Tag Archives: good faith

Ambiguity from Multiple Writings–F.A.L. Investments, LLC v. Hawthorne Bank

F.A.L. Investments, LLC v. Hawthorne Bank, 2014 WL 1663767 (Mo. Ct. App., W.D., Apr. 1, 2014), presents a number of interesting issues concerning interpretation of a contractual relationship memorialized in multiple writings.

The facts are not stated succinctly in the brief. And what I would like to see, in order to make my own assessment of the merits, a verbatim, unedited extract of from the operative agreements, is not reproduced in one place. So, understanding the brief would require moving back-and-forth between the brief and other documents. And the arrangements are messy, involving obligations owed by an entity, and LLC, and its members in their individual capacities. So, I do not envy the judges.

In essence, the appellant’s brief seems to reference the following basic circumstances:

  • Existing loans extended by the bank were refinanced by the bank.
  • During that refinancing, what had been unrelated personal debts of one of the members of an LLC (one Samson) were secured by a deed of trust on LLC-owned property (other obligations also being secured under that deed of trust).
  • The deed of trust appears to be a form that was not negotiated.
  • The loan agreement has some oblique provision in it, described on page 10 of the brief, as follows:

“Upon the sale of any portion or all of the 179 property,” proceeds were to be divided as follows:

a. agreed expenses and taxes were payable to Green [a borrower];

b. the Borrowers’ Obligations of $1.781 Million were payable to Hawthorne; and

c. “any remaining proceeds” were to be divided equally between Hawthorne and the Greens, with Hawthorn’s share applied “to the Samson Obligations”.

  • The real property is sold to an affiliate at a price the bank thinks inadequate.
  • The borrower claims that, under the loan agreement, the Bank, after other debt is paid, is limited to getting half the proceeds for purposes of satisfying the Samson Obligations. The Bank claims it is not; the sale of the property triggers a separate due-on-sale provision in the deed of trust, entitling the Bank to additional rights.

One can see that the brief here just provides snippets in quotes. To analyze this, I want to see the entire, unedited language.

The case illustrates that the memorialization of an agreement in multiple writings can create ambiguities, because the separate parts may not fit well together. I recently wrote about this problem in an article styled, Side Letters, Incorporation by Reference and Construction of Contractual Relationships Memorialized in Multiple Writings, 64 BAYLOR LAW REVIEW 651 (2012), which can be downloaded for free at:

http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2254388.

I would think a form deed of trust unlikely to address satisfactorily the arrangements to provide collateral securing multiple obligations, only some of which are intended to be with recourse to the borrower.

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Alleged Good Faith Obligations Concerning Credit Insurance–Vantage Credit Union v. Chisholm

So here we have a circumstance that requires some thought to put in order.  The brief reports summary judgment was granted for the lender. That seems difficult to support. Briefs are at Vantage Credit Union v. Chisholm, 2014 WL 1872072 (Mo. Ct. App., E.D.); and 2014 WL 1458186 (Mo. Ct. App., E.D.)

A lender, Vantage, offers debtors disability insurance. A debtor, Chisholm, makes the payments for the insurance, and then allegedly has a covered disability. The lender’s employee, one Berry, allegedly promises to assist in making a claim. The lender subsequently disclaims any obligation, as recited in the debtor’s brief.

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Parol Evidence Rule and Good Faith Obligations–Rosenfeld v. Boniske

Rosenfeld v. Boniske, 2014 WL 832764 (Mo. Ct. App., E.D.), presents a question that requires some thought.

It concerns a contract for real estate, where the buyers’ obligation to buy is conditioned on the buyers’ entering a contract to sell their current residence.

The question: Does the parol evidence rule prevent introduction of evidence as to discussions between parties of the marketing effort buyers would make to sell their current residence?

Here’s the express condition, as stated in the brief:

This contract is contingent upon Purchasers entering into a contract for sale of their current residence at 19 Westwood Country Club on or before January 25, 2012. If no such contract has been entered into by 6:00 p.m. on January 25, 2012, Purchasers shall have the option to notify Seller that this contract shall thereafter be null and void, otherwise, absent such notification, Purchasers shall proceed with closing as set forth below. If Purchasers notify Seller that this contract shall be null and void as set forth above, Seller shall notify Investors Title to return Purchaser’s Earnest Money.

Here’s a summary of the argument, as stated in one party’s brief (removing the all caps):

The trial court erred in rendering judgment for plaintiffs and against defendant on plaintiffs’ claim for declaratory judgment and on defendant’s counterclaim for breach of a written real estate sale contract, based upon the court’s finding that plaintiffs did not waive a contingency clause of the contract, because the court improperly based its decision on plaintiffs’ testimony regarding an alleged oral agreement limiting the efforts plaintiffs needed to make to satisfy the contingency, in violation of the parol evidence rule in that the parties had a fully integrated written agreement so that parol evidence could not be used to add to or vary the terms of the parties’ written agreement.

Here we have a doctrinally correct statement of the pertinent operative rule:

Because the covenant of good faith and fair dealing implicates the defendant’s state of mind and the purposes and expectations of the parties to the contract, the parol evidence rule, which proscribes the use of oral statements to contradict the express terms of a written contract, does not apply. Id. at 256-57, 791 A.2d 1068. This is because parol evidence is always admissible “in order to provide understanding into the parties’ intentions” and because an application of the parol evidence rule to claims of breach of the covenant of good faith and fair dealing would extremely limit a party’s ability to prove the intentions and expectations in entering the contract. Ibid.

Kocher v. UC Overlook Development, LLC, 2010 WL 1655906, at *7 (N.J. Super. A.D., Apr. 22, 2010).

The question is, of course, Why? Here the express condition’s language does not appear to have an ambiguity.Do we have to get into whether the terms of the express condition in the contract is ambiguous? No. Why not? Because what is being construed is an implied provision, and the implied provision is, in fact ambiguous. And the parol evidence rule does not prevent introduction of evidence for purposes of explaining an ambiguity.

Precisely what the implied covenant requires can be stated in a variety of ways. Here are a couple of statements:

AquaSource, Inc. v. Wind Dance Farm, Inc., 833 N.E.2d 535 (Ind. App. 2005), states the rule as follows:

[A] party may not rely on the failure of a condition precedent to excuse performance where that party’s own action or inaction caused the failure. When a party retains control over when the condition will be fulfilled, it has an implied obligation to make a reasonable and good faith effort to satisfy the condition. A good faith effort is defined as what a reasonable person would determine is a diligent and honest effort under the same set of facts or circumstances.

Tennessee Valley Authority v. US, 60 fed. Cl. 665 (Ct. Fed. Claims 2004), states the principle as follows:

[T]he occurrence of a necessary condition “may be excused by prevention or hindrance of its occurrence through a breach of the duty of good faith and fair dealing.” Restatement (Second) Contracts § 225 cmt. b.

The implied covenant is vague in describing its scope. What is “reasonable” is context-specific. Hence, the correct answer is the parol evidence rule does not bar introduction of extrinsic evidence relevant to interpreting this vaguely-expressed obligation.

There is, I regret to say, some material likelihood that an appellate court will thoughtlessly apply the parol evidence rule, referencing a lack of ambiguity of the express language, and reach a doctrinally defective result.

If a Car Dealer Says, “it is what it is; you have to pay it”, Should You Believe it? Does the Question Answer Itself?

Fired for a girlfriend’s vehicle purchase.  No cause of action, or can we think of something?

Here we have the basics of the allegations, as framed by the appellate court:

Hedrick began working for Wolfe in October, 2010. On May 26, 2012, Hedrick approached the General Sales Manager, Jason Brink (“Brink”), about his live-in girlfriend’s desire to purchase a Honda. Brink quoted Hedrick a price that was about $600 above that car’s normal price point. Hedrick asked why the price was higher and Brink replied that “it is what it is; you have to pay it.” Following this, Hedrick and his girlfriend shopped around and received a quote from another Honda dealer that was $1,000 below the price that Hedrick received from Brink. Hedrick’s girlfriend then purchased the car from the competing Honda dealer. On June 1, 2012, Brink asked Hedrick whether his girlfriend had purchased the Honda elsewhere and Hedrick confirmed that she did. Later that night, Brink informed Hedrick that he was terminated, stating “[a]s your employer, I can’t have somebody work for me who bought a car somewhere else, so I have to let you go.”

Following his termination, Hedrick submitted a written request for a service letter. Wolfe subsequently issued Hedrick a letter that stated in part:

We do, however, fully expect our employees and members of their household to purchase new Honda vehicles from our dealership … Based on the fact that you or the person with whom you live as husband and wife … purchased a new Honda Accord SE from a direct competitor on or about mid-late May without giving the Company the opportunity to meet the price quoted, we made the decision to terminate the employment relationship …

The odious circumstances are provided by Hedrick v. Jay Wolfe Imports I, LLC, 404 S.W.3d 454, 456 (Mo. App. W.D. 2013).

The court rejects a creative claim that the circumstances fit into a public policy exception to at-will employment:

Hedrick contends that Missouri has a clear public policy of allowing citizens to freely conduct business and that by patronizing his employer’s competitor for a better price in purchasing a Honda, he and his live-in girlfriend acted in accordance with a public policy that Missouri encourages. He asserts that his termination falls under the public policy exception because he was terminated for acting in accordance with public policy. We disagree.

Id. at 458.

Let’s see if we can find an alternative way to frame the claim, shall we?

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