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BOHM v. COMMERCE UNION BANK OF TENNESSEE

June 18, 1992

CARLOTTA M. BOHM, et al., Plaintiffs,
v.
COMMERCE UNION BANK OF TENNESSEE, Defendant.


Lewis


The opinion of the court was delivered by: TIMOTHY K. LEWIS

LEWIS, District J.

 Pending before the court is a motion for summary judgment filed by defendant Commerce Union Bank of Tennessee ("Commerce"). For the following reasons, the motion will be granted in part and denied in part.

 FACTS

 International Marketing & Procurement Services ("IMPS") is a licensed export trading company. IMPS obtains purchase orders from foreign buyers for specific products and, in turn, purchases those products from American manufacturers for shipment overseas, primarily to Saudi Arabia. Howard Hammonds owns 65% of the IMPS stock and Tom Hammonds, his brother, owns 35% of the shares.

 On December 29, 1983, IMPS applied for and was approved for a Small Business Administration ("SBA") guaranteed loan from Equibank, a bank headquartered in Pittsburgh, Pennsylvania. The loan was a revolving line of credit for $ 500,000. It was divided into an inventory line for disbursements of up to $ 400,000, and a working capital line for disbursements of up to $ 100,000.

 To draw upon the inventory line, IMPS would obtain a purchase order from a foreign buyer, issue its own purchase order to a domestic manufacturer, and request that Equibank disburse the loan proceeds directly to the manufacturer. While the product was being manufactured, but before shipment, IMPS would obtain a letter of credit and assign the proceeds to Equibank. After the goods were shipped, the letter of credit would be honored and the proceeds paid to Equibank. The specific amount used to purchase the inventory would be paid and the balance deposited into an IMPS account.

 In 1983, Howard and Tom Hammonds formed a manufacturing company named Export International, Inc. ("Export"). The Hammonds each owned 25% of the stock, and Carl Slear owned 50% of the shares. Export was the primary manufacturer of products sold by IMPS. In December 1984, Export changed its name to Custom Structures, Inc.

 By letter dated March 21, 1984, Commerce (now Sovran Bank/Central South) agreed to be substituted for Equibank as the lender. On April 19, 1984, the SBA issued an Amended Authorization, substituting Commerce for Equibank, and sent the loan agreement.

 By letter dated May 21, 1984, Commerce requested that the SBA correct a typographical error changing the date of the authorization to December 29, 1983, and asked that an "on demand" clause be added to the note.

 The closing occurred on June 14, 1984. Several significant events followed. By letter dated October 31, 1985, Susan Thompson, the controller for both IMPS and Export, sent Commerce a copy of a purchase order from a company called SEDCO in the amount of $ 286,845, together with a purchase order from IMPS to Export covering the order. Ms. Thompson requested that Commerce advance $ 200,000 of the amount of the purchase order directly to IMPS's account at Commerce.

 On November 1, 1984, Ms. Thompson, as controller for Export, drew two checks payable to IMPS totalling $ 20,000. Export's account, however, had insufficient funds, so the checks were paid from the proceeds of the $ 200,000 disbursement to IMPS.

 On December 1, 1984, Howard Hammonds learned that the SEDCO order was reduced from $ 286,845 to $ 152,000. New purchase orders were issued by IMPS to Export, reflecting the reduced amount of the order. Mr. Hammonds maintains that he was informed that the order was merely to be divided into two parts, with the balance to be ordered later.

 On December 9, 1984, Ms. Thompson forwarded an additional purchase order to Commerce from another company called Yathrib Trading and Industrial Corp. in the amount of $ 35,000, as well as a purchase order from IMPS to Export in the amount of $ 23,000. She requested that $ 20,000 be advanced directly to Export. At the time this request was made, IMPS did not notify Commerce of the earlier reduction in SEDCO's order. The draw was actually made on January 2, 1985.

 While these events were taking place, by letter dated December 19, 1984, Commerce advised IMPS that a review of its June 30, 1984 financial statement raised a number of questions regarding the financial stability of the company and its adherence to the provisions of the SBA loan agreement.

 On January 11, 1985, Howard Hammonds met with several representatives of Commerce in Nashville, Tennessee. As a result of that meeting, on January 31, 1985, Commerce declared that IMPS was in default and that no further funding would be available unless it received adequate assurances of financial stability. Upon receipt of the default notice, Howard Hammonds informed Gary Neenan of Commerce that he would not be requesting any further draws under the line of credit.

 On February 8, 1985, Howard Hammonds filed for bankruptcy.

 On February 21, 1985, various Bank employees and officials of the SBA went to the IMPS facilities in Butler, Pennsylvania. At that meeting, they examined the December 31, 1984 financial statement which reflected that the company had a negative net worth of $ 198,858, and that during a six month period the company had lost approximately $ 87,351 and 12% of its sales. Howard Hammonds again informed Commerce that he would not be drawing on the credit line.

 DISCUSSION

 A. Choice of Law

 Commerce suggests that Tennessee law should be applied. It does not point to any conflict between Tennessee and Pennsylvania law applicable to this case, however. Further, there is no significant difference between the relevant laws of those states. Therefore, the choice of law issue need not be addressed.

 B. Summary Judgment

 Federal Rule of Civil Procedure 56(c) provides that summary judgment may be granted "if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law." Fed.R.Civ.P. 56(c).

 When deciding a motion for summary judgment, it is not the court's function to weigh the evidence and determine the truth of the matter, but rather simply to determine whether there is a genuine issue of fact for trial. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 91 L. Ed. 2d 202 , 106 S. Ct. 2505 (1986). An issue is genuine only if the evidence is such that a reasonable jury could return a verdict for the nonmoving party. Id.

 The moving party has the burden to identify those portions of pleadings, depositions, answers to interrogatories, and admissions on file, together with affidavits, if any, which it believes demonstrate the absence of a genuine issue of material fact. Celotex Corp. v. Catrett, 477 U.S. 317, 323, 91 L. Ed. 2d 265 , 106 S. Ct. 2548 (1986). The nonmoving party then must go beyond the pleadings and use affidavits, depositions, answers to ...


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