Southern Mortg. Co. v. O'DOM

• Decision Date: 11 August 1988
• Docket Number: Civ. A. No. E86-0121(L).
• Parties: SOUTHERN MORTGAGE COMPANY, Plaintiff, v. Richard W. O'DOM, Defendant.
• Court: U.S. District Court — Southern District of Mississippi

699 F. Supp. 1227

SOUTHERN MORTGAGE COMPANY, Plaintiff, v. Richard W. O'DOM, Defendant.

Civ. A. No. E86-0121(L).

United States District Court, S.D. Mississippi, E.D.

August 11, 1988.

Thomas L. Webb, Bourdeaux & Jones, Meridian, Miss., for plaintiff.

Kenneth A. Rutherford, Thomas, Price, Alston, Jones & Davis, Jackson, Miss., for defendant.

MEMORANDUM OPINION AND ORDER

TOM S. LEE, District Judge.

This cause is before the court on the motion of plaintiff Southern Mortgage Company (SMC) for summary judgment as to all issues in this cause pursuant to Rule 56 of the Federal Rules of Civil Procedure. Defendant Richard W. O'Dom timely responded to the motion and the court has considered the memoranda of authorities together with attachments submitted by the parties.

SMC instituted this action seeking recovery from defendant of $500,000, together with interest and attorney's fees, based on a promissory note executed by O'Dom. By its terms, the note became due 180 days following its execution on February 18, 1986. Upon O'Dom's failure to pay as provided in the note, SMC brought this action to collect the amount owed. O'Dom responded by denying any right of recovery in SMC and asserting affirmatively that the note is void as it was procured by fraud and that SMC is estopped from recovery by its actions. As the basis for these defenses, O'Dom admits that he indeed executed the promissory note to SMC, but claims that at the time he signed the note, it was his understanding, based on oral assurances from Paul Broadhead, owner and president of SMC, that the note "would not be called at its expiration date but could be renewed until O'Dom had obtained enough money to pay the note off. In the alternative, O'Dom could, at his option, not pay the note at all if his financial condition did not allow repayment." By way of counterclaim and set-off, O'Dom seeks recovery from SMC of one million dollars compensatory damages and five million dollars punitive damages, charging SMC with fraud, breach of its fiduciary duty to O'Dom, breach of contract, breach of the duty of good faith and fair dealing and abuse of process. On this motion for summary judgment, SMC seeks judgment in its favor on all claims raised by both its complaint and the counterclaim of O'Dom.¹ The primary question for consideration by the court on this motion is whether the representations by SMC, through its agent, Broadhead, if in fact made, amount to fraud which would enable O'Dom to escape the repayment obligation otherwise imposed by the note.

This court has previously held that the alleged representation by Broadhead was a promise as to a future event. A claim of fraud may not be based on a promise to perform an act in the future or on a representation as to future matters because there is no right to rely on such statements, unless a relation of trust and confidence exists between the parties or unless the speaker, at the time of making the representations, had the "present undisclosed intention not to fulfill his promises." Davidson v. State Farm Fire and Casualty Co., 641 F.Supp. 503, 512 (N.D. Miss.1986); see also Kidd v. Kidd, 210 Miss. 465, 49 So.2d 824 (1951). As this court recognized in its previous opinion, O'Dom did not allege that Broadhead, at the time of making the alleged representation, had an intention not to perform as promised. Even assuming that to be the case, however, the claim of fraud must fail for an even more fundamental reason.

Under Mississippi law, a claim of fraud requires proof, by clear and convincing evidence, of each of the following elements: "(1) a representation, (2) its falsity, (3) its materiality, (4) the speaker's knowledge of its falsity or ignorance of its truth, (5) his intent that it should be acted on by the hearer and in the manner reasonably contemplated, (6) the hearer's ignorance of its falsity, (7) his reliance on its truth, (8) his right to rely thereon, and (9) his consequent and proximate injury." Franklin v. Lovitt Equipment Co., Inc., 420 So.2d 1370, 1373 (Miss.1982). Most troubling in the case at bar is the reliance element, or the lack of reliance. The cases make it clear that not only must the party claiming fraud have relied on the allegedly false statement, but his reliance must have been reasonable and, more importantly for our purposes, his reliance must have been to his detriment.

Running deep in our law is the notion that a person must respond where his statements or conduct reasonably induce another to rely to his detriment.

Berkline Corporation v. Bank of Mississippi, 453 So.2d 699, 702 (Miss.1984) (emphasis supplied); see also First American National Bank of Iuka v. Mitchell, 359 So.2d 1376, 1379-80 (Miss.1978) (bank's liability for misrepresentation of its officers limited to acts and representations made by officer within scope of authority when they are proved to have been relied on to detriment of plaintiff).

Even if one could assume that O'Dom, in signing a note and accepting the $500,000, reasonably believed that he would never be required to repay the money, it nevertheless appears that the element of detriment, that is, reliance to O'Dom's detriment, is wholly lacking. In essence, O'Dom asserts that he relied on the assurances of Broadhead in signing the note and accepting the money. Had he known he would actually be required to repay the bank, he would not have borrowed the money from SMC but would have obtained financing elsewhere. He needed the money, yet claims he could have gotten it from another lending institution. In the court's view, O'Dom's acceptance of the $500,000 evidenced by the note can hardly be characterized as detrimental, given his assertion that he was in desperate need of the money. That SMC now wishes that he repay the loan in accordance with the terms of the note is likewise difficult to reconcile with the claim of detrimental reliance. There has been no showing by O'Dom that he could have obtained the money on more favorable terms than those offered by SMC in terms of time for repayment, interest rate, etc. Certainly he has made no claim that another lending institution would have simply given him money without requiring that he repay it. O'Dom's contentions strain the bounds of logic and those of the law. Accordingly, his claim for fraud must fail. For the same reason, O'Dom's claim that Southern Mortgage Company is estopped to seek recovery on the note based on Broadhead's assurances is without merit, since promissory estoppel, like fraud, requires proof of detrimental reliance. See PMZ Oil Co. v. Lucroy, 449 So.2d 201, 206 (Miss.1984) (estoppel requires change of position in reliance upon conduct of another and suffering of detriment caused by change of position). To establish the existence of promissory estoppel under Mississippi law, it is also essential that the representation relied upon must relate to a present intention or purpose of the party to be estopped, because a party cannot be precluded from changing his intention in the future. Jackson Rapid Delivery Service, Inc. v. Jones Truck Lines, Inc., 641 F.Supp. 81, 86 (S.D.Miss. 1986). Neither of these elements being present in this case, O'Dom's estoppel argument cannot excuse his obligations on the note.

In support of his charge that SMC breached a fiduciary duty, a duty to treat him fairly and in good faith, O'Dom has recounted a history of friendship and business dealings with Broadhead, SMC's owner. According to O'Dom, because of his relationship with Broadhead, based on a lifelong friendship and history of business associations, SMC, in the loan transaction, stood in a position of trust and confidence with O'Dom.

In Carter Equipment Company v. John Deere Industrial Equipment Company, 681 F.2d 386 (5th Cir.1982), the Fifth Circuit set out four factors which may provide evidence that a fiduciary relationship has arisen in a particular transaction: (1) whether the activity of the parties goes beyond their operating on their own behalf and the activity is for the benefit of both; (2) whether the parties have a common interest and profit from the activities of the other; (3) whether the parties repose trust and confidence in one another; and (4) whether one party has the power to control or dominate the other. Id. at 390, 391; see also Jackson Rapid Delivery Service, 641 F.Supp. at 84. O'Dom urges that in this loan transaction, both he and SMC stood to benefit; O'Dom was to obtain the money he needed and SMC was to be...