Uduak J. Ubom v. SunTrust Bank (Ct. of Special Appeals)

Filed: April 4, 2011
Opinion by Judge Kathryn Grill Graeff

Held: The clear language of an Agreement for a Line of Credit, as a whole, shows that the signature of a managing partner as guarantor was in a personal capacity, resulting in personal liability when the LLC defaulted on its obligations.

Facts: A professional limited liability company that provides legal services obtained a line of credit from a bank. The Managing Partner, the managing attorney and sole owner of the LLC, signed his name twice on the Agreement, once on the signature line for “Applicant” and once on the signature line for “Guarantor.” After both signatures, The Managing Partner included his title of “Managing Partner.” The Managing Partner also completed the personal information listed under the section title “Guarantor Information.” The Bank approved the line of credit.

Almost three years later, the bank filed a Complaint against the LLC and The Managing Partner asserting that the LLC had failed to make scheduled monthly payments due on the account, and requesting that the court grant judgment in its favor against the LLC and The Managing Partner, jointly and severally. The Managing Partner acknowledged that the LLC had defaulted on the Agreement, but argued that he signed the Agreement in his official capacity as Managing Partner, not as a personal guarantor of the loan. The Managing Partner further asserted that the bank representative told him that although he was signing as guarantor on the LLC’s Line of Credit, he could avoid personal liability by not including his name on the page of the Agreement that asked for legal name of guarantor, and by writing his title of “Managing Partner” after his signature on the final page of the Agreement.

The Circuit court granted summary judgment in favor of the bank and against the LLC and The Managing Partner. The Managing Partner appealed.

Analysis: The legal question before the court was whether The Managing Partner signed his name in his capacity as an officer of the corporation or whether it was a personal guaranty. The Court noted that The Managing Partner in arguing that his signature did not create a personal guaranty cited no case law in support of this assertion. However, the Court exercised its discretion to consider The Managing Partner’s claim. The Managing Partner argued that the court should have allowed him to introduce evidence of the statements allegedly made to him by SunTrust’s representative.

Maryland courts adhere to a principle of objective interpretation of contracts, and only when the language of the contract is ambiguous will the court look to extraneous sources for the contract’s meaning. The Court compared the contract in this case to a similar case, L & H Enterprises, Inc. v. Allied Building Prod. Corp, 88 Md. App. 642, where there was a question of whether a guaranty of a corporation’s obligation, signed by a corporate officer, was signed in the officer’s representative or individual capacity. Although the Court in that instance found there was no personal liability because there was intent to only bind the corporation and only one place the corporation’s representatives signed, the Court distinguished that case from the case at hand. Here, there were two signature lines, one for “Applicant,” the law firm, and one for “Guarantor.” The Managing Partner signed his name on both signature lines, including his title after his signature. The court asserted that a corporate officer is not relieved of personal liability by the mere addition of his corporate title to a signature line.

The Managing Partner also completed the personal information under the “Guarantor Information” section of the form. If The Managing Partner had only signed the guaranty in a representative capacity, this would render the guaranty inconsequential; it would add nothing to SunTrust’s security to have the law firm, through its Managing Partner, guaranty an obligation to which the law firm was already bound. The language of the Agreement specifically indentifies the applicant, the LLC, as the entity primarily responsible for the line of credit, and the individual signing as guarantor, as jointly liable for the obligation of the LLC.

Since the language, which is clear and unambiguous, of the Agreement as a whole shows an intent to fix personal liability, parol evidence is inadmissible to contradict the clear terms of the Agreement.

The Court held that the circuit court properly granted bank’s motion for summary judgment against the LLC and the Managing Partner.

The full opinion is available in pdf.

Pease v. Wachovia SBA Lending, Inc. (Ct. of Appeals)

Filed: October 21, 2010
Opinion by Judge J. Harrell

Held: In vacating the Circuit Court’s decision, the Court of Appeals held that the Maryland Credit Agreement Act (Courts & Judicial Proceedings 5-408(b)) does not bar the Circuit Court from considering negligence, fraud and breach of a fiduciary duty so long as the claims are not attempting to enforce either an oral credit agreement or oral modification of an existing loan agreement.

Facts: The Appellants sold a plumbing business in Virginia, relocated to Maryland, purchased a home and entered the market to purchase another plumbing business. After identifying a potential target, the Appellants elected to finance the acquisition using a SBA loan provided by the Appellee. With the goal of protecting their house from any possible foreclosure arising from the commercial loan, the Appellants also created two legal entities, one to own their house and the other to own their business.

Upon alleged advice from Appellee’s agent, the Appellants also reduced the equity in their house to an amount less than twenty-percent by encumbering their home with a home equity line of credit with the Appellee. The Appellants also learned on or around closing that the target business had weaker financials than originally contended, and alleged that the Appellee withheld certain negative financial information from them until after settlement.

Settlement of the purchase took place in August 2005, and the Appellants signed the loan agreement, including a confessed judgment clause and a guarantee secured by their house. In November of 2007, Appellants defaulted on the commercial loan, and Appellee accelerated the loan and instituted proceedings. The Circuit Court for Baltimore City entered and indexed confessed judgments against both of the Appellants’ business entities in January of 2008.

The Appellants filed a motion to open, modify, or vacate the confessed judgments in April of 2008, asserting allegations of negligence, fraud, and breach of fiduciary duty. Appellants asserted that Appellee and its agent verbally misrepresented that this “artificial loan” would safeguard their home from foreclosure if they defaulted under the SBA loan, and that these statements were made to induce them into executing the SBA loan. Appellee argued Appellants’ defenses were barred by the Maryland Credit Agreement Act.

At the hearing, the Appellants argued that if the confessed judgment were vacated, they would seek to void the SBA loan and pursue the tort claims using the same facts. The hearing judge denied the Appellants’ motion on the basis that the Maryland Credit Agreement Statute barred their claims. Appellants appealed to the Court of Special Appeals. The Court of Appeals granted certiorari before the intermediate appellate court could decide the appeal.

Analysis: The Court after reviewing that Legislative History held that the Maryland Credit Agreement Act is intended to act as a statute of frauds for loan agreements, and accordingly, the Act would bar any of the Appellants’ counterclaims attempting to enforce either an oral credit agreement or a verbal modification of an existing loan agreement.

Applying the Courts holding to the Appellants’ counterclaims of negligence, fraud, and breach of fiduciary duty, the Court held that such claims were not attempting to enforce a verbal agreement to borrow or to modify an existing agreement, but did constitute an attempt to obtain a set-off against any recovery by the Appellee.

Applying the Courts holding to the Appellants’ attempt to void the loan agreements based on the same facts used in the tort claims, the Court found that this maneuver is the type that the Maryland Credit Agreement Act was intended to prevent. The Court found that the parol evidence in the current case, while not an attempt to enforce an oral credit agreement, was an attempt to enforce a verbal modification to an existing credit agreement by not enforcing the guaranty.

The Court of Appeals vacated the judgment of the Circuit Court and remanded to the court for consideration not inconsistent with the Court’s decision.

The full opinion is available in pdf.

Thomas v. Capital Medical Management Associates, LLC (Ct. of Special Appeals)

Date: December 7, 2009
Opinion by Judge Alexander Wright, Jr.

Held:

Because the defendants, a doctor and a medical practice, failed to raise negative averments in their answer concerning their capacity to be sued, they were precluded from disputing their status as parties to the contract. Further, because terms in the agreement were found to be ambiguous, parol evidence was admissible to prove that the defendants had additional duties to facilitate the plaintiff billing company's collection efforts. The plaintiff was entitled to recover lost profit for work yet to be performed because it was able to prove the losses with reasonable certainty. Finally, because the indemnification clause in the agreement did not expressly provide for recovery of attorney fees in a first-party enforcement claim, the plaintiff was precluded from recovering attorney fees and costs.

Facts:

The defendant doctor and medical practice retained the plaintiff billing company to process its bills. The billing company terminated the contract after 16 months and sued, alleging that the defendants failed to provide the billing company with timely information, failed to compensate the billing company, and failed to take steps necessary to ensure that the bills processed by the billing company would be paid.

The trial court ruled in favor of the billing company and awarded it contract damages, including lost profit for work not yet performed. The trial court also awarded attorneys' fees and costs.

The defendants appealed, arguing four issues: (1) The defendants were not proper parties to the lawsuit; (2) The defendants had no contractual duty to provide the information and assistance at issue; (3) The plaintiff was not entitled to damages for work yet to be performed; and (4) The plaintiff was not entitled to attorneys' fees pursuant to the contract's indemnification clause.

Analysis:

(1) The defendants were parties to the agreement

The defendants argued that neither was actually a party to the contract. The Court rejected the argument. The Court noted that the defendants failed to raise negative averments concerning their capacity in the answer as required by Maryland Rule 2-323(f). Instead, the defendants admitted that there was an agreement between the parties and averred that it spoke for itself. Accordingly, the Court held that a written contract was properly executed between the parties and the defendants were bound by it.

(2) Parol evidence established that the defendants had duties to facilitate the plaintiff's billing work

The trial court accepted the plaintiff's theory that the defendants had a duty to provide demographic information and to perform certain credentialing so that the plaintiff could process the defendants' bills. On appeal, the defendants argued that there was no such duty written into the contract. The Court found the terms of the contract ambiguous. Reviewing the parol evidence, the Court concluded that the trial court properly held that the defendants had such a duty.

3. The plaintiff was properly awarded damages for lost profits

The defendants argued that the award of damages for lost profit on future work was entirely speculative. The Court stated that a claimant may recover for lost profit if the loss is reasonably foreseeable and can be proven with reasonable certainty. Damages can be proven by reference to some fairly definite standard, such as market value, established experience, or direct inference from known circumstances.

At trial, the plaintiff proved its lost profit by means of testimony from its billing manager. She had experience in medical billing and was acquainted with the plaintiff's transactions. After considering the records of prior collections, she calculated an estimate of the lost expected profit on the work yet to be performed. The Court approved of the method and affirmed the award.

4. The plaintiff was not entitled to recover for attorneys' fees

An indemnification clause in the contract was the only clause that provided for recovery of attorneys' fees. The Court noted that a party may recover attorneys' fees pursuant to contract only if the contract expressly provides for it. Here, the indemnification clause did not expressly provide for attorney's fees for enforcement in a first-party breach of contract action. Accordingly, the Court held that the plaintiff was not entitled to recover its fees from the defendants.

The full opinion is available in PDF.