Opinion ID: 901642
Heading Depth: 1
Heading Rank: 5

Heading: The FMC Buyout Provisions

Text: [¶17.] Wells Fargo argues that it received nothing from NSC to validate its guarantee to purchase the HVAC in the event of lessee default. It further argues that the guarantee is invalid because the payment of the HVAC purchase price from NSC to the bank was merely inherent to its normal lender-borrower relationship with Si-Tanka. We disagree. [¶18.] That NSC's payment of the HVAC purchase price to the bank was inherent to a normal lender-borrower relationship of Wells Fargo alone establishes the validity of the guarantee. Loaning money for the purchase of the University was an authorized activity for Wells Fargo. NSC's $250,000.00 payment directly to the bank that was applied as credit against the loan balance was convenient and useful in connection with Wells Fargo's performance of its authorized activity of lending money. Wells Fargo's guarantee that it would purchase the HVAC from NSC in the event of lessee default was an inducement for NSC to enter into the FMC, hence giving rise to the payment. As such, the guarantee was incidental to Wells Fargo's authorized activity of lending money for the purchase of the University. Therefore, Wells Fargo had a substantial interest in making the guarantee. [¶19.] Wells Fargo similarly had a substantial interest in making the guarantee from the standpoint that the building infrastructure collateral for the University loan had more value with the guarantee than without. Had NSC entered into the FMC absent Wells Fargo's guarantee, NSC would have been entitled to reposes the HVAC when Si-Tanka defaulted. Wells Fargo attempts to claim that the guarantee added no value to the loan collateral by evincing its perfected security interest in all University property. However, Wells Fargo overlooks the fact that it was anything but assured to garner sufficient proceeds on a foreclosure sale to cover the outstanding loan balance. Absent a functioning HVAC, the likelihood of a full recovery at foreclosure would have been even more remote. Since the guarantee did add value to the collateral it was likewise convenient and useful to the loan and thus incidental to that authorized activity. Consequently, Wells Fargo also had a substantial interest in making the guarantee from this perspective. [¶20.] Although the enforceability of Wells Fargo's guarantee is evident from this analysis, we also deem it necessary to address Wells Fargo's claim that it received nothing from the HVAC transaction. First and obviously, the bank received cash in hand from NSC that it applied against the loan balance thereby reducing its exposure and increasing its equity in the loan by $250,000.00. Second, as discussed, the bank benefited from the value added to the collateral by the guarantee. Third, Wells Fargo benefited from NSC's additional expenditures made in upgrading the HVAC. [¶21.] The second benefit is not quantifiable. However, the first and the third are completely quantifiable as evident from the buyout provisions of the FMC. That Wells Fargo and its predecessor, Marquette, were cognizant of these benefits is obvious from the credit committee's August 11, 1999 loan approval that made reference to the anticipated $250,000.00 payment from NSC. This cognizance is further demonstrated by the loan approval documents that show, as part of the loan approval process, Wells Fargo considered the weight of the maximum potential buyout price against the risk minimizing benefits of the HVAC transaction. [¶22.] Wells Fargo received $250,000.00 in cash, based on the retail price of the HVAC, thus improving its equity position in the loan. NSC invested an additional $250,000.00 that enhanced the value of the HVAC to Wells Fargo on buyout. Less straight-line depreciation, Wells Fargo realized a quantifiable benefit of $450,000.00 and its guarantee is enforceable to that extent. [¶23.] We reverse and remand for further proceedings consistent with this opinion. [¶24.] SABERS and MEIERHENRY, Justices, and MILLER, Retired Justice, concur. [¶25.] ZINTER, Justice, concurs in result. [¶26.] MILLER, Retired Justice, sitting for KONENKAMP, Justice, disqualified.