Commerce Bank & Trust Co. v. Hayeck

• Decision Date: 07 May 1999
• Docket Number: No. 97-P-598,97-P-598
• Citation: 46 Mass.App.Ct. 687,709 N.E.2d 1122
• Parties: COMMERCE BANK & TRUST COMPANY v. Paul G. HAYECK & another, 1 coexecutors. 2 Worcester
• Court: Appeals Court of Massachusetts

Page 1122

709 N.E.2d 1122

46 Mass.App.Ct. 687

COMMERCE BANK & TRUST COMPANY v. Paul G. HAYECK & another, ¹ coexecutors.

No. 97-P-598.

Appeals Court of Massachusetts,

Worcester.

Argued Nov. 6, 1998.

Decided May 7, 1999.

Further Appellate Review Denied July 27, 1999.

Lawrence S. Delaney, Worcester, for the plaintiff.

Paul G. Hayeck, Boston, for the defendants.

Present: ARMSTRONG, GILLERMAN, & SPINA, JJ.

SPINA, J.

Commerce Bank and Trust Company (Commerce) commenced suit against George N. Hayeck in the Superior Court for the balance due on a promissory note, of which Hayeck was comaker with one Edward Bryson. Following a trial without jury, a Superior Court judge found Hayeck not liable on the note because he signed it in reliance on misrepresentations by Bryson and by an officer of Commerce, and because Commerce had unjustifiably impaired collateral securing the note. See G.L. c. 106, § 3-606(1)(b ), as in effect prior to St. 1998, c. 24, § 8. Commerce appeals, claiming that the evidence does not support the judge's findings. Hayeck's coexecutors appeal the dismissal of his counterclaim for relief under G.L. c. 93A, claiming the judge erred by ruling that a negligent misrepresentation is not actionable under c. 93A.

We summarize the judge's findings, supplemented by facts from uncontroverted evidence "not in conflict with the [trial] judge's permissible findings." See Bruno v. Bruno, 384 Mass. 31, 35, 422 N.E.2d 1369 (1981). In late 1991, Bryson, who was president and sole shareholder of Northeast National Mortgage Corporation (NENMCO), an approved lender for the United States Department of Housing and Urban Development (HUD), applied to Commerce for a $65,000 loan for the purpose of investing in NENMCO to meet HUD's net worth requirements. Commerce required Bryson to obtain a comaker on the note acceptable to Commerce.

Bryson approached Hayeck about being a comaker of his note. They had known one another for over thirty years, and Bryson was a commercial tenant of Hayeck's, albeit at the time in arrears in his rent. When Hayeck asked how the loan would be secured, Bryson explained that "it was going to be secured by the monies being deposited into a CD, certificate of deposit, and that he was pledging the stock in the company [NENMCO]." Believing his exposure would be minimal, Hayeck agreed to be comaker.

Commerce's loan file documents indicated that the loan proceeds would be "deposited in a certificate account at [Commerce] with custodial control held by [Commerce]. The loan proceeds will be used to meet the 'Net Worth' requirement and not for any other Corporate purposes. Stock issued to the Borrower could be pledged as security." A November 26, 1991, entry in Commerce's loan history documents indicated that "[r]epayment will come from cash flow of [NENMCO], or from a $65,000 certificate of deposit which [NENMCO] will have in our bank once the note closes. The third source of repayment is from personal assets of Bryson or Hayeck." The November 26 entry also included details about the net worth of Bryson and Hayeck, respectively. A December 5, 1991, entry in the loan history documents reiterated the November 26 entry but omitted any reference to Hayeck.

The note, dated December 2, 1991, referred to a pledge agreement of the same date ³ and 5,900 shares of NENMCO stock held as collateral. There was no reference to a $65,000 certificate of deposit as collateral. The note further provided that every party "assents ... to any substitution, exchange or release of collateral granted or permitted by the holder, and agrees that the holder may release any party hereto, expressly reserving all rights of recourse against any other parties primarily or secondarily liable" on the note. Hayeck, though sophisticated in business matters, and having prior experience in banking, did not read the note before signing, though he had the opportunity to do so. Neither did he discuss it with anyone at Commerce before signing. The judge found that Bryson led Hayeck to believe, when the note was signed, that an arrangement with Commerce was in place where "the funds would remain on deposit at [Commerce] as security for repayment of the loan" and that Hayeck reasonably relied on that representation.

The loan proceeds were released on December 11, 1991. A $65,000 check, payable to Bryson and Hayeck, was endorsed by both, and the monies were deposited to a new account at Commerce in the name of NENMCO. NENMCO had two preexisting accounts at Commerce. On January 7, 1992, Bryson withdrew $50,000 from the new account without Hayeck's knowledge.

On June 2, 1992, the note came due. Bryson asked Commerce for a six-month renewal, as NENMCO had not yet received its commission income due from HUD. Commerce agreed, and Bryson and Hayeck signed a renewal note on June 3, 1992, due December 30, 1992. Like the earlier note, the renewal note contained a reference to the pledge agreement and the NENMCO stock as collateral, but no reference to a certificate of deposit; and it contained the same provision for the substitution or release of collateral and parties. Before signing, Hayeck asked James Gennaro, senior vice-president and senior loan officer at Commerce, if the stocks and the certificate of deposit were in place, and Gennaro assured Hayeck that they were. The judge found that Gennaro assured Hayeck that Commerce "was holding the $65,000 in a separate NENMCO account from which the note would be repaid" and that Hayeck reasonably relied on those assurances when he signed the renewal note. He did not read the renewal note before signing.

Bryson died of cancer on September 10, 1992. In November, 1992, Commerce demanded payment from Bryson's estate and Hayeck. Following discussions among the parties and no payment of the renewal note, Commerce filed suit against Hayeck alone on January 7, 1993. Commerce never took any action under the pledge agreement to apply NENMCO's funds, by exercising its voting rights in NENMCO's stock, to the loan balance, and it never brought suit against Bryson's estate to recover the loan balance. On January 22, 1993, Commerce closed the NENMCO account containing the remaining loan proceeds, $15,874.76, as well as two other NENMCO accounts containing approximately $17,082.20. The money, $32,956.96, was paid to NENMCO at the request of Bryson's widow, acting as clerk of NENMCO.

The judge found that Commerce unjustifiably impaired the collateral given as security for the loan when, contrary to its representations, it permitted a withdrawal of $50,000 from the NENMCO account containing the loan proceeds and also when it failed to take action on the pledge agreement, as noted above, to set off the $32,956.96 of NENMCO funds it held on deposit against the outstanding debt. The judge then held that Commerce's actions constituted a discharge of Hayeck as a party to the note, pursuant to G.L. c. 106, § 3-606(1)(b ). The judge also found that first Bryson, then Gennaro, "expressly assured" Hayeck that the collateral would never be released. Having found for Hayeck on Commerce's complaint, the judge dismissed Hayeck's third-party complaint against Bryson's estate. Hayeck did not appeal from that judgment. Hayeck has appealed the dismissal of his counterclaim.

1. Commerce argues that the judge's finding that the parties agreed that the NENMCO account with the loan proceeds would remain on deposit as security for repayment of the loan is inconsistent with his finding that the notes were integrated documents and thus cannot stand. Commerce further argues that because the notes were unambiguous, they were necessarily integrated, and the judge should not have considered parol evidence to show that the agreement of the parties was other than as written.

Generally, a party appealing a judgment on the basis of inconsistent findings must, to preserve the issue for appeal, present a motion under Mass.R.Civ.P. 59(a)(2), 365 Mass. 827 (1974), to alter or amend the judgment or for a new trial. See Biggs v. Densmore, 323 Mass. 106, 108-109, 80 N.E.2d 38 (1948); Raytheon Mfg. Co. v. Indemnity Ins. Co. of N. America, 333 Mass. 746, 749, 133 N.E.2d 242 (1956). That was not done here, and the issue is deemed waived. Our inquiry does not end, however, as Commerce also challenges the sufficiency of the evidence supporting the judge's finding that the agreement of the parties was other than as expressed by the notes. Compare National Shawmut Bank v. Johnson, 317 Mass. 485, 492, 58 N.E.2d 849 (1945).

"The interpretation of an integrated agreement is a matter of law on which we are not bound by the trial judge's conclusions unless the problem of interpretation is affected by findings of fact." Robert Indus., Inc. v. Spence, 362 Mass. 751, 755, 291 N.E.2d 407 (1973). Because the notes unequivocally provided that collateral was 5,900 shares of NENMCO under a pledge agreement dated December 2, 1991, and further that all parties assented to the right of Commerce to release any collateral or obligor, admission of evidence of any antecedent agreement varying or contradicting those terms violated the parol evidence rule. Plasko v. Orser, 373 Mass. 40, 44, 364 N.E.2d 1220 (1977). Federal Deposit Ins. Corp. v. Hill, 13 Mass.App.Ct. 514, 517, 434 N.E.2d 1029 (1982). It was error to find that the parties had agreed that a $65,000 certificate of deposit would be held as collateral and remain on deposit as security for repayment, terms other than those set forth in the notes, for purposes of enforcement.

The finding that the notes were integrated documents is supported by the lack of ambiguity in the terms of the notes, see Plasko v. Orser, supra, and by their apparent completeness, see Sherman v. Koufman, 349 Mass. 606, 609, 211 N.E.2d 220 (1965), and is also a finding that is not disputed. As the notes expressly provided that all parties assented to the right of Commerce to release any collateral, it was not open to Hayeck, by way of...