Mirax Chemical Products Corp. v. First Interstate Commercial Corp.

• Decision Date: 06 December 1991
• Docket Number: No. 90-2650,90-2650
• Citation: 950 F.2d 566
• Parties: 16 UCC Rep.Serv.2d 561 MIRAX CHEMICAL PRODUCTS CORP.; Oliver C. Clerc, Jr., Appellants, v. FIRST INTERSTATE COMMERCIAL CORP., a CA Corp.; First Interstate Corp. of Wisconsin; First Interstate Commercial of Wisconsin, Appellees.
• Court: U.S. Court of Appeals — Eighth Circuit

Page 566

950 F.2d 566

16 UCC Rep.Serv.2d 561

MIRAX CHEMICAL PRODUCTS CORP.; Oliver C. Clerc, Jr., Appellants, v. FIRST INTERSTATE COMMERCIAL CORP., a CA Corp.; First Interstate Corp. of Wisconsin; First Interstate Commercial of Wisconsin, Appellees.

No. 90-2650.

United States Court of Appeals Eighth Circuit.

Submitted April 11, 1991.

Decided Dec. 6, 1991.

Dale L. Rollings, St. Charles, Mo., argued (Dale L. Rollings and Thomas A. Federer, on the brief), for appellants.

Harry B. Wilson, St. Louis, Mo., argued (Harry B. Wilson and Mark G. Arnold, on the brief), for appellees.

Before FAGG and BEAM, Circuit Judges, and DOTY, ^* District Judge.

BEAM, Circuit Judge.

This action involves a loan agreement between Mirax Chemical Products Corp. (Mirax) and First Interstate Commercial Corp. (FICC). In essence, Mirax asserts that FICC breached the agreement by terminating it prematurely. The district court granted summary judgment in favor of FICC on the breach of contract claim and also dismissed the Mirax tort claims related to the alleged breach. Mirax appeals. We affirm.

I. BACKGROUND

On March 25, 1987, Mirax and FICC entered into a loan agreement, in the nature of a line of credit arrangement, which agreement provided that FICC would "lend money to debtor [Mirax] in such amounts as debtor from time to time requests and the Secured Party [FICC], at its option, agrees to lend." The agreement further provided that "[d]ebtor promises to pay Secured Party, on demand, all or any part of the debit balance at any time." The agreement could be "terminated at any time by the Secured Party by written notice to the Debtor" and, in the absence of termination, would continue in effect for two years.

Pursuant to an Equipment Security Agreement executed contemporaneously with the loan agreement, FICC was granted a security interest in Mirax's inventory and receivables. Mirax agreed that its obligation would not exceed the lesser of $1.2 million or a certain percentage of its collateral as set forth in the agreement and that interest charges would be at least $6,000 per month during the term of the agreement. Mirax was also required to furnish FICC with audited financial statements at specific intervals.

In addition, the agreement set forth the conditions that would constitute default and FICC's rights in the event of default. Finally, it contained an integration clause stating "all indebtedness incurred hereunder shall be governed exclusively by the terms of this agreement."

In November 1987, FICC expressed concern with Mirax's financial condition, as revealed to FICC in audited financial statements. FICC stated that it would contemplate reducing loan amounts and would ask to be "paid out of [the] loan" if Mirax were unable to stop its losses. By letter dated January 15, 1988, FICC informed Mirax that it wanted the outstanding balance of credit paid off by April 1, 1988, and that it would begin reducing the rate at which it advanced funds to Mirax by one percent and later two percent. FICC continued loaning funds to Mirax until September 1988 when a new lender paid off the balance.

Mirax then filed this action alleging breach of contract, bad faith, economic duress, and intentional infliction of mental distress. Mirax also sought punitive damages. The district court found that the complaint did not state a claim for economic duress, intentional infliction of mental distress or punitive damages and dismissed those claims. ¹ The district court later granted FICC's motion for summary judgment on the breach of contract and bad faith claims.

Mirax argues on appeal that the district court erred as a matter of law in holding that FICC could terminate the Mirax loan at will; that the district court erred in dismissing the Mirax claims for economic duress and punitive damages; and that the district court abused its discretion in denying a Mirax motion for a continuance under Fed.R.Civ.P. 56(f).

II. DISCUSSION

In reviewing a Fed.R.Civ.P. 12(b)(6) dismissal for failure to state a claim, we accept the allegations in the complaint as true. The complaint should not be dismissed unless it appears beyond doubt that the plaintiff can prove no set of facts that would entitle him to relief. DeYoung v. Patten, 898 F.2d 628, 631 (8th Cir.1990). We use the same standard as the trial court in reviewing the entry of summary judgment. Stokes v. Lokken, 644 F.2d 779, 782 (8th Cir.1981). Summary judgment may be granted where no genuine issue as to any material fact exists and the moving party is entitled to judgment as a matter of law. Fed.R.Civ.P. 56(c). Additionally, all facts must be viewed in the light most favorable to the party opposing the motion for summary judgment and the opposing party must be given the benefit of all reasonable inferences. Vette Co. v. Aetna Cas. & Sur. Co., 612 F.2d 1076, 1077 (8th Cir.1980).

A. Breach of Contract

Mirax contends that the contract is ambiguous about whether FICC could terminate the contract at will. Mirax asserts that the enumeration of events of default, the requirement of a collateral-obligation ratio and the closing fee (which it characterizes as a commitment fee) are inconsistent with a demand note and argues that the agreement is a term note. Under Wisconsin law, ² a written contract is ambiguous if it is reasonably and fairly susceptible to more than one construction. Jones v. Jenkins, 88 Wis.2d 712, 277 N.W.2d 815, 819 (1979). A court may not depart from the plain meaning of a contract where it is free from ambiguity. Hortman v. Otis Erecting Co., 108 Wis.2d 456, 322 N.W.2d 482, 484 (Ct.App.1982). We find that the document is not ambiguous and clearly provides FICC with a right to terminate the contract at will.

There is nothing in the contract which indicates that the contract is a term note. The specification that the agreement continue for a term of two years is expressly limited by the language, "[i]n the absence of such termination by the Secured Party." A listing of events which constitute default is not necessarily incompatible with a terminable at will contract. The section of the contract dealing with default grants FICC additional, extra-judicial remedies on the occurrence of default. ³ This adds to FICC's rights, but does nothing to alter the fact that the agreement is terminable at will.

Mirax's characterization of the closing fee as a commitment fee ⁴ also lacks foundation. The fee is expressly denominated in the contract as a closing fee and is nowhere referred to as a commitment fee. Interpretation of the fee as a commitment fee would be in direct opposition to the plain language of the agreement which expressly provides in section one that FICC shall lend only such amounts as it from time to time agrees to lend. Moreover, the requirement of periodic audited financial statements is not consistent with a loan for which the lender is committed for a specific period of time. There is no need to require financial reports if the lender is unconditionally obligated in any event. Neither does the collateral-obligation ratio conflict with a terminable at will interpretation. The requirement that Mirax maintain a certain level of inventory does no more than ensure that Mirax did not borrow above the amount of FICC's security interest.

In support of its position, Mirax principally relies on Reid v. Key Bank of Southern Maine, Inc., 821 F.2d 9 (1st Cir.1987) and Shaughnessy v. Mark Twain State Bank, 715 S.W.2d 944 (Mo.Ct.App.1986). Both of those cases are inapplicable for the reason that the contracts at issue were ambiguous. The document at issue here simply does not contain inconsistencies.

B. Bad Faith

Under the U.C.C., ⁵ the parties are charged with a general duty of good faith and fair dealing. Wis.Stat. § 401.203 (1989-1990). That duty, however, cannot be breached by actions that are specifically authorized in...