Court Opinion

ID: 6460444
Source: CourtListenerOpinion
Date Created: 2022-06-25 12:47:13.104595+00
Date Added: 2024-06-11T15:51:53.857936
License: Public Domain

Gillerman, J.
(dissenting). Because I am persuaded, for a number of reasons, that the majority has reached the wrong result, I dissent.
This was a tawdry affair. Bryson, as the majority observes, applied to Commerce for a $65,000 loan so that Bryson could contribute the loan proceeds to NENMCO, thereby increasing NENMCO’s net worth. This injection of capital was necessary if NENMCO was to qualify as an approved lender for HUD. However, a contemporaneous memorandum handwritten by the chief executive officer of Commerce records the understanding that NENMCO was to use the loan proceeds to buy a “CD [i.e., a certificate of deposit] [which was to be] pledged to Bank. Stock to[o].”
An additional typewritten memorandum from the loan file of Commerce, dated the date of the closing on the first loan, confirms the agreed arrangement: “Repayment [of the loan] will come from cash flow of [NENMCO] or from a $65,000 certificate of deposit which [NENMCO] will have in our bank once the note closes .... [or] from personal assets of Bryson” (emphasis added).
Since Bryson did riot have the credit to borrow $65,000, he persuaded his friend Hayeck, who was credit worthy, to be his comaker of the note on Bryson’s assurance, as the judge found (see below), that the loan would be secured by a CD purchased with the loan proceeds.
The history continues: there never was a CD. Instead, the proceeds of the loan were deposited in a NENMCO account, but the judge found that this was done “to comply with the . . . understanding between Commerce and Bryson (that the funds would remain on deposit at the bank as security for repayment of the [Bryson/Hayeck] loan). Hayeck was led by Bryson to believe that this arrangement was in place when he co-signed the note.”1 (Emphasis added.)
Thus Commerce, Bryson, and Hayeck entered into an unlawful scheme to conceal from HUD the fact that the apparent increase in the net worth of NENMCO was in fact false. That is enough to make the contractual arrangements — designed to carry out an illegal scheme — unenforceable. See Tocci v. Lembo, 325 Mass. 707, 708-710 (1950) (a contract which *698contemplates the violation of a governmental regulation is illegal, and a contract, the performance of which was in violation of Federal regulations, was held unenforceable). See also Green v. Richmond, 369 Mass. 47, 51 (1975) (“Massachusetts law will not enforce ... a contract to commit a crime”). Commerce held an uncollectible note.2
Continuing: when the first note fell due, and a renewal was necessary, the judge found that Gennaro, the loan officer, by negligent misrepresentations “fraudulently induced” Hayeck to sign the second note.3 See Graves v. R.M. Packer Co., 45 Mass. App. Ct. 760, 767 n.12 (1998), and cases cited therein.
The majority argues that Gennaro’s fraudulent inducement of Hayeck’s signing of the second note comes to nothing because Hayeck was not harmed by the fraud: he would have been liable on the first note. I disagree.
The first note, as I have said, was unenforceable. Even if this were not so, I disagree with the majority because: *699creditor. Ibid. Here, the collateral for the second note was exactly the same as the collateral for the first note. Indeed the pledge agreement referred to in the first agreement is the same pledge agreement referred to in the second note. There being no release of the collateral for the first note — other than the withdrawal of $50,000 from the NENMCO account without objection from Commerce — the presumption is not rebutted.
*698(i) the judge asked counsel for Commerce: “The renewal note superseded and may no longer be effected [szc] by the original note; is that right?” Counsel for Commerce answered: “That’s correct.” That admission is binding upon Commerce. See Liacos, Massachusetts Evidence § 2.5 (6th ed. 1994) (counsel may make a judicial admission binding upon his client by statements of counsel during the trial); and
(ii) it is a “long established presumption here existing . . . that the giving of a negotiable note is a discharge and extinguishment of prior indebtedness between the parties on which it is founded.” See Dow v. Poore, 272 Mass. 223, 227 (1930).4 That presumption is rebutted only where the security for the original debt would be released to the detriment of the
*699Finally, the judge found that, after Bryson’s death, Commerce, piling Pelion on Ossa, paid out all the funds remaining in NENMCO accounts “to NENMCO and/or to Bryson’s widow [at a time when] Commerce was aware of the outstanding loan and its arrangement with Hayeck and Bryson that the $65,000 would be held and used solely to ensure repayment of the loan. Although there were also other NENMCO and personal Bryson funds on deposit at the bank, none of these were ever ‘set off’ to reduce the loan, and Commerce never attempted to exercise its voting rights in the stock so as to effectuate repayment from NENMCO’s bank accounts or other assets.”
To this I would add only the Hayeck 93A counterclaim for negligent misrepresentation stated a good claim under Glicknan v. Brown, 21 Mass. App. Ct. 229, 234-235 (1985).
Commerce cannot, with justification, assert a claim against Hayeck who, to the knowledge of Commerce, did no more than cosign the note as an accommodation to Bryson and with one hundred per cent collateral. For this, Commerce deceived Hayeck, and now seeks to collect a debt it should have, and could have, collected either from a NENMCO CD or the NEN-MCO corporate accounts. The result reached by the majority, in my view, works a substantial injustice. The complaint of Commerce should be dismissed, and Hayeck’s estate should recover its costs and attorney’s fees under c. 93A.

Without doubt, Hayeck was a third-party beneficiary of the agreement between Commerce and Bryson described by the judge.

This point has not been argued by Hayeck, but that is of no consequence. An appellate court may, “[w]here injustice might otherwise result, . . . consider questions of law which were neither argued nor passed upon in a court or agency below.” McLeod’s Case, 389 Mass. 431, 434 (1983). Pryor v. Holiday Inns, Inc., 401 Mass. 506, 509 (1988).

The judge found that Gennaro “assured Hayeck that the bank was [emphasis in original] holding the $65,000 in a separate NENMCO account from which the note would be repaid.” The judge found that in fact Bryson had withdrawn $50,000 from the NENMCO account “which Gennaro admitted he could readily have ascertained, had he bothered to do so.”

The majority argues that this was an argument first made on appeal, suggesting a defect on that account. I disagree. When the party who prevails below makes a new argument on appeal, we can adopt that argument — and *699often do — on the theory that the judge can be “right for the wrong reason, even relying on a principle of law not argued below.” See Aetna Cas. & Sur. Co. v. Continental Cas. Co., 413 Mass. 730, 734-735 (1992).