Canterbury Realty and Equipment Corp. v. Poughkeepsie Sav. Bank

• Decision Date: 28 January 1988
• Citation: 524 N.Y.S.2d 531,135 A.D.2d 102
• Parties: CANTERBURY REALTY AND EQUIPMENT CORPORATION et al., Respondents, v. POUGHKEEPSIE SAVINGS BANK et al., Appellants.
• Court: New York Supreme Court — Appellate Division

Page 531

524 N.Y.S.2d 531

135 A.D.2d 102

CANTERBURY REALTY AND EQUIPMENT CORPORATION et al., Respondents, v. POUGHKEEPSIE SAVINGS BANK et al., Appellants.

Supreme Court, Appellate Division Third Department.

Jan. 28, 1988.

Van De Water & Van De Water, Poughkeepsie, and Skadden, Arps, Slate, Meagher & Flom (Edward J. Yodowitz, of counsel), New York City, for appellants.

Hiscock & Barclay (Richard L. Weisz, of counsel), Albany, for respondents.

Before MAHONEY, P.J., and WEISS, LEVINE and HARVEY, JJ.

LEVINE, Justice.

The instant litigation arises out of a loan transaction between plaintiff Canterbury Realty and Equipment Corporation (hereinafter Canterbury) and defendant Poughkeepsie Savings Bank (hereinafter the Bank) entered into February 9, 1983, through which the Bank provided the financing for Canterbury's acquisition of a food service business. Among the financing instruments, Canterbury and the Bank entered into a revolving credit agreement giving Canterbury a credit line of $2,000,000, against which it could draw checks to pay its operating expenses in the new business. The credit line was secured by, inter alia, assignment of Canterbury's accounts receivable, which were to be paid under a "lock box" arrangement, whereby its vendees made payments directly to a post office box in the Bank's name. The Bank was obliged to credit such receipts against the credit line indebtedness within three days of collection.

Also as part of the loan transaction, plaintiffs Canterbury Industries (hereinafter CI), the parent corporation of Canterbury, and John F. Hoey and Ronald Marion, officers of Canterbury and shareholders in CI, signed instruments under which they "irrevocably and unconditionally guarantee* * * payment when due, whether by acceleration or otherwise, of any and all liabilities of to the Bank". The guarantee also provided that "invalidity, irregularity, or unenforceability of all or any part of the liabilities hereby guaranteed * * * shall affect, impair or be a defense to this guaranty". The guarantee agreement authorized the Bank to accelerate the total amount due under the loan and, without notice to Canterbury, demand payment thereof from the guarantors upon the happening of various events among which those relevant here were "an adverse change in the financial condition of or suspension of business of * * * or if the Bank deems itself insecure".

The uncontested evidence was that Charles Hoffarth was assigned by the Bank as its officer to manage and supervise the Canterbury loan. In the fall of 1983, with Hoffarth's knowledge and consent, Canterbury began to exceed the $2,000,000 credit line. Apparently there was a standing rule at the Bank that borrowers such as Canterbury could exceed the agreed maximum limit by 10% without further authorization by the Bank's board of directors or written modification of the loan agreement, upon the concurrence of two Bank officers, which took place here. By December 1983, Canterbury's balance under its credit line surpassed $2,500,000. Canterbury applied to the Bank for a modification of the revolving credit agreement to substantially expand its maximum limit, and negotiations took place over doing so upon various conditions requested by the Bank, including the infusion of new capital by Canterbury's principals. Pending the outcome of these negotiations, at its meeting of December 21, 1983, the Bank's board of directors authorized an extension of credit of an additional $275,000, on terms to be arranged by its officers.

In January 1984, Canterbury's credit balance remained substantially in excess of the limits of the written agreement. In the latter half of that month, the balance went over $3,000,000, although there is evidence that this was attributable to the Bank's failure to give timely credit to its collection of Canterbury's receivables aggregating more than $600,000. The parties continued to discuss Canterbury's further loan application. At a meeting on February 1, 1984, the Bank's senior executive vice-president, defendant Edward S. Finnegan, informed Canterbury's officials that Hoffarth had been fired the preceding day for permitting Canterbury to exceed the credit line. A second meeting was held on February 2, 1984 to discuss the situation, without any resolution. However, after business hours on February 2, 1984 Finnegan contacted Hoey by telephone and informed him that the Bank would no longer honor Canterbury's checks, including those that were then outstanding, and would retain all incoming funds from Canterbury's receivables. According to plaintiffs, this sudden, effective strangulation of Canterbury's economic lifeline caused it to cease operations. On February 7, 1984, the Bank gave Canterbury and the guarantors written notice of default, acceleration and demand for payment of Canterbury's debt in full. Canterbury filed a voluntary petition in bankruptcy on February 17, 1984.

Plaintiffs subsequently commenced the instant suit for compensatory and punitive damages, asserting six causes of action. The first five causes of action were on behalf of Canterbury and CI, alleging (1) a breach by the Bank of the revolving credit agreement by stopping payment on Canterbury's checks and accelerating the entire indebtedness, (2) the Bank's wrongful dishonor of Canterbury's checks, (3) the Bank's premature set-off of the proceeds of Canterbury's accounts receivable, (4) the Bank's "malpractice" and negligence in administering the loan, and (5) the Bank's violation of Federal laws and regulations restricting the size of its loan portfolio in connection with granting the Canterbury loan. The sixth cause of action was by Canterbury, Hoey and Marion against the Bank and Finnegan for defamation, alleging that Finnegan contacted various persons in the general business community and falsely accused them of financial irresponsibility and untrustworthiness.

Defendants answered the complaint and the Bank counterclaimed against CI, Hoey and Marion on their personal guarantees. Following pretrial discovery, defendants moved to dismiss or for summary judgment on all of the causes of action in the complaint and for summary judgment on the Bank's counterclaims. Supreme Court elected to treat all motions as seeking summary judgment. The court granted judgment dismissing plaintiffs' causes of action for premature set-off and illegal loan. As to plaintiffs' breach of contract claim, the court determined that there was a triable issue of fact concerning whether the credit limit of the revolving credit agreement had been modified orally and whether there had been full or partial performance of the oral modification sufficient to overcome objections based upon the Statute of Frauds, the parol evidence rule and General Obligations Law § 15-301(1) or to estop the Bank from invoking defenses based thereon. For much the same reasons and on largely the same evidence, the court also found triable issues on plaintiffs' cause of action for wrongful dishonor of Canterbury's checks. While rejecting plaintiffs' theory of liability based upon bankers' malpractice, the court found a viable claim for the Bank's negligence in administering the loan. It also found outstanding questions of fact on the defamation cause of action. Supreme Court also ruled that the issue of liability of the guarantors was intertwined with and predicated upon the right of the Bank to accelerate the loan against Canterbury, an outstanding issue under plaintiffs' first cause of action. Hence, it denied the Bank summary judgment on its counterclaim. Only defendants have appealed, and their appeal is limited to the denial of summary...