# FILED September 17, 1997 Cecil W. Crowson Ap pellate Cou rt Clerk FIRST AMERICAN NATIONAL BAN K, ) ) Plaintiff/Appellee, ) ) Appeal No. ) 01-A-01-9702- CH-00051 VS. ) ) Davidson Chancery ) No. 93-3015-II I(II) NATIONAL PROJE CT SERVICES, ) INC., ) ) Defendant/Appellant. )

COURT OF APPE ALS OF TENNESSEE MIDDLE SECTION AT NASHVILLE
APPEALE D FRO M THE C HANC ERY C OURT O F DAVI DSON COUN TY AT NASHVILLE, TENN ESSEE THE HONORABLE ELLEN HOBBS LY LE, CHANCEL LOR

ANTHONY J. McFARLAND CLISBY H. BARROW BRYAN E. L

ARSON 2700 First Amer ican Center Nashvil le, Tennessee 37238 Attorneys for Plaintiff/Appelle e ALFRED H. KNIGHT 215 Second Avenue, North Nashvil le, Tennessee 37201 NADER BAYDOUN JOHN I. HA RRIS, III Nashvil le City

Center 511 Union Street , Suite 2420 Nashvil le, Tennessee 37219- 1716 Attorneys for Defendant/Appellant

AFFIRMED AND REMAN DED

BEN H. CAN TRELL, JUDGE CONCUR: TODD, P.J., M .S. LEW IS, J. 

## O P I N I O N- 2 - Asmall business asserts that its bank had an im plie d dut y to give reasonable notice of its intent to stop extending credit to the business; tha t such implied promise was not wit hin the statuteof frauds; and that even if it were w ithin the sta tute of fr auds, the bank was estopped to ra ise the statute as a defense. The ChanceryC o u rt o f D a v i d s o n C o u n t yg r a n t e d s u m m a ryj u d g m e n t t o t h e b a n k

. We hold that in this case the bank did not have a duty to inform the customer that it was terminating the customer’s credit. Th erefore, we affirm th e lower court’s order.

I.

The followingfacts are stated in the lig ht most favorabl e to the appellant. See Allied Sound, Inc. v. Neely , 909 S.W .2d 815 (Tenn. App . 1995).

National Project Service s, Inc. (NP S) operated a s mall business selling i ndustrial supplies. A

branch manager

of First Ameri can National B ank (the ba nk ) contacted the principa l owners of the b usiness, seek ing to establ ish a banking relationshi p. The princ ipals asked t he branch manager for a line of cre dit, but the bank turned them down. The branch manager did s ay that he cou ld extend cr edit of up to $30,000 on h is own and that he would do business with the company on that basis. NPS transferred its accounts to the bank.

In general, NPS filled orders for ind ustrial sup plies by ordering t he suppliesfrom the manufactu rers and d elive ring t he go ods t o the purc hase r. Ini tial ly, when the company received an or der, it took the documents to the bank and borrowed the m one y to co ve r the expens es incurred in fillingthe order. The r elationship w

as informal but the NPS principals interpreted the branch manager’s statemen ts as a promise to lend money on each purchase order up to the$30,000 limit. They admit, however, that he did not t ell them that; th at he did not represent that

the arrange ment1 Tenn. Code Ann. § 29-2-101( b)(1) provi des: No ac tion sh all b e b ro ug ht a ga in st a lend er or cr edit or upon any promise or comm it ment to l end money or to e xten d cre dit, or up on a ny pro m ise or com m itm ent to - 3 - would exist for any parti cular peri od of time; or that t he loans wou ld continue to b e made at a particul ar interest rate or for a par ticular repayment perio d.
Later, the bank made NPS a real estate l oan and a loan to purchase a computer. In March of 1990 the bank did estab lish a line ofcredit to finance NPS’ inventorypurchases, and in July of 19 91 the bank increased the line of cr edit to $180,000, substanti ally all of which was subsequentl y draw n by NPS.

Earlyin 1992, the bank tr ansferred the res ponsibility for NPS matters to the central office and ceased making the individual loans to finance purcha se orders. Someone from the bank assured NPS t hat the loans would be resumed w hen the transfer was complete. As a result, N PS did not seek other sources of credit and continued to seek

orders on the same level as before. In January of 1993 the bank finallynotified NPS that it (the bank) would not r esume extendingNPS credit . NPS had by this time so exhausted its working ca pital that the company collap sed.

When the bank sued NP S on the loans made before 1992, NPS filed a counterclaim for damages, alleging breach of contract, fraud, ne gligent misrepresentat ions and common law. The chancellor granted summar

y judgment to the bank on all claims.

II.

On appeal NPS presents only one theo ry: that

the bank had an impl ied duty to notify NPS that it would no longer make loans to fund the com pany’s purchase orders. NPS now concedes that an ac tion on the promise to resume f unding is barred bythe statute of

frauds, Tenn. Code Ann. § 29-2-101(b) (1)(1996 Supp.) 1 Therefore,alter, amend, renew, extend or otherwise modif y or

supple ment any wri tt en promise, a greement or comm it ment to l end money or ext end credi t, unless the pr omi se o r agre em ent, upon which such acti on shal l be brought , orsome m em oran dum or no te ther eof, shall be in writ ing and signed by the lender or creditor, or some other pe rson by hi m thereunto l awful ly author iz ed. - 4 - they allege that

the bank’s breach of duty --not its promi se to make loans -- is the basi s fo r the bank ’s lia bilit y.

The authority

for the bre ach of duty theor y is found in K.M.C. Co. v. Irving Trust Co. , 757 F.2d 752 (6t h Cir. 1985) . In thatcase the bank had established
a line of credit for its cust ome r and had taken a s ecurity interest in all of the customer’s inventory

and accounts receivable. In addition t he bank required that all of the customer’s

receipts be placed in a“blocked account” to w hich only the bank had access. When the customer req uested to draw on the line of credit and the bank refused witho ut warnin g, the customer suffered financial r uin.

The law of New

York g overned the relationship between the parties, and the trial judge instructed the jury that there is a good faith obligation implied in every contract; that this obligation may have imposed on the bank a duty togive notice to its customer w hen it decided to refuse to advance funds w ithin the li ne of credit; and thatthe ban k breached the duty unless its decision to terminate the line of credit without notice wa s made in good faith and in the reasonable exercise of its discretion

. The Sixth Circuit Courtof Appeals approved this inter pretation of New York law

and said , “[t]his obligation to act in good faith would require a period of notic e to [th e customer] to allow ita reasonable opportunity to seek alte rnate financing, absent valid business reas ons precludin g [the bank] from doing so.” 757 F.2d at 759.

Even if we assume t hat the law in Tennessee is t he same as it i s in New York, there is a fundamen tal difference in the relationship between the ban k and NPS, and the bank and its

customer in K.M.C. In that case t he customer had an existing written line o f credit a nd the draw request by the customer was withi n the amount2 Alt hough the bank had establ ished a li ne of credi t fo r NPS to fi nance it s inv entory, ninety- nine percent of t he avai labl e funds under thatagreement had been wi thdr awn. NPS does notassert thatthe ban k h ad a ny furth er ob ligation u nde r the line of cr edit. - 5 - ava ilabl e under the line of credit. Th e customer, therefo re, had a reasonable expectation of continued credi t.

In thi s ca se, NPS did not h avean av ail ablelin e of c redit

. 2 The most favorable view

of the facts for NPS s hows that it only had an oral promi se by the bank to fund NPS’ purchas e orders --although not in any spec ific amount and not for any spe cific pe riod of time. Under those circumst ances, NPS had no reasona ble expectat io n of continued credi t. See Fasolino F oods Co. v. Banc

a Naz ionale Del Lavoro , 961 F.2d 1052 (2d Cir. 1992); Manufacturers Hanover Tr

ust Co. v. Yana kas , 7 F.3d 310 (2d Cir. 1993). Therefore, t he bank did not have a duty to noti fy NPS that it would no longer do what it w as not oblig ated to do.

III. Estoppel

NPS argues on appeal that the implied p romise to give notice of credit termination is not w ithin the stat ute o f frauds, and even if it i s, the bank would be estopped t o r a i s e t h e s t a t u t e a s a d e fe n s e . Wi th our conclusi on that the impli ed promise did not arise in this case, we pretermit these issues.

We would like to address, however, why in our judgment, est oppel wo uld not help NPS in e nforcing the al leged oral agreement to fund the purchase orders

. Althou gh the Tennessee cou rts have re cogn ized that pr omisors may

be estopped from raising the defen se that their promises were notin wri ting, see Baliles v. Cities Service Co. , 578 S.W.2d 621 (Tenn. 1979), Disney v. Henry , 656 S.W.2d 859 (Tenn. App. 1983), estoppel cannot be used to c reate rig hts -- only to protect them. See E. K. Hardison Seed

Co. v. Continental

Casualty C

o. , 56 Tenn. App. 644, 410S.W.2d729 (1966). If the ban k, on the basis of estoppel, could be forced to conti nue funding

to NP S, NPS wou ld acquire greater r ights than i t had under the or al agreement. Therefore, the doctrine of estoppel should not be applied to secure the res ult NPS seeks.

The judgmentof the court below is affirmed and thecause is remanded to the C hanc ery

Cou rt o f D avidson C ounty for any further proceedi ngs that may become necessary . Tax the costs on appeal to th e appellant.

_________________________________ BEN H. CAN TRELL, JUDGE

CONCUR:

_______________________________ HENRY F . TODD, PRESID ING JUDGE MIDDLE SECTION

_______________________________ SAMUEL L. LEWIS, JUDGE