Bank of Shaw, a Branch of Grenada Bank v. Posey

• Decision Date: 19 December 1990
• Docket Number: No. 07-CA-58862,07-CA-58862
• Citation: 573 So.2d 1355
• Parties: The BANK OF SHAW, A BRANCH OF The GRENADA BANK, now known as Sunburst Bank v. John W. POSEY and Daniel R. Watkins, Individually, and d/b/a Delta Outdoorsman.
• Court: Mississippi Supreme Court

Page 1355

573 So.2d 1355

The BANK OF SHAW, A BRANCH OF The GRENADA BANK, now known as Sunburst Bank v. John W. POSEY and Daniel R. Watkins, Individually, and d/b/a Delta Outdoorsman.

No. 07-CA-58862.

Supreme Court of Mississippi.

Dec. 19, 1990.

Charles J. Swayze, Jr., James Y. Dale, Whittington Brock Swayze Firm, Greenwood, for appellant.

W. Stephens Cox, Merkel & Cocke, Clarksdale, for appellee.

Before ROY NOBLE LEE, C.J., and PITTMAN and BLASS, JJ.

PITTMAN, Justice, for the Court:

STATEMENT OF THE CASE

Posey and Watkins brought suit in Bolivar County Circuit Court against The Bank of Shaw, a branch of the Grenada Bank, now known as Sunburst Bank (hereinafter referred to as The Bank of Shaw) claiming that promises for loans were made to them by one of its officers, Glenn Sandroni, and that the loans were not made as promised. The jury returned a verdict in favor of Posey and Watkins and The Bank of Shaw appeals presenting the following issues for review by this Court:

1. THE COURT ERRONEOUSLY INSTRUCTED THE JURY ON NEGLIGENT MISREPRESENTATION THROUGH INSTRUCTION P-1 AND THE COURT ERRONEOUSLY DENIED BANK'S MOTION FOR A DIRECTED VERDICT AT CONCLUSION OF PLAINTIFF'S CASE ON ISSUE OF NEGLIGENT MISREPRESENTATION.

2. THE COURT ERRONEOUSLY INSTRUCTED THE JURY ON THE ISSUE OF FRAUDULENT MISREPRESENTATION THROUGH INSTRUCTIONS P-2 AND P-3 AND THE COURT ERRONEOUSLY DENIED BANK'S MOTION FOR DIRECTED VERDICT AT THE CONCLUSION OF PLAINTIFF'S CASE SINCE PLAINTIFFS DID NOT MEET THEIR BURDEN BY CLEAR AND CONVINCING EVIDENCE.

3. THE COURT ERRONEOUSLY INSTRUCTED THE JURY AS TO DAMAGES THROUGH INSTRUCTION P-6.

4. THE COURT ERRED IN ALLOWING TESTIMONY PERTAINING TO MENTAL ANGUISH SUFFERED BY POSEY AND WATKINS.

STATEMENT OF THE FACTS

In the fall of 1983, John W. Posey and his step-son, Danny Watkins, discussed the idea of opening a quality sporting goods store to be known as The Delta Outdoorsman in Cleveland, Mississippi. Posey, forty-six years old and unable to read or write, was to arrange the financing and Watkins, thirty years old and without retail experience, was to manage the store. Watkins' wife was to be the bookkeeper.

Posey and Watkins contacted Glenn Sandroni, Vice President of The Bank of Shaw, about financing, advising him that they needed approximately $100,000.00 to $125,000.00 in capital to begin the venture. They alleged that Sandroni thought the store was a good idea and that he entered into an oral agreement to lend them $125,000.00 for the first year's start up and operating costs and to later convert the loan to a five-year loan, payable in monthly installments. Sandroni denied making any commitment for the amount of $125,000.00 or for any long-term loan.

In February of 1984, Posey and Watkins began borrowing money from The Bank of Shaw for The Delta Outdoorsman. ¹ By the time the business had been in operation for one month, it was in debt to the Bank in the amount of $134,000.00 plus interest. The loans were evidenced by notes executed in favor of the Bank as follows:

1. December 21, 1983, a note for $20,000.00 executed by John Posey and Daniel Watkins, which was due on April 15, 1984, and was secured by an assignment on a SMMA (Sunburst Money Market Account) account;

2. January 12, 1984, a note for $15,000.00 executed by Posey and Watkins, which was due on June 1, 1984, and was secured by a separate financing statement;

3. February 10, 1984, a note for $10,000.00 executed by Posey, which was due on June 1, 1984, and was secured by a financing statement including a KW T10 Trailer and a J10 PK truck;

4. February 20, 1984, a note for $10,000.00 executed by Posey and Watkins, which was due on June 1, 1984, and was secured by merchandise and inventory;

5. March 2, 1984, a note for $15,000.00 executed by Posey, which was due on June 1, 1984, and was secured by a financing statement;

6. March 14, 1984, a note for $7,000.00 executed by Posey, which was due on June 1, 1984, and was secured by a financing statement;

7. March 15, 1984, a note for $10,000.00 executed by Posey, which was due on June 1, 1984, and was secured by a financing statement;

8. April 5, 1984, a note for $10,000.00 executed by Posey, which was due on June 1, 1984, and was secured by financing statements;

9. April 13, 1984, a note for $20,000.00 executed by Posey and Watkins, which was due on October 1, 1984, and secured by an assignment on a SMMA; and

10. April 13, 1984, a note for $17,000.00 executed by Posey, which was due on October 1, 1984, and was secured by a financing statement and a first lien on a home satellite system.

The Delta Outdoorsman opened for business on March 14, 1984, and despite having received the substantive loans noted before that date, had not paid bills owed to its suppliers. The trial developed that inventory ordered and received in February of 1984, before the store had opened, had still not been paid for.

In March or April of 1984, Posey and Watkins applied for a direct loan in the amount of $115,000.00 from the Small Business Administration (SBA); their application was rejected. They hired an accountant, Robert Neal, to attempt to correct the deficiencies in the original application and resubmitted the application for $115,000.00. In August, that resubmission was rejected.

The business operated at a loss for the entire time it was open from March 14, 1984 to March 15, 1985. At no time during its operation did the business show a profit or generate the income necessary to meet its operating costs, or to service its current debt, or the long-term debt which Posey and Watkins sought to incur. Nevertheless, after having been turned down for a direct loan of $115,000.00, Posey and Watkins decided to apply to the SBA for a 90% loan guarantee on a loan of $362,473.49. This loan was to be used to pay off the existing debt to the Bank and to purchase a lot and erect a building to house The Delta Outdoorsman, a convenience store, a gas station, and a car wash.

When the amount of loans from the Bank to the business had exceeded $100,000.00, the President of The Bank of Shaw, Louis Vause, instructed Sandroni not to make any further loans to The Delta Outdoorsman. Sandroni, however, continued to lend money for the business without the knowledge or approval of the Bank. ² From May through August, Sandroni disbursed $32,100.00 to Posey for the business.

In September of 1984, Posey and Watkins stopped paying rent on the building in which the store was housed and they never paid another month's rent.

On December 4, 1984, Posey and his wife executed a note to the Bank for $157,473.49 consolidating previous loans plus interest and executed a second deed of trust on their residence they had purchased in July of 1984, as security for the loan. Posey alleged that Sandroni told him and his wife that the second deed of trust was needed only to support their application for the SBA loan guarantee. Sandroni contended that he told the Poseys that the deed was needed to secure the loans already made plus interest due on those loans, as well as to improve the SBA loan guarantee application. Posey alleged that Sandroni told them that if the SBA did not make the loan, The Bank of Shaw would lend them the amount of money they had sought from the SBA on the same terms and conditions. Sandroni denied ever having made such a promise.

On January 11, 1985, Posey executed a note to the Bank and received $23,070.00, the last of the loans arranged by Sandroni without the Bank's knowledge. Later in January, when Posey and Watkins learned that the SBA had rejected the application for the loan guarantee and that The Bank of Shaw would not lend them any further funds or extend the term of their existing debts, Posey and Watkins began liquidating the store's inventory.

In February, they filed this suit against the Bank claiming damages as a consequence of the Bank's (1) breach of contract, (2) negligent misrepresentation, and (3) fraudulent misrepresentation. On March 10, 1985, Mrs. Sostes, holder of the first deed of trust on the Posey residence, foreclosed on the first deed as a result of the Poseys' having voluntarily stopped making monthly payments on their note to her. On March 15, the sheriff, pursuant to a writ of execution from the landlord, padlocked the doors of The Delta Outdoorsman. Posey and Watkins filed bankruptcy petitions on March 29, 1985. Sostes' foreclosure was voided by the bankruptcy court and she later foreclosed a second time. In April, with the approval of the bankruptcy court, The Bank of Shaw took possession of the store's inventory and sold it at auction with a net return of $49,241.27.

Prior to trial, the court granted summary judgment to the Bank on the issue of breach of contract on the ground that the terms of any oral contract were so vague and uncertain as to be unenforceable. The case was submitted to the jury on the theories of negligent and fraudulent misrepresentation and the jury returned a verdict in the amount of $240,000.00 for Posey and $162,000.00 for Watkins. The trial court offset the verdict by $210,020.91, the amount of the Bank's counterclaim for principal and interest owed to the Bank by Posey and Watkins.

STATEMENT OF THE LAW

Because we find the first two issues dispositive of this appeal, only those issues will be addressed.

I.

DID THE TRIAL COURT ERR IN ALLOWING INSTRUCTION P-1 AND

DENYING THE BANK'S MOTION FOR DIRECTED VERDICT,

BOTH MATTERS RELATING TO THE ISSUE OF

NEGLIGENT MISREPRESENTATION?

In the first issue presented to this Court for review, The Bank of Shaw argues that the trial court erred in instructing the jury on the issue of negligent misrepresentation, through instruction P-1, and erred in denying the Bank's motion for a directed verdict on that issue. Instruction P-1 instructed the jury as follows:

Negligence is the failure to use reasonable care. Reasonable care is that degree of care which a reasonably careful person would use under like, or similar,...