United States Court of Appeals,
Fifth Circuit.
No. 95-10688.
CLARDY MANUFACTURING COMPANY, Plaintiff-Appellee/Cross-Appellant,
v.
MARINE MIDLAND BUSINESS LOANS INC, Defendant-Appellant/Cross-
Appellee,
and
Jim L. Ely, Movant.
July 22, 1996.
Appeal from the United States District Court for the Northern
District of Texas.
Before WISDOM, EMILIO M. GARZA and PARKER, Circuit Judges.
EMILIO M. GARZA, Circuit Judge:
Plaintiff Clardy Manufacturing Company ("Clardy
Manufacturing") sued Marine Midland Business Loans, Inc.
("Marine"), alleging that Marine breached its commitment to lend
under a satisfaction contract. Following a bench trial, the
district court concluded that Marine had obligated itself to make
a loan to Clardy Manufacturing under the satisfaction contract once
certain creditworthiness criteria had been satisfied and awarded
damages in favor of Clardy Manufacturing. Marine now appeals.
Clardy Manufacturing cross-appeals the district court's denial of
its claim under the Texas Deceptive Trade Practices Act ("DTPA")
and the district court's failure to consider its alternative common
law claims for fraudulent misrepresentation, negligent
misrepresentation, and promissory estoppel. Concluding that there
1
was no satisfaction contract obligating Marine to make a loan, and
that Clardy Manufacturing's remaining claims fail as a matter of
law, we reverse in part, affirm in part, and render judgment in
favor of Marine.
I
Clardy Manufacturing Company is a family owned business that
makes and sells after-market air conditioners for automobiles. In
1989, John Clardy, Jr., began looking for new financing for the
company, primarily in order to purchase the shares of the company's
retiring founder, his father John Clardy, Sr., and thereby take
over ownership of the company. The company also needed financing
in order to effect a merger with Premier Parts, Inc.,1 to refinance
its existing debt, and to obtain additional working capital.2
Clardy Manufacturing unsuccessfully sought financing from at least
six different lenders. The company was eventually referred to
Marine, an asset-based lender with an office in Dallas, Texas. In
contrast to a commercial bank, which primarily makes loans based on
a company's cash flow, an asset-based lender like Marine makes
loans on the basis of a company's collateral.
In the middle of 1990, Clardy Manufacturing discussed a
potential loan with Michael Norvet, the senior business development
officer for Marine's Dallas office. After Clardy Manufacturing
1
Premier Air Parts, Inc., which was also in the after-market
air conditioner business, sold air conditioner parts to customers
of Clardy Manufacturing and its competitors.
2
On sales of nearly $16 million in 1989, the company suffered
a loss of $663,000.
2
submitted some preliminary financial information, Norvet informed
the company that it did not meet Marine's minimum loan
requirements. Discussions resumed, however, in the fall of 1991,
after Marine reduced its minimum loan requirements from $5 million
to $3 million. Clardy Manufacturing had not yet been able to
secure financing, and John Clardy, Jr., and Norvet discussed the
possibility of a $4 million loan. John Clardy, Jr., provided
Norvet with additional financial information about the company, and
he also completed Marine's pre-loan questionnaire and submitted the
required financial projections.
In early January 1992, representatives from Clardy
Manufacturing and Marine met in Dallas to discuss the loan
application. John Clardy, Jr., arrived with Richard Berman, the
President of Premier Air Parts. Norvet introduced the two men to
Jim Ely, Marine's senior regional manager of the Dallas office, and
Frank Mederos, Marine's national marketing director. There was
conflicting evidence presented at trial regarding what exactly the
Marine representatives told John Clardy, Jr., and Berman regarding
Marine's credit approval process. Nevertheless, the parties agree
that at the close of the meeting, Mederos authorized the issuance
of a proposal letter, which would permit Marine to proceed further
in evaluating Clardy Manufacturing's loan application.
Accordingly, at another meeting ten days later, a proposal letter,
or letter agreement, was signed by John Clardy, Jr., and Norvet.
Clardy Manufacturing argues that this letter constituted a
"satisfaction contract," while Marine, on the other hand, contends
3
that it was merely an agreement to undertake due diligence.
Marine proceeded to conduct due diligence aimed at evaluating
the financial health of Clardy Manufacturing, as well as the
company's collateral that would form the basis for the $4 million
loan. As part of this effort, Marine had appraisals made of Clardy
Manufacturing's real property, inventory, and equipment. Marine's
auditors also conducted a field examination of Clardy
Manufacturing's books and records. In April of 1992, the resulting
due diligence information was analyzed by David Boyd, the senior
officer at Marine's Dallas office. Boyd's responsibility was to
generate the "PCREF," Marine's computer generated, credit
evaluation form. Based on the computer analysis, Boyd concluded
that Clardy Manufacturing did not meet all of Marine's credit
approval requirements, and as a consequence the loan application
would have to go through an additional level of home office
approval. Nevertheless, Boyd, who did not have any credit approval
authority, recommended that the loan be approved.
Clardy Manufacturing's loan application and the PCREF results
were then reviewed by Kurt Putkonen, who was administrative
vice-president and territory manager for Marine. Putkonen also had
no credit approval authority. After making an independent
evaluation of the loan documents, Putkonen decided not to recommend
to the home office that Clardy Manufacturing's loan application be
approved,3 and in the middle of June 1992, Norvet communicated to
3
Putkonen explained at trial that he had been concerned about
the company's history of losses during the previous three years,
that the company was significantly behind in its current year plan,
4
John Clardy, Jr., that the credit approval process had come to an
end.
In the middle of March 1992, while Marine was still conducting
due diligence, John Clardy, Jr., introduced Norvet at a lunch
meeting to Graeme McDougall, the Chairman of Environmental Products
Amalgamated ("Environmental Products"), an Australian company that
sold freon recovery and recycling equipment. John Clardy, Jr., was
considering entering into a licencing agreement with Environmental
Products. Although the Environmental Products deal was not part of
the proposed Marine loan package, Berman testified at trial that
Clardy Manufacturing, as a matter of priorities, was not going to
enter into the Environmental Products deal unless the Marine loan
was approved. At this lunch meeting, Norvet is alleged to have
assured John Clardy, Jr., and McDougall that a "commitment letter"
would be issued within the next two to five days, or in other
words, that the loan would be approved within a matter of days.
John Clardy, Jr., claims that based on this assurance, he entered
into the contemplated licencing agreement with Environmental
Products two days later. According to Clardy Manufacturing,
Marine's failure to approve the loan made it impossible for the
company to make timely payments as called for in the Environmental
that there were potential problems with dilution of the company's
accounts receivable collateral, and that the company was just
beginning to implement a perpetual inventory system, which Marine
considered critical to Clardy Manufacturing's slow-moving
inventory. Putkonen also noted that only a small portion of the
loan would be going towards additional working capital, and the
rest would be used for "non-growth" business purposes such as
buying the stock of John Clardy, Sr., and paying off existing debt.
5
Products licencing agreement.
Clardy Manufacturing eventually brought suit against Marine
alleging breach of contract, fraudulent misrepresentation,
negligent misrepresentation, and promissory estoppel. After a
bench trial, the district court awarded Clardy Manufacturing
$8,111,467 on its breach of contract claim, rejected the DTPA
claim, and declined to consider Clardy Manufacturing's alternative
common law theories of recovery. Marine appeals from the award of
damages, and Clardy Manufacturing cross-appeals from the district
court's denial of its DTPA claim and failure to consider its
alternative common law claims.
II
A
Marine contends that the district court erred in concluding
that the January 1992 letter agreement was a satisfaction contract.
The interpretation of an unambiguous contract is a question of law
which we review de novo. Guidry v. Halliburton Geophysical Servs.,
Inc., 976 F.2d 938, 940 (5th Cir.1992). However, when a contract
is ambiguous and its construction turns on the consideration of
extrinsic evidence, we review the district court's interpretation
for clear error only. Id. The initial determination that a
contract is ambiguous, such that its interpretation warrants the
consideration of extrinsic evidence, is itself a legal conclusion
subject to de novo review. Id. We look to state law to provide
the rules of contract interpretation. Matter of Haber Oil Co.,
Inc., 12 F.3d 426, 443 (5th Cir.1994).
6
Under Texas law, a contract is ambiguous if, after applying
established rules of interpretation, the written instrument
"remains reasonably susceptible to more than one meaning." R & P
Enterprises v. LaGuarta, Gavrel & Kirk, 596 S.W.2d 517, 519
(Tex.1980); see also Towers of Texas, Inc. v. J & J Systems, Inc.,
834 S.W.2d 1, 2 (Tex.1992) ("A written instrument is ambiguous when
its meaning is uncertain and doubtful or it is reasonably
susceptible to more than one meaning, taking into consideration the
circumstances present when the instrument was executed."); Harris
v. Rowe, 593 S.W.2d 303, 306 (Tex.1979) (requiring a "genuine
uncertainty" as to which of two meanings is proper). On the other
hand, if a contract is worded so that a court can give it a certain
or definite legal meaning or interpretation, it is not ambiguous.
R & P Enterprises, 596 S.W.2d at 519. Where the contract is
unambiguous, extrinsic evidence "will not be received for the
purpose of creating an ambiguity or to give the contract a meaning
different from that which its language imports." Universal C.I.T.
Credit Corp. v. Daniel, 150 Tex. 513, 243 S.W.2d 154, 157 (1951);
Lewis v. East Texas Finance Co., 136 Tex. 149, 146 S.W.2d 977, 980
(1941).
We must enforce the unambiguous language in a contract as
written, and the applicable standard is "the objective intent"
evidenced by the language used, rather than the subjective intent
of the parties. Sun Oil Co. (Delaware) v. Madeley, 626 S.W.2d 726,
731 (Tex.1981). In determining whether the language of the
contract is unambiguous, however, we "should examine and consider
7
the entire writing in an effort to harmonize and give effect to all
the provisions of the contract so that none will be rendered
meaningless." Coker v. Coker, 650 S.W.2d 391, 393 (Tex.1983)
(emphasis in original). Furthermore, "[n]o single provision taken
alone will be given controlling effect; rather, all the provisions
must be considered with reference to the whole instrument." Id.
With these rules of construction in mind, we turn now to the
January 1992 letter agreement between Clardy Manufacturing and
Marine.
B
The letter agreement begins by stating that its purpose is to
"set forth the financial accommodations that Marine would be
willing to consider in addressing CM's [Clardy Manufacturing's]
financial needs." The letter proceeds to describe these financial
accommodations, or "Credit Facilities," in some detail: "Marine
would consider offering CM a 3 year revolving credit facility";4
"Marine would consider offering the Company a 3 year term loan
facility."5 The letter states when the "Credit Facility" and "Term
4
Under the "Revolving Credit" line, Marine stated that it
would consider offering advances in an aggregate principal amount
at any time outstanding equal to the lesser of $3 million, or up to
eighty percent (80%) of the company's eligible accounts receivable
plus up to fifty percent (50%) of the lower of cost or market value
of Clardy Manufacturing's eligible finished goods inventory, but
that in no event would inventory advances exceed $1 million.
5
Under the "Term Loan," Marine stated that the loan would be
in a principle amount equal to the lesser of $1 million or the sum
of (i) up to sixty percent (60%) of the auction value of the
Company's eligible machinery and equipment and (ii) up to fifty
percent (50%) of the fair market value of the Company's real
property.
8
Loan" would be repayable, what interest would be applicable to the
principle outstanding, how collections would be processed, and what
secured interests in collateral and personal guarantees would be
required.6 Under the heading "Fees: Prepayment Premium," the
letter states, "If the Credit Facilities are approved and funded,
CM would be required to pay to Marine" certain origination fees and
unused line fees. The letter also states, "If the Credit
Facilities are approved and funded, Marine would require CM to
provide" certain monthly financial statements and other periodic
financial reporting as specified.
In setting forth the financial accommodations that Marine
would be willing to consider, the letter also frames the proposed
terms and conditions in conditional language. Marine would
consider offering Clardy Manufacturing a revolving credit facility
and term loan. The letter notes that if the Credit Facilities are
approved and funded, then these would be the terms and conditions.
The conditional or proposed nature of the financial accommodations
is underscored by the bold language that follows the recitation of
potential terms and conditions, where the letter states, "Non-
Binding Proposal Only: Due Diligence Required" and "THIS PROPOSAL
LETTER IS NOT A COMMITMENT TO LEND." Clardy Manufacturing argues
that this language merely establishes that the letter agreement is
not yet a firm commitment to lend, and that the commitment to lend
6
The letter also states, "Proceeds from the credit facilities
would be used to refinance bank debt, acquire certain assets of
Premier Air Parts, Inc., purchase capital stock from John Clardy
Sr. and provide continuing working capital."
9
does become binding once Clardy Manufacturing satisfies Marine's
due diligence requirements. The letter does set out a number of
events that would have to precede the issuance of a commitment
letter obligating Marine to extend the loan to Clardy
Manufacturing:
Prior to the issuance of any commitment letter, Marine would
perform a field examination of CM, perform background
investigations of CM management and shareholders, complete
Marine's internal credit approval process, review financial
information with CM, evaluate current appraisal information,
and verify the Company's compliance with all regulations,
rules, and directives of all local state, and federal
regulatory and licensing agencies, including, without
limitation, environmental agencies. Marine would require CM
to prepare a long-range business and strategic plan, in form
and substance satisfactory to Marine, including monthly
forecast for the first twelve (12) months following the
Closing Date, encompassing all segments of CM's business.
Issuance of a commitment letter would be subject to, among
other things, your completion of all of the foregoing items,
to Marine's satisfaction and all of the matters discussed in
this letter.
We do not find that it is reasonable, however, to read this
language to suggest that a commitment letter would necessarily
issue upon the completion of these enumerated items. They are
neither so definite nor so all inclusive as to warrant such a
conclusion. In fact, the list concludes with the statement that
issuance of a commitment letter would be subject to the completion
of, among other things, the foregoing items.7 This language
clearly signals that Marine's credit approval process will consist
of more steps than are set out in this proposal letter.
The agreement that Clardy Manufacturing and Marine reached in
7
In addition, the letter does not spell out the details of
"Marine's internal credit approval process," which must also be
completed before a commitment letter will be issued.
10
this letter is clear and unambiguous. Under the heading "Execution
of Proposal Letter," the letter states that "Marine will undertake
further efforts to assess whether CM satisfies Marine's criteria
for the extension of the Credit Facilities outlined herein only if"
Clardy Manufacturing signs the letter and deposits $25,000 with
Marine to be applied toward the cost of conducting due diligence.
In other words, Marine agreed to undertake further efforts towards
determining Clardy Manufacturing's eligibility for a loan if the
company agreed to pay for the related expense.8 There is nothing
in this agreement which suggests that Marine was binding itself to
issue a commitment letter upon the successful completion of the due
diligence outlined in the letter. Such a conclusion would require
us, unreasonably, to believe that Marine had contracted away the
normal and customary subjective decision making which enters into
the final stages of a loan approval process.9 This reading of the
proposal letter is belied even by the language covering the return
of the $25,000 deposit. The letter states, "If the Credit
Facilities close," any remaining deposit after costs will be
8
Marine eventually returned $6,840.35 to Clardy Manufacturing,
which represented the unused portion of the $25,000 deposit.
9
Under Texas law, a contract's language may be construed in
light of "surrounding circumstances," which includes "what the
particular industry considered to be the norm or reasonable or
prudent at the time." Staff Indus., Inc. v. Hallmark Contracting,
Inc., 846 S.W.2d 542, 546 (Tex.App.—Corpus Christi 1993, no writ).
Berman acknowledged at trial that the analysis of a loan
application was necessarily a somewhat subjective procedure. See
generally DAVID A. ROBINSON, ACCOUNTS RECEIVABLE AND INVENTORY LENDING 10 (3d
ed.1987) (offering guidance regarding the "sophisticated credit
judgments" that bear on accounts receivable and inventory lending).
11
applied to the facilities fee. However, "If Marine declines to
close the Credit Facilities," the deposit will be returned less
costs. If the issuance of a commitment letter was guaranteed upon
the successful completion of due diligence, Marine would have no
power to decline to close the credit facilities.
Having considered the entire writing, we conclude that the
language of the letter agreement between Clardy Manufacturing and
Marine is reasonably susceptible to only one meaning. In part, the
proposal letter serves to set out the terms and conditions of the
credit facilities, or loans, that Marine is considering extending
to Clardy Manufacturing. Beyond this, the letter also contains an
agreement by Marine to undertake further efforts to assess whether
Clardy Manufacturing satisfied its credit criteria by conducting
due diligence as outlined in the letter. The letter does not,
however, constitute a satisfaction contract. We find that the
letter agreement between Clardy Manufacturing and Marine is
unambiguous and does not require us to consider extrinsic evidence
to determine its meaning.
The district court concluded that the letter agreement was
ambiguous as to "what, if anything, was Marine obligated to do if
it became satisfied with Clardy Manufacturing's demonstration of
creditworthiness?" This conclusion, however, flows from the faulty
assumption that the letter agreement was intended to address each
and every step leading up to the issuance of the commitment letter.
As we have found, the proposal letter unambiguously memorializes
the agreement that Marine should undertake further due diligence as
12
part of its effort to evaluate Clardy Manufacturing's loan
application. The letter agreement's failure to address what
further steps Marine would undertake as part of its internal credit
approval process once it had become satisfied with Clardy
Manufacturing's creditworthiness does not necessarily render
ambiguous the agreement to undertake due diligence. As the letter
agreement did not obligate Marine to take further steps upon the
successful completion of due diligence, the writing had no need to
speak to this issue. While it may seem unfair to suggest that
Marine was free to simply walk away following the completion of due
diligence, the letter agreement's silence on this issue does not
destabilize the letter's clear and unambiguous language.
Although we will not consider extrinsic evidence for the
purpose of creating an ambiguity in what we perceive to be the
clear meaning of the letter agreement's language, see Universal
C.I.T. Credit Corp., 243 S.W.2d at 157, we note that the extrinsic
evidence relied on by the district court does not cast doubt on our
reading of the document. Drawing on a comparison between the
letter agreement and language required by Marine's credit policy
manual, the district court concluded that Norvet intended to make
the letter agreement sound "more binding" than the normal proposal
letter. The district noted that according to Marine's policy
manual, a letter of intent or a preliminary proposal "must contain
language substantially in conformance with the following:"
Please note that this letter is not a binding commitment of
[borrower] or [Marine], nor does it define all of the terms
and conditions of the financing, but is a framework upon which
the documentation for this transaction shall be structured,
13
and is a basis for further discussion and negotiation of the
terms as may be appropriate. The credit shall be subject to
due diligence review of the business and financial affairs of
[borrower] with [borrower's] management, the approval of the
proposed terms and conditions by the [Marine] credit
authorities, and the execution and delivery of documentation
satisfactory in form and substance to [Marine's] legal
counsel.
Although the language in the policy manual is perhaps worded more
pointedly than the letter agreement, we disagree with the district
court that the letter agreement does not contain language
substantially in conformance with this paragraph. Moreover, in
contrast to the typical letter of intent contemplated by the
language in Marine's policy manual, the proposal letter in this
case does contain a definite agreement between the parties, namely
to have further due diligence conducted as part of the credit
approval process.10
10
The presence of this agreement in what is otherwise a
proposal letter also helps explain why the district court is
mislead in its reliance on another piece of extrinsic evidence.
The district court focussed on the fact that the letter agreement
contained a signature line for Clardy Manufacturing with the
recitation, "ACKNOWLEDGED AND AGREED TO," similar to Marine's form
commitment letter which has a signature line for the borrower and
the recitation, "Accepted and Agreed to." In light of the
agreement between the parties in this case to have further due
diligence undertaken, we do not find that the inclusion of a
signature line and "agreed to" language casts any doubt on our
conclusion as to the unambiguous meaning of the proposal letter.
Clardy Manufacturing also argues that evidence that
approval of the loan was contingent upon the satisfactory
completion of due diligence can be found in the required
payment of the $25,000 deposit and the confidentiality clause,
which, Clardy Manufacturing claims, were "intended to prevent
Clardy Manufacturing from looking elsewhere." At trial,
Marine's representatives acknowledged that the confidentiality
clause was intended to prevent Clardy Manufacturing from
"shopping" these loan terms and conditions with other banks.
Even if we accept that these provisions were intended to keep
Clardy Manufacturing from seeking financing elsewhere, we fail
14
The district court further erred by relying, at the outset, on
the rule of strict construction against the drafter to hold that
Marine was required to honor the "more binding" language drafted by
Norvet. We note that the rule contra proferentem "is not one of
the favored rules of construction. Indeed, it is said that it is
to be resorted to only when the other rules fail." Smith v. Davis,
453 S.W.2d 340, 344 (Tex.App.—Fort Worth 1970, writ ref'd n.r.e.)
(internal quotation marks omitted); see also id. (refusing to
apply the rule even though there was an ambiguity in the contract).
Certainly, "the rule has no application where ... the intent of the
parties is clear and a resort to the rule will defeat that intent."
Modular Technology Corp., Metal Bd. Division v. City of Lubbock,
529 S.W.2d 273, 276 (Tex.App.—Amarillo 1975, writ ref'd n.r.e.).
Accordingly, we find that the district court erred in concluding
that the letter agreement was a satisfaction contract. Because
there is no underlying satisfaction contract, there can be no
damages for breach of that contract. Accordingly, we vacate the
district court's award of damages on Clardy Manufacturing's
contract claim.
III
On cross-appeal, Clardy Manufacturing contends that the
district court erred in concluding that it failed to state a claim
under the Texas Deceptive Trade Practices Act. TEX.BUS. & COM.
CODE.ANN. § 17.41 et seq. In order to state a claim under the DTPA,
to perceive how this evidences an intent on Marine's part to enter
into a satisfaction contract.
15
the plaintiff must establish that he is a "consumer" as defined by
the Act. Riverside Nat'l Bank v. Lewis, 603 S.W.2d 169, 173
(Tex.1980). The district court concluded that Clardy Manufacturing
did not qualify as a "consumer" under the Act. Whether a plaintiff
is a "consumer" under the Act is a question of law which we review
de novo. Schmueser v. Burkburnett Bank, 937 F.2d 1025, 1028 (5th
Cir.1991).
The Act defines "consumer" as an individual "who seeks or
acquires by purchase or lease, any goods or services." TEX.BUS. &
COM.CODE.ANN. § 17.45(4). Moreover, the purchased goods or services
must form the basis of the complaint. Cameron v. Terrell &
Garrett, Inc., 618 S.W.2d 535, 539 (Tex.1981). The DTPA defines
"goods" as "tangible chattels or real property purchased or leased
for use." TEX.BUS. & COM.CODE.ANN. § 17.45(1). And "services" are
defined as "work, labor or service purchased or leased for use,
including services furnished in connection with the sale or
repair." TEX.BUS. & COM.CODE.ANN. § 17.45(2). In Riverside, the
Texas Supreme Court has held that the extension of credit does not
constitute "goods" or "services" under the Act. Riverside, 603
S.W.2d at 175; see also FDIC v. Munn, 804 F.2d 860, 863 (5th
Cir.1986) (summarizing Texas law as holding that "goods" and
"services" do not include intangible chattel such as stocks, money,
or loans).
The court in Riverside, however, left open the question
whether activities related to the loan transaction, such as
financial counseling, could constitute "services" under the Act.
16
Riverside, 603 S.W.2d at 175 n. 5. Texas courts have generally
limited Riverside 's holding to cases where the loan was the
plaintiff's main objective and forms the sole basis of the
complaint. See Munn, 804 F.2d at 864 (citing cases).11 Clardy
Manufacturing claims that it qualifies as a "consumer" under the
Act in that it sought to purchase the "loan services" Marine
provided. The loan application process, however, was never an
objective of Clardy Manufacturing's separate and distinct from the
credit facilities which the company hoped to obtain from Marine.12
The sole basis of Clardy Manufacturing's complaint is the denial of
the credit facilities. Accordingly, we affirm the district court's
determination that Clardy Manufacturing has failed to state a claim
under the Texas DTPA.
IV
Clardy Manufacturing also cross-appeals from the district
court's failure to address its alternative common law claims for
11
See, e.g., Flenniken v. Longview Bank and Trust Co., 661
S.W.2d 705, 708 (Tex.1983) (concluding from a series of
transactions that plaintiffs sought to acquire a house, not a loan,
and that this formed the basis of their complaint); First Federal
Savings & Loan Ass'n of San Antonio v. Ritenour, 704 S.W.2d 895,
900 (Tex.App.—Corpus Christi 1986, writ ref'd n.r.e.) (concluding
that the plaintiff's claim was based on the purchase of financial
counseling separate from the certificate of deposit).
12
In fact, we agree with the district court that the "loan
services," or the due diligence, was solely for Marine's benefit,
and that Clardy Manufacturing would have gladly bypassed this step
and gone straight to the issuance of the commitment letter if
permitted. Nor is Clardy Manufacturing claiming that the due
diligence was not performed, or that it was performed inadequately.
Rather, the company is merely complaining that Putkonen, in
deciding not to recommend the loan application for approval,
reached the wrong conclusion based on this due diligence.
17
fraudulent misrepresentation, negligent misrepresentation, and
promissory estoppel. Evidence was submitted at trial in support of
each of these alternative theories of recovery. Having granted
Clardy Manufacturing full recover under its contract claim, the
district court declined to reach these alternative claims. If we
were to remand this case, it would only remain for the district
court to enter findings of fact and conclusions of law as to these
alternative claims. We conclude, however, that remand in this case
is unnecessary because Clardy Manufacturing's alternative claims
all fail as a matter of law. See Halbert v. City of Sherman,
Texas, 33 F.3d 526, 530 (5th Cir.1994) (declining to remand claims
to district court where plaintiff would be unable to prevail even
if afforded the opportunity to amend his pleadings); Brown v.
Texas A & M University, 804 F.2d 327, 334 (5th Cir.1986) (same).
A
Under Texas law, the elements of a cause of action for
negligent misrepresentation are:
(1) the representation is made by a defendant in the course of
his business, or in a transaction in which he has a pecuniary
interest; (2) the defendant supplies "false information" for
the guidance of others in their business; (3) the defendant
did not exercise reasonable care or competence in obtaining or
communicating the information; and (4) the plaintiff suffers
pecuniary loss by justifiably relying on the representation.
Federal Land Bank Ass'n of Tyler v. Sloane, 825 S.W.2d 439, 442
(Tex.1991) (citing the Restatement (Second) of Torts (1977)); see
also Inglish v. Union State Bank, 911 S.W.2d 829, 837
(Tex.App.—Corpus Christi 1995, writ requested).
Clardy Manufacturing's claims of negligent or fraudulent
18
misrepresentation are based primarily on two sets of statements by
a Marine representative. As to one instance, John Clardy, Jr.,
testified at trial that at the Wednesday lunch meeting with Graeme
McDougall, the Chairman of the Australian company Environmental
Products, Norvet "stated that I would have a commitment letter by
Friday or the following Monday or Tuesday."13 McDougall testified
that Norvet had said that he "expected" a letter of commitment to
be issued within the next two to five days because "from Marine
Midland's point of view everything looked good. The audit was
good. All the other relevant documentation that had to be done
looked good." John Clardy, Jr., claims that he detrimentally
relied on this representation by entering into a licencing
agreement with Environmental Products two days later.14
A claim for negligent misrepresentation under Texas law
contemplates that the "false information" provided by the defendant
is a misstatement of existing fact. Airborne Freight Corp. v. C.R.
Lee Enterprises, 847 S.W.2d 289, 294 (Tex.App.—El Paso 1992, writ
denied). "Negligent misrepresentation does not occur when a
defendant simply makes a guess as to a future, unknown event."
Sergeant Oil & Gas Co. v. National Maintenance & Repair, Inc., 861
F.Supp. 1351, 1360 (S.D.Tex.1994) (applying Texas law); see id.
13
Berman also testified that Norvet had reported that "he had
assured John Clardy, Jr., that we would be getting a commitment
letter within the next two to five days."
14
We note, however, that the agreement with Environmental
Products was not referenced in the letter agreement, and that
Berman acknowledged at trial that it would not have made any
difference with respect to the business he did with Environmental
Products whether the proposed loan went through or not.
19
(holding that defendant's representation that the barge could be
loaded in eighteen to twenty-four hours was not actionable under a
theory of negligent misrepresentation); City of Beaumont v.
Excavators & Constructors, Inc., 870 S.W.2d 123, 138
(Tex.App.—Beaumont 1993, writ denied) (holding that statements as
to how long a work project would take to complete were not "false
information").
In at least one case, a successful claim for negligent
misrepresentation was based on a loan officer's statement that his
bank had approved plaintiffs' loan. Federal Land Bank Ass'n of
Tyler v. Sloane, 825 S.W.2d at 441-42. The facts of Sloane,
however, were distinguished by the court in Alpha Road v. NCNB
Texas National Bank, 879 F.Supp. 655 (N.D.Tex.1995). In Alpha
Road, the bank officer had represented that he needed additional
authority, but that the loan was a "done deal" and that it would be
renewed at the end of four months. 879 F.Supp. at 665. The court
in Alpha Road concluded that unlike the representation in Sloane,
the bank officer's assurances referred to the bank's future
performance, and were therefore not actionable under a theory of
negligent misrepresentation. Id. The facts in this case are in
accord with those in Alpha Road.
Clardy Manufacturing does not contend that Norvet represented
that the loan had in fact been approved, or that the commitment
letter had already been issued. Even if we assume that Norvet said
that the commitment letter would issue within two to five days, as
20
we must,15 rather than that he "expected" the letter to issue within
this time frame, we nevertheless conclude that this statement is
not actionable as a misstatement of existing fact. At most,
Norvet's representation was a misstatement as to a future action by
Marine.16
Moreover, under a claim for negligent misrepresentation, the
plaintiff must prove "justifiable reliance" on the
misrepresentation. Geosearch, Inc. v. Howell Petroleum Corp., 819
F.2d 521, 526 (5th Cir.1987) (applying Texas law). This
requirement, also known as the "materiality" element, has two
aspects: "the plaintiff must in fact have relied; and this
reliance must have been reasonable." Id. In other words, "there
must be a reasonable relation between the contents of the
defendant's misrepresentation and the action the plaintiff took in
reliance." Id. "The justifiableness of the reliance is judged in
15
In determining whether Clardy Manufacturing has presented
sufficient evidence from which a reasonable fact finder could find
in its favor on the alternative common law claims, we "must review
the evidence in the light and with all reasonable inferences most
favorable to" Clardy Manufacturing. Roberts v. United New Mexico
Bank at Roswell, 14 F.3d 1076, 1078 (5th Cir.1994) (internal
quotation marks omitted). "If the facts and inferences point so
strongly and overwhelmingly in favor of one party that the Court
believes that reasonable men could not arrive at a contrary
verdict, [judgment as a matter of law] is proper." Boeing Co. v.
Shipman, 411 F.2d 365, 374 (5th Cir.1969) (en banc). There must be
a conflict in "substantial evidence" to create a jury question.
Id. at 375.
16
As will be discussed infra, there is also no evidence in the
record to indicate that Norvet did not believe what he said at the
time he made the representation. Nor did Clardy Manufacturing
present any evidence establishing that Norvet was reckless to
believe, at this time, that the commitment letter would issue
shortly.
21
light of the plaintiff's intelligence and experience." Scottish
Heritable Trust, PLC v. Peat Marwick Main & Co., 81 F.3d 606, 615
(5th Cir.1996). A plaintiff's reliance is unjustified when the
reliance is in effect an act of negligence on the plaintiff's part.
Id.
When viewed against all of the surrounding circumstances and
the plaintiff's business experience, Clardy Manufacturing's
reliance on Norvet's representation was, as a matter of law,
unjustified. In other words, we find that no reasonable fact
finder could conclude otherwise. John Clardy, Jr., and his
advisor, Berman, knew at all times that Norvet had no credit
approval authority. From the time he graduated from college in
1977, John Clardy, Jr., had been involved in managing the company
his father founded, and as President of the company he had handled
the task of negotiating with lenders for additional financing since
1989. Berman, aside from holding the position as President of
Premier Air Parts, Inc., was also a former chairman of the board of
a commercial bank, with twelve years of lending experience prior to
that. Rather than waiting an additional two or three days to
verify that a commitment letter did in fact issue, John Clardy,
Jr., decided to enter into the licencing agreement with McDougall
that Friday.17 We find, as a matter of law, that there is no
17
Evidence at trial established that McDougall, who had been
in the United States for two months by the time of the lunch
meeting, was anxious to return home to Australia for business and
personal reasons. McDougall also testified that it would have been
possible to sign the contract in Australia by fax machine and
teleconference, or to have signed an agreement in principle
conditioned on the issuance of the commitment letter, but that he
22
reasonable relationship between Norvet's assurances and Clardy
Manufacturing's decision to enter into the licencing agreement two
days later. To the extent that John Clardy, Jr., in fact relied on
Norvet's representation, this reliance was, under the circumstances
and in light of John Clardy, Jr., and Berman's business
sophistication, an act of negligence.
The other set of misrepresentations underlying Clardy
Manufacturing's alternative claims focuses on what the company was
told regarding Marine's credit approval process. Both John Clardy,
Jr., and Berman testified that Norvet told them, prior to signing
the letter agreement, that the loan would be signed and approved in
the Dallas office, and then shipped to Wilmington, Delaware, to be
"rubber stamped," that is, reviewed for form and content. In fact,
no one in the Dallas office had credit approval authority, and a
loan application required two or more signatures by Marine
officials before it could be approved. John Clardy, Jr., testified
at trial that he would not have entered into the letter agreement
if he had known that the ultimate credit approval would have to
come from an office outside Dallas.18 We conclude, however, that
"chose, while I was here, to complete the job that I came to do."
18
John Clardy, Jr., testified that he felt it was important to
establish a personal relationship with the people making the credit
approval decision. We note that John Clardy, Jr., acknowledged
that Frank Mederos was introduced at the January 7 meeting as
someone from Marine's home office in Wilmington, Delaware, who
would be a significant factor in the home office evaluation of the
credit. Berman also acknowledged that Mederos was introduced to
him as someone from the home office who would have some input into
the credit package, and that Mederos told them that he would review
the credit package at his home office.
23
no reasonable trier of fact would believe that John Clardy, Jr., in
fact relied on Norvet's representations regarding the loan approval
process.19 In other words, no reasonable trier of fact would
conclude that Clardy Manufacturing, which for several years had
been unsuccessfully seeking financing from numerous lenders,20 would
not have entered into the letter agreement if Marine had made
explicit the fact that final credit approval had to come from
outside of Dallas.21 Clardy Manufacturing can therefore not show
19
Cf. Brown v. Ford Motor Co., 479 F.2d 521, 523 (5th Cir.1973)
(reversing the jury's verdict because no reasonable jury could have
disbelieved witness's uncontradicted testimony as to the alleged
defect).
20
In one instance, John Clardy, Jr., had traveled to Houston
in an attempt to seek financing from Hong Kong Bank, an affiliate
of the Hong Kong and Shanghai Banking Corporation.
21
Clardy Manufacturing also claims that it relied on Norvet's
representation at these early meetings that the loan could be
approved and closed as early as February 28 and as late as March
31, 1992. As discussed above, however, this statement is not
actionable inasmuch as it is merely an opinion as to a future
event, not a misstatement of existing fact.
In addition, Clardy Manufacturing claims that Marine
failed to disclose (1) that it was in the process of changing
its credit approval process in late 1991 and early 1992 from
a "committee process" to an individual signature process; (2)
that Marine, along with its five other regional offices, were
undergoing a reorganization that began in January 1992; and
(3) that Jim Ely had left the Dallas office and that Kurt
Putkonen, the credit manager for the Atlanta office, had
assumed Ely's responsibilities for evaluating Clardy
Manufacturing's loan application. Clardy Manufacturing has
failed to identify any affirmative duty on Marine's part to
disclose this information to Clardy Manufacturing. See
Emerald Texas, Inc. v. Peel, 920 S.W.2d 398, 403
(Tex.App.—Houston [1st Dist.] 1996, no writ) ("[A] failure to
disclose information is not fraudulent unless one has an
affirmative duty to disclose, such as where a confidential or
fiduciary relationship exists."); see also Federal Deposit
Ins. Corp. v. Coleman, 795 S.W.2d 706, 708-09 (Tex.1990)
(concluding that a duty of good faith is only imposed where a
24
that the representation was "material" to its decision to enter
into the agreement. Moreover, to the extent that John Clardy, Jr.,
would not have entered into the agreement had he known the full
extent of the credit approval process, we find that such reliance
would have been, as a matter of law, unreasonable. No reasonable
businessman in John Clardy, Jr., circumstances would have made such
an irrational decision. Accordingly, this second set of
representations will also not support a claim for negligent
misrepresentation.
B
Under Texas law, to recover for fraud, the plaintiff must
establish that:
(1) a material representation was made; (2) it was false when
made; (3) the speaker knew it was false, or made it
recklessly without knowledge or its truth and as a positive
assertion; (4) the speaker made it with the intent that it
should be acted upon; and (5) the party acted in reliance and
suffered injury as a result.
Roberts v. United New Mexico Bank at Roswell, 14 F.3d 1076, 1078
(5th Cir.1994). To be actionable, the misrepresentation must be
"one concerning a material fact; a pure expression of opinion will
not support an action for fraud." Transportation Ins. Co. v.
Faircloth, 898 S.W.2d 269, 276 (Tex.1995). An opinion may
constitute fraud, however, if the speaker knows that it is false.
Sergeant Oil & Gas Co. v. National Maintenance & Repair, Inc., 861
F.Supp. 1351, 1358 (S.D.Tex.1994). "An expression of an opinion as
"special relationship" exists marked by a shared trust or imbalance
in bargaining power, and does not exist between a lender and its
borrower).
25
to the happening of a future event may also constitute fraud where
the speaker purports to have special knowledge of facts that will
occur or exist in the future." Trenholm v. Ratcliff, 646 S.W.2d
927, 930 (Tex.1983). A promise to do an act in the future, on the
other hand, is fraud "only when made with the intention, design and
purpose of deceiving, and with no intention of performing the act"
at the time the promise was made. Airborne Freight Corp. v. C.R.
Lee Enterprises, Inc., 847 S.W.2d 289, 294 (Tex.App.—El Paso 1992,
writ denied).
Clardy Manufacturing failed to present any evidence that at
the time Norvet allegedly represented that a commitment letter
would issue within two to five days: (1) that Norvet knew that his
representation was false; (2) that Norvet had special knowledge of
future facts bearing on the issuance of the commitment letter; or
(3) that Norvet or Marine had no intention of issuing the
commitment letter or approving Clardy Manufacturing's loan
application. "Failure to perform, standing alone, is no evidence
of the promisor's intent not to perform when the promise was made."
Id. Clardy Manufacturing has not presented any additional
circumstantial evidence which would permit a reasonable trier of
fact to find that Norvet's representation to John Clardy, Jr., and
McDougall was fraudulent at the time it was made. Cf. T.O. Stanley
Boot Co. v. Bank of El Paso, 847 S.W.2d 218, 222 (Tex.1992)
(concluding that plaintiffs had presented insufficient evidence
that the bank had no intention to perform at the time its
representative made the promise that bank would loan plaintiffs
26
$50,000).
A plaintiff in a fraud action must also show that his
reliance was justifiable as well as actual. Id. "To determine
justifiability, courts inquire whether—given a fraud plaintiff's
individual characteristics, abilities, and appreciation of facts
and circumstances at or before the time of the alleged fraud—it is
extremely unlikely that there is actual reliance on the plaintiff's
part." Haralson v. E.F. Hutton Group, Inc., 919 F.2d 1014, 1026
(5th Cir.1990).22 For the same reasons set out above under Clardy
Manufacturing's negligent misrepresentation claim, we also conclude
that Clardy Manufacturing has failed, as a matter of law, to
establish that Norvet's representations regarding the credit
approval process were material to its decision to enter into the
letter agreement. That is, no reasonable trier of fact could
conclude that Clardy Manufacturing's reliance was actual and
justifiable under the circumstances. Accordingly, neither set of
alleged misrepresentations will support a claim of fraud.
C
Clardy Manufacturing's final alternative common law claim is
for promissory estoppel. Under Texas law, the basic requirements
of a promissory estoppel claim are: "(1) a promise, (2)
22
Because the justifiable reliance element of a claim for
negligent misrepresentation is generally equated with contributory
negligence, some courts have concluded that "justifiable reliance"
in the context of fraud represents a lesser burden on the plaintiff
than in the context of negligent misrepresentation. See, e.g.,
Haralson, 919 F.2d at 1025 & n. 5; Dupuy v. Dupuy, 551 F.2d 1005,
1018 (5th Cir.), cert. denied, 434 U.S. 911, 98 S.Ct. 312, 54
L.Ed.2d 197 (1977).
27
foreseeability of reliance thereon by the promisor, and (3)
substantial reliance by the promisee to his detriment." English v.
Fischer, 660 S.W.2d 521, 524 (Tex.1983). Texas courts have also
established a fourth and separate requirement of a "definite
finding that injustice can be avoided only by the enforcement of
the promise." City of Beaumont v. Excavators & Constructors, Inc.,
870 S.W.2d 123, 137 (Tex.App.—Beaumont 1993, writ denied) (emphasis
in original). In addition, the courts have emphasized that
"estoppel requires a reasonable or justified reliance on the
conduct or statement of the person sought to be estopped by the
person seeking the benefits of the doctrine." Traco Inc. v. Arrow
Glass Co., 814 S.W.2d 186, 190 (Tex.App.—San Antonio 1991, writ
denied) (emphasis in original and internal quotation marks
omitted).
The only alleged promise in this case is Norvet's assurance
to John Clardy, Jr., and McDougall that the commitment letter would
issue within the next two to five days. For the reasons set out
above, we conclude as a matter of law that Clardy Manufacturing has
not shown any reasonable or justified reliance on this alleged
promise. Cf. Bluebonnet Savings Bank, F.S.B. v. Grayridge
Apartment Homes, Inc., 907 S.W.2d 904, 912 (Tex.App.—Houston [1st
Dist.] 1995, no writ) (holding that there was no basis to support
a claim for promissory estoppel where the plaintiffs had failed to
establish justifiable reliance under a claim for negligent
misrepresentation). Accordingly, Clardy Manufacturing has also
failed to state a claim for promissory estoppel.
28
V
For the foregoing reasons, we REVERSE the district court's
judgment on Clardy Manufacturing's satisfaction contract claim. We
AFFIRM the district court's determination that Clardy Manufacturing
failed to state a claim under the Texas DTPA. Having found that
there is no theory under which Clardy Manufacturing could recover,
we RENDER judgment in favor of Marine.
29