Opinion ID: 1120779
Heading Depth: 1
Heading Rank: 4

Heading: the isaaks failed to carry the burden of proving fraud by clear and convincing evidence.

Text: The Isaaks assert that they proved that they were induced by the fraud of Haney and the bank to renegotiate the original note. We disagree. The trial court concluded that the Isaaks failed to carry their burden of proving by clear and convincing evidence necessary elements required to support a fraud claim. One of the elements the trial court concluded the Isaaks had not proved was that either Haney or the bank made a false representation. In asking us to reject this conclusion, the Isaaks again refer to the letter from Haney's attorney in September 1984. They refer to the portion of the letter stating that Haney could not service its debt to the Isaaks and contend that this implies Haney was insolvent. The Isaaks argue that Haney was not insolvent because it regularly paid the bills it wanted to have paid for 1984 and thereafter. They also argue that the insolvency of Haney is irrelevant, because Haney which the bank owned, controlled, and operated, had ceased to exist, and that the bank was not insolvent. The Isaaks contend that the bank was capable of making the November 1, 1984 payment to them. The trial court found that the bank decided to keep Haney intact as a going business and to control its management and operation until it could be sold, by taking custody of 100% of the corporate stock of Haney, which was accomplished by an agreement [with Haney's stockholders]. The trial court also found that although the bank appointed a new board of directors for Haney, the bank and Haney continued to operate as separate entities and to continue a debtor-creditor relationship. These findings are supported by substantial evidence in the record and, therefore, are not clearly erroneous. The Isaaks put special emphasis on the contention that Haney had a line of credit from the bank of $3,500,000.00. The trial court found that when Haney's attorney wrote to the Isaaks on September 18, 1984: Haney had borrowed at or near the maximum amount available to it pursuant to its credit line to purchase inventory, create accounts receivable, to operate its warehouse business and farms, including annual principal and interest payments on the purchase of the farms. The testimony of an executive vice-president of the bank indicated that in 1984 Haney's credit line with the bank was becoming tight. By November 1984, Haney owed the bank almost $3,400,000.00 on its operating line of credit  $277,000 of which was attributable to Haney's farming operations. During the 1984 crop year, Haney lost money on the operation of the farm. Although by controlling and operating Haney, the bank was protecting its own interest in the several million dollars that Haney owed the bank, Haney continued as a separate entity and depended on the bank's approval of loan applications to continue operating. In a loan application dated November 26, 1984, Haney sought a $3,500,000.00 line of credit for the following year. This application stated that Haney's farm operations had been terminated and that the farm ground would be sold or turned back to the previous owners by way of deeds in lieu of foreclosure. The outstanding operating loans to Haney as of November 26, 1984 were $3,390,612.69. At the same time, Haney owed the bank $5,393,199.04 on other loans. On December 4, 1984, the bank approved an operating loan for Haney of $3,500,000.00, with the understanding that any advances over $3,000,000.00 had to be approved by the executive vice-president of the bank. The statement in the letter of Haney's attorney to the Isaaks that it was impossible for Haney to service its debt obligation to the Isaaks was not false. Haney did not have funds to make the payment that was due on November 1, 1984. The bank was not obligated to pay the Isaaks, and, therefore, the bank's solvency was irrelevant. The trial court correctly concluded that Haney had failed to carry its burden of proving fraud by clear and convincing evidence.