Diversified Foods, Inc. v. First Nat. Bank of Boston

• Decision Date: 22 April 1992
• Citation: 605 A.2d 609
• Parties: 17 UCC Rep.Serv.2d 1028 DIVERSIFIED FOODS, INC., et al. v. The FIRST NATIONAL BANK OF BOSTON, et al.
• Court: Maine Supreme Court

Page 609

605 A.2d 609

17 UCC Rep.Serv.2d 1028

DIVERSIFIED FOODS, INC., et al. v. The FIRST NATIONAL BANK OF BOSTON, et al.

Supreme Judicial Court of Maine.

Argued March 20, 1992.

Decided April 22, 1992.

Richard E. Poulos (orally), John S. Campbell, Poulos, Campbell & Zendzian, Portland, for appellants.

William J. Kayatta, Jr. (orally), Peter W. Culley, Pierce, Atwood, Scribner, Allen, Smith & Lancaster, Portland, for appellee.

Before WATHEN, C.J., and ROBERTS, GLASSMAN, CLIFFORD and COLLINS, JJ.

COLLINS, Justice.

Diversified Foods, Inc. (DFI), New England Sales, Inc. (NES) and Ronald C. Giguere (collectively "the Borrowers") appeal from a summary judgment of the Superior Court (Cumberland County, Lipez, J.) entered in favor of Casco Northern Bank and First National Bank of Boston ("the Banks"). After the Borrowers filed a complaint alleging various contract and tort claims, the Banks counterclaimed, seeking to collect on the notes which formed the basis of the Borrowers' claim. The court granted summary judgment to the Banks as to all counts of the Borrowers' complaint and as to liability on the Banks' counterclaim. The Borrowers also appeal from two other court orders, one denying them leave to amend their complaint, the other excluding a proposed expert witness. Finding no error in the Superior Court's well reasoned decisions, we affirm.

The facts developed for purposes of the motion for summary judgment are as follows: NES, a wholly owned subsidiary of DFI, marketed nonperishable food, grocery and beauty items to wholesalers and retailers throughout the United States. In October of 1987, the parties entered into a two million dollar, two-year term loan agreement ("Term Loan"). At the same time, the Banks extended to the Borrowers a twenty million dollar line of credit ("Revolver"). The terms of both credit arrangements appeared in the "Loan Agreement". It provided, inter alia, that the amount of credit extended under the Revolver was to be based on "eligible inventory", determined by the Banks in their sole discretion, and that all outstanding amounts were payable on demand or in the event of default. Both instruments specified rates of interest and the Term Loan also required a payment based on NES's earnings before interest and taxes. ("EBIT component").

For a short time, the parties abided by the Loan Agreement without incident. During this period, the Banks advanced funds based on all of NES's inventory (without exercising its discretion to exclude any); once inventory was purchased with the Banks' approval, it was thereafter included in the inventory base.

In early 1988, Giguere decided to expand his business into the distribution of computers. The Banks provided a letter of credit that allowed NES to acquire an initial shipment of lap top computers. They did not tell Giguere that the computers would be treated differently from other inventory. Although the parties considered this initial purchase a "one shot deal," NES soon approached the Banks about financing further computer ventures under the Revolver. The Banks' analysis indicated that such an investment involved a high degree of risk.

By the end of April, Giguere was aware that the Banks would not provide permanent financing for the computers. NES began approaching other banks about financing. The Banks discouraged Giguere from refinancing elsewhere by noting that the Loan Agreement prohibited prepayment and that the computer financing problems could be worked out; they continued to include the computers in the Revolver's inventory base.

In early June, officials from the Banks met with NES's Chief Financial Officer and told him they had decided to remove the computers from the Revolver's inventory base. At that time, the Banks realized that title to the computers had been transferred to SSI, a 75% subsidiary of DFI, not NES. This concerned the Banks because it violated the covenant against loans to affiliates and because the Banks had no security interest in SSI's assets. Following the June meeting, NES sent the Banks a "compliance certificate" letter, detailing the company's breaches of the loan agreement. In response, the Banks sent NES a letter waiving those breaches for the quarter ended April 30, 1988 and setting out their understanding that NES would abide by the terms of an earlier Bank letter (which provided that NES would find other financing for the computers within 30 days) and that the advances to affiliates would be paid off within six months.

In August, NES found that it was unable to secure outside financing for the computers. Despite the computer problems, NES reported record monthly sales and profits in August. In a September 6 letter, NES acknowledged that the computer overloan still existed and that advances to affiliates had increased. Giguere met with the Banks to discuss several proposals for addressing the computer financing and intercompany loan situations. The Banks informed NES that they would not include the computers in the collateral base for the Loan Agreement.

The Banks advised Giguere that financing would continue under the Revolver, but required a repayment of the computer overloan and additional security interests. As a result, the Banks' risk was decreased, but NES had to curtail operations. NES reported a sharp decline in profits in September. Despite the downturn, the Banks assured Giguere that they were not in an "exit mode" and would continue to provide financing.

In December of 1988, DFI announced a third quarter net loss. Bank officials again met with Giguere. Although the computer overloan had been fully remedied, NES was still in default under a number of covenants, including advances to affiliates. Giguere assured the Banks that NES would eliminate the intercompany advances. In a January 10, 1989 letter, the President of Casco Bank reiterated that they were not in an "exit mode."

In mid-January, NES informed the Bank that DFI expected to show a small year-end profit for 1989. Due to tax adjustments, DFI reported a loss of over two million dollars, about $700,000 of which was attributable to NES. On May 4, 1989, the Borrowers delivered a letter to Casco Bank setting forth a dozen violations of the Loan Agreement. Four days later, the Banks entered an "exit mode" and transferred the account to their asset recovery divisions. Finally, in July, the Banks issued a written demand for payment in full of the loans based on the defaults noted above.

Summary judgment is properly granted when the record reveals that there is no genuine issue of material fact and the moving party is entitled to judgment as a matter of law. M.R.Civ.P. 56(c). We review the Superior Court's decision for errors of law, viewing the record in the light most favorable to the non-moving party. St. Louis v. Hartley's Oldsmobile-GMC, Inc., 570 A.2d 1213, 1215 (Me.1990).

I.

The Borrowers contend that the Superior Court erred by excluding certain portions of its Rule 7(d) statement of material facts ("SMF") from consideration on the motion for summary judgment. M.R.Civ.P. 7(d)(2) requires a party opposing a summary judgment to file "a separate, short and concise statement of the material facts, supported by appropriate record references, as to which it is contended that there exists a genuine issue to be tried." M.R.Civ.P. 7(d)(2) (emphasis added). Rather than referring to external affidavits, the Borrowers attempted to convert material portions of their SMF into an affidavit. In addition to this technical non-compliance, some of the statements attested to are not the proper subject of an affidavit. Many of these statements could not have been based on Giguere's personal knowledge. M.R.Civ.P. 56(e); Lindsley v. Lindsley, 390 A.2d 512, 513 n. 1 (Me.1978). Others consist of legal arguments and conclusions rather than factual allegations. Town of Orient v. Dwyer, 490 A.2d 660, 662 (Me.1985). The court reviewed the record and properly excluded such statements from consideration.

II.

The Borrowers also contest the Superior Court's conclusion that the Banks did not, as a matter of law, breach the Loan Agreement by reclassifying the computer inventory so that it was no longer part of the lending base. They argue that both contractual and implied duties prevented the bank from reclassifying inventory or at least obliged them to provide adequate notice of such a reclassification.

The Loan Agreement, on its face, neither precludes the Banks from reclassifying inventory, nor requires them to provide notice of any such reclassification. In fact, the Loan Agreement allows the Banks, at their "sole discretion," to loan on a percentage of eligible inventory. The Agreement gives them sole discretion to determine eligible inventory and the right to 'subtract ' any inventory which they deem ineligible for any reason. Moreover, the Loan Agreement contemplates using only NES's inventory, not computers owned by SSI. The Loan Agreement also provides the Banks with the option to call the outstanding loan "on demand" and without notice. There is simply no basis in the Agreement for contesting the Banks' actions. Nor is there any ambiguity in its terms. ¹

The Borrowers claim that the parties' course of dealing modified the contract to require notice and precluded the Banks from reclassifying inventory out of the lending base. The record indicates that the Banks had not previously reclassified items from the eligible inventory base, nor called the loans despite NES's breaches. The Agreement provided that any modification must be in writing and contained an anti-waiver provision, stating that the Banks would not be deemed to have waived any default by inaction. Therefore, the course of dealing cannot have precluded the Banks from exercising its contractual rights. Kirkham v. Hansen, 583 A.2d 1026, 1027 (Me.1990). Although a course of dealing is relevant to construing ambiguous contractual language, Blue Rock Industries v. Raymond Intern....