Ouachita Nat. Bank in Monroe v. Gulf States Land & Development, Inc.

• Decision Date: 08 May 1991
• Docket Number: No. 22408-CA,22408-CA
• Citation: 579 So.2d 1115
• Parties: OUACHITA NATIONAL BANK IN MONROE, Appellee, v. GULF STATES LAND & DEVELOPMENT, INC., et al., Appellants. 579 So.2d 1115
• Court: Court of Appeal of Louisiana — District of US

Page 1115

579 So.2d 1115

OUACHITA NATIONAL BANK IN MONROE, Appellee, v. GULF STATES LAND & DEVELOPMENT, INC., et al., Appellants.

No. 22408-CA.

579 So.2d 1115

Court of Appeal of Louisiana Second Circuit.

May 8, 1991.

Rehearing Denied June 13, 1991.

Hudson, Potts, Bernstein by James A. Rountree and William T. NcNew, Monroe, for plaintiff-appellee, Ouachita Nat. Bank.

Winstead, Sechrest & Minick, Houston, Tex., by W. Mike Baggett, Dallas, Tex., and Jeff Joyce, Houston, Tex., Appeal Counsel.

Theus, Grisham, Davis & Leigh by J. Michael Hart, Monroe, for defendants-appellants, Gulf States Land & Development, Inc.

Before MARVIN, NORRIS and VICTORY, JJ.

NORRIS, Judge.

The plaintiff, Ouachita National Bank in Monroe ("ONB"), now known as Premier Bank, N.A., sued the defendants on 41 promissory notes made in furtherance of a real estate project in Monroe. The defendants admitted signing the notes but advanced several defenses, including a claim that ONB breached an overall agreement consisting of both the notes and a "commitment letter." Related litigation arising from the same transaction was consolidated with the instant suit in the trial court. The plaintiff moved for partial summary judgment, conceding that the agreement created a genuine issue of material fact as to the rate of interest on certain of the notes. The trial court denied the motion, holding that the agreement created a genuine issue of material fact as to the maturity date of certain of the notes. Later, the plaintiff filed a virtually identical motion for partial summary judgment, which the trial court granted. The defendants now appeal. For the reasons expressed, we reverse and remand.

Factual synopsis

The following facts are based on the voluminous affidavits, depositions and answers to interrogatories filed in support of and opposition to the motion for summary judgment.

The debt and mortgage arose from an agreement for ONB to finance the sale and development, and for Gulf States to develop, a tract of land to be called North Pointe Subdivision on U.S. Hwy. 165 north of Monroe. The defendants herein, Stanley Palowsky Jr., Dr. John Smiarowski, Larry James and Walter Meredith (plus one other purchaser, Prentiss Seymour, who is not involved in the suit) individually bought the tract for $800,000 and later incorporated as Gulf States Land and Development, Inc. At the time of the sale the tract was already mortgaged to ONB for $1.3 million; thus ONB was involved in the sale. One of the previous owners was Dr. Smiarowski; both he and Palowsky had prior business dealings with ONB.

In August 1986 ONB's discount committee approved a line of credit of $1.6 million to Dr. Smiarowski and the other defendants. Two months later, ONB's executive vice president, A. Whitfield "Whitty" Hood, wrote a commitment letter to Palowsky, confirming an agreement to lend over $2.8 million for the project. The letter stated:

The Ouachita National Bank

in Monroe

Monroe, Louisiana 71210

October 13, 1986

Stanley Palowsky, Et Al.

Monroe, La. 71201

Dear Stanley,

This letter shall confirm our agreement as the Ouachita National Bank has agreed to lend an amount not to exceed $2,868,000.00 for the purpose of purchasing and developing the property located on Highway 165 North, currently known as J & S Pecan Farms. This commitment shall run for thirty months from the above date and shall be reduced by an amount of money equal to draws made against this commitment.

This loan shall be secured by a 1st Real Estate Mortgage covering approximately 88 acres of land being the property purchased and shall be personally guaranteed in the amount of $450,000.00 each by Mr. Stanley Palowsky, Dr. John Smiarowski, Mr. Prentiss Seymour, Mr. Walter Meredith and Mr. Larry James.

Funding for the thirty month period commencing with the above date shall be at 9.25 percent interest per annum. Upon completion of the project the amount of the debt shall be based upon the sale of lots involved in the mortgaged property and shall be fixed at a mutually agreed upon price.

Very truly yours,

s/A. Whitfield Hood, Jr.

Executive Vice President

ONB has contended throughout this litigation that it neither authorized nor knew of this letter until March 1988. Nevertheless, Gulf States made a first draw of $800,000 against the commitment on October 13, 1986; this was represented by four notes. The next notes, payable on demand, were executed in March 1987; thenceforth the defendants made fairly regular draws through February 1988, always signing notes for the amount of the draw. Most of the notes were due 182 days from date; nine of them recited interest rates higher than the 9.25% stated in the commitment letter.

ONB concedes that in August or September 1987, Hood advised ONB's president R.L. Vanderpool III that he had intended to present an agreement to loan a total of $2.4 million to the discount committee, $800,000 for purchase money and $1.6 million for development. According to ONB, by March 1988 Gulf States had almost drawn $2.4 million, which ONB then perceived as the extent of its commitment.

According to Gulf States, the relationship between it and ONB had by then deteriorated significantly. Around March 13 ONB's special assets officer, Mr. Aron, called some of the defendants to say that further funds under the commitment would not be forthcoming. Palowsky disagreed with Aron and urged him to review his documentation. Palowsky avers by affidavit that the withholding of funds effectively stopped work on the subdivision.

Gulf States and the defendants herein (except Meredith) filed suit against ONB on March 21 (No. 88-978), alleging that ONB had "deliberately ignored" its agreement and engaged in conduct "totally lacking in good faith and fair dealing" with Gulf States. Meanwhile, Mr. Aron was reviewing the loan file and on March 18 he "discovered" the commitment letter of October 13, 1986. The discount committee met on Sunday, March 20, 1988 and voted to ratify the commitment letter; on March 22, one day after suit No. 88-978 was filed, Vanderpool advised Gulf States that ONB would honor the commitment and continue to advance funds under it.

According to ONB, it ultimately loaned Gulf States over $2.7 million, or 94% of its commitment, and it paid several overdrafts on Gulf States' account. ONB claimed the loan proceeds were being misapplied, as the subdivision was only about one-third complete and overdraft checks were being written to Gulf States' lawyers. According to ONB, after March 21, 1988 Gulf States discontinued interest payments, failed to renew promissory notes and refused to furnish current financial statements. ONB filed the instant suit (No. 88-3110) on August 30, 1988 to collect the 41 notes and to recognize the mortgage on the subdivision property.

Gulf States did not deny that it executed the notes and made no payments after March 22, 1988. It asserted, however, that ONB breached its agreement in various ways, such as by charging excess interest on notes, failing to fund the project as they had agreed, and placing "more onerous requirements" on the borrowing of funds than were ever agreed to. Gulf States contended that ONB's decision to stop funding not only prevented completion of the subdivision but blocked the sale of lots from which the borrowed money was to be repaid.

Of the notes sued upon, three (totalling $60,000) were executed after March 22, 1988. Mr. Aron's deposition avers that ONB also loaned Gulf States $180,000 to cover its overdrafts, but does not specify how much of this loan came after March 22.

ONB subsequently filed another suit against the same defendants (No. 88-4484) for declaratory judgment that Gulf States had breached its obligations under the agreement and that ONB should be excused from further honoring it. Suits Nos. 88-978 and 88-4484 were later consolidated with the instant suit but the motion for summary judgment at issue here applied to the suit on the notes, No. 88-3110. Motions for summary judgment

ONB filed its first motion for partial summary judgment on November 14, 1988. It asserted that the defendants had advanced only general denials to ONB's allegations but stated that the "interest rate set forth on the various promissory notes signed by the defendants occasionally exceeded 9.25% per annum, which was a rate established in a commitment letter dated October 13, 1986." ONB therefore remitted all interest over 9.25% but asserted there were no material facts in dispute as to the principal and 9.25% interest on the notes. In support, ONB filed Mr. Vanderpool's affidavit averring that 38 of the notes were past due on their face and the other three were in default because the defendants failed to furnish current financial statements when requested. ONB also attached a copy of Mr. Vanderpool's demand letter of November 12, 1987 to Palowsky.

The defendants opposed the motion, urging genuine issues of material fact as to, inter alia, the interest rate, the alleged breach of the agreement by ONB, and whether the notes were "presently due" under the terms of the commitment letter. In support they filed a copy of the commitment letter, copies of various instruments, and affidavits and depositions. They argued that the notes could not be presently due because the 30 month commitment period had not yet expired and, at any rate, the letter contemplated that ONB and the borrowers "had agreed to enter into a method of repayment of the indebtedness from lot sales," which ONB had not honored. R.p. 313.

ONB obtained leave of court to file supplemental affidavits and documents in support of the motion; the defendants responded with several sets of additional filings in opposition. During this time discovery proceeded, as did litigation of issues not essential to this opinion. See, e.g., Ouachita Nat'l Bank in Monroe v. Palowsky, 554 So.2d 108 (La.App. 2d Cir.1989).

The first motion for partial summary judgment was submitted on the...