State v. First Nat. Bank of Ketchikan, 5371

• Decision Date: 05 June 1981
• Docket Number: No. 5371,5371
• Citation: 629 P.2d 78
• Parties: STATE of Alaska, Appellant, v. FIRST NATIONAL BANK OF KETCHIKAN, Appellee.
• Court: Alaska Supreme Court

Page 78

629 P.2d 78

STATE of Alaska, Appellant, v. FIRST NATIONAL BANK OF KETCHIKAN, Appellee.

No. 5371.

Supreme Court of Alaska.

June 5, 1981.

William G. Mellow, Asst. Atty. Gen. and Wilson L. Condon, Atty. Gen., Juneau, for appellant.

Mary E. Guss and Clifford H. Smith, Ziegler, Cloudy, Smith, King & Brown, Ketchikan, for appellee.

Before RABINOWITZ, C. J., CONNOR, BURKE and MATTHEWS, JJ., and BLAIR, Superior Court Judge.

OPINION

RABINOWITZ, Chief Justice.

The State of Alaska, through the Department of Commerce and Economic Development, provides low interest loans to small businesses that meet certain specified eligibility requirements. AS 45.95.010-.080. In the spring of 1978 Carl E. Jones, owner of a logging business known as Jones & Sons, Inc., applied for a loan under this program. On November 22, 1978, the State approved a loan in the amount of $150,000 to Jones, subject to three conditions: 1) visual inspection by a State official of the equipment that was to serve as collateral, 2) insurance coverage on the equipment, and 3) execution of an assignment to the State of Jones's interest in contracts he had entered into with M & S Forest Products, Inc. The third of these conditions was not satisfied ¹ and, consequently, the loan was not closed on December 6, 1978, as had been intended.

On November 27, 1978, Jones applied to the First National Bank of Ketchikan (hereinafter "Bank") for a short-term loan of $30,000, which he needed to make timely payment of employees' wages and, apparently, to exercise an option on a truck that was to be used in his business. This loan was to be repaid out of the $150,000 loan from the State immediately upon disbursal of those funds. ² The Bank approved the application later on the same day and immediately paid over $30,000 to Jones.

Jones appeared at the Bank's place of business on December 6, 1978, shortly after it opened for the day and announced that the State was not prepared to close the loan at that time. That afternoon Jones flew from Ketchikan to Seattle, where he placed a telephone call to his wife to explain that he was attending a business meeting there. Although the Bank has been informed that Jones has initiated bankruptcy proceedings and that he has been seen in Arkansas, it appears that he has not disclosed his whereabouts to either his family or his business associates since his sudden departure on December 6. On learning of Jones's absence, the Bank demanded that the State reimburse it for the loss it incurred in extending the short-term loan to Jones. The State refused to meet that demand and this lawsuit followed.

At trial, the circumstances surrounding the Bank's approval of Jones's loan application were the subject of some dispute. This dispute centered on the content of two telephone calls placed by employees of the Bank to David Massey, a loan examiner for the Department of Commerce and Economic Development, on November 27, 1978.

Ronald Taylor, a loan officer for the Bank, testified that he had done the preliminary screening of Jones's application and that, in performing that function, he had called Massey to verify Jones's claim that his application for a small business loan had been approved by the State. According to Taylor, Massey assured him that the $150,000 loan was ready to be closed and that the State's representative would "be down on the 6th of December to sign the papers." Taylor testified further that he had explained to Massey that the Bank was willing to loan $30,000 to Jones on a short-term basis only, and that it expected repayment to be made directly by the State. According to Taylor's testimony, Massey responded that he "(didn't) see any problem" and that "everything (was) set to go." After this conversation had taken place, Taylor passed the application along to his supervisor, loan administrator Bruce Penoske, with the recommendation that it be approved. Penoske then called Massey himself to double-check the accuracy of Taylor's information. Penoske's testimony was that this conversation was brief and that he "just basically reaffirmed everything that Ron (Taylor) told me."

Massey's recollection of these conversations differed significantly from that of the Bank's employees. He agreed that he had told Taylor that the State had approved a loan of $150,000 to Jones. But he went on to testify that in response to Taylor's inquiry as to the closing date of the loan, he had said that December 6 would be "the first time we possibly can (close the loan)" and that "it's very doubtful we can get it done." Massey claimed at trial that he had told Taylor that Jones had yet to satisfy the loan conditions and that, for that reason, the State had not yet begun to prepare the appropriate documents. He also testified that although he "assumed there was (a) ... pretty good chance they would do it," he was not specifically informed that the Bank intended to loan Jones $30,000. Concerning his conversation with Penoske, Massey claimed to have repeated that "we would in fact have a lot of trouble getting everything together to close on (December 6), we might be able to do the documents, but the money would be almost impossible by then."

The Bank initially sought recovery on the basis of alternative theories of promissory estoppel and negligence. At trial, however, it abandoned the negligence claim and based its case solely on the promissory estoppel theory. Its position was that in approving the short-term loan, Taylor and Penoske reasonably relied on Massey's assurances that the small business loan would be closed on December 6 and that the $30,000 loan extended by the Bank would be immediately repaid when the State loan funds were disbursed. Damages in the amount of $30,108, which included the cost of an insurance policy on Jones's life during the period of the loan in addition to the amount loaned, were claimed.

The State moved for summary judgment before trial and for a directed verdict after the Bank had presented its case. When the jury returned a verdict awarding the Bank the full $30,108 it had sought, the State moved for a new trial and, in the alternative, remittitur. This appeal raises essentially the same issues as did the State's various motions, all of which were denied by the superior court.

The State's primary attack on the superior court's judgment is based on that court's treatment of the promissory estoppel doctrine. Both parties agree that Restatement of Contracts § 90 (1932) is determinative of this issue. That section reads:

PROMISE REASONABLY INDUCING DEFINITE AND SUBSTANTIAL ACTION.

A promise which the promisor should reasonably expect to induce action or forbearance of a definite and substantial character on the part of the promisee and which does induce such action or forbearance is binding if injustice can be avoided only by enforcement of the promise. ³

We have adopted this formulation of the promissory estoppel doctrine, Slaymaker v. Peterkin, 518 P.2d 763, 766 (Alask...