Flagship Nat. Bank v. Gray Distribution Systems, Inc., 84-2115
| Decision Date | 25 March 1986 |
| Docket Number | No. 84-2115,84-2115 |
| Citation | 485 So.2d 1336,11 Fla. L. Weekly 729 |
| Parties | 11 Fla. L. Weekly 729, 1 UCC Rep.Serv.2d 601 FLAGSHIP NATIONAL BANK, Appellant, v. GRAY DISTRIBUTION SYSTEMS, INC., G.D.S. Drugs, Inc., G.D.S., Inc., Gray Tobacco Company, Inc., Samuel Gray and Marilyn Gray, Appellees. |
| Court | Florida District Court of Appeals |
Therrel, Baisden, Stanton, Wood & Setlin, Daniels & Hicks and Patrick J. Wilson and Sam Daniels, Miami, for appellant.
Greenfield & Duval and Leo Greenfield, North Miami, for appellees.
Before NESBITT, BASKIN and JORGENSON, JJ.
REVISED OPINION
We review a final judgment entered against Flagship National Bank of Miami [Flagship] awarding Gray Distribution Systems, Inc.; GDS Drugs, Inc.; GDS, Inc.; Gray Tobacco Company, Inc.; and Samuel and Marilyn Gray [Gray] compensatory and punitive damages of $3.2 million and requiring Flagship to indemnify Samuel and Marilyn Gray for unpaid obligations to IRS and to some of Gray's suppliers. At the conclusion of a non-jury trial, the court ruled that Flagship breached its contract with Gray when the bank discontinued lending funds in excess of the amount of the promissory note. In addition, the trial court found that Flagship failed to dispose of Gray's collateral in a commercially reasonable manner and partially vacated a previously entered deficiency judgment. After considering the parties' contentions and examining the record before us, we reverse portions of the final judgment and remand for a new trial in accordance with this opinion.
A bank's attempt to protect its risk during the failure of a family business indebted to the bank is the subject of this litigation. On October 27, 1976, Gray borrowed $375,000 from Flagship. Gray pledged its accounts receivable as security for the loan. Samuel and Marilyn Gray, principals of various related companies, signed personal guarantees. During the latter part of 1977, the deterioration of Gray's business rendered Gray incapable of meeting its loan obligations. In May, 1978, after declaring the loan in default and demanding payment, Flagship restructured Gray's loan under a "workout" agreement. As part of the new agreement, Gray sold its Atlanta store and applied the proceeds of the sale to its debt. The Grays and their corporate entities executed a new note and security agreement which included additional collateral. The new note increased Gray's indebtedness to $400,000, payable on demand.
The note provided:
Principal and interest shall be payable on the dates and in the amounts specified below, to-wit:
................................................................................
* * *
2) Principal payments shall be payable on demand of the Bank.
3) Notwithstanding anything to the contrary herein Bank may demand payment of all accrued and unpaid interest at any time.
The new loan agreement provided:
2. Terms of Loan: ... Principal payments shall be payable on demand of the Bank.... The outstanding principal balance and any accrued and unpaid interest due under the Promissory Note of even date and under the previous loan agreements between Bank and Borrowers, shall be due and payable immediately upon demand of the Bank.
................................................................................
* * *
7. Covenants, Representations, Warranties. Borrower hereby represents, warrants and covenants that it will: ... Pay on demand the indebtedness of Borrowers to Bank immediately, without notice....
As part of the "workout" agreement, Flagship took control of Gray's inventory and accounts. Gray provided Flagship with an estimated yearly budget from which Flagship determined whether to grant extensions of credit. The agreement required Gray to deposit incoming funds in an account under Flagship's control. Flagship applied these funds to Gray's outstanding loan balance. Gray could not disburse funds from its account without first obtaining Flagship's approval. From time to time, Flagship provided suppliers with letters of credit. As a result of the additional extensions of credit, Gray's indebtedness grew to approximately $600,000, well beyond the lending ceiling of $400,000. At first, the new procedure operated successfully, but when sales began to decline, the bank sought to avoid an increase in its risk. Flagship's loan committee imposed a requirement that Gray liquidate some of its assets and reduce its debt. The liquidation, coupled with restrictions on borrowing, prevented Gray from taking advantage of high volume discount purchasing and Gray's business rapidly declined.
On November 14, 1978, Flagship gave Gray written notice of default, demanded payment in full, and possession of the collateral. Flagship instituted a court action to liquidate Gray's collateral on November 17, 1978. On the advice of its attorney, Gray entered into a settlement agreement with Flagship as to possession of the collateral. At the time Gray entered into the settlement agreement, Gray was unaware that its lawyer had received a personal loan from Flagship.
The case proceeded on matters not encompassed in the settlement agreement, and the trial court entered a partial summary judgment granting Flagship a deficiency judgment of $234,198.52. Subsequently, the trial court granted Gray permission to file defensive pleadings. Gray's response included an answer, affirmative defenses, and counterclaims seeking damages for breach of contract (Count I), malicious interference with a business relationship (Count II), failure to sell collateral in a reasonably commercial manner (Count III), usury (Count IV), indemnification (Count V), and revocation of the settlement agreement (Count VI). The court proceeded first with the trial on the issue raised in Count VI, the claim in which Gray asserted that the settlement agreement had been induced by fraud predicated on Flagship's loan to Gray's attorney. When the judge deferred his decision in order to permit the jury to decide the issue, Flagship petitioned this court for a writ of mandamus directing the trial court to resolve the controversy. This court ordered the trial court to decide the matter. Flagship National Bank v. Testa, 429 So.2d 69 (Fla. 3d DCA 1983). On remand, the trial court entered a judgment against Flagship on Count VI. Flagship appealed. We affirmed on the basis that the settlement agreement was procured "in part through the breach of the fidelity owed to the [Grays] by their attorney, which fidelity was compromised by [Flagship]." Flagship National Bank v. Gray Distributions Systems, Inc., 445 So.2d 1080 (Fla. 3d DCA 1984). *
Trial proceeded on the remaining claims and culminated in the entry of a final judgment affirming the summary judgment in favor of Flagship, but vacating the amount of the deficiency award; finding in favor of Gray as to the claims for breach of contract, disposition of collateral in a commercially unreasonable manner, and indemnification for Gray's obligations to IRS, Allou Distributors, Inc., and Capital America, Inc.; and dismissing the remaining claims. The trial court awarded Gray $700,000 in compensatory damages and $2.5 million in punitive damages. The court also required Flagship to indemnify Samuel and Marilyn Gray in the sum of $259,865.48 for suppliers' debts and the IRS assessment. Flagship appealed.
Flagship's appeal rests on several grounds. First, Flagship attacks the trial court's holding that it breached the loan agreement and claims error in the award of compensatory and punitive damages predicated on that ground. In addition, Flagship challenges the trial court's finding that it must indemnify Gray for certain debts. We discuss these points in turn.
The first challenge is directed to the trial court's determination that Flagship breached its contractual obligations and failed to exercise good faith when it refused to continue extending Gray credit beyond the limits of its loan and sought repayment from Gray. The trial court found that Flagship's conduct during a four-month period in which Flagship extended credit beyond the loan limit constituted a course of dealings which modified the initial agreement and bound Flagship to continue extending credit above the amount of the loan. The trial court held that Flagship failed to act in good faith when it accelerated Gray's loan payments, thereby breaching its contract with Gray. We disagree.
A trial court's findings of fact are presumed correct. Marsh v. Marsh, 419 So.2d 629 (Fla.1982); Strawgate v. Turner, 339 So.2d 1112 (Fla.1976). Applegate v. Barnett Bank of Tallahassee, 377 So.2d 1150, 1152 (Fla.1979) (citations omitted). In our view, the trial court misconceived the applicable law.
Under some circumstances, a written agreement may be modified by a course of dealings, Linear Corp. v. Standard Hardware Co., 423 So.2d 966, 968 (Fla. 1st DCA 1982); Doral Country Club, Inc. v. Curcie Brothers, Inc., 174 So.2d 749 (Fla. 3d DCA), cert. denied, 180 So.2d 656 (Fla.1965); however, when a course of dealings and the express terms of an agreement appear to conflict, the practice of the parties and the agreement must be construed, wherever reasonable, as consistent with each other. § 671.205(4), Fla.Stat. (1977). If no reasonable consistent construction can be drawn, the express terms of the agreement control. In the case before us, the note and loan agreement provided a lending limit of $400,000 on a loan payable upon demand. Under section 671.205(4), the express terms of the note and loan agreement override any inconsistent interpretation of the parties' agreement which might be inferred from their dealings.
The trial court's determination...
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