Baybank, Plaintiff, Appellant, v. Vermont National Bank, Defendant, Appellee, 118 F.3d 30 (1st Cir. 1997)

Plaintiff-appellant Baybank filed a seven count complaint against defendant-appellee Vermont National Bank for damages arising out of a failed loan in which Baybank had purchased a participation.¹  The district court granted summary judgment in favor of Vermont National, and Baybank now appeals. Finding no error, we affirm.

Background

In 1986 Vermont National made a $1,750,000 loan due to mature on June 5, 1988, to Liftline Lodge, Inc., a ski operation. In early 1988, Vermont National and Baybank began negotiating Baybank's potential participation in the loan. In April, Baybank consummated the purchase of an interest equal to 90% of the outstanding principal balance of the Liftline loan. The parties executed a participation agreement and a participation certificate to memorialize the arrangement.

The participation agreement contained several inaccuracies. The agreement reflected a loan in the amount of $1,417,500 with an origination date of October 3, 1986, to mature on October 3, 1996. In fact, $1,417,500 represented only the amount of Baybank's participation, the loan originated on June 5, 1986 and was to mature on June 5, 1988. The agreement made no mention of renewal of the loan upon maturity.

On June 5, 1988, six weeks after Baybank's purchase of the participation and upon the maturity date, Vermont National renewed the Liftline loan for a five year period to mature on June 5, 1993. Vermont National continued to remit and Baybank continued to accept without comment its 90% interest in Liftline's payments on the loan. By February, 1991, however, due to a series of poor ski seasons, Liftline defaulted on the loan and filed for bankruptcy.

Upon Liftline's default, Baybank cooperated with Vermont National in trying to resolve the Liftline situation favorably. Baybank neither demanded payment in full of its 90% share of the loan nor asserted that it had never agreed to participate in the 1988 renewal. It was not until 1993 that Baybank first alleged that it never intended to participate in the renewal and filed this complaint.

In its complaint, Baybank sought damages arising from Vermont National's alleged breach of the participation agreement. Baybank claimed that the participation agreement did not extend to the renewal and, therefore, Vermont National owed Baybank its 90% share of the loan at maturity on June 5, 1988. Baybank based its claims for conversion, breach of trust and breach of fiduciary duty on this same allegation. Alternatively, Baybank contended that, even if the participation agreement extended to the renewal, Vermont National breached the agreement by failing to provide Baybank with items of financial information as the agreement required. The district court granted summary judgment against Baybank on all counts. This appeal followed.

Standard of Review

We review the award of summary judgment de novo. See Ortiz-Pinero v. Rivera-Arroyo, 84 F.3d 7, 11 (1st Cir. 1996). Summary judgment is appropriate in the absence of a genuine issue of material fact, when the moving party is entitled to judgment as a matter of law. See Fed. R. Civ. P. 56(c). A fact is material when it has the potential to affect the outcome of the suit. See J. Geils Band Employee Benefit Plan v. Smith Barney Shearson, Inc., 76 F.3d 1245, 1250-51 (1st Cir.), cert. denied, --- U.S. ----, 117 S. Ct. 81, 136 L. Ed. 2d 39 (1996). Neither party may rely on conclusory allegations or unsubstantiated denials, but must identify specific facts derived from the pleadings, depositions, answers to interrogatories, admissions and affidavits to demonstrate either the existence or absence of an issue of fact. See Fed. R. Civ. P. 56(c) & (e).

Discussion

The central issue this case raises is whether the participation agreement contemplated Baybank's participation in the renewal. Finding the agreement ambiguous, the district court admitted extrinsic evidence of the parties' intent as an aid in its construction of the agreement. The court concluded that Baybank had agreed to participate in the renewal. On appeal Baybank contends that the contract was not ambiguous, and that even if it was, the evidence at a minimum precluded summary judgment on its claims. We examine each of Baybank's arguments in turn.

A. Was the Participation Agreement Ambiguous?

The parties agree that pursuant to the participation agreement, Vermont law governs this dispute. See Miniter Ins. Agency, Inc. v. Ohio Indemnity Co., 112 F.3d 1240, 1245 (1st Cir. 1997) (indicating that where parties agree as to what law governs, federal court sitting in diversity is free to forego an independent analysis and may accept the parties' agreement). The parties also agree that the participation agreement misidentified several terms of the actual agreement, specifically, the amount of the loan and the origination and maturity dates. Baybank characterizes these as "scrivener's errors" and contends that under Vermont law the participation agreement reflects no substantive ambiguity.

In Vermont, whether a contract is ambiguous is a question of law.²  See Breslauer v. Fayston Sch. Dist., 163 Vt. 416, 659 A.2d 1129, 1135 (1995); Isbrandtsen v. North Branch Corp., 150 Vt. 575, 556 A.2d 81, 83 (1988). Vermont law, however, does not restrict courts making that inquiry to the four corners of a written agreement. Instead, courts may consider extrinsic evidence of "the circumstances surrounding the making of the agreement as well as the object, nature and subject matter of the writing," Breslauer, 659 A.2d at 1135 (internal quotation omitted), and will find ambiguity in the event that a writing in itself supports a different interpretation than that which appears when read in light of the surrounding circumstances, See Isbrandtsen, 556 A.2d at 84. Both interpretations, however, must be reasonable in order to establish ambiguity. See id.

On its face the participation agreement seems unambiguous. The parties, however, agree that the amounts and dates in the agreement do not reflect their actual understanding, and each party directs us to extrinsic evidence suggesting competing interpretations of the agreement. That we must resort to extrinsic evidence to determine the intent of the parties renders the contract necessarily ambiguous.³ 

Baybank argues unpersuasively that consideration of the participation certificate in conjunction with the participation agreement renders the latter unambiguous in Baybank's favor. We recognize that the participation certificate, executed on the same date as the participation agreement, correctly states the amount of Baybank's participation and explicitly refers to the June 5, 1986 note which had a maturity date of June 5, 1988. The participation certificate, however, neither references the participation agreement nor explicitly sets any parameters on Baybank's participation. The certificate, in other words, does not definitively resolve the agreement's ambiguity.

Even if we assume that consideration of these two documents together results in one reasonable interpretation of the participation agreement, a host of extrinsic evidence in the record supports an alternative but equally reasonable interpretation. Much of this evidence also bears on the substance of Baybank's breach of contract claim and we discuss it fully in our analysis of that claim. We note only that Vermont law directs us to consider the circumstances surrounding the agreement; it does not direct us to select a single circumstance which if considered in a vacuum might resolve the ambiguity. See Breslauer, 659 A.2d at 1135 (directing courts to consider evidence on the circumstances surrounding the making of the agreement as well as the object, nature and subject matter of the agreement itself).

B. Does the Participation Agreement Contemplate the Renewal?

Courts faced with ambiguity in a contract resort to "subordinate rules of construction," see Isbrandtsen, 556 A.2d at 85, including consideration of extrinsic evidence, see Abbiati v. Buttura & Sons, Inc., 161 Vt. 314, 639 A.2d 988, 991 (1994), to determine the proper construction of the contract. The proper construction is that which reflects or effectuates the intent of the parties. See Abbiati, 639 A.2d at 991. In any given case relevance guides the use of extrinsic evidence. Some of the same evidence that may bear on whether a written contract is ambiguous may also cast light on the proper interpretation of the language upon a finding of ambiguity. See, e.g., id. at 991 (indicating that circumstances under which the contract arose are relevant in determining intent of parties).

Generally, the construction of a contract is a question of law. See Morrisseau v. Fayette, 164 Vt. 358, 670 A.2d 820, 826 (1995). "[W]here the meaning of a contract is uncertain," however, "the intent of the parties becomes a question of fact." Housing Vt. v. Goldsmith & Morris, 685 A.2d 1086, 1088 (Vt.1996). In this case, therefore, we must determine whether the record contains sufficient evidence from which a reasonable jury could conclude that Baybank did not intend to participate in the renewal. We conclude that the record in this case allows for no such dispute. Instead it reflects that the parties intended the participation agreement to extend to the renewal, and, therefore, the district court appropriately granted summary judgment in favor of Vermont National.

From Baybank's negotiations with Vermont National prior to June 5, 1988, the date that Baybank now claims marked the end of its participation period, until September of 1993, when Baybank filed its complaint, Baybank repeatedly reaffirmed its understanding that its participation extended to the renewal. George Todd Marchant, Vice President in Baybank's commercial loan department and member of Baybank's loan committee, negotiated the initial participation agreement with Louis Dunham, Executive Vice President of Vermont National.⁴  Marchant testified that he and Dunham discussed the anticipated renewal of the Liftline loan scheduled to occur six weeks after Baybank purchased its participation, and that the loan committee's approval of participation in the Liftline loan included participation in the renewal.⁵  Marchant further testified that a handwritten note in the top corner of one of the loan documents produced from Baybank's file read "per Lou, this note will be renewed on the same terms."⁶ 

From September 1991 to spring 1993, David Hobert, then an account officer with Baybank, served as the participating agent in the loan. In this capacity, Hobert oversaw the relationship between Baybank and Vermont National pertinent to the Liftline loan and worked with officials at Vermont National "in administering the direction of the loan and foreclosure." Hobert testified that when he assumed oversight of the loan, nearly two years after the maturity date to which Baybank now clings, "it was understood that [Baybank] had a 90% participation."

On behalf of Baybank, Hobert worked closely with Vermont National as the two banks considered their options and planned their workout strategies.⁷  Hobert visited the Liftline lodge in 1992, nearly four years after the maturity date Baybank claims, to examine the collateral and participate in negotiations with the lodge owners on clearing the debt. Hobert testified that he made this trip because Baybank "was a 90% participant in the loan," and he was invited to inspect the property with the lead bank. On behalf of Baybank, Hobert also proposed a settlement with Liftline's guarantors and proposed that Baybank and Vermont National form a corporation of which Baybank would own 90% and Vermont National would own 10%, for the purpose of taking title to the property and other assets of Liftline.

Documentary evidence from Baybank's files throughout the life of the loan further undermines Baybank's renewal claim. In October 1988 and again in 1989, Baybank sent Vermont National "audit confirmation" notices requesting Vermont National to submit information regarding Baybank's interest in the Liftline loan. Both of the notices reflect a due date or maturity date of June 5, 1993, which corresponds with the maturity date of the renewed loan. Watch List Reports, in which Baybank lists "troubled" loans requiring additional monitoring, listed the Liftline loan and specifically indicated an origination date of April 25, 1988 and a maturity date of June 5, 1993.

As indicated, the question of the intent of the parties to an ambiguous agreement is one of fact. See Housing Vt., 685 A.2d at 1088. In this case Baybank has failed to identify any evidence that would place its intent to participate in the renewal in dispute. Instead, the record in this case establishes beyond question that Baybank intended to and did participate in the renewal of the Liftline loan. Accordingly, the district court correctly granted summary judgment in favor of Vermont National.⁸ C. Did Vermont National Commit Other Breaches of the Participation Agreement?

Baybank contends that even if the participation agreement did extend to the renewal, Vermont National breached the agreement by failing to provide it with certain information the agreement required. Baybank also claims that Vermont National settled a claim against the individual guarantors over Baybank's objection in contravention of the participation agreement.⁹  We find neither of these arguments persuasive.

The participation agreement provides:

As long as the Participating Bank continues to have an ownership interest in the Loan, the Originating Bank agrees to regularly provide the Participating Bank with complete and current credit related and other information concerning the Borrower, the Loan and the collateral securing the Loan....

Baybank points us to the deposition testimony of Kathleen Mullin and David Hobert, Baybank employees who oversaw the loan at different points during its existence. The district court reviewed both of these sources and determined that they failed to establish even a dispute of fact as to whether Vermont National breached the participation in this way.

We need not revisit this evidence in detail. Mullin testified that she could not remember specifically what Vermont National had failed to provide and what she had or had not received. Hobert professed no knowledge as to why Baybank had not received certain documents, specifically, whether it was due to Vermont National's delinquency or that of the debtors or guarantors. Mullin and Hobert simply could not recollect exactly what information Baybank had in its possession, what information Baybank sought and what information Vermont National failed to produce. In short, we agree with the district court that their testimony fails to raise any genuine issue of material fact on this claim.

Finally, Baybank argues that Vermont National breached the participation agreement by settling a claim against the individual guarantors of the Liftline loan. The participation agreement prohibited Vermont National from "waiv[ing] or releas[ing] any claim against any Borrower and/or against any co-maker, guarantor or endorser under the Loan." Baybank directs us to the affidavit of Richard Butler, Senior Vice President of Baybank, who claims that Vermont National settled against the guarantors in contravention of Baybank's instructions. This conclusory assertion simply mischaracterizes the record.

The record reveals that on April 15, 1993, Mark LaPointe of Vermont National and David Hobert met with attorneys for the guarantors. Hobert, not LaPointe, proposed a settlement but failed to reach an agreement with the guarantors. A memorandum dated April 20, 1993, the veracity of which Baybank does not dispute, memorializes this meeting. The guarantors then moved to enforce a settlement agreement in bankruptcy court despite the fact that none of the parties had agreed to final terms of settlement. Vermont National and Baybank both opposed the motion. The bankruptcy court, however, granted the motion, effectively forcing settlement upon the banks. Butler's conclusory allegations fail to raise a genuine issue of material fact.

Conclusion

Having found no error, we conclude that the district court appropriately granted summary judgment in favor of Vermont National on all counts.

Affirmed. Costs to appellee.