Manufacturers Hanover Trust Co. v. Yanakas

• Decision Date: 18 October 1993
• Docket Number: D,No. 1512,1512
• Citation: 7 F.3d 310
• Parties: MANUFACTURERS HANOVER TRUST COMPANY, Plaintiff-Appellee, v. Nicholas YANAKAS, Defendant-Appellant, Charles Buonincontri and Camille Buonincontri, Defendants. ocket 92-9148.
• Court: U.S. Court of Appeals — Second Circuit

Page 310

7 F.3d 310

MANUFACTURERS HANOVER TRUST COMPANY, Plaintiff-Appellee, v. Nicholas YANAKAS, Defendant-Appellant Charles Buonincontri and Camille Buonincontri, Defendants.

No. 1512, Docket 92-9148.

United States Court of Appeals Second Circuit.

Argued June 14, 1993.

Decided Oct. 18, 1993.

Jamie M. Brickell, New York City (Pryor, Cashman, Sherman & Flynn, Manuel W. Gottlieb, on the brief), for plaintiff-appellee.

David A. Field, New York City (Ira A. Turret, Field, Lomenzo, Turret & Blumberg, on the brief), for defendant-appellant.

Before: KEARSE, PRATT, and MINER, Circuit Judges.

KEARSE, Circuit Judge:

Defendant Nicholas Yanakas appeals from a final judgment of the United States District Court for the Southern District of New York, John F. Keenan, Judge, ordering him to pay plaintiff Manufacturers Hanover Trust Company ("MHT" or the "Bank") $1,036,381.42 on its claim for enforcement of Yanakas's personal guarantee of certain loans. The district court (a) dismissed three of Yanakas's affirmative defenses and counterclaims, which asserted that Yanakas had been fraudulently induced to sign the guarantee, on the ground that the guarantee stated that it was "absolute and unconditional," (b) dismissed Yanakas's remaining affirmative defenses and counterclaims, which asserted that the Bank had breached its fiduciary duty, on the ground that the answer failed to show the existence of such a duty, and (c) granted summary judgment in favor of the Bank. On appeal, Yanakas contends that the district court erred in dismissing his affirmative defenses and counterclaims and in granting summary judgment against him. For the reasons below, we affirm in part, vacate in part, and remand for further proceedings with respect to the defenses of and counterclaims for fraudulent inducement.

I. BACKGROUND

The present lawsuit arises out of loans from MHT to Advance Ring Manufacturers, Inc. ("ARM"), which, prior to December 1986, was owned in part by defendant Charles Buonincontri ("Buonincontri") and in part by one Arthur Abraham. Since this appeal centers on the sufficiency of Yanakas's affirmative defenses and counterclaims, we take the allegations of the defenses and counterclaims as true. The following description of the events is taken largely from those allegations.

A. The Events

In December 1986, Buonincontri and Abraham entered into an auction to determine which of them would purchase the other's interest in ARM. Buonincontri won the auction and became president of ARM. Prior to the auction, Yanakas had made a loan of $250,000 to ARM to help Buonincontri finance his proposed purchase of Abraham's shares. In June 1987, Yanakas converted his initial loan to capital and paid ARM an additional $250,000, thereby acquiring a 25% interest in the company. In 1988, he made further loans and capital contributions totaling $500,000 and acquired an additional 25%; in October of that year, he became the owner of all issued and outstanding shares of ARM.

MHT had entered into a lending relationship with ARM in 1985. At the time of the December 1986 auction, ARM was indebted to MHT in an amount that the Bank places at $700,000. In April 1987, the Bank loaned ARM an additional $350,000 (the "1987 loan"), in connection with which it obtained financial information and personal guarantees from Buonincontri and his wife, defendant Camille Buonincontri.

In 1987 and part of 1988, ARM obtained financing from both MHT and National Westminster Bank ("NatWest"). Initially, both banks were unsecured creditors. Yanakas asserts that in early 1988, however, NatWest surreptitiously obtained the signature of Buonincontri to a document that, unbeknownst to Yanakas, Buonincontri, and ARM, converted NatWest's unsecured position into one secured by the assets of ARM.

On March 31, 1988, MHT told Yanakas that the Bank would call its loans to ARM and would cease to finance ARM's operations unless Yanakas signed a personal guarantee of the loans and paid down part of ARM's outstanding balance. In reliance on these representations and on the Bank's promise to continue financing ARM if he complied with its demands, Yanakas (a) paid $100,000 of ARM's 1987 loan, (b) invested an additional $200,000 in ARM, and (c) executed a personal guarantee of all of ARM's obligations to MHT, agreeing, in part, as follows:

[Yanakas] hereby absolutely and unconditionally guarantees to Bank the prompt payment of claims of every nature and description of Bank against Borrower ... and any and every obligation and liability of Borrower to Bank or another or others of whatsoever nature and howsoever evidenced, whether now existing or hereafter incurred, originally contracted with Bank and/or with another or others and now or hereafter owing to or acquired in any manner, in whole or in part, by Bank, or in which Bank may acquire a participation, whether contracted by Borrower alone or jointly and/or severally with another or others, whether direct or indirect, absolute or contingent, secured or not secured, matured or not matured. (All of foregoing are hereinafter referred to as "Obligations").

....

Guarantor waives any and all notice of acceptance of this guarantee or the creation or accrual of any of said Obligations.... This guarantee shall be a continuing, absolute and unconditional guarantee of payment regardless of the validity, regularity or enforceability of any of said Obligations or purported Obligations....

(Guarantee of All Liability and Security Agreement, dated March 31, 1988 ("Guarantee"), at 1 (emphasis added).) Unbeknownst to Yanakas, on the day that he executed the Guarantee, MHT also got Buonincontri, as ARM's president, to execute a new demand promissory note to MHT in the amount of $550,000 (the "1988 note" ).

In April 1988, after learning of NatWest's security interest in ARM's assets, Yanakas urged MHT to purchase that interest, for which Yanakas would put up $700,000, roughly the amount of the debt to NatWest, as security. Yanakas stressed the need for a prompt response in order to allow ARM to process orders for the 1988 Christmas season. The Bank promised to consider the proposition but delayed acting on it, and eventually rejected it. Shortly after acquiring Yanakas's Guarantee, the Bank ceased funding ARM's operations and demanded repayment of all ARM loans.

ARM was ultimately unable to obtain adequate financing for the 1988 Christmas season, and it filed for bankruptcy.

B. The Present Lawsuit and the Opinion Below

In 1990, MHT commenced the present action against Yanakas and the Buonincontris as guarantors of its loans to ARM. MHT sought $210,000, the outstanding balance on the 1987 loan, plus interest, and $550,000 plus interest on the 1988 note. Yanakas, while denying knowledge of the precise details of ARM's indebtedness to the Bank, asserted five affirmative defenses and counterclaims against the Bank. His first three affirmative defenses and counterclaims alleged that MHT had induced him to sign the Guarantee (1) by affirmatively representing that if Yanakas complied with its demands, the Bank would not call its loans to ARM and would continue to finance ARM's operations, and (2) by concealing from him material information, including (a) the fact that on the day it extracted the Guarantee from Yanakas, the Bank had Buonincontri sign the 1988 note for $550,000, (b) the fact that the Bank had discovered that, beginning in late 1986, the Buonincontris had misrepresented their financial circumstances, and (c) the fact that the Bank had no intention of continuing to provide financing to ARM:

31. Upon information and belief, at the time Yanakas' guarantee was requested; (a) the Bank had discovered that NatWest had been given a secured position in the assets of ARM; (b) the Bank had also discovered that Charles and Camille had given the Bank a false financial statement in late 1986, which did not reflect [a $1,000,000] mortgage on their home; (c) the Bank had decided to terminate the loans to ARM and not to continue financing ARM but to seek Yanakas' guarantee before it made its position public; (d) the Bank had assigned ARM's loans to its "workout" department which, upon information and belief, was for problem loans which the Bank wanted to liquidate rather than continue; and (e) the Bank had previously released Abraham's guarantee.

32. None of the foregoing significant and material facts were made known by the Bank to Yanakas prior to the time that Yanakas signed the guarantee. Had Yanakas been advised of any of said facts, he would not have signed the guarantee.

(Answer pp 31, 32.)

Yanakas's fourth and fifth affirmative defenses and counterclaims alleged that the Bank controlled the finances of ARM, that Yanakas had no other financial options, and that a relationship of trust and confidence therefore existed between MHT and ARM. Yanakas alleged that the Bank had breached its fiduciary duty to ARM and Yanakas by not responding promptly to, and by then rejecting, Yanakas's proposal that MHT purchase NatWest's position. He alleged that while delaying its response, the Bank never had any intention of forbearing from calling ARM's loans or of continuing to finance its operations; that the Bank had already taken an internal step toward liquidation of those loans; and that

[t]he Bank acted in a heavy-handed, commercially unreasonable and grossly negligent manner without regard to the rights of Yanakas or ARM, in bad faith, and willfully and maliciously by not accepting the aforesaid proposal, in delaying in acting on the proposal, and in demanding payment of the loans to ARM. The Bank's acts caused ARM to file for bankruptcy resulting in a total loss of Yanakas' investment and loans to ARM.

(Answer p 48.)

Yanakas requested rescission of the Guarantee, $300,000 in compensatory damages on account of his payment of $100,000 on ARM's loans and his last capital contribution of $200,000, and $7.5 million in compensatory damages because...