Bank of Am. v. Narula

46 Kan.App.2d 142

261 P.3d 898

BANK OF AMERICA, N.A., Appellant,

v.Sanjiv NARULA, Indubala Narula,andPromotional Resources, Inc., Appellees.

No. 102,853.

Court of Appeals of Kansas.

July 29, 2011.

Syllabus by the Court

1. An appellate court reviews a trial court's findings of fact to determine if the findings are supported by substantial competent evidence and are sufficient to support the trial court's conclusions of law. Substantial competent evidence is such legal and relevant evidence as a reasonable person might regard as sufficient to support a conclusion.

2. The interpretation of written agreements is a matter of law, and review is unlimited. Regardless of the construction given a written contract by the trial court, an appellate court may construe a written contract and determine its legal effect.

3. The first-to-breach rule precludes a party who has first materially breached a contract from attempting to enforce that contract until the breach is cured and entitles the nonbreaching party to suspend or terminate performance under that contract as long as the breach remains uncured.

4. To be enforceable, every contract must be supported by adequate legal consideration. Moreover, a modification of a written contract must be supported by consideration that is independent and separate from the original consideration supporting the contract.

5. The adequacy of consideration on a release is normally for the trier of fact, and an appellate court reviews for substantial competent evidence.

6. Fraud is never presumed and must be established by clear and convincing evidence. The existence of fraud is normally a question of fact. The standard of review on appeal is limited to determining whether the trial court's findings of fact are supported by substantial competent evidence and whether the findings are sufficient to support the trial court's conclusions of law.

7. The elements of an action for fraud include an untrue statement of fact, known to be untrue by the party making it, made with the intent to deceive or with reckless disregard for the truth, upon which another party justifiably relies and acts to his or her detriment.

8. A duty to disclose arises when the party in a business transaction knows that the other party is about to enter into a contract or business transaction under a mistake about facts basic to the contract or the business transaction, and that the other party, because of the relationship between them, the customs of the trade, or other objective circumstances, would reasonably expect disclosure of those facts.

9. To constitute duress by threats, the actor's manifestation must be made for the purpose of coercing the other; must have for its object the securing of undue advantage with respect to the other; must be of such a character that it is adapted to overpower the will of the other and is reasonably adequate for the purpose; must in fact deprive the other of free exercise of will; and must cause the other to act to his or her detriment.

10. A breach of contract is a material failure of performance of a duty arising under or imposed by agreement.

11. The duty of good faith and fair dealing is implied in every contract, with the exception of employment-at-will contracts. The duty includes not intentionally and purposely doing anything to prevent the other party from carrying out his or her part of the agreement or doing anything which will have the effect of destroying or injuring the right of the other party to receive the fruits of the contract.

12. The determination of a fiduciary relationship is essentially a factual one. Whether a confidential or fiduciary relationship exists depends on the facts and circumstances of each individual case.

13. A fiduciary relation does not depend upon some technical relation created by, or defined in, law. It may exist under a variety of circumstances and does exist in cases where there has been a special confidence reposed in one who, in equity and good conscience, is bound to act in good faith and with due regard to the interests of the one reposing the confidence.

14. A duty to disclose arises when one party has information that the other party is entitled to know because of a fiduciary or similar relation of trust and confidence between them.

Christine L. Schlomann, David L. Going, and Thomas B. Weaver, of Armstrong Teasdale LLP, of Kansas City, Missouri, for appellant.Robert J. Bjerg, of Colantuono Bjerg Guinn, LLC, of Overland Park, and Michael D. Strobehn, of Walters, Bender, Strobehn and Vaughan, P.C., of Kansas City, Missouri, for appellees.Before GREENE, C.J., GREEN and LEBEN, JJ.GREEN, J.

This litigation arises out of a Loan Agreement for the construction of a new office building by the owners: Sanjiv Narula, Indubala Narula, and their closely held business, Promotional Resources, Inc. (the Narulas). Bank of America, N.A., encouraged the Narulas to construct the building. Moreover, it furnished a financing package to the Narulas to construct the building. The package included the Loan Agreement. Under the Loan Agreement, the Narulas received a Construction Loan that required monthly interest-only payments to Bank of America while the building was being constructed. The Loan Agreement also stated that if construction of the building was completed by December 31, 2001, the Construction Loan would automatically convert to a Permanent Loan.

In August of 2004, Bank of America sued the Narulas to foreclose its commercial mortgage on the building and for the breach of the Loan Agreement and note. The Narulas counterclaimed for damages caused by Bank of America's failure to convert the Construction Loan to a Permanent Loan. The Narulas' counterclaims included claims for breach of contract, breach of the covenant of good faith and fair dealing, fraud, negligent misrepresentation, and breach of fiduciary duty. Before trial, the trial court also granted the Narulas leave to amend their counterclaims to assert a claim for punitive damages against Bank of America.

The case was tried to the court. After an 8–day bench trial, the trial court denied Bank of American's claims and granted the Narulas' counterclaims. The trial court awarded the Narulas $793,997 in compensatory damages and $750,000 in punitive damages. Bank of America appeals from the judgment against it on the counterclaims.

On appeal, Bank of America raises a number of issues: (1) whether the trial court correctly ruled that Bank of America was not entitled to recover interest on the note after December 31, 2001, because the bank was the first party to materially breach the Loan Agreement; (2) whether the trial court's finding that the Modification Agreements to the Loan Agreement were unenforceable was supported by substantial competent evidence; (3) whether the trial court's finding that Bank of America breached the Loan Agreement was supported by substantial competent evidence; (4) whether the trial court's finding that Bank of America breached its fiduciary duty to the Narulas was supported by substantial competent evidence; (5) whether the trial court's finding that Bank of America breached its duty of good faith and fair dealing in the Loan Agreement was supported by substantial competent evidence; (6) whether the trial court's award of $386,603 in damages for the forced liquidation of the Narulas' personal investments was supported by substantial competent evidence; and (7) whether the Narulas' claim for punitive damages was properly before the court, and, if so, whether the bank employee's conduct was willful, wanton, or malicious, and whether there was clear and convincing evidence that the conduct on which the court based punitive damages was authorized or ratified by someone at the bank expressly authorized to do so. Finding no reversible error, we affirm.

In this complex case, the trial court made the following findings. It found that the Narulas had a long-standing, close relationship with Bank of America. From 1993 until May 2001, the Narulas' principal personal banker, known as a “Relationship Manager,” was Charles Wooten, a banker for Bank of America. He met with the Narulas many times and gave them advice on various personal and business financial matters such as working capital lines of credit, management of accounts receivable, creditworthiness of customers, and the Narulas' investment accounts.

The evidence showed that Bank of America handled both the Narulas' business needs and their personal investment funds. Bank of America repeatedly promoted itself to the Narulas as their “Trusted Financial Advisor.” Bank of America wanted the Narulas to rely on it for its advice and counsel.

The Narulas, for their part, relied heavily on Bank of America as their “Trusted Financial Advisor” in their personal and business affairs, and Bank of America knew that the Narulas were relying on them for financial advice. Part of this advice dealt with various estate planning and trust issues. In 1998, Bank of America put together a team of estate planning advisors and made presentations to the Narulas on their estate planning needs.

Also in 1998, Promotional Resources, the Narulas' business, was outgrowing its office space. Wooten suggested to the Narulas that they should consider constructing their own building. Wooten told the Narulas that the building could be an important part of their estate plan and could serve as a source of income during their retirement. Wooten even suggested the building site, telling the Narulas that he had another customer who had just finished constructing an office building in the Corporate Lakes division in Overland Park and that construction sites were still available.

The Narulas liked Wooten's idea but told him that they had no experience in constructing a building or how to finance it. Wooten explained that they should not worry because Bank of America would hold their hand through the entire process. The Narulas agreed, on...