Jerry Harmon Motors, Inc. v. First Nat. Bank & Trust Co.

• Decision Date: 27 June 1991
• Docket Number: No. 900072,900072
• Citation: 472 N.W.2d 748
• Court: North Dakota Supreme Court
• Parties: JERRY HARMON MOTORS, INC., and Jerry Harmon, Personally, Plaintiffs and Appellants, v. FIRST NATIONAL BANK & TRUST CO., Robert A. Wanago and Richard H. Rolfstad, as Officers and agents of 1st National Bank & Trust Co., of Williston, and Individually, Defendants and Appellees. Civ.

Page 748

472 N.W.2d 748

JERRY HARMON MOTORS, INC., and Jerry Harmon, Personally Plaintiffs and Appellants, v. FIRST NATIONAL BANK & TRUST CO., Robert A. Wanago and Richard H. Rolfstad, as Officers and agents of 1st National Bank & Trust Co., of Williston and Individually, Defendants and Appellees.

Civ. No. 900072.

Supreme Court of North Dakota.

June 27, 1991.

Wheeler Wolf, Bismarck, for plaintiffs and appellants; argued by David L. Peterson. Appearance by Gerry Gunderson.

Vogel, Brantner, Kelly, Knutson, Weir & Bye, Ltd., Fargo, for defendant and appellee First National Bank & Trust Co.; argued by Kermit E. Bye. Appearance by M. Daniel Vogel.

Winkjer, McKennett, Stenehjem, Murphy & Reierson, Williston, for defendants and appellees Robert A. Wanago and Richard H. Rolfstad; argued by Richard A. McKennett.

Keith C. Magnusson, Bismarck, for amicus curiae N.D. Bankers Ass'n. Submitted on brief.

ERICKSTAD, Chief Justice.

Jerry Harmon Motors, Inc. and Jerry Harmon appeal from a district court judgment entered upon a jury verdict dismissing their action against First National Bank & Trust Company of Williston ["the Bank"], Robert Wanago, and Richard Rolfstad. We affirm.

Harmon Motors, a Williston automobile dealership, had floorplan financing for new vehicles with General Motors Acceptance Corporation ["GMAC"]. The Bank provided floorplan financing for used vehicles and other financing to Harmon Motors. In late 1986, Harmon determined that he could save money by transferring his used vehicle floorplanning to GMAC. GMAC would provide floorplan financing up to 85 percent of the value of the used vehicles and would also provide a separate $200,000 loan to Harmon Motors, in turn requiring a first priority security interest in various business assets. Harmon Motors would also require continued financing from the Bank in the form of a line of credit. During negotiations between the parties, the relative priorities of the parties' security interests in various business assets became a key issue.

On December 10, 1986, the Bank, at Harmon's request, issued a commitment letter outlining the Bank's terms for a $300,000 line of credit. Among other requirements, the Bank sought a first position security interest on all tools, furniture, fixtures, inventory, and equipment; a second position security interest on all parts; and a second mortgage on certain real estate. GMAC, however, required a first priority security interest on all of Harmon Motors' non-vehicle personal property for its $200,000 loan. Because some items of collateral were being sought by both the Bank and GMAC, Harmon and the Bank discussed the possibility of substituting other collateral, including an assignment of life insurance, a second mortgage and assignment of rents on certain real property, and security interests in vehicles not covered by GMAC's floorplan agreement.

On December 26, 1986, Harmon signed a promissory note, a line of credit agreement, a guaranty, and security agreements and financing statements covering all personal property of Harmon Motors. The parties dispute the nature of these documents. Harmon asserts that a final agreement had been reached and his signing of the documents finalized a binding contract. The Bank asserts that these documents were prepared for Harmon's signature as an accommodation because Harmon wished to leave for his winter home in Arizona, and that several items were left blank and the Bank did not sign the documents so they could be completed and signed at a later date when the parties reached a final agreement. The Bank asserts that Harmon was told he would have to meet conditions which would be outlined in a second commitment letter replacing the December 10 letter.

On December 30, 1986, the Bank and GMAC entered into a subordination agreement whereby the Bank relinquished its priority position in all personal property to the extent of GMAC's $200,000 loan. GMAC then issued checks, payable jointly to Harmon Motors and the Bank, to pay off Harmon Motors' existing loans at the Bank.

On December 31, 1986, the Bank issued the second commitment letter outlining its new requirements for a line of credit, replacing the terms of the December 10 letter. The December 31 letter provided that the Bank would grant a $300,000 line of credit and required that Harmon provide a security interest in all personal property, subordinated to GMAC's interest up to $200,000, a second mortgage on certain real property, and an assignment of life insurance. The letter also advised that Harmon Motors' accounts with the Bank would be placed on a "collected funds" basis.

Harmon returned to Williston in early January, and on January 8 he went to the Bank to discuss the line of credit financing. The Bank apparently expressed concern that Harmon had not yet provided the mortgage and assignment of rents. Harmon provided these documents and they were recorded by the Bank that same day.

The parties also discussed Harmon Motors' checking account, which was overdrawn by $80,000. It is undisputed that the Bank loaned Harmon $80,000 to cover the overdraft; however, the parties offer differing explanations of the transaction. Harmon asserts that this $80,000 was advanced pursuant to the completed line of credit agreement. The Bank asserts that it was a "bridge" loan, secured by titles to ten repossessed vehicles, to provide temporary interim financing until the line of credit agreement was finalized.

On January 9, the Bank sent Harmon a letter deleting the "collected funds" requirement of the December 31 commitment letter. This letter also required that Harmon provide to the Bank "for safekeeping" the titles to vehicles "collateralizing" the loan.

On January 13, Harmon went to the Bank and sought a $130,000 advance on the line of credit. He also hand-delivered a letter, dated January 12, 1987, in which he advised that he would not provide titles to vehicles to the Bank. The letter also stated that Harmon rejected the terms contained in the Bank's December 31 letter, and that Harmon was relying upon the December 10 letter:

"I am again writing to advise you of our agreement dated December 10, 1986. I can not and will not accept your December 31, 1986 letter.

"As I discussed with Ray McIntee, your verbage [sic] is totally different and is not acceptable. I relied on our contract of December 10, 1986 and therefore spent many hours of time and money to make this program work."

The following day Harmon returned to the Bank and hand-delivered another letter, dated January 14, 1987, reiterating Harmon's assertion that the December 10 letter constituted the parties' agreement and demanding that the Bank immediately advance $200,000 on the line of credit. The Bank responded by letter dated January 14 stating it would advance $140,000 on an "as needed" basis, conditioned upon Harmon providing a listing of unencumbered used vehicles having a wholesale value of $164,700 and agreeing to provide weekly listings of unencumbered vehicles. The letter also outlined the Bank's position that the December 10 commitment letter had been rendered inoperable by Harmon's inability to comply with its provisions requiring a first priority security interest in various business assets.

On the evening of January 14, Harmon sold a substantial number of vehicles to three close business associates. On January 15, without warning to the Bank or GMAC, Harmon closed the business. On that date, while many vehicles were being removed from the Harmon Motors lot, the Bank's agents seized three vehicles to which the Bank claims it held title.

Harmon and Harmon Motors sued the Bank and two of its officers, Wanago and Rolfstad, alleging breach of contract, conversion, and tortious bad faith. ¹ The case was tried to a jury. At the close of the plaintiffs' case-in-chief the court dismissed the bad faith tort claim and dismissed all claims against Wanago and Rolfstad. The jury returned its verdict finding that no contract for a line of credit existed between the parties and that the Bank had not converted the vehicles taken on January 15. Judgment was entered dismissing all claims, and Harmon and Harmon Motors appeal. ²

I. EXISTENCE OF CONTRACT

Harmon asserts that the trial court should have held as a matter of law that a complete, unambiguous written contract for a $300,000 line of credit existed. The trial court concluded that existence of the contract was dependent upon resolution of disputed factual issues and accordingly submitted this issue to the jury. The jury found that there was no contract.

Harmon relies upon language in Hultberg v. City of Garrison, 79 N.D. 356, 360, 56 N.W.2d 319, 321 (1952), stating that the determination whether an unambiguous written agreement constitutes a valid contract is a question of law for the court. See also Gulden v. Sloan, 311 N.W.2d 568, 571 (N.D.1981); Gerhardt Construction Co. v. Wachter Real Estate Trust, 306 N.W.2d 223, 226 (N.D.1981). However, we have noted that the determination of mutual consent, although resulting in a legal conclusion, necessarily involves factual questions. Gulden v. Sloan, supra, 311 N.W.2d at 571. Thus, the determination of the existence of a contract is a purely legal question only when mutual consent, and the other requisite elements of a contract, are demonstrated clearly and unambiguously on the face of the written contract.

Harmon asserts that the line of credit agreement and related documents which he signed on December 26, read in conjunction with the December 10 commitment letter, constitute a valid contract as a matter of law. Harmon's continued reliance upon the December 10 letter as part of the contract is misplaced. It is clear that Harmon did not, and in fact could not, comply with the provisions of that commitment letter because GMAC insisted upon a first priority security interest in essentially all of Harmon Motors' non-vehicle personal property. Thus, if any agreement was reached...