CIT Group/Equipment Financing, Inc v. Integrated Financial Services, Inc.

• Decision Date: 17 October 1995
• Docket Number: No. WD,WD
• Citation: 910 S.W.2d 722
• Parties: The CIT GROUP/EQUIPMENT FINANCING, INC., Plaintiff, v. INTEGRATED FINANCIAL SERVICES, INC., Appellant/Respondent, and Chase Manhattan Service Corp., Respondent/Appellant. 49763.
• Court: Missouri Court of Appeals

Page 722

910 S.W.2d 722

The CIT GROUP/EQUIPMENT FINANCING, INC., Plaintiff, v. INTEGRATED FINANCIAL SERVICES, INC., Appellant/Respondent and Chase Manhattan Service Corp., Respondent/Appellant.

No. WD 49763.

Missouri Court of Appeals Western District.

Oct. 17, 1995.

Motion for Rehearing and/or Transfer to

Supreme Court Denied Dec. 5, 1995.

Lawrence J. Zimmerman, Kevin J. Odrowski, McDowell, Rice & Smith, P.C., Kansas City, for Appellant/Respondent Integrated Financial.

Richard E. McLeod, R. Denise Henning, The McLeod Law Firm, Kansas City, for Respondent-Appellant Chase Manhattan.

Before LAURA DENVIR STITH, P.J., and LOWENSTEIN and HANNA, JJ.

LAURA DENVIR STITH, Presiding Judge.

Plaintiff-Appellant Integrated Financial Services, Inc. brought suit against Defendant-Respondent and Cross-Appellant Chase Manhattan Service Corporation alleging breach of contract and negligence for Chase's failure to provide financing under a Loan Commitment issued by Chase to Integrated. Following a jury verdict in favor of Integrated on both the breach of contract and negligence claims, Chase filed a Motion for Judgment Notwithstanding the Verdict ("JNOV") as to both claims. The trial court granted Chase's Motion with respect to the breach of contract claim but denied it as to the negligence claim.

Integrated appeals the trial court's grant of JNOV to Chase with respect to the breach of contract claim, contending that JNOV for Chase was precluded by the fact that Integrated made a timely demand for financing under the Loan Commitment and Integrated satisfied all conditions precedent to the Loan Commitment.

Chase cross-appeals, contending that the trial court erred in not granting JNOV to Chase with respect to Integrated's negligence claim. Among other reasons, Chase contends that Integrated failed to establish that Chase owed Integrated a legal duty to advise it that Chase was still obligated under the Loan Commitment after the loan package was sold to another lending institution.

The trial court's grant of JNOV to Chase on Integrated's breach of contract claim is affirmed because Integrated did not satisfy the implied conditions precedent to the Loan Commitment prior to making a demand for financing.

The trial court's denial of Chase's Motion as to Integrated's negligence claim is reversed. Negligence requires the existence of a legal duty and Chase did not have a legal duty to affirmatively advise Integrated that Chase was still obligated under the Loan Commitment after the loan was sold to another lending institution.

I. FACTUAL AND PROCEDURAL BACKGROUND

Appellant Integrated Financial Services, Inc. ("Integrated") is a Kansas corporation engaged in the business of managing real estate assets and investment vehicles for pension plans. John J. Bennett is the sole shareholder and President of Integrated. The business activities of Integrated, particularly the property management services, are conducted throughout the United States and its territories. This appeal arises out of a loan commitment that was issued by Respondent/Cross-Appellant Chase Manhattan Service Corporation ("Chase") to Integrated for the financing of an airplane and replacement engines.

A. The Loan Commitment.

In November, 1990, Integrated sought financing for the purchase of a 1970 Rockwell Sabre 60 airplane (the "airplane"). Integrated intended to use the airplane to accommodate its business activities around the country and as an investment which it could later sell for profit. Integrated planned to borrow $350,000 to purchase the airplane and to invest $150,000 for maintenance and renovation of the airplane. Once renovation was completed, Integrated intended to borrow another $200,000 to purchase suitable engines for the airplane. ¹ Integrated did not intend to enter into any loan transaction if the loan amount covered only the purchase of the airplane and not the acquisition of replacement engines.

Integrated directed Lee Sixta, a consultant experienced in corporate aircraft financing, to locate and negotiate the financing on behalf of Integrated for the acquisition of the airplane and subsequent acquisition of the engines. Mr. Sixta contacted Doug Johnson at Chase. Mr. Johnson sent a letter to Integrated on November 21, 1990, notifying Integrated that Chase approved the $550,000 financing package in accordance with the terms contained in the letter (the "Loan Commitment").

According to the terms of the Loan Commitment, Chase offered to loan an initial amount of $350,000 and an additional amount, not to exceed $200,000, for two replacement engines, as follows:

Loan Amount: $350,000.00. Additional credit has been approved for the cost of two (2) mid-time engines not to exceed $200,000.00. This additional amount will be funded under a separate promissory note and will be coterminus [sic] with the original loan.

The Loan Commitment also provided for a $1,000 administrative fee, a term of 48 months, and a 11.25% fixed interest rate. The Loan Commitment contained the express condition that "[f]unding is subject to CAFC inspection of the aircraft, and satisfactory receipt of two pending credit checks."

Mr. Bennett accepted the Loan Commitment on behalf of Integrated by signing the Loan Commitment and returning it to Chase by the designated time. The results of the aircraft inspection and credit checks were satisfactory to Chase. Integrated executed a promissory note in the amount of $351,000.00 (loan amount plus administrative costs) and a Security Agreement which granted Chase a security interest in the airplane. The first loan closed prior to December 15, 1990. Integrated then purchased the airplane.

B. The Sale of Chase's Loan Portfolio.

In May, 1991, Chase sold substantially all of its corporate aircraft loan portfolio to The CIT Group/Equipment Financing, Inc. ("CIT"). Under the loan portfolio purchase agreement, Chase warranted to CIT that there were no obligations to lend additional money to any obligor for loans transferred to CIT. If any such obligations did exist it was Chase, and not CIT, which remained obligated to provide the additional financing.

Integrated's $351,000 promissory note and security agreement were sold to CIT. A copy of the Integrated Loan Commitment, however, was not transferred to CIT.

Chase notified Integrated of the sale of its loan portfolio to CIT by a letter dated June 25, 1991, which stated that Chase had "assigned its rights and interests in the account(s) on the enclosed invoice" to CIT. The letter further stated that "[t]his assignment includes, among other things, Chase Aircraft Financing Corporation's rights to receive your payments and its security interest in your aircraft." The letter instructed Integrated to call CIT with any future questions. The letter did not address the issue of Chase's obligation under the Loan Commitment to finance replacement engines. After receiving this notice, Integrated began making its monthly loan payments to CIT instead of to Chase.

C. Funding for the Engines.

Immediately after receiving the June 25, 1991, notice, Integrated's consultant Lee Sixta contacted CIT on behalf of Integrated regarding the financing for replacement engines. CIT initially informed Mr. Sixta that it would check its files and call him back but that "[w]hatever Chase committed to, we bought the file, and that's what we'll do." CIT did not call Mr. Sixta back, however. Mr. Sixta again called CIT and was informed that a copy of the Loan Commitment with Chase was not transferred to CIT. Integrated was also unable to locate a copy of the Loan Commitment. Apparently, at that time, neither CIT nor Integrated contacted Chase to see if it had retained a copy of the Loan Commitment. Because CIT did not have a copy of the Loan Commitment, it said it would not finance the replacement engines.

Integrated and CIT then explored the possibility of refinancing the entire airplane. In January, 1992, Integrated requested refinancing of the first loan from CIT and "approximately $225,000 in new funds to complete the following: major corrosion inspection- --voice recorder--paint and interior--major update maintenance." At that point in time, Integrated planned to purchase the engines for cash and, thus, did not request funding from CIT for the replacement engines. CIT declined this request to refinance.

For the next several months, Integrated continued to work on the airplane, including conducting a corrosion inspection. In early 1993, Mr. Bennett, President of Integrated, contacted CIT about financing the engines. CIT again refused to finance the engines because there was nothing in their files which indicated that they were obligated to provide this financing. Mr. Bennett also requested a copy of Integrated's loan files from CIT, but CIT declined this request.

In March, 1993, Integrated "drew the line in the sand" by ceasing to make payments to CIT on the promissory note. Integrated maintained that it was ready and able to continue making payments on its obligation to CIT. Integrated refused to do so, however, because of CIT's refusal to finance the engines and because of CIT's refusal to give Integrated a copy of its loan file. When CIT again informed Mr. Bennett in April, 1993, that it did not have a copy of the Loan Commitment, Mr. Bennett for the first time said he would send a copy of the Loan Commitment to CIT.

As of May 28, 1993, no copy of the Loan Commitment had yet been forwarded to CIT. CIT sent a demand letter to Integrated in an effort to persuade Integrated to remedy its past due status, but Integrated did not make any payments on the loan to CIT. On June 11, 1993, CIT declared a default under the note, accelerated the balance due and demanded full payment by June 21, 1993.

It was not until June 14, 1993, after the loan was declared in default, that Integrated faxed a copy of the Loan Commitment to CIT. Integrated also sent a letter stating that it would not make any further...