Inleasing Corp. v. Jessup

• Citation: 475 A.2d 989
• Decision Date: 25 April 1984
• Docket Number: No. 81-251-A,81-251-A
• Parties: INLEASING CORP. v. Claude A. JESSUP. ppeal.
• Court: United States State Supreme Court of Rhode Island

Page 989

475 A.2d 989

INLEASING CORP. v. Claude A. JESSUP.

No. 81-251-Appeal.

Supreme Court of Rhode Island.

April 25, 1984.

Reargument Denied May 18, 1984.

John H. Blish, Joseph V. Cavanagh, Jr., Edwards & Angell, Providence, for plaintiff.

Edward W. Moses, Maury A. Ryan, Asquith, Merolla, Anderson, Ryan & Wiley, Providence, for defendant.

OPINION

KELLEHER, Justice.

This is an appeal from a Superior Court judgment in which the defendant, Claude A. Jessup (Jessup), presently finds himself liable as a guarantor to the plaintiff, Inleasing Corp. (Inleasing), for over $1 million. Jessup's appeal presents three issues. They include his effort to amend his answer under Rule 15(a) of the Superior Court Rules of Civil Procedure as well as two significant questions of law, one involving the parol-evidence rule and the other relating to the scope and existence of an agent's authority.

Jessup, a Virginia resident, was a member of the board of directors and a 20 percent shareholder of a Delaware corporation that owned the entire stock of a North Carolina corporation named Pargo, Inc. (Pargo). Pargo manufactured and leased golf carts. Jessup, a retired chairman of the board of Continental Trailways, has had considerable experience in lending money for various business endeavors. Pargo was one such venture. He invested nearly $2 million in the company.

Inleasing, affiliated with what is now known as Fleet National Bank, is engaged in the business of financing and leasing various types of equipment and machinery. Since Pargo experienced financial difficulty in performing both the manufacturing and leasing functions, it turned to Inleasing for help. Inleasing purchased the carts manufactured by Pargo, providing an instant infusion of cash into the manufacturing concern. Pargo then leased the carts from Inleasing and subleased them to golf courses in the southeastern portion of the United States. This transaction is commonly referred to as a "sale and leaseback" transaction.

Pargo and Inleasing entered into the first of their thirty-three sale and leaseback transactions in April of 1972. By the spring of 1974, Pargo, encountering further serious financial difficulties, had defaulted on several of its lease payments.

In the spring and summer of 1974, Pargo failed to make its monthly payments as obligated. Subsequently, Inleasing came to realize that many of the carts that it had purchased and leased back to Pargo were missing. The lender then began to take an inventory of its carts and immediately found that many of them were either missing, inoperative, or inert while awaiting service at one of the two repair centers maintained by Pargo under the terms of the sale-leaseback agreement. Further negotiations were immediately undertaken by the parties to rectify the situation.

Inleasing refused to continue its relationship with Pargo absent a guaranty by Jessup for the value of the missing carts. The guaranty would assure payment of money to Inleasing under the terms of a collateral note to be executed by Pargo. The value of the note was to be the same as the value of the missing carts.

On December 19, 1974, Jessup, while in Virginia, executed the so-called missing-cart guaranty and delivered it to Charles Bradley (Bradley), Pargo's chief operating officer. However, at the time Jessup signed the guaranty, the exact value of the collateral note to be signed by Pargo was unknown. The specific amount of the note and the guaranty was not determined until a month later when on January 27, 1975, Pargo, through Bradley, signed a note for $1,037,456. This amount was then inserted in the appropriate blank spaces on the guaranty signed by Jessup about a month earlier. Once the insertions were made, the note and the guaranty were delivered by Bradley to Inleasing's representative. This fact is the focal point of Jessup's appeal, for neither he nor his attorney, Frederick Russell (Russell), a member of the Virginia bar, was present at the January 27 "closing" meeting, which took place in Hartford, Connecticut. Present at the meeting were Bradley, Inleasing's president, and its counsel.

Jessup insists that he did not know that the ultimate value of the note would be so high as it was, and he contends that he would never have guaranteed such an amount. However, Jessup's ability to present this theory was hampered by the trial justice's refusal to allow him to amend his answer to the complaint.

Jessup's initial answer, filed in October 1975, pleaded three affirmative defenses, specifically, (1) insufficient service of process, (2) lack of jurisdiction over the subject matter, and (3) lack of jurisdiction over the person. In April of 1979, he moved to amend his answer under Super.R.Civ.P. 15(a) to include the defenses of fraud or misrepresentation. The Superior Court justice who heard this motion cursorily denied it without explanation.

When the case came on for trial, Jessup attempted unsuccessfully on several occasions, both before and during the trial, to amend his answer to include the defenses of fraud, misrepresentation, or mistake. The trial justice's rationale for rejecting these attempts was that Jessup's trial motions were no different from the earlier motion that was denied by a justice in charge of the motion calendar.

Rule 15(a) provides that after a pleading has been served, it may be amended "only by leave of [the] court or by written consent of the adverse party; and leave shall be freely given when justice so requires." It is modeled after Rule 15(a) of the Federal Rules of Civil Procedure.

We have held that it is this final sentence of the rule which embodies its true spirit. Kenney v. Providence Gas Co., 118 R.I. 134, 140, 372 A.2d 510, 513 (1977). In the past we have emphasized the desirability of permitting the desired amendments and having the dispute resolved on its merits and not by a blind adherence to procedural technicalities. Id.; 3 Moore, Federal Practice p 15.02 at 15-13 (2d ed. 1983).

The opportunities we have had to interpret the rule indicate that liberality in allowing amendments is to be favored. In Ricard v. John Hancock Mutual Life Insurance Co., 113 R.I. 528, 324 A.2d 671 (1974), we addressed a motion to amend made at trial and noted the deference paid the trial court in such a situation.

"The granting or denial of such a motion is a matter within the sound discretion of the trial justice, and when he has acted in the exercise of his discretion his ruling should not be disturbed on review in the absence of a clear showing that he abused his discretion." Id. at 540, 324 A.2d at 677.

In Ricard the defendant Industrial National Bank originally admitted that the defendant John Hancock was indebted to it under the terms of the plaintiff's life insurance policy. At trial the bank desired to change this theory and force the plaintiff to prove the indebtedness.

The trial justice denied the amendment because he felt "that the case had gone on too long on the basis of the pleadings as they were at the time of trial." Id. at 539, 324 A.2d at 677. In faulting the trial justice, this court ruled that the trial justice's denial was a clear abuse of his discretion.

We reach the same conclusion here. The dismissal of the motion to amend in the first instance was summary and at trial unpersuasive. The burden rests on the party opposing the motion to show a compelling reason warranting dismissal, such as substantial prejudice. Zenith Radio Corp. v. Hazeltine Research, Inc., 401 U.S. 321, 91 S.Ct. 795, 28 L.Ed.2d 77 (1971). At no time in the Superior Court was this burden sustained.

Inleasing's only reason for objecting to the grant of the motion was its claim that the sole purpose for the motion was to delay Jessup's day of reckoning. Our review of the record indicates that there is no such basis for this assertion. Jessup's desire was to amend his answer so that he could present at trial the affirmative defenses related to fraud, misrepresentation, or mistake.

Inleasing claims that no excuse exists for the failure to amend the answer from the date the answer was initially filed until just before trial. It infers a dilatory motive from the fact that defendant's actions occurred shortly after a thirty-day trial notice.

However, mere delay is not enough to deny the amendment. In Howey v. United States, 481 F.2d 1187, 1190 (9th Cir.1973), the court found no reason to deny an amendment by the plaintiff even though it was offered on the second day of trial and five years after the action was commenced. No prejudice was shown, and the motion was granted.

Together with Ricard and Kenney, our holding in Wilkinson v. Vesey, 110 R.I. 606, 295 A.2d 676 (1972), which allowed the amendment after trial, conclusively indicates our determination to permit such amendment absent a showing of extreme prejudice. The sentiments we have expressed here relative to the amendment of pleadings were recently affirmed in Kuczer v. City of Woonsocket, 472 A.2d 300 (R.I.1984), and Serra v. Ford Motor Credit Co., --- R.I. ---, ---, 463 A.2d 142, 150 (1983).

No substantial prejudice is indicated by the allowance of the requested amendment. When the request was originally made in April 1979, the trial had not commenced; in fact, it did not commence until late November 1979. The obvious purpose of the amendment was to afford an opportunity to Jessup to show that there was no meeting of the minds about the amount of the guaranty. It is our belief that justice will be served by a remand and an amendment of Jessup's answer to include the grounds of fraud, misrepresentation, and mistake.

We next address ourselves to the parol-evidence rule. Jessup's claim is that he was totally unaware that the amount of the note would be anywhere near $1 million, and that the amount was indeed much larger than he had ever anticipated when he signed the blank guaranty. In an attempt to demonstrate this lack of awareness, a question was posed to...