Lead Opinion
In this аppeal, the parties ask us to consider and shape the contours of Maryland Code (2006 RepLVol.), Courts and Judicial Proceedings Article, § 5-408,
FACTS AND LEGAL PROCEEDINGS
William Pease (hereinafter ‘William”) and Michele Pease (hereinafter “Michele”)
During the period between March and August of 2005, William alleged that he spoke with Martin at least twice a week, and repeatedly told Martin that he did not want his new residence to be “implicated in the financing or to, in any manner, pledge or utilize the new home as collateral toward repayment of the [SBA] loan.” Allegedly, Martin informed William that, pursuant to Wachovia’s normal lending procedures, the only way the Peases would not be required to pledge their house as collateral on the SBA loan was if they had less than twenty-percent equity in the value of the home. Because the size of the Peases’ down payment put the amount of equity in the home above twenty percent, Martin suggested the Peases encumber the home with a home equity line of credit with Wachovia, which would decrease the amount of equity in the property below the twenty-percent threshold. The Peases applied for and received from Wachovia a $218,000 line of credit on their residence, which reduced their personal equity in the home to ten percent. The Peases contend that Wachovia and Martin misrepresented verbally that this “artificial loan” would safeguard the residence from foreclosure werе the commercial loan to go into default and the personal guarantees triggered. In reality, however, because the commercial loan documents (including the guarantees) provided no such restriction on Wachovia’s abilities to execute on the Peases’ assets in the event of default, Wachovia could foreclose on the home under those circumstances notwithstanding the home equity loan gambit. Thus, the Peases allege that these statements regarding protecting the residence from foreclosure were made to induce them into agreeing to enter the SBA loan.
At the same time, William began the process of reviewing the business affairs and finances of Bush to ensure the company was valued as estimated by Kolper. According to William, as part of his due diligence in reviewing the business affairs and finances of Bush, he required Kolper and the business brokerage firm to provide various documentation, including: profit and loss statements for the duration of Bush’s operations, prior tax returns, a list of employees, a list of contracts, a list of accounts receivables, and various other documentation. Such documentation was submitted to Wachovia’s certified appraiser, Scott Gabehart, who, after conducting an independent financial analysis for Wachovia and the Peases, valued Bush at $950,000 as a going concern. Further, a
A few weeks prior to settlement on the SBA loan, Martin allegedly admitted to William thаt, according to the documentation supplied to Wachovia, Bush’s financial health was weaker than Kolper had indicated. A centerpiece of the Peases’ grievance is the allegation that Wachovia possessed certain negative financial information that it withheld from them.
Settlement on the purchase of Bush took place on 19 August 2005, whereby Bush’s operating assets were transferred to VLP Industries, Inc., and the real property on which Bush was situated was transferred to VLP Real Estate, for a total purchase price of $1,494,075.49. On the same day, to finance the majority of the purchase price, VLP Industries, Inc. executed a commercial loan with Wachovia in the amount of $1,118,300. The Peases personally guaranteed the loan, and both William and Michele signed the loan agreement, which contained the following confessed judgment clause:
CONFESSION OF JUDGMENT. If payment of the indebtedness ... shall not be made when due and at maturity ... the undersigned hereby authorize and empower any attorney of any Court of Record within the United States to appear for the undersigned in any Court ... and confess judgment against the undersigned either jointly or severally in favor of the Holder of this Note for the amount then due thereon, with the interest thereon aforementioned and the cost of suit and attorneys’ fees of fifteen percent (15%)....
Less than one week after settlement, the Peases paid back the $218,000 home equity
The Peases filed a motion to open, modify, or vacate the confessed judgments on 8 April 2008, asserting allegations of negligence, fraud, and breach of fiduciary duty. In support of these allegations, the Peases attached an affidavit by John Burdiss, a purported expert in banking standards of care. Burdiss claimed that Wachovia failed to comport with commercially reasonable banking standards when it authorized the commercial loan, despite having reservations about Bush’s financial stability, and when it induced the Peases into taking out the home equity loan by assuring them that, by doing so, their residence would be protected from foreclosure. Wachovia responded by arguing that the Peases’ defenses of negligence, fraud, and breach of fiduciary duty were barred by the Maryland Credit Agreement Act, which states that “[a] credit agreement is not enforceable ... unless it is ... [i]n writing ....”§ 5-408(b).
On 10 December 2008, a hearing on the motion to open, modify, or vacate the confessed judgments was held in the Circuit Court. Before the trial court, the Peases asserted that, should the hearing judge order the confessed judgment opened, modified, or vacated, they would file counterclaims against Wachovia,
I am going to deny the Motion to Vacate. And I do so with a good deal of reluctance____ The Court need only find there is a potentially meritorious defense, not to determine the amount of merit, or that the moving party will indeed prevail____ And, while I would certainly find that the Plaintiff would be, I believe be able to present a defense that in terms of having been induced by perhaps misrepresentation .... I just cannot find that in light of the Maryland Credit Agreement Statute, and particularly in light of the ST Systems Corporation vs. Maryland National Bank case.... And I too, as an individual would hope that the statute would not be such a shield as to protect lending institutions from any tort....
Yet, I am merely sitting in the Circuit Court and have been compelled to follow the dictates of the opinions of the Appellate Court. And, my understanding of what the Court of Special Appeals has said is literally the economic protective policy of the Maryland Credit Agreement statute is only upheld if tort claims based on an unenforceable alleged agreement are excluded and the torts that are alleged here as the potentially meritorious defenses are indeed based upon unenforceable alleged agreements.
The Peases appealed timely to the Court of Special Appeals. On our initiative, we granted certiorari, before the intermediate appellate court could decide the appeal, to consider, if appropriate, whether
the [Maryland Credit Agreement Act] which bars enforcement of credit agreements, unless the agreements are in writing, and the CSA decision in [ST Sys. Corp.] prohibit tort claim defenses to a bank’s confessed judgment claim where the defendants allege the bank violated standard banking practices to fraudulently and negligently induce a borrower to accept the bank’s loan of over $1 million dollars.
Pease v. Wachovia,
DISCUSSION
I. Standard of Review
Pursuant to Md. Rule 2-611(d), a court must open, modify, or vacate a confessed judgment “if [it] finds that there is a substantial and sufficient basis for an actual controversy as to the merits of the action.... ” A trial court’s legal conclusions—including whether the evidentiary proffers of a defendant seeking to open, modify, or vacate a confessed judgment qualify as a meritorious defense—are reviewed under non-deferential appellate scrutiny. See Nils, LLC v. Antezana,
II. Analysis
The Peases devote a portion of their brief to canvassing the legislative history
To be sure, “[c]onstruing statutes ... is a large and essential part of the judicial process” and “[i]t is one of the principal functions which courts were created to perform.... ” Mangum v. Md. State Bd. of Censors,
Pertinent to our case, and pursuant to Md. Rule 2-611(d), we are alert to the fact that the practical effect of a hearing judge opening, modifying, or vacating a confessed judgment is to “permit the defendant to file a responsive pleading.” Admittedly, at this juncture in these proceedings, it is a bit unclear upon what grounds that pleading would be based and what its aim might be. The lack of clarity is occasioned by, on one hand, the Peases arguing before the trial court, and reiterating in their brief before this Court, that, if the judgments are opened, modified, or vacated, they intend to file counterclaims against Wachovia, asserting the same tort-based theories raised before the trial court and this Court: negligence, fraud, and breach of fiduciary duty. On the other hand, before the hearing judge, the Peases also acknowledged that they would seek to have the credit agreement declared void ab initio for the same reasons. At oral argument here, the Peases’ counsel stated that “the defenses in this case ... create a tort defense to the creation of the promissory
A. The Maryland Credit Agreement Act
The Maryland Credit Agreement Act, Md.Code (2006 Repl. Vol.), Courts and Judicial Proceedings Art., § 5-408, provides, in pertinent part, that “[a] credit agreement is not enforceable by way of action or defense unless it: (1) [i]s in writing; (2) [expresses consideration; (3) [s]ets forth the relevant terms and conditions of the agreement; and (4)[i]s signed by the person against whom enforcement is sought.” § 5-408(b). As one would expect, however, with a statute entitled the “Maryland Credit Agreement Act,” the Act only serves as a statute of frauds with respect to “credit agreements.” See Bill Analysis of H.B. 704 (1989) (“The intent of this bill is to establish a statute of frauds that makes certain credit agreements ... unenforceable unless they are in writing ....”) (emphasis added). The Act provides that a “credit agreement” is a “covenant, promise, undertaking, commitment, or other agreement by a financial institution
The legislative history of the Act, though not extensive, illuminates the types of situations to which the General Assembly intended the Act apply. In 1989, at the time the legislation was enacted, “multimillion dollar lawsuits [were] being filed and recovery [was] being made based on alleged verbal promises to lend and based on modifications of existing loan agreements.” Notes to H.B. 704 (1989). Thus, the purpose of the bill was to “protect lenders against claims that the lender made a verbal promise to loan money and then refused to do so, or that the lender verbally agreed to extend the terms of a loan.” Bill Analysis of H.B. 704 (1989). We interpret the plain language and the legislative history of the Maryland Credit Agreement Act consistently to mean that a court should only engage the statute of frauds portion of the Act when, either through affirmative claim or defense, a commercial borrower or lender either attempts to recover on a verbal promise to lend/borrow, or seeks to enforce a verbal modification of an existing credit agreement.
Md. Rule 2-611(d) requires a trial judge to find “that there is a substantial and sufficient basis for an actual controversy as to the merits of the action” before opening, modifying, or vacating the confessed judgment. If, however, the Maryland Credit Agreement Act bars admission of certain evidence supporting the “basis for an actual controversy,” it logically follows that such evidence is not, then, “substantial and sufficient.” We now move to apply our understanding of the Maryland Credit Agreement Act to the (1) potential counterclaims and (2) the void ab initio objective, both asserted by the Peases before the trial court and this Court, as the theories upon which a future “responsive pleading” might be based, to determine whether the Act bars consideration at this stage of the proceedings of allegations and evidentiary proffers supporting either or both such objectives.
B. As Counterclaims
As explained supra, the Peases assert that, if successful in opening or vacating the confessed judgment, they will employ their allegations—negligence, fraud, and breach of fiduciary duty—as the bases for counterclaims against Wachovia. If the Act, however, would bar such counterclaims, or the evidence on which they rest, the allegations and evidentiary proffers cannot constitute a “substantial and sufficient basis as to the merits of the action” sufficient to open or vacate the confessed judgments. See Schlossberg v. Citizens Bank of Md.,
The filing of offensive counterclaims using the tort theories of negligence, fraud, and breach of fiduciary duty would be on the basis that, as the Peases acknowledge, any recovery on such claims would serve as a set-off against any judgment on the guarantees in favor of Wachovia.
C. As Void Ab Initio
The Peases assert in the alternative that, if successful in opening or vacating
Again, the Act would only bar the Peases’ parol evidence tending to show the loan agreement was void ab initio if the admission of such evidence constitutes an attempt to enforce either: (1) an oral credit agreement; or (2) a verbal modification of their existing credit agreement. Here, while consideration of such evidence to nullify the credit agreement is not an attempt to enforce an oral credit agreement, we think it is an attempt to enforce a verbal modification of the credit agreement existing between the Peases and Wachovia. We explain.
The SBA note and the accompanying guarantees set forth the rights and duties of the Peases and Wachovia. These rights and duties include, in pertinent part, the Peases’ duty to repay Wachovia $1,118,300, and, if default and acceleration occur under the note, failing repayment, Wachovia’s right to execute on the guarantors’ assets, including the real property upon which Bush is situated and the Peases’ residence. The Peases’ attempts to declare the credit agreement void ab initio, at least on the bases appearing in this record, constitute an attempt to have a court declare that they need not pay back the $1,118,300 and/or that Wachovia may not execute on the borrowers’ or the guarantors’ assets; as such, the Peases are arguing for the enforcemеnt of what is, in effect, an oral modification of the original terms of the loan and guarantees. This is precisely the type of maneuver that the statute of frauds portion of the Maryland Credit Agreement Act was enacted to forestall. See Notes to H.B. 704 (“Multimillion dollar lawsuits are being filed and recovery is being made based on ... modifications of existing loan agreements.”).
B. Summary
This case requires this Court to consider the interplay between the law and rules governing confessed judgments and the Maryland Credit Agreement Act. “Judgments
We hold that the General Assembly did not intend the Maryland Credit Agreement Act to apply to a borrower asserting tort counterclaims against a lender, even where the asserted factual underpinnings of the tort or torts derive from transactions relating to the execution of the credit agreement. As such, to the extent the Peases’ responsive pleading will assert counterclaims against Wachovia, the evidentiary proffers upon which these counterclaims appear to be based are not barred by the statute of frauds provision of the Maryland Credit Agreement Act from consideration in deciding whether to open or vacate the confessed judgment.
In the Circuit Court, the hearing judge conceded that, but for his determination that he could not consider the Peases’ factual allegations and evidentiary proffers at the threshold, he “would certainly find that the Plaintiff would be ... able to present a defense ... by perhaps misrepresentation about the home being used as collateral.... ” Because he did not make a dеtermination whether, pursuant to Md. Rule 2-611(d), there exists in this case a “substantial and sufficient basis for an actual controversy as to the merits of the action,” we remand the case, in light of this opinion, so that the court may consider whether the Peases’ allegations of negligence, fraud, and breach of fiduciary duty meet this threshold.
JUDGMENT OF THE CIRCUIT COURT FOR BALTIMORE CITY VACATED; CASE REMANDED TO THAT COURT FOR FURTHER PROCEEDINGS NOT INCONSISTENT WITH THIS OPINION; COSTS TO BE ASSIGNED 50% TO THE PEASES AND 50% TO WACHOVIA.
BELL, C.J., MURPHY and ADKINS, JJ., concur and dissent.
Notes
. Unless otherwise provided, all statutory references are to Maryland Code, Courts and Judicial Proceedings Article (2006 Repl.Vol.).
. It is not clear whether Mr. Martin's first name is correctly spelled "Jeffrey” or "Jeffeiy,” as the Peases use both versions throughout their pleadings and briefs.
. At oral argument, Peases' counsel admitted that he was not sure exactly what additional negative financial information was withheld. Furthermore, it is not clear whether the alleged withheld information was information in addition to that relied on by Wachovia's appraiser. At oral argument, Peases’ counsel stated that "there was, we believe, additional information beyond what was done in the appraisal ... that was received by ... the loan officer in this case.” On the other hand, in the affidavit supporting his motion to open, modify, or vacate the confessed judgment, William states merely that "Wachovia never provided to [sic] the negative financial information about the Bush purchase [to] its borrower, VLP Industries, or to William Pease and Michele Pease.”
. Though it perhaps does not require stating, the $95,000 note from VLP Industries, Inc., payable to Kolper, was not part of the indebtedness under the commercial loan default that lead to the confessed judgments.
. The Peases’ trial counsel stated exрressly to the hearing judge that, ”[i]f you decide to vacate the Judgment, we will then file our counterclaim in this case.” Further, when asked by the hearing judge whether the Peases would file tort claims, Peases' counsel replied, "[wje’re asserting all tort claims. Yes, Your Honor.”
. In ST Sys. Corp. v. Md. Nat’l Bank,
. The Concurring and Dissenting opinion’s efforts to grapple with the Maryland Credit Agreement Act’s plain language, legislative history, and how other jurisdictions may have treated debatably similar facts under arguably similar statutory schemes, where not entirely necessary, call to mind the stoiy of the Exodus. The Midrashic interpretation of the Exodus from Egypt recounts that, upon reaching the Red Sea, the waters did not automatically part before the Israelites. Midrash Rabbah, Vot. Ill 272 (S.M. Lehrman, trans., 3d ed.1983). While the Israelites stood by the shore contemplating their impending doom, Nahshon Ben Amminadab entered the water until the sea reached his nostrils. The Jewish Encyclopedia Vol. IX 146 (Funk & Wagnall 1905); Midrash Rabbah, supra. It was not until this act of self-sacrifice that the sea’s waters parted. Imagine, however, that there was a way for the Israelites to continue on their path without having to wade in water over their heads. The Concurring and Dissenting opinion here takes on the Maryland Credit Agreement Act at least up to its eyebrows; we wade in, however, only up to our nostrils.
We regret that the quality of our abridged analysis apparently does not meet the more rigorous standards expected by the subscribers to the Concurring and Dissenting opinion. See
. The Concurring and Dissenting opinion highlights a different colloquy at oral argument between the Peases' counsel and Judge Murphy to support its view that we should decline to address the ¿’eases’ pursuit of a void ab initio claim.
Notwithstanding our difference of opinion about which tense the verb "challenge” took in the exchange between counsel and Judge Murphy, the Peases’ counsel—during what seems elsewhere on the recording of oral argument to be part of his prepared arguments, and not in direct response to an inquiry by a member of the Court—unequivocally states that it was his belief that the defenses asserted by his clients (then and now) operate to void the SBA loan ab initio. Finally, the Peases’ counsel, in his brief at 19, cites a Law Review article for the proposition that "[fjraud may serve both as a defense to a suit on a contract and as an independent tort.” Todd C. Pearson, Limiting Lender Liability: The Trend Toward Written Credit Agreement Statutes, 76 Minn. L.Rev. 295, 314-15 (1991).
Concededly, while the Peases’ counsel could have been clearer before this Court that, upоn remand, his clients intend to pursue the void ab initio claim before the Circuit Court, when viewing the proposition that "fraud may serve ... as a defense to a suit on a contract” through the lens of what was argued in the trial court and at appellate oral argument, the more reasonable interpretation of the record is that the Peases, before this Court, argue that they be allowed to proceed anew before the Circuit Court, claiming, among other things, that the SBA loan was void from the inception (or was at least voidable). Accordingly, it is fair and proper to comment on that contention in this opinion.
. "Counterclaim” has been defined as "the assertion of a right to have an affirmative judgment against the adversary based upon a setoff....” Imbesi v. Carpenter Realty Corp.,
. Wachovia misplaces its reliance on a recent decision of the United States District Court for the District of Maryland, Kuechler v. The Peoples Bank,
. Not all jurisdictions have held that offensive use of counterclaims are allowed under their respective credit agreement statutes of frauds. For instance, Illinois’s credit agreement statute of frauds, 815 ILL. COMP. STAT. 160/2 (2007), which bars actions by a debtor “on or in any way related to a credit agreement,” has been held to bar counterclaims related to a written credit agreement. See First Nat’l Bank in Staunton v. McBride Chevrolet,
. Thus, we do not agree with the view, espoused by the Court of Special Appeals in ST Sys. Corp. v. Md. Nat’l Bank,
. It is worth noting that a recent decision from the United States District Court for the Western District of Missouri concluded that Missouri’s Credit Agreement Act did not apply, in the first instance, to tort allegations similar to those before us. In Four A’s Investment Co., LLC v. Batik of Am. Corp.,
. According to the Concurring and Dissenting opinion, we fail "to recognize that a successful claim of fraudulent inducement renders the contract voidable, not void ab initio."
. This Court expresses no opinion as to whether the Peases will be successful in satisfying the trial court that there exists a ‘‘substantial and sufficient basis for an actual controversy as to the merits of the action,” as required by Md. Rule 2-611(e).
Concurrence in Part
concurring in part and dissenting in part.
I agree with the majority’s conclusion that the Maryland Credit Agreement Act does not apply to, and therefore does not preclude, the Peases’ counterclaims of fraud, negligence, and breach of fiduciary duty, although I think its reasoning should be amplified. I disagree, however, with the majority’s holding that the use of oral statements to prove that a contract is void ab initio is barred by the Act.
I.
In its holding that tort claims are not barred by the Act, the majority relies primarily on legislative history indicating that the Act was intended only to apply to bar enforcement of “(1) an oral credit agreement; or (2) a verbal modification of their existing credit agreement.” The majority emphasizes that the Act was enacted in response to the numerous “multimillion dollar lawsuits [that were] being filed ... based on alleged verbal promises to lend and ... modifications of existing loan agreements.” Maj. Op. at 224,
Specifically, I believe that the legislative history sheds light on the meaning of “enforceable” as used in Subsection (b) of the Act—“a credit agreement is not enforceable by way of action or defense[.]” Mаryland Code, (1973, 2006 RepLVol.), § 5-408 of the Courts and Judicial Proceedings Article (“CJP”). The Act defines “credit agreement” to include “agreeing to take or to not take certain actions by a financial institution in connection with an existing or prospective credit agreement.” CJP § 5-408(a)(ii). It then provides that a “credit agreement” is not “enforceable by way of action or defense” unless it is in writing. CJP § 5-408(b)(l). Wachovia argues that these provisions mean that any oral agreement or representation made by a bank in connection with a loan is barred, even when used to support a tort action. Thus, Wachovia interprets the word “enforce” to include an action in tort based on the oral agreement. This was the interpretation reached in ST Systems v. Md. Nat’l Bank,
I depart from the majority when it veers into discussion of an argument that the contract is void ab initio,
I also disagree with the majority’s holding that the Act bars use of oral statements that would render a contract void ab initio. The majority reasons that any “consideration of [Wachovia’s oral representations] to nullify the [commercial loan] ... is an attempt to enforce a verbal modification of the [commercial loan] existing
When a contract is void ab initio, it is “[n]ull from the beginning, as from the first moment when a contract is entered into[.]” Black’s Law Dictionary 1709 (9th ed.2009). It is as if the contract never existed in the first place. Cf. Julian v. Buonassissi,
At the heart of the assertion of [fraud in factum] is the absence of that degree of mutual assent prerequisite to the formation of a binding contract; absent the proverbial “meeting of the minds” one cannot be said to have obligated himself in law and the purported transaction is regarded as void.
Richard A. Lord, 26 Williston on Contracts § 69:4, at 502 (4th ed.2003)(quoting Bancredit, Inc. v. Bethea,
When deeds are ... void ab initio, [they are] wholly wanting in legal fitness to stand even as security for advances. They have in truth no lawful existence, and to use the expression of Mr. Sugden, 525, “It would be wholly inconsistent and absurd to recognize them for any lawful purpose.”
Slingluff v. Smith,
will not be enforced by any species of action in a Court of Justice; ... it cannot be made good by ratification, or by any succession of renewals, and no performance on either side, can give validity to the unlawful contract, or form the foundation of any right of action upon it.
(quoting 10 Cyc. 1146 (1904)).
The majority’s reasoning is flawed. It characterizes a claim that a contract is void ab initio as one barred by the statute because “it is an attempt to enforce a verbal modification of the credit agreement.” Certainly, the Act bars using oral agreements to prove a contract modification in a suit to enforce the modified contract. “Modification,” however, contemplates that there is something that is to be modified. See Black’s Law Dictionary 1095 (9th ed.2009) (defining “modification” as a “change to something [.]”) (emphasis added). If the claim is that a party’s tortious conduct prevented the contract from ever forming at the outset, then there is simply nothing to enforce, and the Act does not apply. Accordingly, the Act would not bar a claim that a bank’s tortious conduct rendered the original commercial loan void ab initio.
I respectfully dissent from the majority on this issue.
II.
As the Circuit Court’s analysis of the Peases’ tort claims was overshadowed by its belief that the Maryland Credit Agreement Act categorically precluded the court from opening the confessed judgment, I believe that a more careful examination of that Act is key to this appeal. This Court has never before interpreted Maryland’s Credit Agreement Act. As with any statute, the general principles of interpretation apply:
In statutory interpretation, our primary goal is always to discern the legislativepurpose, the ends to be accomplished, or the evils to be remedied by a particular provision, be it statutory, constitutional or part of the Rules. We begin our analysis by first looking to the normal, plain meaning of the language of the statute, reading the statute as a whole to ensure that no word, clause, sentence or phrase is rendered surplusage, superfluous, meaningless or nugatory. If the language of the statute is clear and unambiguous, we need not look beyond the statute’s provisions, and our analysis ends. If, however, the language is subject to more than one interpretation, or when the language is not clear when it is part of a larger statutory scheme, it is ambiguous, and we endeavor to resolve that ambiguity by looking to the statute’s legislative history, case law, and statutory purpose, as well as the structure of thе statute.
People’s Ins. Counsel Div. v. Allstate Ins. Co.,
The Maryland Credit Agreement Act was adopted in 1989 as a tool to limit lender liability.
According to the plain meaning of the Act, neither a commercial lender nor a commercial borrower may attempt to enforce an oral promise in an action on the contract. This bar includes any oral agreement to take or to not take certain actions in connection with an existing or prospective credit agreement. Thus, the Peases will not succeed in any claim that the promises made by Martin or Wachovia to forbear enforcing their judgment lien on the Peases’s home constituted a modification of the terms of the commercial loan. The issue that is not so clear, however, is whether the statutory bar against using these oral promises in defense of a contract enforcement suit will bar their use in
In examining this question, I see cases interpreting Maryland’s general statute of frauds as apt guides. See CJP § 5-901. Indeed, legislative history reveals that the General Assembly enacted the Maryland Credit Agreement Act with the “intent ... to establish a statute of frauds ... [for] certain credit agreements made by financial institutions.... ” Floor Report, supra. Like the Act, CJP Section 5-901 requires that certain promises must be “in writing and signed by the party to be charged” to be enforceable.
In interpreting this general statute of frauds, we have drawn a distinction between actions in contract and those in tort, explaining that “contracts which are voidable by reason of the statute of frauds ... can still afford a basis for a tort action____” Daugherty v. Kessler,
Other states have also likened their credit agreement statutes to their general statutes of frauds, and on that basis reasoned that oral promises made in the context of a credit agreement could support tort claims. In Missouri, a credit agreement is an “agreement to lend or forbear repayment of money, to otherwise extend credit, or to make any financial accommodation” and a “debtor may not maintain an action upon or defense to a credit agreement unless the credit agreement is in writing----” Mo.Rev.Stat. § 432.045 (2009). When debtors alleged that a lender had conspired to fraudulently induce them into defaulting on their loan by making promises to remove liens on another property, the Missouri Court of Appeals held that the trial court improperly granted summary judgment in favor of the lender based upon an erroneous belief that Missouri’s credit agreement statute barred the debtors’ claims. See Mika v. Cent. Bank of Kansas City,
No lender or borrower may maintain an action to enforce or seek damages for the breach of any term or condition of credit agreement ... unless such term or condition has been agreed to in writing and signed by the party against whom it is sought to be enforced or against whom damages are sought.
Okla. Stat. tit. 15, § 140(B) (2010).
The same conclusion was reached in Connecticut, whose statute of frauds provides in relevant part:
(a) No civil action may be maintained in the following cases unless the agreement, or a memorandum of the agreement, is made in writing and signed by the party, or the agent of the party, to be charged: ... (6) upon any agreement for a loan in an amount which exceeds fifty thousand dollars.
Conn. Gen.Stat. § 52-550(a)(6) (2010). In Union Trust Company v. Jackson,
In still other states, legislatures have included more far-reaching language in their credit agreement statutes, which the courts have interpreted as barring all actions in tort related to unenforceable agreements. For example, Colorado’s credit agreement statute precludes a debtor or a creditor from “fil[ing] or maintaining] an action or a claim relating to a credit agreement involving a principal amount in excess of twenty-five thousand dollars unless the credit agreement is in writing and is signed by the party against whom enforcement is sought.” Colo.Rev.Stat. § 38-10-124(2) (2010) (emphasis added).
Additionally, when the American Bar Association’s (“ABA”) Task Force on Lender Liability Limitation Amendments to State Statutes of Frauds drafted its own model credit agreement statute, it chose language that expressly prohibited any “action for legal or equitable relief____” John L. Culhane, Jr. & Dean C. Gramlich, Lender Liability Limitation Amendments to State Statutes of Frauds, 45 BUS. LAW. 1779, 1792 (1991). It then listed the type of actions forbidden, including “promissory or equitable estoppel[,]” “part performance[,]” and “negligent misrepresentation.” Id. This was done in order to “foreclose ‘end runs’ under [common law] theories ... [because] experience [told the Task Force] that borrowers [would] seek such relief, and that courts may sometimes afford such relief.” Id. at 1797.
Our General Assembly, however, chose not to include words such as “relating to” or specify tort theories as among the actions prohibited. The Maryland Act merely states that a credit agreement shall not be enforceable if it is not in writing. It contains no language indicating an intent to jettison all actions that rely on oral representations made in a commercial loan setting. If our General Assembly had intended the Credit Agreement Act to preclude tort actions, as did the ABA Task Force and the legislatures of Coloradо and Illinois, then it could have drafted language to facilitate that end.
Timing and context are key to my interpretation—the Act was enacted after the tort exception to the general statute of frauds had already been established. Compare Daugherty,
The legislative history of the Act is also instructive. The Senate Judicial Proceedings Committee, in its analysis of House Bill 74 (the genesis of CJP Section 5-408) explained that this legislation “will protect lenders against claims that the lender made a verbal promise to loan money and then refused to do so, or that the lender verbally agreed to extend the terms of a loan.” Senate Judicial Proceedings Committee, H.D. 704, 1989 General Assembly of Maryland Floor Report. Notes attached to that bill explain: “All this legislation
The Credit Agreement Act precludes admission of verbal representations made by Martin and/or Wachovia as support for a claim or defense on the contract. I would hold that the Act does not bar proof of the elements of a tort—distinct from a contract claim or defense—such as the duty of care required in negligence, or the specific intent to defraud required in fraudulent misrepresentation.
Accordingly, here, to prove a claim in negligence the Peases would have to prove that Wachovia owed a duty to them more extensive than the mere obligation of good faith dealing implied in every contract. See Clancy v. King,
Accordingly, like the majority, I would remand the case to the trial court so that it may determine whether the Peases can allege a potentially meritorious tort defense that is sufficient to open, modify, or vacate the confessed judgments against them. I confess that I am somewhat skeptical of the Peases’s ability to do this on the facts as currently contained within their complaint. Nevertheless, with more discovery, they may be able to better develop the record.
Chief Judge BELL and Judge MURPHY authorize me to state that they join in the views expressed in this concurring and dissenting opinion.
. The Peases do not argue in their briefs that the loan was void ab initio, mentioning the phrase in their brief only as part of their review of what they filed in the Circuit Court. At oral argument, the following colloquy occurred:
Judge Murphy: [How does this case] play into the line of cases that say when there is a motion to reopen we apply a pretty liberal standard to allowing a hearing on the merits?
Counsel for Peases: Correct your honor, the line of cases indicates that confess judgments are freely opened upon a showing of a meritorious defense. A meritorious defense is described in [Nils, LLC v. Antezana,171 Md.App. 717 ,912 A.2d 45 ,] a defense that challenges the execution of the loan or the amount due under the nоte. We challenged that the loan that was executed, through the negligence or through fraud, was improperly created and therefore could either be void ab initio or as a setoff. In the event of a set-off, courts have stated that set-off is a meritorious defense. It is required under the Rule 6-11(c) that by motion of the defendant ... shall state a legal and factual basis for defense of that claim.... The defenses in this case that we claimed ... create a tort defense to the creation of the promissory note.
Presumably the majority relies on counsel's mention of the term as the justification for reaching the issue, even though it is not argued in the Peases’ briefs. I would not do so.
. The Restatement (Second) of Contracts (1981) gives the following example of a void contract in Section 163, Illustration 2:
A and B reach an understanding that they will execute a written contract containing terms on which they have agreed. It is properly prepared and is read by B, but A substitutes a writing containing essential terms that are different from those agreed upon and thereby induces B to sign it in the belief that it is the one he has read. B's apparent manifestation of assent is not effective.
. The Peases may also encounter problems with a “voidable” theory, because they would seek to void a loan agreement where they had already received the money. We have previously recognized the restitution obligation of a party seeking rescission. See, e.g., Lazorcak v. Feuerstein,
. Numerous jurisdictions across the country have enacted similar legislation. See, e.g., Ala.Code § 8-9-2(7) (2010) (Alabama); Alaska Stat. § 09.25.010(a)(13) (2010); Ariz.Rev.Stat. Ann. § 44-101(9) (2010) (Arizona); Ark.Code Ann. § 4-59-101(d) (2010) (Arkansas); Colo.Rev.Stat. § 38-10-124 (2009) (Colorado); Conn. Gen.Stat. § 52-550(a)(6) (2010) (Connecticut); Fla. Stat. § 687.0304(2) (2009) (Florida); Idaho Code Ann. § 9-505 (2010); § 815 Ill. Comp. Stat. 160/2 (2010) (Illinois); Ind.Code § 26-2-9-4 (2010) (Indiana); Iowa Code § 535.17 (2009); Kan. Stat. Arm. §§ 16-117 through -118 (2009) (Kansas); La.Rev.Stat. Ann. § 6:1122 (2009) (Louisiana); Mich. Comp. Laws § 566.132 (2010) (Michigan); Minn.Stat. § 513.33 (2009) (Minnesota); Mo.Rev.Stat. § 432.045 (2009) (Missouri); Nev.Rev.Stat. § 111.220(4) (2009) (Nevada); N.C. Gen.Stat. § 22-5 (2009) (North Carolina); Okla. Stat. tit. 15, § 140 (2010) (Oklahoma); Or.Rev.Stat. § 41.580(l)(h) (2009) (Oregon); Tenn.Code Ann. § 29-2-101(b) (2010) (Tennessee); Tex. Bus. & Com. Code Ann. § 26.02 (Vernon 2009) (Texas); and Utah Code Ann. § 25-5-4 (2009).
. CJP Section 5-901 codified the common law rule. See Collection & Investigation Bureau of Maryland, Inc. v. Linsley,
. A credit agreement is defined as "an agreement by a financial institution to lend money, extend credit or otherwise make any other financial accommodation, or to renew, extend, modify, rearrange or forebear the repayment of any such loan, extension of credit or financial accommodation....” Okla. Stat. tit. 15, § 140(A)(1) (2010).
. Texas defines a "loan agreement” as:
... one or more promises, promissory notes, agreements, undertakings, security agreements, deeds of trust or other documents, or commitments, or any combination of those actions or documents, pursuant to which a financial institution loans or delays repayment of or agrees to loan or delay repayment of money, goods, or another thing of value or to otherwise extend credit or make a financial accommodation. The term does not include a promise, promissory note, agreement, undertaking, document, or commitment relating to:
(A) a credit card or charge card; or
(B) an open-end account, as that term is defined by Section 301.002, Finance Code, intended or used primarily for personal, family, or household use.
Tex. Bus. & Com.Code Ann. § 26.02(a)(2) (2009).
. Michigan's intermediate appellate court adopted a different interpretation of its statute, which provides that "[a]n action shall not be brought against a financial institution to enforce \.. promises or commitments of the financial institution unless the promise or commitment is in writing and signed with an authorized signature by the financial institution....” Mich. Comp. Laws § 566.132(2) (2010). The statute governs promises to lend money, extend or modify credit, or waive a provision of a loan. Id. In Crown Technology Park v. D & N Bank, F.S.B.,
. Some states have interpreted their credit agreement statutes to bar actions, counterclaims or cross claims, but not affirmative defenses. These states read the text of their statutes to prohibit "only debtor-initiated action against a creditor.” Sees v. Bank One, Ind., N.A.,
. This session of the General Assembly was originally referred to as the 395th Session, and documents from that session bear that designation. The revised numbering "incorporates William J. Shepherd’s discovery [of an unrecorded session in 1876] during his research for ... the State Archives[,] ... [as well as] three of the extralegal conventions that sat between 1774 and 1776.” See 186 Archives of Maryland 127 (1994-95), available at http://www.msa.md.gov/megafile/msa/speccol/sc 2900/sc2908/000001/000186/html/aml86-127.html (last visited Aug. 10, 2010). The revised numbering is "the standard by which legislative sessions are counted to include all sessions convened.” Id.
. Wachovia also cannot rely on the parol evidence rule to quell the Peases’ claims of fraud and negligent misrepresentation. In Greenfield v. Heckenbach,
This Contract and any Addenda thereto contain the final and entire agreement between the parties, and neither they nor their agents shall be bound by any terms[,] conditions, statements, warranties or representations, oral or written, not herein contained.
Id. at 117,
[a] party to a contract cannot, by misrepresentation of a material fact, induce the other party to the contract to enter into it to his damage, and then protect himself from the legal effect of such misrepresentation by inserting in the contract a clause to the effect that he is not to be held liable for the misrepresentation which induced the other party to enter into the сontract. The effect of misrepresentation and fraud cannot be thus easily avoided. If it could be, the implied covenant of good faith and fair dealing existing in every contract would cease to exist.
Id. at 137,
. The following four elements compose the tort of negligence: (1) a duty owed to the plaintiff (or to a class of which he is a part), (2) a breach of that duty, (3) a legally cognizable causal relationship between the breach of duty and the harm suffered, and (4) damages. See Jacques v. First Nat’l Bank of Md., 307 Md. 527, 531,
. To prevail on a claim of breach of fiduciary duty, a party must prove: "(1) the existence of a fiduciary relationship, (2) a breach of duty owed by the fiduciary to the beneficiary, and (3) harm resulting from the breach.” Alleco Inc. v. Harry & Jeanette Weinberg Found.,
. Thus, I do not agree with the CSA’s view that the economic policy of CJP Section 5-408 "is only upheld if tort claims based on an unenforceable alleged agreement are excluded.” ST Systems Corp. v. Maryland Nat'l Bank,
. In an action for civil fraud based on an affirmative misrepresentation, a plaintiff must prove that:
(1) the defendant made a false representation to the plaintiff, (2) either the falsity of the representation was known to the defendant or the representation was made with reckless indifference to its truth, (3) the misrepresentation was made for the purpose of defrauding the plaintiff, (4) the plaintiff relied on the misrepresentation and had the right to rely on it, and (5) the plaintiff suffered compensable injury as a result of the misrepresentation.
Hoffman v. Stamper,