Title: LEE v. LPP MORTGAGE LTD.

State: wyoming

Issuer: Wyoming Supreme Court

Document:

LEE v. LPP MORTGAGE LTD.2003 WY 9274 P.3d 152Case Number: 02-25Decided: 08/12/2003
April Term, A.D. 2003

 
 

 

JEANNE K. 
LEE,

 

Appellant(Defendant) 
,

 

v.

 

LPP MORTGAGE 
LTD.,

 

Appellee(Plaintiff) 
.

 

 

 

The 
Honorable Nancy J. Guthrie, Judge

 

Representing 
Appellant:

John 
I. Henley of Vlastos, Henley & Drell, P.C., Casper, WY.  Argument by Mr. 
Henley.

 

Representing 
Appellee:

Dale 
W. Cottam and Kathleen C. Yarger of Hirst & Applegate, P.C., Cheyenne, 
WY.  Argument by Mr. 
Cottam.

 

Before HILL, C.J., and GOLDEN, LEHMAN, KITE, and VOIGT, 
JJ.

 

 

LEHMAN, Justice.

 

[¶1]            
Jeanne K. Lee (Lee) appeals the summary judgment granted to 
LPP Mortgage Ltd. (LPP).  In 1995, Lee signed a personal guaranty for a 
Small Business Administration (SBA) loan taken out by her son and 
daughter-in-law.  
The SBA assigned the loan to LPP, and, in 1998, Lee's son and 
daughter-in-law defaulted on the loan.  The district court concluded that, under the 
terms of the guaranty, Lee was required to pay the loan.  We affirm.  

 

ISSUES

 

[¶2]     The issues presented on 
appeal are:

1.                 
Whether the guaranty was obtained by illegality, 
misrepresentation, fraud, or mutual mistake.

1.

2.                 
Whether there are genuine issues of material fact as to 
whether the underlying debt was discharged.

2.

3.                 
Whether LPP failed affirmatively to show by admissible 
evidence the absence of any issues of material fact and that it is entitled to 
judgment as a matter of law.

 

 

FACTS

 

[¶3]     In September 1995, Lee 
guaranteed an SBA loan for her son and his wife, Johnnie D. (Doug) and Shirley 
Lee, so that they could purchase a car wash in Lander.  Doug and Shirley 
initially approached Key Bank of Lander about obtaining a loan, and the bank 
informed the couple that they might qualify for an SBA loan.  On March 24, 1995, 
Doug and Shirley authorized financial services with Frontier Certified 
Development Company (Frontier CDC) to act as their agent in submitting financial 
data and information to the SBA to obtain a loan under the SBA 504 program.  Frontier CDC is a 
development company authorized by the SBA to process SBA loan applications and 
to package SBA loans for resale once they are finalized. 

[¶4]            
Frontier CDC and the SBA agreed to approve Doug and Shirley's loan on the 
condi­tion that Lee and her husband (now deceased) guarantee the loan.  The total purchase 
price was $380,000.00, with Key Bank financing $190,000.00, Frontier CDC/SBA 
financing $152,000.00,1 and the borrowers investing $38,000.00.  Lee borrowed the 
$38,000.00 from Key Bank in Lander and loaned it to Doug for the equity 
injection.  The 
loan application listed the equity injection as a gift from Doug's parents.  The annual debt 
service for the Key Bank and Frontier CDC/SBA loans amounted to $40,932.00.  

[¶5]      By October 1998, Doug 
and Shirley had defaulted on the loans.  After Doug and Shirley defaulted, they each 
signed a deed in lieu of foreclosure in favor of Community First National Bank 
(Key Bank's successor).  However, Community First would not record the 
deeds unless Frontier CDC agreed to release its second mortgage.  Frontier CDC agreed 
to release the second mortgage provided Lee consented as the guarantor.  Lee then signed a 
Lender Agreement that provided for the recording of the deeds and release of 
Frontier CDC's mortgage.  Community First then sold the car wash, 
receiving $23,119.00 less than its first mortgage amount.  No proceeds were 
available to be applied to Frontier CDC's second mortgage.  

[¶6]     On February 22, 2001, Lee 
was informed that under the terms of the guaranty, payment for the deficiency 
was due in full.  
Frontier CDC, the holder of the promissory note, mortgage, and guaranty 
assigned its rights to LPP on March 12, 2001, and LPP filed a com­plaint on 
March 26, 2001, seeking judgment against Lee for the amount of the loan plus 
interest, costs of suit, and attorney fees.  Each party made motion for summary 
judgment.  The 
district court entered its Order Granting Plaintiff's Motion for Summary 
Judgment and Denying Defendant's Motion for Summary Judgment on December 13, 
2001.  Judgment 
was entered against Lee in the amount of $178,631.62, plus attorney fees and 
costs.  This 
appeal followed.

 

 

STANDARD OF REVIEW

 

[¶7]     The district court resolved 
this case by a grant and a denial of cross motions for sum­mary 
judgment.  A 
denial of a motion for summary judgment is an interlocutory order and is 
generally not subject to appeal.  Wolter v. Equitable 
Resources Energy Co., Western Region, 979 P.2d 948, 953 (Wyo. 
1999).  This court has, however, recognized an 
exception to this rule when the district court grants one party's motion for 
summary judgment, denies the opposing party's motion for summary judgment, and 
the district court's decision completely resolves the case.  In this type of 
situation, both the grant and the denial of the motions for sum­mary 
judgment are appealable.  Lieberman v. 
Wyoming.com LLC, 11 P.3d 353, 356 (Wyo. 2000).

 

[¶8]            
Rulings on summary judgment motions are governed by language found in 
W.R.C.P.56(c):

 

The judgment sought shall be rendered forthwith if the 
plead­ings, depositions, answers to interrogatories, and admissions on file, 
together with the affidavits, if any, show that there is no genuine issue as to 
any material fact and that the moving party is entitled to a judgment as a 
matter of law.

 

Our standard for the appellate review of a summary judgment 
was reiterated in Rino v. Mead, 2002 WY 144, ¶12, 55 P.3d 13, ¶12 (Wyo. 2002) (quoting Hasvold v. 
Park County Sch. Dist. No. 6, 2002 WY 65, ¶11, 45 P.3d 635, ¶11 (Wyo. 
2002)):

 

Summary judgment is proper only when there are no 
genuine issues of material fact and the prevailing party is enti­tled to 
judgment as a matter of law.  . . .  We review a summary 
judgment in the same light as the district court, using the same materials and 
following the same standards. "We examine the record from the vantage point most 
favorable to the party opposing the motion, and we give that party the benefit 
of all favorable inferences which may fairly be drawn from the record."  
. . .  Summary judgment serves the purpose of 
elimi­nating formal trials where only questions of law are involved.  
. . .  We review a grant of summary judgment by 
deciding a question of law de novo and afford no deference to the district 
court's ruling on that question.  . . . 

. . . A material fact is any fact that, if proved, 
would have the effect of establishing or refuting an essential element of a 
claim or defense asserted by a party. 

 

 

DISCUSSION

 

Fraud, Mistake, Misrepresentation, 
Illegality

[¶9]      We begin our 
discussion by recognizing that federal common law governs the rights and 
obligations of the parties when disputes arise from SBA loan agreements.  United States v. Kimbell Foods, Inc., 440 U.S. 715, 
726, 99 S. Ct. 1448, 1457, 59 L.E.2d 711 (1979).  However, we also recognize Kimbell Foods established that as long as a national 
rule is not needed to protect Federal interests, courts may look to and adopt 
state law in fashioning the appropriate governing law.  Id. at 728-730, 99 S.Ct at 1458-59.  Following Kimbell Foods, it appears clear that as long as state 
law does not hinder the administration of the SBA loan program, courts apply 
state law.  United States v. Agri Serv., Inc., 81 F.3d 1002, 1005 
(10th Cir. 1996) ("absent federal statutes to 
the contrary, rights arising under SBA program are determined by state law." 
(citing Kimbell Foods, 440 U.S.  at 739-740, 99 S.Ct. 
at 1464-65)).  
Because neither party has directed us to differing federal common law 
and, more importantly, because the application of state law to the facts of this 
case presents no  
foreseeable hindrance to the SBA loan program, we will apply state law 
just as federal courts often have when presented with disputes arising from SBA 
loan agreements.  
See United States v. New Mexico Landscaping, 
Inc., 785 F.2d 843 (10th Cir. 1986); United States v. Kelley, 890 F.2d 220 (10th Cir. 1989); United States 
v. Stump Home Specialties Mfg., Inc., 905 F.2d 1117 (7th Cir. 1990).

 

[¶10]   Lee first argues that the guaranty 
she executed was obtained by fraud, mistake,  misrep­resentation, or illegality and is 
therefore void.  
Lee alleges she felt pressured to make the guaranty and did not want to 
sign it, but did so because she and her husband were told that Doug and Shirley 
would not get the SBA loan unless they guaranteed it.  Lee argues she and 
her husband were not advised that the business would not produce a sufficient 
cash flow or that the SBA was violating its own regulations.  In addition, Lee 
contends Key Bank represented to her and her husband that the car wash was a 
good investment for Doug, and that Doug and Shirley's balance sheet was altered 
by Frontier CDC/SBA to reflect that their equity was nearly $76,000.00 rather 
than the original $40,761.00 reported by the couple.  Lee claims 
documents were repeatedly modified, a loan was characterized as a gift, and 
misrepresentations were made so that Doug and Shirley could falsely qualify 
under SBA regulations.  

[¶11]   Under our standard of review, we are 
required to view the record from the perspective most favorable to the party 
opposing the motion for summary judgment.  However, this review is limited by the 
substantive law that actions sounding in fraud must be pled with particularity 
and proved by clear and convincing evidence.  Bender v. 
Phillips, 8 P.3d 1074, 1078 (Wyo. 2000).  W.R.C.P. 9(b) requires: "In all averments of 
fraud or mistake, the circum­stances constituting fraud or mistake shall be 
stated with particularity."  This requires reference to matters such as 
the time, place, and contents of false representations, the identity of the 
person making the representation, and what he obtained thereby.  Johnson v. Aetna Cas. & Sur. Co. of Hartford, 
Conn., 608 P.2d 1299, 1302-03 (Wyo. 1980).

[¶12]   When determining if a genuine issue of 
material fact exists regarding a claim of fraud, a trial judge must bear in mind 
the actual quantum and quality of proof necessary to support liability.  In ruling on a 
motion for summary judgment, "the judge must view the evidence presented through 
the prism of the substantive evidentiary burden."  Anderson v. Liberty 
Lobby, Inc., 477 U.S. 242, 254, 106 S. Ct. 2505, 2513, 91 L. Ed. 2d 202 
(1986).  "[T]here is no genuine issue if the evidence 
presented in the opposing affidavits is of insufficient caliber or quantity to 
allow a rational finder of fact to find [fraud] by clear and convincing 
evidence."  Id.  See also Richardson 
v. Hardin, 5 P.3d 793, 797 (Wyo. 2000).

[¶13]   In her memorandum supporting her motion 
for summary judgment and opposing LPP's motion for summary judgment, Lee alleged 
a federal regulation specifically pro­hibited the SBA from obtaining a 
personal guaranty from those with less than five percent equity ownership in the 
collateral.  
That regulation states:

 

(a)  Personal 
guarantees.  
Holders of at least 20 percent owner­ship interest generally must 
guarantee the loan.  
SBA, in its discretion, consulting with the Participating Lender, may 
require other appropriate individuals to guarantee the loan as well, except SBA 
will not require personal guarantees from those owning less than 5% 
ownership.

 

13 C.F.R. § 120.160(a).  However, 13 C.F.R. § 120.160(a) did not take 
effect until March 1, 1996.  Because the regulation did not apply when Lee 
signed the guarantee in 1995, there can be no fraud based on a failure to abide 
by the regulation.

 

[¶14]   Lee next alleged that there was mutual 
mistake because neither she nor the SBA knew of 13 C.F.R. § 120.160(a).  A mutual mistake is 
one that is reciprocal and common to both parties in which each party is under 
the same misconception as to the terms of the written instrument.  Patel v. Harless, 926 P.2d 963, 966 (Wyo. 
1996).  Like fraud, mutual mistake must be shown by 
clear and convincing evidence.  Id. at 967.  Again, because 13 
C.F.R. § 120.160(a) was not in effect when Lee signed the guaranty, there 
could be no mutual mistake by the parties as to its provisions or 
application.

 

[¶15]   We conclude that there are no genuine 
issues of material fact with regard to fraud or mistake.  Lee failed to set 
forth specific facts sufficient for a fact finder to find either cause of action 
under the applicable clear and convincing evidence standard.  The same is true of 
the misrepresentation and illegality claims, inasmuch as they are both premised 
on the same federal regulation.2

 

[¶16]   We note that Lee recognized that 13 
C.F.R § 120.160(a) did not apply and, one day prior to the hearing on summary 
judgment, filed a Notice of Additional Authority in Support of Defendant's 
Motion for Summary Judgment and Opposing the Plaintiff's Motion for Summary 
Judgment.  In 
her Notice of Additional Authority, Lee recited two portions of the 1995 C.F.R. 
and asserted that the guaranty was illegal under these sections.  Neither the 
regulations cited nor the record support Lee's assertions.   A plain 
reading of 120.103-2(c),3 cited by Lee, shows that regulation did not 
restrict the SBA's ability to obtain a guaranty from Lee.  Absent further 
argument or specific fact, Lee's conclusory statements regarding this regulation 
are not sufficient to defeat summary judgment.

 

[¶17]   Lee also cited to 13 C.F.R. § 
120.103-2(a) (1995) which provided:  "no Financial Assistance shall be extended 
unless there is reasonable assurance that the loan can be paid from the earnings 
of the business."  
Having been presented with a motion for summary judgment supported by 
affidavits, Lee was required to set forth specific facts showing that there was 
a genuine issue of material fact regarding whether there was a reasonable 
assur­ance that the loan could be paid from the earnings of the 
business.  See W.R.C.P 56(e); Hunter v. 
Farmers Ins. Group, 554 P.2d 1239, 1242 (Wyo. 1976).  Lee provided no 
such facts in her Notice of Additional Authority or her original affidavit.   Our review of 
the record indicates only that the loan could be repaid from the earnings of the 
business.  
There­fore, Lee's assertions on this regulation are likewise 
insufficient to defeat summary judgment.

 

[¶18]   Lee makes additional arguments that 
Frontier CDC/SBA and its agents hid basic finan­cial facts from her and that 
they manipulated the application documents to make it appear that Doug and 
Shirley were eligible for the loan.  She claims she was not aware, until after 
discovery in the instant case, that the cash flow projections prepared by 
Frontier CDC revealed that the business income would actually pay only the loan 
amounts,4 leaving Doug and Shirley with less than half of 
their accustomed income.5  Lee claims that Frontier CDC/SBA and its 
agents owed her a duty to disclose, and their nondisclosure breached that 
duty.  Lee 
essentially makes an argument for liability for nondisclosure pursu­ant to 
Restatement, Second, Torts § 551 (1977):

 

(1)  One 
who fails to disclose to another a fact that he knows may justifiably induce the 
other to act or refrain from acting in a business transaction is subject to the 
same liability to the other as though he had represented the nonexistence of the 
matter that he has failed to disclose, if, but only if, he is under a duty to 
the other to exercise reasonable care to disclose the matter in 
ques­tion.
 

(2)  One party to a business transaction is under 
a duty to exer­cise reasonable care to disclose to the other before the 
transaction is consummated,

 

(a)  matters known to him that the other is 
entitled to know because of a fiduciary or other similar relation of trust and 
confidence between them; and

 

(b)  matters known to him that he knows to be 
necessary to prevent his partial or ambiguous statement of the facts from being 
misleading; and

 

(c)  subsequently acquired information that he 
knows will make untrue or misleading a previous representation that when made 
was true or believed to be so; and

 

(d)  the falsity of a representation not made 
with the expectation that it would be acted upon, if he subse­quently learns 
that the other is about to act in reliance upon it in a transaction with him; 
and

 

(e)  facts basic to the transaction, if he knows 
that the other is about to enter into it under a mistake as to them, and that 
the other, because of the relationship between them, the customs of the trade or 
other objective circum­stances, would reasonably expect a disclosure of 
those facts.

 

[¶19]   This court has not expressly adopted a 
cause of action for nondisclosure pursuant to Restatement, Second, Torts § 
551.6  In the previous cases in which we were 
asked to adopt § 551 we declined to do so, concluding that even if we did 
adopt the restatement, the party's claim would still fail.  Richey v. Patrick, 904 P.2d 798, 802 (Wyo. 1995); Hulse v. First American Title Co., 2001 WY 95, ¶48, 33 P.3d 122, ¶48 (Wyo. 2001).  In taking such action we said, "[b]efore 
nondisclosure or fraudulent concealment can be considered, [the plaintiff] must 
show that [the defendant] had a duty to disclose the information."  Hulse, ¶48 (quoting Sundown, 
Inc. v. Pearson Real Estate Co., Inc., 8 P.3d 324, 331 (Wyo. 2000)). 

 

[¶20]            
Whether a duty exists is a question of law for the court to decide.  John Q. Hammons Inc. v. Poletis, 954 P.2d 1353, 1356 
(Wyo. 1998).  The existence of a duty is "to be 
deter­mined by reference to the body of statutes, rules, principles and 
precedents which make up the law; and it must be determined only by the 
court."  W. 
Page Keeton, Prosser & Keeton on the Law of Torts 
§ 37 (5th ed. 1984).  Once it is determined that a duty exists as a 
matter of law, then any claimed breach of that duty presents a question of fact 
to be resolved by the trier of fact.  John Q. Hammons Inc., 
954 P.2d  at 1356.

 

[¶21]   In making her argument, Lee summarizes 
§ 551 and then asserts that the SBA and its agents represented that this 
was going to be a good investment and it knew that she was relying on it for 
analysis.  Lee 
appears to be relying upon Restatement, Second, Torts § 551(2)(a) and (e) 
to show that Frontier CDC/SBA had a duty to disclose.  We find that the requirements of neither 
of these subsections are met.  For a duty of disclosure to arise under 
subsection (a), a "fiduciary or other similar relation of trust and confidence" 
must exist between the parties.  Two basic types of fiduciary relationships exist. The first 
type is based on formal legal relationships, such as trustee-beneficiary, 
partnership, attorney-client, and principal-agency relationships. Martinez v. Associates Financial Services 
Co., 891 P.2d 785, 785 (Wyo. 1995).  The second type is an informal fiduciary relationship, 
which is implied in law due to the factual situation surrounding the involved 
transaction, and the relationship of the parties to each other and to the 
transaction. Id.  This second type of relationship is often 
called a confidential relationship and would be considered a "similar relation 
of trust and confidence."  Associated Indemnity 
Corp. v. CAT Contracting, Inc., 964 S.W.2d 276, 287 (Tex. 1998).  

 

[¶22]   We have never before held that the 
first type of fiduciary duty exists between a credi­tor and a guarantor, and 
Lee cites us to no authority for such a proposition.  Restatement, 
Second, Torts § 551 cmt. f states:  "certain types of contracts, such as those of 
suretyship or guaranty, . . . are recognized as creating in themselves 
a confidential relation and hence as requiring the utmost good faith and full 
and fair disclosure of all material facts."  The com­ment however sheds no light on 
the parties to this confidential relationship.  Many jurisdictions hold that no such 
relationship exists between the creditor and the guarantor.  See Warner v. Clementson, 
492 S.E.2d 655, 657 (Va. 1997) (citing Manufacturers 
Hanover Trust Co. v. Yanakas, 7 F.3d 310, 318 (2d Cir. 1993); Village on Canon v. Bankers Trust Co., 920 F. Supp. 520, 
532 (S.D.N.Y. 1996); Farmer City State Bank v. 
Guingrich, 487 N.E.2d 758, 763 (Ill.App. 1985); Bank 
Leumi Trust Co. v. Block 3102 Corp., 580 N.Y.S.2d 299, 301 (App.Div. 1992); 
Miller v. U.S. Bank of Washington, 865 P.2d 536, 543 
(Wash.App. 1994)); Schrager v. Nat'l Cmty. Bank, 767 N.E.2d 376, 385 (Ill.App. 2002).  

 

[¶23]            
Looking for additional guidance on the subject, we find that a creditor 
"is not required to search for the surety and inform him of facts affecting the 
risk, or warn him of the danger of the step he is about to take."  74 Am.Jur.2d, Suretyship § 108 (2001).  "[I]t is not fraudu­lent for a creditor 
not to advise the guarantor of the guarantor's legal obligations, the financial 
condition of the principal debtor, or the value of the debtor's 
collateral."  
38 Am.Jur.2d, Guaranty § 54 (1999) (footnotes 
omitted).  
Certainly a person who is contem­plating becoming a guarantor for the 
loan of another is entitled to perfect good faith and full disclosure just as 
the comment states.  
However, we also consider the following explanation helpful:  

 

It is well settled that a person proposing to become 
surety[7] for the conduct or contracts of 
another has a right to be treated with perfect good faith. The law does not as a 
rule, how­ever, require that the party taking the surety shall seek out the 
surety and explain to him the nature and extent of the obligation; nor does it 
hold him responsible for fraudulent misrepresenta­tions made to the surety 
by the principal, or by a third party, unless such misrepresentations are made 
with his knowledge or consent.  See Hamilton 
v. Wilson, 11 Clark & Fin. 109; Atlas Bank v. Brownell, 
9 R.I. 168, 11 Am. Rep. 231; Griffith v. Reynolds, [45 Va. 46,] 4 Grat. 46, 49, 50; Magee v. Manhattan L. Ins. 
Co., 92 U.S. 93, 23 L. Ed. 699; Warren v. Branch, 15 W. Va. 21; Brandt on Suretyship, § 447; 
Bayless on Sureties, 293; Kerr on Fraud and Mistake, 122, 123; 1 Chitty on 
Contracts, pp. 772, 773.

 

. . .

 

In 1 Chitty on Contracts (11th Am. Ed.), pp. 772, 
773, it is said that "although a surety is not of necessity entitled to receive, 
without inquiry, from a party to whom he is about to bind himself, a full 
disclosure of all dealings between the prin­cipal and that party, still if 
any material part of the transaction is, with the knowledge of the creditor, 
misrepresented to the surety, or if the creditor fraudulently conceal from the 
surety any circumstance within his knowledge which it is material for the surety 
to know, although such concealment be not with a view to any advantage to 
himself, the guaranty will be void."

 

Atlantic Trust & Deposit Co. v. Union Trust & Title 
Corp., 67 S.E. 182, 184-85 (Va. 1909).  The discussion 
above indicates that it is the debtor that has the duty to assure that the 
guar­antor has a full and fair disclosure of all material facts.  The creditor 
certainly owes the normal contractual duty of continuous good faith and fair 
dealing but has no general obliga­tion to seek out the guarantor to assure 
that he has been clearly informed of the risks associated with the 
transaction.  
The creditor's duty to the guarantor is to refrain from misrepresentation 
and fraudulent concealment and to correct such misrepresentations made with his 
knowledge and consent, and the creditor cannot actively conceal 
information.  
The law of contract, misrepresentation, and fraud adequately protect a 
guarantor against a breach of this type of duty.  We therefore conclude that a fiduciary 
relationship does not exist between a creditor and a guarantor as a matter of 
law.  

 

[¶24]            
Whether the second type of fiduciary relationship, i.e., a confidential 
relationship or other similar duty of trust and confidence, exists must be 
established from the factual situa­tions surrounding the transaction.  Martinez, 891 P.2d  at 789.   Although a 
confidential relationship is certainly broader in scope than the first type of 
fiduciary relationship, the same general principles apply to its creation.8  We have said that fiduciary relationships are 
extraordinary and not easily created.  Id. (citing Gillum v. Republic Health Corp., 778 S.W.2d 558, 567 
(Tex.App. 1989)).  
Because fiduciary relationships carry significant legal consequences, 
they cannot be the product of wishful thinking.  Id. (citing State Farm Mut. Auto. Ins. Co. v. Shrader, 882 P.2d 813, 832-33 (Wyo. 1994)).  

 

[¶25]   Lee seems to assert that the bank knew 
she was relying on it for information, and this creates the second type of 
fiduciary relationship, the confidential relationship.  However, we have 
said:  
"Fiduciary duty is not created by a unilateral decision to repose trust 
and confi­dence; it derives from the conduct or undertaking of the purported 
fiduciary."  Martinez, 891 P.2d  at 790 (quoting Farmers Ins. Co. v. McCarthy, 871 S.W.2d 82, 87 
(Mo.App. 1994)).  
"A fiduciary is defined as:  A person having duty, created by his own 
undertaking, to 
act primarily for another's benefit in matters connected with such an 
undertaking."  
Id.  (quoting Black's Law Dictionary 625 (6th ed. 1990)).   

 

[¶26]   Under our case law, the express 
reposing of trust and confidence by one party is not enough to create a 
fiduciary type duty.  
The duty arises from the conduct of the purported fiduciary.  "Thus, [t]he duty 
of honest advice and full disclosure arises where one party reposes confidence 
in the integrity of another and the other party in advising voluntarily assumes 
and accepts the confidence.'"  Rood v. Newberg, 
718 N.E.2d 886, 893 (Mass.App.  1999) (quoting Reed 
v. A.E. Little Co., 152 N.E. 918 (Mass. 1926)).  Lee alleged no 
facts to show that SBA had voluntarily assumed such a duty.  Trust alone does 
not convert an ordi­nary arm's length transaction into a fiduciary or other 
similar relationship of trust and confidence.  

 

[¶27]   Our case law further indicates that we 
have been reluctant to impose additional duties and liability on lenders in a 
creditor/debtor relationship.  Martinez, 891 P.2d  at 788.  
We have said that the relationship between a lender and its customer is 
contractual in nature so we impose no duties higher than the morals of the 
marketplace.  
Id.  Just as creditor/debtor relationships arise 
out of contract, so too do secondary obligations.  A guaranty creates nothing more than a 
contract to pay the debt of another.  Taggart v. Ford Motor 
Credit Co., 462 N.W.2d 493, 500 (S.D. 1990).  It is essentially a contingent 
debtor-creditor relationship.  A guaranty is a contract in which the 
guarantor has agreed to pay the creditor any amount not paid by the primary 
borrower.  United States v. Newton Livestock Auction Market, Inc., 
336 F.2d 673, 677 (10th Cir. 1964).  In our past case law, we have been rightfully 
hesitant to find tort causes of actions where a contract exists.  Hulse, 33 P.3d  at 136 (when parties' difficul­ties 
arise directly from a contractual relationship, the resulting litigation 
concerning those difficulties is one in contract).  We continue to be 
so hesitant today.  

 

[¶28]            
Furthermore, when determining whether the second type of fiduciary 
relationship exists, we are to consider the relationship of the parties to each 
other and to the transaction.  Martinez, 891 P.2d  at 789.  
The second type of fiduciary relationship exists when one party has 
gained the confidence of the other and purports to act or advise with the 
other's interests in mind.  Doe v. Hartz, 52 F. Supp. 2d 1027, 1058-59 (Iowa 1999).  We see no allegation that the bank ever 
purported to act for or advise with Lee's interests in mind.  Instead, we are 
simply presented with a guarantor/creditor relationship.  This relationship 
is inherently antagonistic.  The bank obviously wants a guaranty because 
it feels that the debtor's assets alone will not support the loan. The creditor 
is requiring a guarantor to protect the creditor from loss, not the 
guarantor.  In 
that respect the creditor has not voluntarily assumed any responsibility to 
protect the guarantor.

 

[¶29]            
Additionally, Lee's relationship to CDC/SBA was simply a result of her 
son's loan application.  Lee had no prior relationship with the 
creditor.  
Generally, a confidential rela­tionship must exist prior to, and 
apart from, the agreement that made the basis of the suit.  See Sclumberger Tech. Corp. v. 
Swanson, 959 S.W.2d 171, 177 (Tex. 1997).  Lee's signifi­cant relationship in this 
transaction was with her son.  Lee did not guarantee the loan as a favor to 
the bank; she did it as a favor to her son so that he could obtain a loan.  Considering all 
these factors, we do not find a fiduciary or other similar relation of trust and 
confidence.  

 

[¶30]            
Certainly a lender could incur additional duties by conduct that creates 
a special or fiduciary relationship.  The party alleging such a relationship is 
responsible for providing facts from which the relationship may arise.  As we have said 
"[e]xtra-contractual lender duties, if there are any, must necessarily be 
predicated upon demonstration of a special or fiduciary relationship." Martinez, at 789 (citing John M. Burman, Lender Liability in Wyoming, 26 Land & Water L.Rev. 
707, 712-713, 718 & 730 (1991)).  The   pleadings here simply did not contain 
such facts.

 

[¶31]   Next, upon our review, we find no duty 
to disclose under subsection (e).  Under this subsection the duty arises if one 
party "knows that the other is about to enter into [the trans­action] under 
a mistake as to [facts basic to the transaction]."  Lee has failed to 
allege a single fact to show that SBA/Frontier CDC had knowledge that she was 
operating under a mistake.  Under this subsection Frontier CDC/SBA must 
have had some knowledge that Lee was operating under a mistake.  Lee simply asserts 
that she was unaware of all the facts.  In the Supplemental Affidavit of Diane 
Johnston, President of Frontier CDC, Johnston stated that Lee had full access to 
all documents contained within the loan file, and if she had asked to review any 
documents, Frontier CDC would have made them available to her.   

 

[¶32]   The creditor should be able to rely on 
the debtor and his relationship to the guarantor to assure that the guarantor 
has been properly informedespecially in this situation where the debtor and the 
guarantor are in a familial relationship, which is widely known to be a 
fiduciary or confidential relationship.  "[T]he creditor is entitled to assume that 
the surety is aware of all material facts . . . particularly in cases 
where the surety assumes the risk at the debtor's request rather than at the 
creditor's request."  
Magna Bank of Madison County v. Jameson, 604 N.E.2d 541, 545 (Ill.App. 1992).    It is reasonable for a creditor 
to believe that the guarantor herself would ascertain whatever information she 
determines is important.  After all, it is the guarantor that must 
assess the risk that the debtor will not pay when decid­ing whether to 
provide a guaranty.  
Because no facts were alleged that the creditor knew of a mistake, we 
would not find a duty under this subsection.  Lee has a duty as a contract­ing party to 
inquire into the facts of the transaction.  See Commercial Nat'l 
Bank v. Audubon Meadow Partnership, 566 So. 2d 1136 (La.App. 1990).  

 

[¶33]   Having found that no duty of disclosure 
will arise under § 551, we decline the invita­tion to adopt § 551 
at this time.  
However, as noted by this court previously, a majority of jurisdictions 
have either accepted § 551 or cited it with approval.  Richey, 904 P.2d  at 802-03 and n.3 (collecting 
cases).  We are 
not suggesting that we reject § 551 and refuse to adopt it.  However, because 
§ 551 affects legal duties, we would prefer to fully consider its adoption 
when the parties have presented thorough argument on the subject and a duty of 
disclosure would actually exist under the restatement. 

 

[¶34]   We affirm the summary judgment granted 
to LPP on the causes of action for fraud, mistake, misrepresentation, and 
illegality.  

 

Debt Discharge

 

[¶35]   Lee claims that the basis of the underlying debt was a 
single loan of $342,000.00, which consisted of $190,000.00 from Key Bank and 
$152,000.00 from Frontier CDC/SBA.  She argues that there was only one 
$342,000.00 loan made as consideration for the guaranty and that this loan was 
discharged by acceptance and recordation of the deeds in lieu of 
fore­closure.  
She contends the terms of the deeds were unambiguous, in that acceptance 
and recording of the deeds "shall constitute full satisfaction and release of 
the debt of the Grantors to Grantee, as evidenced by a Commercial Revolving or 
Draw Note in the principal amount of $342,000.00, dated June 9, 1995, and 
secured by Grantee's Mortgage on the prop­erty described in this Deed."  

 

[¶36]            
According to the Lee, however, on June 9, 1995, Key Bank had extended a 
bridge loan to Doug and Shirley in the amount of $342,000.00 so they would have 
temporary financing to purchase the car wash while the processing and approval 
of the SBA loan was being completed.  Permanent financing from the SBA (through 
Frontier CDC) became available on September 7, 1995.  The permanent 
financing involved the extension of a $159,000.00 SBA loan with a second 
mortgage on the car wash in the same amount.  With the bridge loan, Doug and Shirley were 
able to purchase the car wash in June rather than September 1995.  The SBA loan 
proceeds of $152,000.00 received in September were then applied to the Key Bank 
bridge loan, reducing it from $342,000.00 to $190,000.00.  A Modification of 
Mort­gage was signed by Doug and Shirley on September 7, 1995.  The modification 
states:

 

This 
constitutes an amendment to said Mortgage to show that the above-referenced 
Mortgage is intended to secure the amount of One Hundred Ninety Thousand Dollars 
($190,000), effective as of the date of receipt by Key Bank of Wyoming  Lander 
of the One Hundred Fifty-Two Thousand Dollars ($152,000.00) loan proceeds, which 
is evidenced by the second mortgage on the above-referenced property, which 
mortgage is dated September 7, 1995.

 

A condition required by Frontier CDC/SBA for extending the 
permanent loan was that Lee sign a guaranty in the amount of $159,000.00, which 
she executed on September 17, 1995.  

 

[¶37]   To the extent that we must construe the 
agreement between the parties, our primary focus is in determining whether the 
language is clear and unambiguous.  Pasenelli v. 
Pasenelli, 2002 WY 159, ¶12, 57 P.3d 324, ¶12 (Wyo. 2002).  The question of whether an ambiguity exists 
is one of law for the court.  Hayes v. American 
Nat'l Bank of Powell, 784 P.2d 599, 604 (Wyo. 1989).

 

[¶38]   Lee maintains that when Doug and 
Shirley deeded the car wash to Community First, and Frontier CDC released its 
second mortgage, the entire underlying loan was released, dis­charging her 
guaranty obligation.  
The guaranty, however, allowed the lender to release the security or 
collateral:

 

The Undersigned 
hereby grants to Lender full power, in its uncontrolled discretion and without 
notice to the undersigned, . . . to deal in any manner with the 
Liabilities and the collateral, including, but without limiting the generality 
of the foregoing, the following powers:
 

* * *
 

(d)  to consent to the substitution, exchange, or 
release of all or any part of the collateral, whether or not the 
collat­eral, if any, received by Lender upon any such substitution, 
exchange, or release shall be of the same or of a different character or value 
than the collateral sur­rendered by Lender.

 

In addition, in 1999, 
Lee acknowledged and consented to the Lender Agreement between Community First 
and Frontier CDC, the clear intent of which was to release Frontier CDC's second 
mortgage for the sole purpose of facilitating sale of the premises, with no 
effect upon the Frontier CDC loan or the guaranty.  And finally, the 
deed in lieu of foreclosure provided that "acceptance and recording of this Deed 
shall constitute full 
satisfaction and release of the debt of the Grantors to Grantee, as evidenced by 
a Commercial Revolving or Draw Note in the principal amount of $342,000, dated 
June 9, 1995 . . . ."  (Emphasis added.)  This language 
unambiguously satisfies the debt only of the grantee, Community First, as that 
debt is evidenced by the identified promissory note.  It does not purport 
to release the debt of Frontier CDC.  LPP was entitled to summary judgment on the 
discharge issue.
 

 

 

 

 

[¶39]   Lee's final argument is LPP had an affirmative obligation 
to show by admissible evidence the absence of any issues of material fact and 
that it was entitled to judgment as a matter of law.  Lee cites to 
W.R.C.P 56(e), which requires that affidavits must be made on personal knowledge 
and must set forth facts as would be admissible in evidence, showing 
affirmatively that the affiant is competent to testify to the matters stated in 
the affidavit.  
She argues that LPP's supporting affidavit was comprised of hearsay, was 
conclusory, was with­out personal knowledge, was without foundation, and did 
not explain even the most basic facts, such as the amount of the debt.  

 

[¶40]            
However, there simply is nothing in the supporting materials to 
substantiate Lee's claims of fraud, illegality, and mistake.  This lack of 
supporting material creates in itself an absence of issues of material 
fact.  We 
therefore conclude that the trial court was correct in granting summary judgment 
to LPP and denying Lee's motion for summary judgment.

 

 

CONCLUSION

 

[¶41]   When viewed in 
the light most favorable to Lee, the evidence reveals no genuine issues of 
material fact as to fraud, illegality, or mistake.  Nor are there 
genuine issues of material fact as to the discharge of the underlying debt.  We, therefore, 
affirm the sum­mary judgment.
 

 

FOOTNOTES

1Lee's Guaranty was for $159,000.00 because administrative 
costs amounted to $7,000.00.  

2Another alleged misrepresentation, that the car wash was a 
good investment, allegedly was made by a Key Bank employee, rather than by a 
Frontier CDC or SBA employee, so it is not relevant to this analysis.

 

3The portion of 13 C.F.R. § 120.103-2(c) (1995) cited by Lee 
provides "Proprietors, partners, officers, directors, and owners of 20 percent 
or more of the business shall generally be required to guarantee payment of the 
loan and, in SBA's discretion, to pledge personal assets to secure the 
guarantee.  
Inadequate collateral will not normally be used as the sole reason for 
decline unless the applicant refuses to pledge whatever worthwhile collateral is 
available."    

4Net profit for the car wash for the years 1992 through 1994 
amounted to $23,653.00, $26,950.00, and $47,547.00 respectively.  Projected net 
profit for 1995 amounted to $52,300.00.  

 

5In order to obtain the loan, Doug was required to quit his 
job, which paid over $35,000.00 annually, and to cash $26,000.00 in Unocal stock 
from his employment with Unocal to be used as working capital for first year 
operations. Shirley worked at Safeway, making $21,600.00 annually, and continued 
working there after the purchase of the car wash.  

6Lee provides us with no argument or citation to federal 
case law adopting this cause of action.  However, even if she had, the result would be 
the same because we would still be unable to find the existence of a duty to 
disclose.

7While there are some slight differences between a 
suretyship and a guaranty, the distinctions are not significant enough to 
warrant discussion here.  Furthermore, the principles of law discussed 
here relate to both relationships.  See 38A C.J.S. Guaranty §§ 10-12 (1996). 

8The phrases fiduciary relations and confidential relations 
are ordinarily used as convertible terms.  Peoples Bank and 
Trust Co. v. Lala, 392 N.W.2d 179, 185 (Iowa. App. 1986) (quoting First Nat'l Bank in Sioux City v. Curran, 206 N.W.2d 317, 321 (Iowa 1973)); see also State ex rel. Shriver v. 
Ellis, 75 N.E.2d 704, 710 (Ohio App. 1946) ("confidential and fiduciary 
relations are, in law, synonymous").