State Bank of Southern Utah v. Troy Hygro Systems, Inc.

Decision Date20 April 1995
Docket NumberNo. 930358-CA,930358-CA
PartiesSTATE BANK OF SOUTHERN UTAH, a Utah Banking Corporation, Plaintiff and Appellee, v. TROY HYGRO SYSTEMS, INC.; Michael R. Kehl; Gloria F. Kehl; Lenore F. Kehl; Keith Kehl; Karen Sue Kehl and John Does 1 through 10, Defendants and Appellants. TROY HYGRO SYSTEMS, INC.; Michael R. Kehl; Gloria F. Kehl; Lenore F. Kehl; Keith Kehl; Karen Sue Kehl, Counterclaimants and Appellants, v. STATE BANK OF SOUTHERN UTAH, a Utah Banking Corporation, Counterclaim Defendant and Appellee.
CourtUtah Court of Appeals

Charles C. Brown, Jeffrey B. Brown, and Budge W. Call, Salt Lake City, for appellants.

Thomas M. Higbee, Cedar City, for appellee.

Before REGNAL W. GARFF, 1 Senior Judge, and ORME and WILKINS, JJ.

OPINION

WILKINS, Judge:

We have determined that "[t]he facts and legal arguments are adequately presented in the briefs and record and the decisional process would not be significantly aided by oral argument." Utah R.App.P. 29(a)(3).

Troy Hygro Systems, Inc. and the Kehls (collectively "Hygro") appeal various grants of summary judgment in favor of State Bank of Southern Utah ("the bank"). The trial court granted the bank's motion for summary judgment against Hygro's counterclaims, and subsequently granted the bank's motion for summary judgment on its own complaint. We affirm.

BACKGROUND

Because we are reviewing a grant of summary judgment, we recite the facts in the light most favorable to Hygro, the non-moving party. See Higgins v. Salt Lake County, 855 P.2d 231, 233 (Utah 1993). Hygro owned and operated greenhouses in the New Castle area in southern Utah. Early in 1985, Hygro approached the bank in order to obtain a loan to finance construction of additional greenhouses on property leased by Hygro. Hygro originally intended to borrow $170,000, but when the lessor of the property requested that Hygro purchase the property as well, Hygro eventually sought to borrow $325,000.

The loan was submitted to the Small Business Administration of the United States Government (SBA) for approval. Before approval was received, Hygro submitted various pro-formas and construction schedules to the bank detailing its plans. Sometime during the negotiation process, the bank, through one of its officers, purportedly indicated that it would have the money disbursed to Hygro immediately upon SBA approval.

On September 3, 1985, the SBA issued its written authorization for the new loan. However, the bank was unable to make the loan at that time without surpassing its lending capacity. The loan was ultimately closed on October 7, 1985.

This delay in financing led to delays in construction and in the planting of Hygro's tomato crop, thereby putting Hygro in financial difficulty. To help remedy Hygro's cash flow problems, the bank loaned an additional $60,000 to Hygro on February 10, 1987, and made another loan to Hygro on November 7, 1988.

Hygro eventually defaulted on the loans, and the bank filed this action on December 13, 1990 to collect the unpaid balance of the loans. Hygro responded with its answer of June 7, 1991, setting up various defenses and counterclaims. The bank made a motion for partial summary judgment on Hygro's counterclaims. After a hearing, the trial court granted the motion, dismissing all of Hygro's claims but one, which later went to trial. 2

The bank then made a motion for partial summary judgment on its complaint. Hygro relied on several affirmative defenses raised in its unverified answer. These defenses were not supported by the affidavits submitted by Hygro. The trial court granted summary judgment on the bank's complaint. Hygro appeals.

ISSUES FOR REVIEW

Hygro contends that in reliance on various statutes of limitations, the trial court improperly granted summary judgment as to Hygro's counterclaims. Hygro also asserts that genuine issues of material fact remain with respect to its claims, precluding summary judgment. Finally, Hygro contends that the trial court erroneously dismissed Hygro's affirmative defenses in reliance on section 78-12-44 of the Utah Code.

STANDARD OF REVIEW

Summary judgment is appropriate only when there is no genuine issue of material fact and the moving party is entitled to judgment as a matter of law. Utah R.Civ.P. 56(c). Accordingly, whether a party is entitled to summary judgment is a question of law reviewed for correctness. Higgins v. Salt Lake County, 855 P.2d 231, 235 (Utah 1993). We will view the properly supported facts, including all inferences arising from those facts, in a light most favorable to Hygro in determining whether any issue of material fact exists and whether the bank is entitled to judgment as a matter of law. See Chapman v. Primary Children's Hosp., 784 P.2d 1181, 1182-83 (Utah 1989).

ANALYSIS
I. Hygro's Counterclaims
A. Breach of Contract

Hygro's first counterclaim is for breach of contract, the essence of which was the bank's alleged promise to fund the 1985 loan immediately upon SBA approval. This claim fails under the applicable statute of limitations. Even assuming the existence of the contract alleged by Hygro, such a contract was based on an oral agreement, and Hygro's claim is time-barred under the terms of Utah Code Ann. § 78-12-25 (1992).

Hygro claims that the bank's alleged breach was part of the overall loan agreement, memorialized in writing on October 7, 1985. Nevertheless, the alleged commitment to fund the loan immediately upon SBA approval predated the loan agreement of October 7 and was never reduced to writing. Indeed, if such a commitment existed, the bank breached this obligation when SBA approval was received on September 3, 1985, more than a month before any written contract existed, and when the loan funds were not immediately disbursed.

Because the bank's alleged obligation was at all times oral, was allegedly breached before any written agreement was in place, and was never mentioned in any of the subsequent written agreements, we conclude that the agreement allegedly breached did not sufficiently relate to or grow out of a written instrument to constitute "[a]n action upon any contract, obligation, or liability founded upon an instrument in writing." Id. § 78-12-23. Thus, even if a material fact issue existed with respect to the agreement, the trial court properly concluded that Hygro's counterclaim was barred by the four-year limitation period governing actions on oral agreements. See id. § 78-12-25.

B. Negligent Disbursal

Hygro also alleges that the bank was negligent in disbursing the loan funds with respect to the 1985 loan. Claims of negligence are governed by the four-year limitation period established in section 78-12-25(3) of the Utah Code. See Matheson v. Pearson, 619 P.2d 321, 323 (Utah 1980) (indicating that action for negligence is governed by Utah's residuary limitation period found in section 78-12-25). Because this action was commenced more than four years after the 1985 loan was disbursed, Hygro's counterclaim for negligent disbursal is time barred. See Doxey-Layton Co. v. Clark, 548 P.2d 902, 906 (Utah 1976) (holding that counterclaim arising out of transaction alleged in complaint and existing when complaint is filed, if not time barred at that time, will not be barred by subsequent running of statute of limitations); Moffit v. Barr, 837 P.2d 572, 573-74 (Utah App.1992).

C. Promissory Estoppel

Hygro's third counterclaim is for damages based on promissory estoppel. A claim for promissory estoppel also is governed by the four-year limitation period in section 78-12-25(3). Such a period began to run at the time the bank received SBA approval but failed to disburse the funds. Accordingly, Hygro's claim for promissory estoppel is likewise barred under the statute of limitations.

D. Economic Duress

Hygro also raises a claim of economic duress against the bank. Utah has adopted the legal standards of duress set forth in sections 174 through 176 of the Restatement (Second) of Contracts. Andreini v. Hultgren, 860 P.2d 916, 921 (Utah 1993). Section 175(1) establishes that a contract is voidable for duress "[i]f a party's manifestation of assent is induced by an improper threat by the other party that leaves the victim no reasonable alternative." Restatement (Second) of Contracts § 175(1) (1979). Section 176 sets forth the circumstances under which a threat is improper. Id. § 176.

Hygro has not provided any evidence that the bank made any threat, improper or otherwise, by reason of which Hygro felt compelled to complete each of the three loans. Hygro contends that the bank willfully breached its agreement to fund the 1985 loan immediately upon SBA approval, knowingly leaving Hygro with no alternative but to accept the loans on the bank's terms. Hygro has presented no evidence that any such breach was willful, or in any way designed to compel Hygro to agree to additional terms before completing the loan. Hygro may have felt economic pressure to take each of the loans, but our supreme court has recognized that " '[t]he mere fact that a contract is entered into under stress or pecuniary necessity is insufficient [to constitute duress].' " Horgan v. Industrial Design Corp., 657 P.2d 751, 753 (Utah 1982) (quoting Retail Clerks Health & Welfare Trust Funds v. Shopland Supermarket, Inc., 96 Wash.2d 939, 640 P.2d 1051, 1054 (1982)). Accordingly, we conclude that Hygro has failed, as a matter of law, to demonstrate the existence of a genuine dispute of material fact concerning its claim of economic duress. The claim was properly dismissed.

E. Other Claims

Hygro also brings counterclaims for control and self-dealing by the bank. Hygro claims that the bank had a special or fiduciary relationship with Hygro. Ordinarily, no fiduciary relationship exists between a bank and its customer. See First Nat'l Bank of Meeker v. Theos, 794 P.2d 1055, 1060 (Colo.App.1990). Nevertheless other courts have found various circumstances when such a fiduciary relationship may exist....

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