Rule v. US BANK NAT. ASS'N

• Decision Date: 02 November 1999
• Docket Number: No. 24785, No. 24973.
• Citation: 133 Idaho 669,991 P.2d 857
• Parties: RULE SALES AND SERVICE, INC., Plaintiff-Appellant, v. U.S. BANK NATIONAL ASSOCIATION, successor in interest to West One Bank, Defendant-Respondent.
• Court: Idaho Court of Appeals

991 P.2d 857

133 Idaho 669

RULE SALES AND SERVICE, INC., Plaintiff-Appellant, v. U.S. BANK NATIONAL ASSOCIATION, successor in interest to West One Bank, Defendant-Respondent.

Nos. 24785, 24973.

Court of Appeals of Idaho.

November 2, 1999.

Review Denied January 12, 2000.

Richard L. Harris, Caldwell, for appellant.

Hall, Farley, Oberrecht & Blanton, Boise, for respondent. J. Kevin West argued. LANSING, Judge.

This appeal raises issues as to whether enforcement of an alleged oral agreement to modify a loan contract is rendered unenforceable by the statute of frauds or by a contract clause prohibiting oral modifications. We also must address whether the alleged oral modification, which is unsupported by consideration, may nonetheless be enforceable by application of the doctrine of promissory estoppel.

I.

BACKGROUND

Rule Sales and Service, Inc. (Rule) is a corporation engaged in the fabrication and installation of underground steel tanks, primarily petroleum tanks for gasoline distributors. Rule also sells, installs and services pumps and other equipment related to the tanks. On September 6, 1995, Rule entered into a revolving loan agreement with West One Bank, which subsequently became the U.S. Bank National Association (the Bank). The loan proceeds in the amount of $150,000 were to be used for Rule's operating expenses. To secure the loan the Bank took a security interest in Rule's accounts receivable, inventory, equipment and vehicles. The transaction was embodied in several documents: (a) a commitment letter from the Bank indicating its approval of the loan to Rule in the amount of $150,000, subject to specified terms and conditions, which was signed by both the Bank and Rule; (b) a $150,000 promissory note executed by Rule; (c) a personal guaranty from Steven Rule, the company's president; and (d) two commercial security agreements that granted the Bank a security interest in various assets of Rule and of guarantor Steven Rule, including all accounts, contract rights and general intangibles of the business. The security agreement covering Rule's accounts receivable specified that, in the event of Rule's default in payment, "Lender may notify account debtors and obligors on any Collateral to make payments directly to Lender."

Rule was unable to pay off the loan when it matured on June 15, 1996. According to Jon Frye, the accountant and financial agent for Rule, the corporation's inability to negotiate an extension of the loan or find alternative financing was the result of a pending divorce between Steven Rule and his wife, which was hampering the accountant's ability to gather all of the records necessary to demonstrate the company's financial stability to the Bank. Frye felt that the amount of work in progress by Rule showed that the company's business prospects were very good.

On June 21, 1996, Frye met with Larry Thompson, the Bank's loan officer, who was the person primarily responsible for monitoring the Rule loan. In his deposition, Frye testified that he received assurances from Thompson that the loan would not be considered in default until it was thirty days past due, and that no action would be taken on the loan during that time. Frye also testified that he sought and received assurances from Thompson that Frye would receive ten days' notice before letters were sent out to Rule's customers demanding that payment be made to the Bank pursuant to its security interest in the accounts receivable. According to Frye, he stressed to Thompson the importance of such notice because the Bank's sending out such collection letters on Rule's commercial accounts would be very damaging to Rule's business. Frye also indicated to Thompson that he, Frye, would personally provide the money for Rule to pay off the loan rather than allow the Bank to demand payment from Rule's customers. On June 26, 1996, however, the Bank sent notification letters to Rule's account customers advising them to include the bank as payee on any account payments to Rule.

Rule ultimately repaid the loan in full. Thereafter, in September 1997, Rule filed this action, alleging that by sending the letters to Rule's customers, the Bank breached its promise not to treat the loan as being in default until it was thirty days past due and its promise to give ten days' notice prior to taking action to collect on the accounts receivable. Rule alleged that the Bank's conduct led Rule's customers to believe that Rule was financially unstable and that this caused damage from loss of business in excess of $700,000. The Bank moved for summary judgment, asserting that even if the alleged promises were made, they were unenforceable. The district court granted summary judgment to the Bank on alternative bases. It held that the oral agreement asserted by Rule was invalid under the statute of frauds, Idaho Code § 9-505(5), and unenforceable for lack of consideration. The court also determined that the alleged oral agreement violated clauses in the note and security agreements that prohibited oral amendments. On appeal Rule urges that summary judgment should not have been granted on any of these bases.

II.

DISCUSSION

Summary judgment is proper only when there is no genuine issue of material fact and the moving party is entitled to judgment as a matter of law. Idaho Rule of Civil Procedure 56(c); Bonz v. Sudweeks, 119 Idaho 539, 541, 808 P.2d 876, 878 (1991); Edwards v. Conchemco, Inc., 111 Idaho 851, 852, 727 P.2d 1279, 1280 (Ct.App.1986). When a court assesses a motion for summary judgment, the facts are to be liberally construed in favor of the nonmoving party, and all inferences must be drawn in the nonmovant's favor. Walter E. Wilhite Revocable Living Trust v. Northwest Yearly Meeting Pension Fund, 128 Idaho 539, 545, 916 P.2d 1264, 1270 (1996); G & M Farms v. Funk Irrigation Co., 119 Idaho 514, 517, 808 P.2d 851, 854 (1991). "All doubts are to be resolved against the moving party, and the motion must be denied if the evidence is such that conflicting inferences may be drawn therefrom, and if reasonable people might reach different conclusions." Olsen v. J.A. Freeman Co., 117 Idaho 706, 720, 791 P.2d 1285, 1299 (1990). See also State v. Rubbermaid, Inc., 129 Idaho 353, 356, 924 P.2d 615, 618 (1996)

; Doe v. Durtschi, 110 Idaho 466, 470, 716 P.2d 1238, 1242 (1986). On appeal from a grant of summary judgment, we employ the same standard applied by the district court. Knudsen v. Agee, 128 Idaho 776, 778, 918 P.2d 1221, 1223 (1996); Thompson v. Pike, 125 Idaho 897, 899, 876 P.2d 595, 597 (1994).

A. Statute of Frauds

The district court held that the oral agreement alleged by Rule was invalid under a provision of the statute of frauds, I.C. § 9-505(5), which states:

9-505. Certain agreements to be in writing. — In the following cases the agreement is invalid, unless the same or some note or memorandum thereof, be in writing and subscribed by the party charged, or by his agent. Evidence, therefore, of the agreement cannot be received without the writing or secondary evidence of its contents:

....

5. A promise or commitment to lend money or to grant or extend credit in an original principal amount of fifty thousand dollars ($50,000) or more, made by a person or entity engaged in the business of lending money or extending credit.

It is uncontested that the original loan commitment from the Bank fell within this statute and was thus required to be evidenced by a writing. The question presented is whether the oral agreement allegedly made by Frye and Thompson, which modified the loan terms regarding the Bank's rights on default, was also subject to this statute.

This question is one of statutory interpretation. In construing the statute, the court's objective is to give effect to the legislative intent and the purpose of the statute. Allen v. Blaine County, 131 Idaho 138, 141, 953 P.2d 578, 581 (1998); Davaz v. Priest River Glass Co., Inc., 125 Idaho 333, 336, 870 P.2d 1292, 1295 (1994). In such an analysis, we construe a statute as a whole, considering all portions of the statute together to determine the intent of the legislature. Id. The interpretation of a statute begins with an examination of its literal words. Local 1494 Int'l Ass'n of Firefighters v. City of Coeur d'Alene, 99 Idaho 630, 639, 586 P.2d 1346, 1355 (1978); Davis v. Idaho Dept. of Health and Welfare, 130 Idaho 469, 470, 943 P.2d 59, 60 (Ct.App.1997). Where a statute is plain, clear and unambiguous, the courts must follow that plain meaning and neither add to the statute nor take away by judicial construction. Higginson v. Westergard, 100 Idaho 687, 604 P.2d 51 (1979); Moon v. Investment Bd., 97 Idaho 595, 548 P.2d 861 (1976). It is for the legislature, not the judiciary, to evaluate the wisdom or efficacy of the statutory scheme. In re SRBA Case No. 39576, 128 Idaho 246, 263, 912 P.2d 614, 631 (1995); Newlan v. State, 96 Idaho 711, 716, 535 P.2d 1348, 1353 (1975); Berry v. Koehler, 84 Idaho 170, 177, 369 P.2d 1010, 1013 (1962).

We conclude that § 9-505(5) did not invalidate the alleged oral agreement at issue here. The agreement for modification of the loan had two components: it changed the date on which the Bank could treat the loan as being in default, and it placed a new precondition upon the Bank's right to realize on its security by collecting Rule's accounts receivable. Neither of these components falls within § 9-505(5). The plain language of § 9-505(5) does not mandate that all terms of a loan agreement and associated security arrangements be in writing. It does not require, for example, that the security terms of a loan or the borrower's promise to repay be memorialized by a writing in order to be valid. Rather, it is only the lender's promise or commitment to lend that must be in writing for enforceability. The apparent purpose of the statute is to protect banks and other businesses from claims that they made an oral commitment to lend money or to grant credit and...