Pepperell Trust Co. v. Mountain Heir Financial Corp.
| Decision Date | 05 March 1998 |
| Docket Number | YOR-96-777 |
| Citation | 708 A.2d 651 |
| Parties | 36 UCC Rep.Serv.2d 947, 1998 ME 46 PEPPERELL TRUST COMPANY v. MOUNTAIN HEIR FINANCIAL CORP. |
| Court | Maine Supreme Court |
Robert P. Brown, Wells, for plaintiff.
James L. Audiffred, Saco, for defendant.
Before WATHEN, C.J., and ROBERTS, CLIFFORD, RUDMAN, DANA, LIPEZ and SAUFLEY, JJ.
¶1 Pepperell Trust Company appeals from the judgments entered in the Superior Court (York County, Fritzsche, J.) in which the court entered a summary judgment against Pepperell on its complaint for declaratory relief, entered judgment after trial against Pepperell on its breach of contract claim, and entered judgment for Mountain Heir Financial Corporation on its malicious prosecution counterclaim. We affirm the summary judgment as well as the judgment against Pepperell on its contract claim. Because we now hold that a claim of malicious prosecution, here more properly labeled wrongful use of civil proceedings, may not be brought as a counterclaim to the offending proceeding, we vacate the court's judgment in favor of Mountain Heir on its counterclaim.
¶2 On June 12, 1988, Pepperell loaned money to Dana and Elmira Packard to finance the purchase of restaurant equipment. To perfect its security interest in the Packard's equipment, Pepperell recorded a financing statement in the Secretary of State's Office on June 14, 1988. On March 6, 1991, Mountain Heir loaned money to the Packards, similarly filing a financing statement. At the time of its loan, Mountain Heir knew that Pepperell had a superior security interest in the restaurant equipment. Pepperell, however, allowed its original financing statement to lapse by failing to file a continuation statement. 1 It later filed a new financing statement on August 15, 1994.
¶3 When the Packards defaulted on their financial obligations during the summer of 1994, Mountain Heir scheduled a public auction of the restaurant equipment. Prior to the initiation of the auction on September 23, 1994, Pepperell filed a complaint seeking a declaratory judgment that its security interest in the equipment was superior to that of Mountain Heir. Simultaneously, Pepperell filed a motion for a temporary restraining order and a preliminary injunction. The court (Cole, C.J.) ordered that the proceeds of the auction be held in trust until the issue of the competing security interests could be determined. 2
¶4 At the auction, Pepperell's attorney attempted to enter into settlement discussions with the president of Mountain Heir, proposing to assign its security interest to Mountain Heir in exchange for $2000. Immediately following these discussions, Pepperell entered a bid on the restaurant equipment in order to preserve its claim of a superior security interest. Pepperell did not follow up on its alleged settlement with a confirmation letter, a request for money, or a tender of the allegedly assigned security interest.
¶5 The court (Fritzsche, J.) granted summary judgment against Pepperell on its claim seeking a declaratory judgment as to its allegedly superior security interest. In granting the summary judgment, the court held that "as [Pepperell's] security interest had become unperfected there was no merit to the filing of the initial complaint and it should never have been brought consistent with the requirements of Rule 11, M.R.Civ.P." The court sanctioned Pepperell $500 for bringing this meritless claim. At the same time, the court allowed Pepperell to amend its complaint to state a contract claim based on the alleged settlement on the day of the auction. In its answer to the new contract claim, Mountain Heir asserted three counterclaims alleging abuse of process, interference with an advantageous business opportunity, and malicious prosecution. 3
¶6 Following a bench trial, the court (Fritzsche, J.) entered judgment against Pepperell on its breach of contract claim, against Mountain Heir on its abuse of process counterclaim, and for Mountain Heir on its malicious prosecution counterclaim, awarding Mountain Heir $7500 in attorney's fees and $2500 in punitive damages. 4 This appeal followed.
¶7 Pepperell first challenges the entry of a summary judgment. A party is entitled to summary judgment where there is no genuine issue of material fact and the party on the undisputed facts is entitled to judgment as a matter of law. Chadwick-BaRoss, Inc. v. T. Buck Constr., Inc., 627 A.2d 532, 534 (Me.1993); M.R.Civ.P. 56(c).
¶8 The material facts concerning the competing security interests are undisputed. On those facts, the trial court correctly found Mountain Heir to be entitled to a judgment as a matter of law pursuant to 11 M.R.S.A. § 9-403(2) (1995) which provides, in pertinent part, that:
Except as provided in subsection (6) 5, a filed financing statement is effective for a period of 5 years from the date of filing. The effectiveness of a filed financing statement lapses on the expiration of the 5-year period unless a continuation statement is filed prior to the lapse ... Upon lapse, the security interest becomes unperfected, unless it is perfected without filing. If the security interest becomes unperfected upon lapse, it is deemed to have been unperfected as against a person who became a purchaser or lien creditor before lapse.
The commentary following this section notes that U.C.C. § 9-403 cmt. (1972). This is true even where the originally junior creditor had actual knowledge of the previously superior interest. State Savings Bank v. Onawa State Bank, 368 N.W.2d 161, 166 (Iowa 1985); General Electric Credit Corp. v. Isaacs, 90 Wash.2d 234, 581 P.2d 1032, 1035-37 (1978). Thus, Pepperell lost its priority as against Mountain Heir when its original filing expired without the statutorily required continuation statement.
¶9 Pepperell argues, however, that because Mountain Heir had actual knowledge of Pepperell's interest, Pepperell is entitled to a continuing priority pursuant to 11 M.R.S.A. § 9-401(2) (1995). Its reliance on § 9-401(2) is misplaced. That section provides, in pertinent part, that:
A filing which is made in good faith in an improper place or not in all of the places required by this section is nevertheless ... effective with regard to collateral covered by the financing statement against any person who has knowledge of the contents of such financing statement.
Pepperell did not file in an improper place or in fewer than all required places. Rather, it failed altogether to file a continuation statement, erroneously or otherwise. Section 9-401(2) is therefore entirely inapplicable to the establishment of priorities in this case.
¶10 Pepperell next asserts that the court erred in imposing sanctions for the filing of its complaint for declaratory judgment. All pleadings must be signed as certification "that to the best of the signer's knowledge, information, and belief there is good ground to support it." M.R.Civ.P. 11. Where no such good ground exists, Rule 11 allows the court to impose an appropriate sanction. Id. A trial court's imposition of sanctions pursuant to Rule 11 is reviewed for abuse of discretion. June Roberts Agency, Inc. v. Venture Properties, Inc., 676 A.2d 46, 50 (Me.1996). The trial court here considered Pepperell's original claim in light of the clear mandate of § 9-403(2) and the obvious inapplicability of § 9-401(2) and concluded that Pepperell had no good ground to support its claim of a superior security interest. On that basis, the court correctly determined that sanctions were appropriate and acted well within its discretion in imposing a sanction of $500 upon Pepperell.
¶11 Pepperell next challenges the entry of judgment against it on its claim that settlement discussions on the date of the auction culminated in the formation of a contract. Whether a contract exists is a question of fact. 6 June Roberts Agency, Inc., 676 A.2d at 48. We review such questions for clear error, and will not reverse a trial court's factual determination if there is competent evidence in the record to support it. Calaska Partners, Ltd. v. Corson, 672 A.2d 1099, 1104 (Me.1996).
To establish a legally binding agreement between parties, the mutual assent to be bound by all of its material terms must be reflected and manifested either expressly or impliedly in the contract and the contract must be sufficiently definite to enable a court to determine its exact meaning and fix any legal liability of the parties.
June Roberts Agency, Inc., 676 A.2d at 48 (quoting Smile, Inc. v. Moosehead Sanitary Dist., 649 A.2d 1103, 1105 (Me.1994)).
¶12 There is ample competent evidence in the record to support the court's finding that there was no mutual assent to be bound and thus no legally binding agreement between the parties. The court heard evidence that Pepperell's attorney approached Mountain Heir's president without seeking the permission of Mountain Heir's attorney, that Pepperell bid on the restaurant equipment moments after the alleged agreement was finalized, and that Pepperell failed to take any action to document the alleged agreement with a confirmation letter, a request for money, or a tender of the allegedly assigned security interest. The court committed no error in finding that no contract existed between the parties.
¶13 Finally, Pepperell argues that the court erred in entering judgment against it on Mountain Heir's malicious prosecution counterclaim because Pepperell had probable cause to bring its breach of contract claim, and because the counterclaim was premature where there had not been a termination of...
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