Northwestern Bank v. Roseman

• Decision Date: 03 June 1986
• Docket Number: No. 8529SC467,8529SC467
• Citation: 81 N.C.App. 228,344 S.E.2d 120
• Court: North Carolina Court of Appeals
• Parties: NORTHWESTERN BANK v. Clarence Edward ROSEMAN and wife, Angela B. Roseman, and Dentex, Inc.

Page 120

344 S.E.2d 120

81 N.C.App. 228

NORTHWESTERN BANK v. Clarence Edward ROSEMAN and wife, Angela B. Roseman, and Dentex, Inc.

No. 8529SC467.

Court of Appeals of North Carolina.

June 3, 1986.

Van Winkle, Buck, Wall, Starnes and Davis, P.A. by Albert L. Sneed, Jr., Asheville, for plaintiff-appellee.

Goldsmith & Goldsmith by C. Frank Goldsmith, Jr., Marion, for defendants-appellants.

BECTON, Judge.

This is an action for payment on a promissory note and a personal guaranty. The trial court entered partial summary judgment in favor of plaintiff, Northwestern Bank, on its claim against defendants, Clarence E. Roseman and Dentex, Inc. The same summary judgment order denied counterclaims asserted by Clarence and Angela Roseman for fraud, unfair and deceptive trade practices, and wrongful repossession and sale of personal property. The issues of fact remaining after entry of partial summary judgment were resolved by stipulation, and final judgment was entered. Defendants appeal. We reverse and remand the case for trial.

I

For purposes of this appeal the bank concedes the following relevant facts. In order to obtain financing for Dentex, Inc., Clarence Roseman, the president of Dentex, contacted Paul Richardson, the manager of the local branch of Northwestern Bank. Mr. Richardson referred Mr. Roseman to Northwestern Factors, Inc. (Factors). Mitchell Wiggs, an employee of Factors, contacted Mr. Roseman and negotiated a factoring arrangement: in exchange for immediate funds, Dentex would assign its accounts receivable to Factors for collection. Mr. Wiggs requested that Mr. Roseman execute a personal guaranty for the debts of Dentex. Mr. Roseman refused and said that if he had to sign a personal guaranty, there would be no factoring contract. Mr. Wiggs responded, "We'll have to see what we can do about it." Mr. Wiggs never again spoke to Mr. Roseman about a personal guaranty.

On 5 August 1980, Mr. Wiggs brought documents to Dentex to close the factoring deal. He convinced Mr. Roseman's secretary, Ms. Miller, to sign Angela Roseman's name to a personal guaranty of the debts of Dentex to Factors, without Ms. Roseman's authorization, consent or knowledge. The secretary believed she was signing papers necessary to begin the factoring arrangement and did not know she had signed Ms. Roseman's name on a personal guaranty. Later that day, Mr. Wiggs and Mr. Roseman went to Mr. Richardson's office at the bank. A large package of documents was presented to Mr. Roseman. They were lined up on a table, and he signed them without reading them. One of the documents was the personal guaranty bearing the forged signature of Ms. Roseman. Subsequently, the guaranty was signed and sealed by the bank's notary public who represented on the document that the Rosemans' signatures had been properly executed before her on 5 August 1980. Mr. Richardson, the executive vice president and branch manager of the bank, testified in his deposition that it was "a practice of Northwestern Bank for the notary there to be asked to notarize signatures of people who do not, in fact, appear before her."

The factoring arrangement went into effect and continued for more than a year. In October 1981, the bank contacted Mr. Roseman regarding certain accounts receivable, and Mr. Roseman, on behalf of Dentex, executed a promissory note to Northwestern Bank for $145,000 to cover the accounts. A substitute promissory note was executed for the same amount on 28 December 1981.

Dentex defaulted on the note, and the corporation went out of business in 1983. The bank filed this action, alleging that Dentex had defaulted on the note and that the Rosemans had guaranteed the debt. During discovery, the bank dismissed its claim against Ms. Roseman. On 6 February 1985, the bank's claim for partial summary judgment was granted, and the court ordered that the defendants would recover nothing on their counterclaims. The only issues remaining for trial--the amount of principal due on the note and the extent to which interest had been waived--were resolved by stipulation, and final judgment was entered.

Mr. Roseman argues that the trial court erred in granting summary judgment for the bank on its claim under the personal guaranty. Ms. Roseman asserts that the court improperly disposed of her counterclaim for fraud. And both argue that the court erred in entering summary judgment against them on their counterclaims for unfair and deceptive trade practices and wrongful repossession and sale of personal property. We agree that summary judgment was improper in this case.

II

Summary judgment is inappropriate when the pleadings, depositions, affidavits, admissions and other testimony or evidence reveal any genuine issue of material fact. "An issue is material if the facts alleged would constitute a legal defense, or would affect the result of the action, or if its resolution would prevent the party against whom it is resolved from prevailing in the action. The issue is denominated 'genuine' if it may be maintained by substantial evidence." Koontz v. City of Winston-Salem, 280 N.C. 513, 518, 186 S.E.2d 897, 901 (1972).

The bank's claim was based on the validity of the personal guaranty signed by Mr. Roseman. The bank asserts that Mr. Roseman had a duty to read the document and is bound by its terms absent proof of mistake, fraud, or oppression. See Mills v. Lynch, 259 N.C. 359, 130 S.E.2d 541 (1963); Harris v. Bingham, 246 N.C. 77, 97 S.E.2d 453 (1957). In order to defeat the bank's claim under the personal guaranty, Mr. Roseman asserted as a legal defense that his signature was obtained fraudulently. Therefore, Mr. Roseman was required to allege facts that, if believed, would prove each element of fraud.

While fraud has no all-embracing definition and is better left undefined lest crafty [individuals] find a way of committing fraud which avoids the definition, the following essential elements of actionable fraud are well established: (1) False representation or concealment of a material fact, (2) reasonably calculated to deceive, (3) made with intent to deceive, (4) which does in fact deceive, (5) resulting in damage to the injured party.

Ragsdale v. Kennedy, 286 N.C. 130, 138, 209 S.E.2d 494, 500 (1974) (citations omitted). There also must be reasonable reliance on the deceptive representation. Johnson v. Owens, 263 N.C. 754, 140 S.E.2d 311 (1965).

As an initial matter, we dispose of Mr. Roseman's argument that proof of fraud as to any matter embraced within the personal guaranty--for example, that Ms. Roseman's signature was a forgery or that the notarization was false--vitiates the entire guaranty. See Mills v. Dunk, 263 N.C. 742, 140 S.E.2d 358 (1965); Cowart v. Honeycutt, 257 N.C. 136, 125 S.E.2d 382 (1962). In the context of the case at bar, the applicability of this principle is limited. Proof of fraud in obtaining Ms. Roseman's signature vitiates the document as to her, but not as to Mr. Roseman. Neither the forgery nor the false notarization affected the substantive provisions of the guaranty as it related to Mr. Roseman. Nonetheless, a finding that Mr. Wiggs obtained an unauthorized signature and arranged for a false notarization would be relevant to demonstrate a plan of deception and fraudulent intent as to Mr. Roseman.

The bank argues that there is no evidence of a material misrepresentation or of reasonable reliance on the deception. In First-Citizens Bank and Trust Co. v. Akelaitis, 25 N.C.App. 522, 214 S.E.2d 281 (1975), this Court recognized that, even though a creditor and a guarantor are not in a fiduciary relationship, the obligation of good and fair dealing imposes a duty on the creditor to disclose material facts that the guarantor is unlikely to discover. This duty arises when the creditor knows or has grounds to believe that the guarantor is being misled or "induced to enter into the contract in ignorance of facts materially increasing the risks," and the creditor has the opportunity to inform the guarantor. Id. at 526, 214 S.E.2d at 284 (The Court quoted from Section 1249 in 10 Williston, Contracts (3d ed. 1967), which relates to contracts of suretyship, and applied that Section to contracts of guaranty.). In such a case, "non-disclosure would in effect amount to a contrary representation to the [guarantor]." Id. (quoting Harris and Harris Construction Co. v. Crain and Denbo, Inc., 256 N.C. 110, 123 S.E.2d 590 (1962) ). "Where there is a duty to speak, fraud can be practiced by silence as well as by a positive misrepresentation." Id. at 525, 214 S.E.2d at 284 (citation omitted).

We conclude that the evidence in this case would support a jury's finding that the failure to disclose that a personal guaranty was required and that one was included in the contract package, after Mr. Roseman specifically and unequivocally stated there would be no contract if he had to sign a personal guaranty, amounted to a representation that none was necessary. If Mr. Roseman's evidence were believed, Mr. Wiggs engaged in a course of conduct designed to induce Mr. Roseman to sign the guaranty: Mr. Wiggs obtained the forged signature of Ms. Roseman; he proceeded to close the deal with Mr. Roseman with the knowledge that Mr. Roseman would not knowingly sign a personal guaranty; Mr. Wiggs included the personal guaranty in a large package of documents that Mr. Roseman obviously thought he was signing as president of Dentex; and Mr. Wiggs arranged for a false notarization of the guaranty. Although the parties were not in a fiduciary relationship, see, e.g., Vail v. Vail, 233 N.C. 109, 63 S.E.2d 202 (1951), good and fair dealing required that Mr. Wiggs disclose to Mr. Roseman that he was signing a personal guaranty. Failure to disclose this fact amounted to a material misrepresentation by concealment.

We distinguish the case of a guarantor who, after knowingly and intentionally signing a guaranty, pleads mere ignorance of the contents or legal effect of a...