, 213 Cal App 3d 465, 479; 261 Cal Rptr 735 (1989) (Where the appellants argued “that the bank owed them a duty of reasonable forbearance in enforcing its creditor’s
Assuming arguendo that a valid contract to lend 1991 operating funds existed, that plaintiff, in bad faith, breached its obligation to lend, and that plaintiff, in bad faith, refused to relinquish collateral, we agree with plaintiff that defendants absolutely failed as a matter of law to establish support for the jury’s awards of damages resulting from plaintiff’s actions. The parties agreed at trial that defendants’ claims of breach of good faith were contractual in nature. Damages recoverable for breach of contract are those that arise naturally from the breach or those that were in the contemplation of the parties at the time the con
Regarding plaintiffs alleged failure to lend, defendants did not establish that this failure resulted in damages amounting to the $315,000 that the jury awarded. A party to a contract who is injured by another’s breach of the contract is entitled to recover from the latter damages for only such injuries as are the direct, natural, and proximate result of the breach. Stewart v Rudner, 349 Mich 459, 468-469; 84 NW2d 816 (1957). Defendants admitted that they obtained alternate financing for their 1991 farming operations from a neighbor. Therefore, plaintiff’s alleged failure to lend did not proximately result in defendants suffering any damages beyond whatever limited, incidental expense they incurred in securing the alternate financing, and certainly no damages remotely approaching the $315,000 awarded by the jury.
Regarding plaintiff’s alleged bad-faith refusal to surrender its collateral to the Federal Land Bank, defendants also failed to introduce support for the jury’s verdict awarding them damages of $500,000 on this count. The Federal Land Bank extended until February 1, 1991, the due dates of both defendants’ January 1, 1990, and January 1, 1991, mortgage payments, but defendants still failed to make the payments. Thus, where defendants’ own inaction intervened, no legal causation exists between plaintiff’s refusal and the eventual foreclosure on defendants’ property. Furthermore, defendants admitted that they
Plaintiff further challenges the trial court’s denial of its motion for JNOV regarding count vi of defendants’ countercomplaint alleging that plaintiff owed defendants a fiduciary duty and breached it by refusing defendants’ request that it remit crop proceeds to the Federal Land Bank. A fiduciary relationship, which generally does not arise within the lender-borrower context, exists when there is a reposing of faith, confidence, and trust and the placing of reliance by one on the judgment and advice of another. Ulrich v Federal Land Bank of St Paul, 192 Mich App 194, 196-197; 480 NW2d 910 (1991); Smith v Saginaw Savings & Loan Ass’n, 94 Mich App 263, 274; 288 NW2d 613
Plaintiff finally claims that the trial court should have additionally granted its motion for JNOV regarding defendants’ claim that plaintiff by duress obtained a mortgage on one of defendants’ farms. This Court has explained that
[t]o succeed with respect to a claim of duress, [defendants] must establish that they were illegally compelled or coerced to act by fear of serious injury to their persons, reputations, or fortunes. “Fear of financial ruin alone is insufficient to establish economic duress; it must also be established that*682 the person applying the coercion acted unlawfully.” [Enzymes of America, Inc v Deloitte, Haskins & Sells, 207 Mich App 28, 35; 523 NW2d 810 (1994), rev’d in part on other grounds 450 Mich 889 (1995) (citations omitted).]
Because defendants have not alleged that plaintiff acted illegally, their claim of duress is meritless, and we conclude that the trial court erred in allowing it to proceed to the jury.
Given our conclusion affirming the trial court’s grant of plaintiff’s motion for a directed verdict regarding count v of defendants’ countercomplaint, and our conclusions reversing the trial court’s denials of plaintiff’s motions for a directed verdict regarding counts i, n, vi, and vn of defendants’ countercomplaint, we need not reach defendants’ various remaining allegations that the trial court erred in calculating setoffs to their jury awards. We simply note the following in response to defendants’ argument that the trial court erred in determining that a breach of contract by plaintiff lender that caused defendants to lose certain property would entitle defendants to recover only the amount of their loss of equity in the property — the property’s market value on the foreclosure date less expenses saved because of foreclosure. United California Bank v Prudential Ins Co of America, 140 Ariz 238, 295-296, 308-309; 681 P2d 390 (1983). While “[t]he traditional measure of damages for breach of a contract to loan money is the additional interest required for a replacement loan. . . . [T]his measure has been broadened to include loss of equity if the breach of the loan agreement caused the borrower to lose ownership of its assets.” Id. at 295-296.
*683 It is only “the actual loss” in the given case that can be recovered by the landowner. That measures the amount of his damages. Where there is a lien indebtedness against the land the indebtedness must be taken into consideration in determining the amount of “actual loss” the landowner sustained at the time the title was lost. The landowner, owing such lien indebtedness, must pay it, and is bound to pay it. He is not legally relieved of its final payment by the mere act of the party defaulting in lending the money to discharge the lien indebtedness. Consequently, in such cases, the measure of liability is the difference in the lien indebtedness, principal and interest, and the value of the land at the time it is lost by reason of foreclosure of such hen. It is the landowner’s interest in the land, represented by the value of his equity, that he would be entitled to as compensation. For legally the value of the equity is his only “actual loss.” [FB Collins Inv Co v Sallas, 260 SW 261, 265 (Tex App, 1924).]
See also Lincor Contractors, Ltd v Hyskell, 39 Wash App 317, 321-322; 692 P2d 903 (1984) (financing company’s refusal to lend entitled property owner to recover value of its equity in building); St Paul at Chase Corp v Manufacturers Life Ins Co, 262 Md 192, 241-244; 278 A2d 12 (1971) (breaching party’s refusal to finance entitled property owner to recover for loss of equity, but because owner had no equity it could recover no damages for loss of building).
Defendants additionally challenge the trial court’s decision to award plaintiff attorney fees and costs, alleging that plaintiff should not be entitled to fees and costs when it breached its contractual duties. However, in light of our conclusions reversing the jury’s verdicts for defendants, defendants’ argument is without merit. Furthermore, in stipulating judgment for plaintiff on its complaint, defendants on the record agreed that plaintiff would receive attorney
Finally, defendants argue that several rulings of the trial court illustrate that it was biased against them. Our review of these various, brief contentions, however, reveals no improper actions taken by the trial court, and no unfair prejudice suffered by defendants.
Affirmed in part, reversed in part, and remanded for entry of judgment for plaintiff regarding counts I, n, vi, and vn of defendants’ countercomplaint. We do not retain jurisdiction.
The parties executed and recorded on June 20, 1985, a document entitled “Affidavit Correcting Mortgage.” This affidavit provided that the September 3, 1982, date of the Basic Loan Agreement referenced in the mortgage was inaccurate and that the date should read April 30, 1984. This correction reflects the parties’ execution of a new Basic Loan Agreement on April 30, 1984, but does not affect our instant analysis.
The record contains an April 14, 1989, supplementary loan agreement coveting a $50,532.50 operating loan (denominated as loan #2) disbursement that requires this amount plus interest be repaid by February 1, 1990. However, a December 31, 1989, statement of defendants’ accounts reflects a balance for loan #2 of $66,246.50, indicating that defendants borrowed more operational funds for 1989 than reflected in the April 14 supplementary loan agreement. Although the record was unclear regarding on what specific date loan #2’s balance above $50,532.50 plus interest was due, as discussed above, we find that plaintiff did not act in bad faith in utilizing its collateral to satisfy in its entirety defendants’ 1989 operating loan. Furthermore, a November 30, 1989, supplementary loan agreement shows that defendants also owed as of January 1, 1990, a $20,000 plus interest payment on the $195,188.65 balance of their capital loan (loan #20001). Therefore, because the $83,000 crop-proceeds check was insufficient to satisfy all of defendants’ loan obligations, plaintiff exercised sound lending practice in refusing to advance $10,000 to the Federal Land Bank.
Concurrence in Part
(concurring in part and dissenting in part). I respectfully dissent from the majority’s decision to reverse with regard to counts i, n, vi, and vn of defendants’ countercomplaint and remand for entry of judgment in favor of plaintiff regarding those claims. I would affirm the jury’s verdict and the trial court’s rulings in all respects.
I agree with the majority with respect to defendants’ issues on appeal to the extent that defendants have not raised any issue requiring reversal. Regarding the issue of setoff, I would find no error because the parties agreed on the record that the jury would be instructed that the trial court would set off any real estate hens on defendants’ property from any award, and at the posttrial hearing, the trial court noted that the amount of the setoff represented supe
With respect to the cross appeal, I respectfully dissent. I would hold that the trial court did not err in denying plaintiffs motion for judgment notwithstanding the verdict (jnov) regarding count I (bad-faith breach of contract for failure of plaintiff to loan 1991 operating funds to defendants), count n (bad-faith breach of contract when plaintiff refused to surrender collateral proceeds to pay other of defendants’ creditors), count vi (breach of fiduciary duty by plaintiff in failing to release collateral proceeds to tender payment on Federal Land Bank’s mortgage), and count vn (duress by plaintiff in procuring the May 1990 mortgage on the Partaka farm) because there were factual questions for the jury to resolve. I do not believe that defendants’ counterclaim is deficient as a matter of law as the majority apparently holds.
The standard of review for jnov requires review of the evidence and all legitimate inferences in the light most favorable to the nonmoving party. Orzel v Scott Drug Co, 449 Mich 550, 557; 537 NW2d 208 (1995). Only if the evidence so viewed fails to establish a claim as a matter of law, should a motion for jnov be granted. Id. at 558. I would find that defendants presented sufficient evidence to support each claim and that the majority is simply, and improperly, substituting its own judgment for that of the jury. See McLemore v Detroit Receiving Hosp & Univ Medical Center, 196 Mich App 391, 395; 493 NW2d 441 (1992).
With regard to count I, defendants alleged a bad-faith breach of an agreement to loan defendants operating funds for 1991. There was evidence that loan officers of plaintiff’s office went to defendants’ farm
Accordingly, the jury could find that plaintiff, in bad faith, breached an agreement to loan defendants operating funds for 1991.
With respect to count n, defendants alleged a bad-faith breach of contract when plaintiff refused to surrender its collateral proceeds to pay other creditors of defendants. There was evidence that, in January 1990, Crystal Weldon instructed one of plaintiff’s employees to apply $10,000 of a total check amount
Further, there was sufficient evidence presented to find that the failure to apply the $10,000 toward the mortgage with the Federal Land Bank caused damages in the amount the jury awarded, $500,000. Because the $10,000 was not applied toward the mortgage, the mortgage was foreclosed and the Caskey farm was later sold to a third party. The loss of the Caskey farm included the loss of crop income derived from the farm as testified to by Major Weldon. Thus, there is evidence supporting the juiy’s finding of causation between the breach and defendants’ damages.
With respect to count vi, defendants alleged breach of a fiduciary duty by plaintiff in failing to release its collateral proceeds (the $10,000) toward the mortgage with the Federal Land Bank. Defendants note that
Under these circumstances, I would hold that the jury could properly determine that there was a fiduciary relationship because there was a reposing of faith, confidence, and trust and a placing of reliance by defendants on the judgment and advice of plaintiff.
With respect to count vn, there is no need to address this issue because the trial court set aside the jury’s verdict for defendants in the judgment, finding that the relief sought by defendants in this count was inconsistent with the relief defendants sought and the verdict rendered by the jury. Further, contrary to defendants’ argument, it was not error for the trial court to set aside the jury’s verdict regarding count vn because this effectively validated plaintiff’s mortgage on the Partaka farm and its purchase price of the premises at the foreclosure sale, thus reducing defendants’ debt.
I would affirm the trial court’s final judgment in all respects.
Even this fact is conceded in plaintiff’s brief, as cross-appellant, at page six.