Holliston Mills, Inc. v. Citizens Trust Co.

• Citation: 604 A.2d 331
• Decision Date: 10 March 1992
• Docket Number: No. 90-441-A,90-441-A
• Parties: The HOLLISTON MILLS, INC. v. CITIZENS TRUST COMPANY et al.
• Court: United States State Supreme Court of Rhode Island

Page 331

604 A.2d 331

The HOLLISTON MILLS, INC. v. CITIZENS TRUST COMPANY et al.

No. 90-441-A.

Supreme Court of Rhode Island.

March 10, 1992.

J. Robert Weisberger, Wistow & Barylick, Inc., Providence, for plaintiff.

Anthony F. Muri, Goldenberg & Muri, Providence, for defendant.

OPINION

FAY, Chief Justice.

This is an appeal from an order entered in Superior Court granting a motion for summary judgment in favor of the defendant, Citizens Savings Bank (Citizens). The plaintiff, The Holliston Mills, Inc. (Holliston), brought this action to recover amounts taken from its receivables by Citizens as a prepayment premium according to the terms of the loan agreement between the parties. Holliston maintains that the trial justice erred in concluding that there were no genuine issues of material fact supporting its position. We find that the trial justice's determination was proper and therefore affirm the lower court judgment. The relevant facts are as follows.

On January 16, 1986, Holliston and Citizens entered into a loan-and-security agreement involving two types of loans, a revolving loan of up to $12,800,000 and a five-year term loan of $3,200,000. The agreement included a provision for Citizens to receive and control Holliston's receivables, referred to as lock-box collections, as security in order to satisfy Holliston's outstanding fees and other obligations. Section 10 of the agreement provides:

"The term of this Agreement shall commence on the date hereof and shall continue until all Obligations shall have been fully paid and satisfied. Either party may terminate this Agreement on thirty (30) days prior written notice effective any time after December 31, 1986, but such termination shall not affect the duties of Borrower hereunder or the security interest of Bank in the Collateral so long as any Obligations are outstanding, and notwithstanding such termination, Borrower shall continue to assign Receivables to Bank and turn over all collections to Bank as herein provided, until all the Obligations are paid in full and satisfied."

Section 11.12 of the agreement mandated a percentage premium Holliston would have to pay upon prepayment within three years after December 31, 1986, if the prepayment was made either in whole or in part out of money other than the proceeds of Holliston's internal business operations. Read along with section 10, the provision imposed a 5 percent charge if debtor Holliston prepaid either of the loans within the first year after December 31, 1986, a 3 percent charge if paid within the second year, a 1 percent charge if paid within the third year, and no charge thereafter. Section 11.7 provides:

"If Bank shall employ counsel in connection with the execution and consummation of the transactions contemplated by this Agreement or to take any action in or with respect to any suit or proceeding (bankruptcy or otherwise) relating to this Agreement, or to prepare this Agreement or any amendment or waiver in connection with this Agreement, or to enforce the security interest of Bank in the Collateral, or to enforce any other rights of Bank hereunder whether before or after the occurrence of any Event of Default, or to collect any of the Obligations, then in any of such events, all reasonable attorneys' fees and any expenses, costs and charges relating thereto, shall be part of the Obligations, payable on demand and secured by the Collateral."

Therefore, the obligations owed according to section 10 included both the prepayment premium according to section 11.12 and reasonable attorneys' fees according to section 11.7 of the agreement.

On August 25, 1987, Holliston sent written notice to Citizens that it was terminating the agreement in accordance with the terms and rights under section 10. Holliston stated it intended to pay all its obligations on or before September 24, 1987. Citizens sent Holliston a response letter on August 27, 1987, calculating the amount due from the loans, which amount included a prepayment premium of $376,958.80. On September 24, 1987, Holliston paid Citizens $11,888,707.54, the sums due, less the prepayment premium. On that same day Citizens revised its payment amount, including a prepayment premium of $348,373.13, adjusted after taking into consideration money paid to Citizens out of its lock-box collections of receivables. Citizens then obtained a further revised sum of $341,624.40 from Holliston's receivables in lock-box collections, which it held pursuant to the loan agreement. The payment included $91,949.25 for the term loan, $246,175.15 for the revolving loan, and $3,500 in legal fees incurred in connection with the prepayment-premium collection.

Holliston filed a three-count complaint in Superior Court on October 22, 1987, seeking to recover the total amount of $341,624.40, alleging breach of express contract, breach of implied contract, and conversion. On November 10, 1989, Holliston moved to amend its complaint, adding two additional counts: there was a lack of consideration for the prepayment premium, and the loans were due on demand, rendering their payment not a prepayment. Holliston's motion was granted on November 20, 1989. Holliston was seeking return of the amounts improperly collected by Citizens as a prepayment premium, including interest and costs.

On September 28, 1989, Citizens filed a motion for summary judgment to which Holliston objected and on December 5, 1989, filed a cross-motion for summary judgment. A hearing was held before the Superior Court on February 27, 1990. The trial justice considered the facts and issues presented in the instant case and entered summary judgment for Citizens on February 28, 1990. The trial justice found the termination notice under section 10 of the loan agreement to be mutual, allowing either party the right to so terminate. He also noted that the relationship of the parties and the entire agreement dictated Holliston's payment to be a prepayment. The trial justice did not agree with the proposition that separate and distinct consideration was needed for the prepayment. The trial justice stated, "The prepayment provision is merely a method by which the bank has established that it is economically feasible for them to loan money on those particular terms and conditions, and considering it in its entirety, there is consideration for the agreement."

The trial justice found that the prepayment provision clearly stated that the bank was forfeiting a right to the amount of interest it would have earned over the ordinary time on the loan. This forfeiture was counterbalanced by the right to obtain full and complete satisfaction of the loan. Further, the trial justice found that Citizens's security in obtaining interest had been jeopardized by Holliston's voluntary actions. In finding the prepayment provision proper and the agreement supported by consideration, the trial justice stated that the premium owed in the place of expected interest payments was "derived so that it was economically feasible for the bank to advance the sums required by Holliston." Holliston appealed the Superior Court judgment on March 13, 1990.

The issue presented before this court is whether the trial justice erred in concluding that when he granted Citizens's motion for summary judgment, there were no genuine issues of material fact to support Holliston's position. Holliston contends that such genuine issues of material fact did exist with respect to whether the loans were in effect demand loans, the agreement was illusory, the prepayment-premium provision required separate consideration, and failure to provide the required consideration rendered the premium provision unenforceable.

Under Rule 56 of the Superior Court Rules of Civil Procedure, a party may make a motion for summary judgment to the trial justice on the basis that there exists no genuine issue of material fact to be resolved and, therefore, the trial justice may make a determination of whether the moving party is entitled to judgment as a matter of applicable law. Ludwig v. Kowal, 419 A.2d 297, 301 (R.I.1980). The trial justice views the evidence in a light most favorable to the party against whom the motion is made, drawing from that evidence all reasonable inferences in support of the party's claim but not resolving facts. Mullins v. Federal Dairy Co., 568 A.2d 759, 761 (R.I.1990); Rustigian v. Celona, 478 A.2d 187, 189 (R.I.1984). Summary judgment is proper when there is no ambiguity as a matter of law. Lennon v. MacGregor, 423 A.2d 820, 821-22 (R.I.1980). If no issues of material fact exist, then the trial justice decides whether the moving party is entitled to judgment as a matter of law before entering a summary judgment order. Rustigian, 478 A.2d at 189.

On appeal this court is to review the propriety of the summary judgment order according to the same standards that the trial justice applies in deciding whether to grant a party's motion for summary judgment. Steinberg v. State, 427 A.2d 338, 340 (R.I.1981); see Grissom v. Pawtucket Trust Co., 559 A.2d 1065, 1066 (R.I.1989). This court is to decide whether, after examining all pleadings and affidavits and materials in a light most favorable to the nonmoving party, there is a genuine issue of material fact supporting that party's claim. A party who opposes such a motion must not rely solely on pleadings but must assert facts that raise a genuine issue to be resolved. Volino v. General Dynamics, 539 A.2d 531, 533 (R.I.1988).

In the present case Holliston asserts that the trial justice erred in granting Citizens's motion for summary judgment because there actually did exist genuine issues of material fact. Holliston asserts that the loans were in effect demand loans, thereby rendering the loan agreement illusory. Further, Holliston contends that Rhode Island case law mandates that prepayment provisions are separate agreements requiring separate consideration and that in this case no such consideration...