Opinion ID: 1695998
Heading Depth: 1
Heading Rank: 4

Heading: Defendant's Second Assignment of Error

Text: In FNBJ's second assignment of error, it argues that the bank did not breach either a fiduciary or a contractual duty to Trans-Global. FNBJ strenuously contends that it never committed to issuing a revolving letter of credit to finance all ten shipments of couplings, or to its virtual equivalent, ten consecutive conventional letters of credit, each issued one month apart. First, it asserts that Trans-Global's claims are defeated by the fact that it neither asked for nor received any commitment in writing. The bank maintains that not only would experienced businessmen expect to have a written commitment in an international trade deal of this size, but that such a writing is required by LSA-R.S. 6:1122 for a borrower to maintain an action on this kind of credit transaction. [7] FNBJ acknowledges that the statute was adopted after this action arose, but contends that, as a procedural enactment, it should be applied retroactively. FNBJ further argues that Trans-Global cannot rely on the bank's internal loan application prepared by Spratt on Trans-Global's behalf as the requisite written commitment. Although that application was checked (/) by the loan committee as approved, FNBJ notes that the word revolving was struck through, and that the application contained an amended expiration date of June 9, 1982, and listed the amount of the loan as $190,000. Further, one of the specific items of collateral listed in the application is the assignment of FNBL's revolving irrevocable letter of credit # 793 in the amount of $305,000. FNBJ contends that if the application was intended to reflect a loan to cover all ten shipments, the value of the FNBL letter of credit would have been listed as $3,050,000. We find no merit in FNBJ's argument that a written commitment was necessary in order for the bank to be bound to finance all ten shipments. As FNBJ acknowledges, LSA-R.S. 6:1121-6:1123 did not take effect until 1989, approximately four years after this suit was filed, and more than seven years after the events giving rise to this suit took place. Although Louisiana Civil Code article 6 provides that substantive laws apply prospectively only, while procedural and interpretive laws apply both prospectively and retroactively, unless there is legislative expression to the contrary, we need not decide into which category LSA-R.S. 6:1121-6:1123 falls. This Court has often noted that even procedural and interpretive laws will not be applied retroactively when such application would operate unconstitutionally to disturb vested rights or impair contracts. See, e.g., Lott v. Haley, 370 So.2d 521 (La.1979); Ardoin v. Hartford Accident & Indem. Co., 360 So.2d 1331 (La. 1978). Therefore, LSA-R.S. 6:1121-6:1123 cannot be applied retroactively to divest Trans-Global of any contractual rights it may have had in regard to its agreement with FNBJ. Further, according to testimony given by FNBJ's president, Elton Arceneaux, it was not normal banking practice at that time to put commitments such as this in writing. FNBJ next submits that even if a written commitment was not required, Trans-Global had the burden of proving that both parties had orally agreed to substantial elements of the contract, by at least one witness and other corroborating circumstances. La.C.C. art. 1846. The bank argues that Trans-Global failed to carry that burden. It cites testimony by both Wyatt and Naquin that they understood that Spratt did not have the authority to issue a revolving letter of credit, and that the decision would have to be made by the loan committee. The bank also asserts that the testimony of the plaintiff's witness, Don Weekly, former FNBJ senior vice-president and member of its loan committee, only established that he and Spratt were in favor of a $1.9 million commitment, not that the bank in fact made such a commitment. FNBJ further claims that the documentary evidence cited by Trans-Global, including the amended loan application, a memo from Spratt to Weekly concerning the loan commitment, and letters between Spratt and Little (an officer at Allied Bank of Texas), actually support its position that the commitment was for only one letter of credit. It also cites the testimony of banking expert James Byrne, who stated that he did not consider the FNBL letter of credit to be good collateral because it was subject to performance by Trans-Global and to FNBL's discretion. Byrne testified that it would have been prudent to ask for more collateral for a single $190,000 loan than FNBJ obtained altogether from Trans-Global, Wyatt, and Naquin. FNBJ concludes that Trans-Global produced no witness or any corroborating evidence to prove that the bank made a $1.9 million commitment. After reviewing the record, however, we conclude that the jury could reasonably have found that Trans-Global established the existence of a $1,900,000 commitment by FNBJ through testimony and corroborating evidence. Under our jurisprudence, the plaintiff can be the one credible witness, and the corroborating circumstances need only be general in nature. Taylor v. Dowden, 563 So.2d 1294 (La.App. 3d Cir.1990); Feazel v. Feazel, 471 So.2d 851 (La.App. 2d Cir.1985). Furthermore, testimony of a second witness may constitute other corroborating circumstances. Dunham v. Dunham, 467 So.2d 555 (La. App. 1st Cir.), writ denied, 469 So.2d 989 (La. 1985). In this case, Wyatt and Naquin both testified that from the inception of the plan to import couplings from China, the bank, through Spratt, was privy to the details of all of their transactions, including Trans-Global's respective contracts with CCSI and Pel-Star. They also testified that they were continually encouraged to believe that the bank would commit to issuing a revolving letter of credit which Trans-Global had contracted with the Chinese to provide. They stated that even when, after the March 25, 1982 loan committee meeting, they were informed that a revolving letter would not be forthcoming, Spratt told them that the bank would commit to issuing ten consecutive letters of credit which would accomplish the same purpose. Notwithstanding Spratt's contrary testimony that he had told Wyatt in early April that issuance of a second letter of credit would be premised on repayment to FNBJ for its first letter, the jury was obviously free to give credence instead to Wyatt's and Naquin's statements. Although Wyatt and Naquin admittedly knew that the final decision on the bank's commitment would have to be made by the loan committee, they had traditionally been informed of bank actions through Spratt. Spratt was a senior vice-president and loan officer with whom Wyatt had had a long-term banking relationship. It would not have been unreasonable or unusual for customers in their position to rely on assurances that a revolving letter of credit would be issued, or to believe a statement that the loan committee's decision to issue instead ten consecutive letters of credit would accomplish the same thing. Additionally, there was testimony by Don Weekly, the bank's former senior vice-president and number-two man, and the only member of the loan committee to testify, that he knew that the contract with CCSI depended upon a continuous flow of cash payments to China, each payment followed by a shipment of couplings to the United States, and that if any part of this chain was interrupted, the arrangement would fall apart. He also testified that it was intended that FNBJ would issue ten consecutive letters of credit. Although the documentary evidence presented is ambiguous, it could reasonably have been interpreted by the jury as supporting the plaintiffs' position that FNBJ had made a commitment to finance the entire ten month transaction. For example, although the loan committee scratched out the word revolving on the loan application prepared by Spratt on Trans-Global's behalf, and penciled in the words Amended: L/C will expire 6/9/82, the Committee left untouched the loan maturity date of Demand/Feb 1983, as well as the stated purpose of the loan: Note to back Letter of Credit to import couplings. Shipments will arrive every month for 10 months (1,900,000) commencing May, 1982. Further, under the Credit EvaluationCredit History section, the application provides that although the FNBL letter of credit can be drafted upon shipping documents for the first shipment, the [r]emaining nine (9) shipments will draft upon arriving Port of New Orleans or Houston. Trans-Global also introduced a memorandum prepared by Spratt after the loan committee's action, which refers to the bank's first letter of credit, and states that Wyatt would have assets available to pay for subsequent and future letters of credit to be issued by FNBJ. Further, the affidavit of FNBJ officer Don Lathrop, executed at the time the bank attempted to make the second draft against the Lafayette bank's $3 million letter of credit, stated that FNBJ was authorized to make their first of nine consecutive drafts. Finally, the jury could have reasonably found the amount of collateral required by FNBJ to be more than the bank would have requested simply for a $190,000 loan. FNBJ had very little exposure on its first letter since it was secured by an irrevocable letter of credit from the Lafayette bank, payable simply on presentment of documents and not upon receipt of the couplings. Further, under the terms of the contemplated shipment and payment schedules, FNBJ would never have at risk more than two $190,000 letters of credit at any time. Yet, in addition to FNBL's $3 million letter of credit, the bank required as collateral the personal guarantee of Wyatt, who had a net worth of $500,000; the guarantee of Wyatt's other corporation, Oilfield Tubulars, which held inventory valued at $400,000; a second mortgage on Wyatt's home which had an equity of $75,000; the personal guarantee of Paul Naquin; and the issuance of a $500,000 policy of insurance on Wyatt's life naming FNBJ as beneficiary. In conclusion, we find that the testimony of Trans-Global's witnesses, the references to multiple shipments in the documents introduced into evidence, and the amount of collateral held by FNBJ could reasonably constitute proof of a contract by at least one witness and other corroborating circumstances as required by Civil Code article 1846. We have concluded that there was no manifest error in a finding that FNBJ breached a contractual duty to Trans-Global. However, the jury interrogatory on which FNBJ's liability was based leaves open the possibility that the jury found instead that it was a fiduciary obligation which FNBJ breached. We therefore now consider whether that finding would have been manifestly erroneous. FNBJ first contends that under the general principles of lender liability and banking law, a creditor and debtor have an arm's length relationship which imposes no independent duty of care, and specifically, no fiduciary duty, on the lender. The bank argues that this general rule is followed in Louisiana, citing Busby v. Parish National Bank, 464 So.2d 374 (La.App. 1st Cir.), writ denied, 467 So.2d 1132 (La.1985). FNBJ further maintains that as a pledgee, it could be held liable only for the loss or decay of the pledged item which occurred through its fault. See La.C.C. art. 3167. The bank acknowledges that in protecting the pledge, it was required to act as a prudent administrator, but contends that its duty of care did not extend to taking action which was contrary to its own interests. It argues that its refusal to issue its own second letter of credit until the first shipment of couplings arrived had been both prudent and in accord with its contractual obligations to Trans-Global and its fiduciary duty to its shareholders. Finally, FNBJ asserts that it took years of litigation to establish that FNBL's letter of credit had expired on July 24, 1982, and that the bank had not been unreasonable in concluding, mistakenly, as it turns out, that the letter would not expire on that date. After a review of the record and the applicable statutory and jurisprudential authority, however, we conclude that a jury finding that FNBJ breached a fiduciary duty would not be manifestly erroneous. Although the creditor-debtor relationship does not normally impose an independent duty of care on the part of the creditor, that relationship may give rise to such a duty in certain circumstances. In Baylor v. Jordan, 445 So.2d 254, 256 (Ala.1984), the Alabama Supreme Court found a fiduciary duty to exist where a customer reposes trust in a bank and relies on the bank for financial advice, or in other special circumstances. See also High v. McLean Financial Corp., 659 F.Supp. 1561 (D.D.C.1987) (plaintiffs' claim that fiduciary duty existed by virtue of their loan application, processing fees, and defendants' promises to them held to support an inference of such a duty); Barnett Bank of West Florida v. Hooper, 498 So.2d 923 (Fla.1986); T. Bucknell, Jr., S. Goodwin, & M. Stoddard, Jr., Lender Liability: Theory and Practice § 1.21. The court in the case cited by FNBJ, Busby v. Parish National Bank , did not reach a contrary conclusion. Rather, the court found that on the facts of that case, no fiduciary duty was imposed by law or as a result of a special relationship of trust between the parties (the latter indicated by the fact that the plaintiffs were accompanied by counsel in their meetings with the bank). Further, in this case FNBJ held in trust, as pledgee, Trans-Global's letter of credit from FNBL. It has been recognized that from the very nature of the transaction there arises a trust relationship between the pledgor and pledgee with attendant duties to protect the debt or the obligation and the collateral. The pledgee is presumed to act for the pledgor's interest as well as for his own, although their interests are not identical. In re Pan American Life Ins. Co., 88 So.2d 410, 415 (La.App. 2d Cir.1956); see also Commercial National Bank in Shreveport v. Parsons, 144 F.2d 231 (5th Cir.1944), reh'g denied, 145 F.2d 191, cert. denied, 323 U.S. 796, 65 S.Ct. 440, 89 L.Ed. 635 (1945) (very nature of transaction between pledgor and pledgee gives rise to a trust relationship with consequent duty to protect the debt or obligation and collateral). The duty of care imposed on the pledgee in this trust relationship, is, as FNBJ acknowledges, that of a prudent administrator or paterfamilias. See Slovenko, Of Pledge, 33 Tul.L.Rev. 59 (1958). More specifically, Civil Code article 3167 provides that the pledgee is liable for the loss or decay of the pledge that happens through his fault. That provision is precisely the instruction which the trial judge gave to the jury regarding fiduciary duty. Therefore, a finding by the jury that FNBJ violated a fiduciary duty would necessarily have been based on its belief that the FNBL letter of credit suffered loss or decay while in FNBJ's care and as the result of the bank's fault. It has clearly been established that the letter of credit expired and lost its value while held by FNBJ. The issue thus becomes whether the jury could have reasonably found that the letter expired through the fault of the bank. The pledgee is not at fault if the pledged item loses value as a result of market trends or conditions over which he has no control. Naquin v. American Bank of Luling, 347 So.2d 332 (La.App. 4th Cir.1977). Nor is he required to take action to preserve the value of the pledge which is contrary to his own interests and legal rights when he has no other obligation to do so. Whitney National Bank v. Jeffers, 573 So.2d 1262 (La.App. 4th Cir. 1991). We cannot say, however, on the record compiled in this case, that it would be unreasonable to conclude that FNBJ did have a fiduciary obligation to take affirmative steps to preserve the value of this pledge. FNBJ was fully cognizant, virtually from its inception, of Trans-Global's plan to import couplings from China, having helped to put the complicated deal in place. FNBJ loan officer Spratt's testimony reflected an intimate knowledge of and involvement in the development of the transaction, from his preliminary discussions with Wyatt and Naquin to his review of the terms of Trans-Global's contracts with CCSI and Pel-Star. Further, Wyatt testified that after going over the details of the CCSI contract, Spratt assured him that if Trans-Global could sell the couplings, and get a revolving letter from the purchaser as security, FNBJ would finance the transaction. Wyatt again consulted with Spratt after signing the contract with Pel-Star, and testified that Spratt virtually dictated the terms of the letter of credit that Pel-Star acquired from FNBL, since it was intended from the beginning that FNBJ would be the financier and holder of the letter. FNBJ was therefore obviously aware of the terms of both the CCSI and Pel-Star contracts, and knew what consequences failure to issue timely letters of credit would have on the delivery schedules under those contracts. There was also testimony, as discussed above, that Wyatt and Naquin continued to rely on Spratt's assurances that the bank would finance all ten shipments until they were finally told otherwise in late May 1982. We cannot say, therefore, that under the circumstances of this case, the jury would have been manifestly erroneous to find that FNBJ had a fiduciary duty both to ascertain the expiration date of the FNBL letter of credit which it held in pledge, and to take action to prevent its expiration. Because we determine that the jury would not have been clearly wrong in finding a breach of a contractual or a fiduciary duty, we conclude that there is no merit in the defendant's second assignment of error.