William Pease, et al. v. Wachovia SBA Lending, Inc., No. 76, September Term, 2009
CONTRACTS – MARYLAND CREDIT AGREEMENT ACT – CONFESSED
JUDGMENT – GUARANTORS ASSERTING FACTUAL AVERMENTS SUGGESTING
FRAUD, NEGLIGENCE, AND FIDUCIARY DUTY BY A LENDER AS GROUNDS TO
OPEN, MODIFY, OR VACATE CONFESSED JUDGMENTS – THE STATUTE OF
FRAUDS PROVISION OF THE MARYLAND CREDIT AGREEMENT ACT ONLY
APPLIES WHEN A PARTY SEEKS TO ENFORCE EITHER (1) AN ORAL CREDIT
AGREEMENT; OR (2) A VERBAL MODIFICATION OF AN EXISTING CREDIT
AGREEMENT. TO THE EXTENT GUARANTORS UNDER A CREDIT AGREEMENT
ADVANCE FACTUAL AVERMENTS SOUNDING IN TORT WITH AN EYE
TOWARDS FILING COUNTERCLAIMS AGAINST LENDER, THE STATUTE DOES
NOT APPLY TO BAR CONSIDERATION OF SUCH AN EVIDENTIARY PROFFER.
TO THE EXTENT, HOWEVER, GUARANTORS ADVANCE THE SAME FACTUAL
AVERMENTS WITH AN EYE TOWARDS SEEKING A DECLARATION THAT A
WRITTEN CREDIT AGREEMENT WAS VOID AB INITIO, THE MARYLAND CREDIT
ACT DOES APPLY TO BAR CONSIDERATION OF SUCH AN EVIDENTIARY
PROFFER IN DECIDING WHETHER A SUBSTANTIAL AND SUFFICIENT BASIS
FOR AN ACTUAL CONTROVERSY EXISTS TO JUSTIFY OPENING, MODIFYING,
OR VACATING CONFESSED JUDGMENTS ENTERED UPON DEFAULT UNDER A
Circuit Court for Baltimore City
Case No. 24-C-08-000810 CJ
IN THE COURT OF APPEALS
September Term, 2009
WILLIAM PEASE, ET AL.
WACHOVIA SBA LENDING, INC.
Opinion by Harrell, J.
Bell, C.J., Murphy and Adkins, JJ.,
concur and dissent.
Filed: October 21, 2010
In this appeal, the parties ask us to consider and shape the contours of Maryland Code
(2006 Repl. Vol.), Courts and Judicial Proceedings Article, § 5-408,1 which serves as a
statute of frauds in the regulatory scheme for credit agreements. William and Michele Pease
(Appellants) – husband and wife and guarantors on a Small Business Administration
(hereinafter “SBA”) commercial loan financing substantially their acquisition of a plumbing
business – appeal from the denial by the Circuit Court for Baltimore City of their motion to
open, modify, or vacate confessed judgments in favor of Wachovia SBA Lending, Inc.
(hereinafter “Wachovia” or Appellee), entered against them upon default under the
underlying note. In arguing that the confessed judgments should be opened, modified, or
vacated, the Peases claim essentially that: (1) the Circuit Court erred in refusing to consider
their allegations and evidentiary proffers that Wachovia and its representatives induced them,
fraudulently and negligently, to enter a series of related loans through certain oral
representations and omissions; or, (2) that, had certain information been disclosed to them
by Wachovia, they would not have consummated the SBA commercial loan and guarantees.
In response, Wachovia argues that § 5-408 – also coined the “Maryland Credit Agreement
Act” – bars the admission of these alleged oral representations, as they were not set forth in
writing. We hold, as explained more fully infra, that, to the extent the Peases’ assertions of
negligence, fraud, and breach of fiduciary duty were advanced with an eye towards filing
counterclaims against Wachovia in the suit on the commercial loan and guarantees, such
assertions do not seek to enforce or modify a “credit agreement” (or constitute a defense to
Unless otherwise provided, all statutory references are to Maryland Code, Courts and
Judicial Proceedings Article (2006 Repl. Vol.).
a “credit agreement”) within the reach of § 5-408, and thus the Maryland Credit Agreement
Act does not apply to bar the Circuit Court from considering the sufficiency of the allegations
under Md. Rule 2-611(d). To the extent the Peases’ assertions were advanced, however, with
an eye towards seeking a declaration that the credit agreement represented by the SBA
commercial loan and guarantees was void ab initio, we hold that the Maryland Credit
Agreement Act would apply to bar the Circuit Court from considering such allegations in this
matter. We vacate the judgment of the Circuit Court and, as explained infra, remand to that
court for consideration of whether the Peases alleged sufficiently one or more tortious acts,
that may be plead as counterclaims, so as to justify opening, modifying, or vacating the
FACTS AND LEGAL PROCEEDINGS
William Pease (hereinafter “William”) and Michele Pease (hereinafter “Michele”)
were the former owners and operators of a successful plumbing business in Richmond,
Virginia. In 2005, the Peases, in relocating their family to Maryland, decided to sell their
business in Virginia and purchase an existing plumbing business in Maryland. They
eventually settled in Harford County, Maryland, and purchased a residence for $820,000,
paying $300,000 in cash and financing the remaining $520,000. Around the same time,
William learned from a business brokerage firm that David Kolper was seeking to sell his
Maryland-based plumbing company, Bush Plumbing & Heating, Inc. (hereinafter “Bush”).
The Peases established two entities, which they would own, to purchase Bush: VLP
Industries, Inc., a Maryland corporation, and VLP Real Estate, LLC, a Maryland limited
liability company. To finance the purchase of Bush, William contacted Wachovia to obtain
an SBA loan. He was ultimately referred to Jeffrey2 Martin (hereinafter “Martin”),
Wachovia’s agent, senior commercial business lender, and business development officer.
During the period between March and August of 2005, William alleged that he spoke
with Martin at least twice a week, and repeatedly told Martin that he did not want his new
residence to be “implicated in the financing or to, in any manner, pledge or utilize the new
home as collateral toward repayment of the [SBA] loan.” Allegedly, Martin informed
William that, pursuant to Wachovia’s normal lending procedures, the only way the Peases
would not be required to pledge their house as collateral on the SBA loan was if they had less
than twenty-percent equity in the value of the home. Because the size of the Peases’ down
payment put the amount of equity in the home above twenty percent, Martin suggested the
Peases encumber the home with a home equity line of credit with Wachovia, which would
decrease the amount of equity in the property below the twenty-percent threshold. The
Peases applied for and received from Wachovia a $218,000 line of credit on their residence,
which reduced their personal equity in the home to ten percent. The Peases contend that
Wachovia and Martin misrepresented verbally that this “artificial loan” would safeguard the
residence from foreclosure were the commercial loan to go into default and the personal
guarantees triggered. In reality, however, because the commercial loan documents (including
the guarantees) provided no such restriction on Wachovia’s abilities to execute on the
It is not clear whether Mr. Martin’s first name is correctly spelled “Jeffrey” or
“Jeffery,” as the Peases use both versions throughout their pleadings and briefs.
Peases’ assets in the event of default, Wachovia could foreclose on the home under those
circumstances notwithstanding the home equity loan gambit. Thus, the Peases allege that
these statements regarding protecting the residence from foreclosure were made to induce
them into agreeing to enter the SBA loan.
At the same time, William began the process of reviewing the business affairs and
finances of Bush to ensure the company was valued as estimated by Kolper. According to
William, as part of his due diligence in reviewing the business affairs and finances of Bush,
he required Kolper and the business brokerage firm to provide various documentation,
including: profit and loss statements for the duration of Bush’s operations, prior tax returns,
a list of employees, a list of contracts, a list of accounts receivables, and various other
documentation. Such documentation was submitted to Wachovia’s certified appraiser, Scott
Gabehart, who, after conducting an independent financial analysis for Wachovia and the
Peases, valued Bush at $950,000 as a going concern. Further, a separate real estate appraiser
valued the real property on which the Bush business was located at $450,000.
A few weeks prior to settlement on the SBA loan, Martin allegedly admitted to
William that, according to the documentation supplied to Wachovia, Bush’s financial health
was weaker than Kolper had indicated. A centerpiece of the Peases’ grievance is the
allegation that Wachovia possessed certain negative financial information that it withheld
from them.3 Allegedly, the Peases did not discover this negative financial information until
At oral argument, Peases’ counsel admitted that he was not sure exactly what
additional negative financial information was withheld. Furthermore, it is not clear whether
after settlement. They claim that they would not have proceeded with the purchase of Bush
had they known of the later-discovered negative financial information. In any event, because
the financial state of Bush was not as Kolper had stated, Martin classified the proposed
transaction as a “very tight” deal; that is, he was not sure whether Wachovia would approve
the SBA loan now. The Peases allege that Martin urged William to cause VLP Industries,
Inc. to execute a promissory note in the amount of $95,000, payable to Kolper, as additional
financing for the purchase of Bush and as a way to ensure that Wachovia could authorize the
financing for the balance of the purchase price. Allegedly, Martin represented verbally to
William that the $95,000 promissory note would be “hold-back money” that the Peases could
utilize in the event that Bush incurred any liability as a result of its operations prior to the
transfer of Bush. While Martin characterized this “hold-back money” as a safety precaution
to protect against any outstanding issues associated with the purchase of Bush, the Peases
maintain that this loan was merely a device for Wachovia to shift some of the risk exposure
on the SBA loan from itself to the Peases.
Settlement on the purchase of Bush took place on 19 August 2005, whereby Bush’s
operating assets were transferred to VLP Industries, Inc., and the real property on which
the alleged withheld information was information in addition to that relied on by Wachovia’s
appraiser. At oral argument, Peases’ counsel stated that “there was, we believe, additional
information beyond what was done in the appraisal . . . that was received by . . . the loan
officer in this case.” On the other hand, in the affidavit supporting his motion to open,
modify, or vacate the confessed judgment, William states merely that “Wachovia never
provided to [sic] the negative financial information about the Bush purchase [to] its borrower,
VLP Industries, or to William Pease and Michele Pease.”
Bush was situated was transferred to VLP Real Estate, for a total purchase price of
$1,494,075.49. On the same day, to finance the majority of the purchase price, VLP
Industries, Inc. executed a commercial loan with Wachovia in the amount of $1,118,300.
The Peases personally guaranteed the loan, and both William and Michele signed the loan
agreement, which contained the following confessed judgment clause:
CONFESSION OF JUDGMENT.
If payment of the
indebtedness . . . shall not be made when due and at maturity .
. . the undersigned hereby authorize and empower any attorney
of any Court of Record within the United States to appear for
the undersigned in any Court . . . and confess judgment against
the undersigned either jointly or severally in favor of the Holder
of this Note for the amount then due thereon, with the interest
thereon aforementioned and the cost of suit and attorneys’ fees
of fifteen percent (15%) . . . .
Less than one week after settlement, the Peases paid back the $218,000 home equity
loan, plus $2,570.74 in related loan fees and interest. On the $95,000 hold-back note,
however, the Peases made no payments to Kolper. Further, on 30 November 2007, VLP
Industries, Inc. defaulted on the commercial loan, on which $1,112.312.34 was owed at that
time. On that same date, Wachovia accelerated the commercial loan and informed both
William and Michele of their obligation to pay the outstanding amount in full. On 28
January 2008, having not received the accelerated payments, Wachovia instituted confessed
judgment proceedings in the Circuit Court for Baltimore City. Confessed judgments for
$1,285,995.28 were entered and indexed against the Peases and both of their business entities
on 28 January 2008.4
The Peases filed a motion to open, modify, or vacate the confessed judgments on 8
April 2008, asserting allegations of negligence, fraud, and breach of fiduciary duty. In
support of these allegations, the Peases attached an affidavit by John Burdiss, a purported
expert in banking standards of care. Burdiss claimed that Wachovia failed to comport with
commercially reasonable banking standards when it authorized the commercial loan, despite
having reservations about Bush’s financial stability, and when it induced the Peases into
taking out the home equity loan by assuring them that, by doing so, their residence would be
protected from foreclosure. Wachovia responded by arguing that the Peases’ defenses of
negligence, fraud, and breach of fiduciary duty were barred by the Maryland Credit
Agreement Act, which states that “[a] credit agreement is not enforceable . . . unless it is . .
. [i]n writing . . . .” § 5-408(b).
On 10 December 2008, a hearing on the motion to open, modify, or vacate the
confessed judgments was held in the Circuit Court. Before the trial court, the Peases asserted
that, should the hearing judge order the confessed judgment opened, modified, or vacated,
they would file counterclaims against Wachovia,5 yet they informed the hearing judge also
Though it perhaps does not require stating, the $95,000 note from VLP Industries,
Inc., payable to Kolper, was not part of the indebtedness under the commercial loan default
that lead to the confessed judgments.
The Peases’ trial counsel stated expressly to the hearing judge that, “[i]f you decide
to vacate the Judgment, we will then file our counter-claim in this case.” Further, when
asked by the hearing judge whether the Peases would file tort claims, Peases’ counsel replied,
“[w]e’re asserting all tort claims. Yes, Your Honor.”
that they would argue that the SBA loan agreement was void ab initio for the same reasons
as supported the tort claims. After listening to both sides, the hearing judge denied
reluctantly the Peases’ motion, believing he was bound by the reasoning contained in a Court
of Special Appeals’s case, ST Sys. Corp. v. Md. Nat’l Bank, 112 Md. App. 20, 684 A.2d 32
I am going to deny the Motion to Vacate. And I do so with a
good deal of reluctance. . . . The Court need only find there is a
potentially meritorious defense, not to determine the amount of
merit, or that the moving party will indeed prevail. . . . And,
while I would certainly find that the Plaintiff would be, I believe
be able to present a defense that in terms of having been induced
by perhaps misrepresentation . . . . I just cannot find that in light
of the Maryland Credit Agreement Statute, and particularly in
light of the ST Systems Corporation vs. Maryland National
Bank case . . . . And I too, as an individual would hope that the
In ST Sys. Corp. v. Md. Nat’l Bank, 112 Md. App. 20, 684 A.2d 32 (1996),
Maryland National Bank (MNB) offered a commercial-financing package to ST Systems
Corporation (STX), part of which was conditioned upon STX having a value of at least
$40,000,000. ST Sys. Corp., 112 Md. App. at 25, 684 A.2d at 34. Because STX as a going
concern ultimately was valued at an amount less than that, the parties began negotiating a
new commercial-financing package. ST Sys. Corp., 112 Md. App. at 25, 684 A.2d at 35.
The parties never executed a loan agreement memorializing the terms of a restructured
package, however. See ST Sys. Corp., 112 Md. App. at 26, 684 A.2d at 35. STX filed suit
against MNB, asserting, inter alia, eight separate tort claims based on MNB’s conduct during
the loan negotiation process. Id. MNB filed a motion to dismiss these tort claims, arguing
that the Maryland Credit Agreement Act barred STX’s tort claims that were related directly
to the non-memorialized – and thus unenforceable – agreement. See id. The Court of
Special Appeals explained that the Maryland Credit Agreement Act is “intended to limit the
increase in lender liability litigation,” and that the statute “has broad language that appears
to incorporate an expansive view of limiting lender liability . . . .” See ST Sys. Corp., 112
Md. App. at 31, 684 A.2d at 37. Ultimately, the Court of Special Appeals held that
“[a]llowing enforcement of tort claims based on an unenforceable oral agreement would
invalidate [the Act] by nullifying its protective purpose . . . .” and that the Act’s “economic
protective policy is only upheld if tort claims based on an unenforceable alleged agreement
are excluded.” See ST Sys. Corp., 112 Md. App. at 32, 684 A.2d at 38. See infra note 12.
statute would not be such a shield as to protect lending
institutions from any tort . . . .
Yet, I am merely sitting in the Circuit Court and have
been compelled to follow the dictates of the opinions of the
Appellate Court. And, my understanding of what the Court of
Special Appeals has said is literally the economic protective
policy of the Maryland Credit Agreement statute is only upheld
if tort claims based on an unenforceable alleged agreement are
excluded and the torts that are alleged here as the potentially
meritorious defenses are indeed based upon unenforceable
The Peases appealed timely to the Court of Special Appeals. On our initiative, we
granted certiorari, before the intermediate appellate court could decide the appeal, to
consider, if appropriate, whether
the [Maryland Credit Agreement Act] which bars enforcement
of credit agreements, unless the agreements are in writing, and
the CSA decision in [ST Sys. Corp.] prohibit tort claim defenses
to a bank’s confessed judgment claim where the defendants
allege the bank violated standard banking practices to
fraudulently and negligently induce a borrower to accept the
bank’s loan of over $1 million dollars.
Pease v. Wachovia, 409 Md. 413, 975 A.2d 875 (2009).
I. Standard of Review
Pursuant to Md. Rule 2-611(d), a court must open, modify, or vacate a confessed
judgment “if [it] finds that there is a substantial and sufficient basis for an actual controversy
as to the merits of the action . . . .” A trial court’s legal conclusions – including whether the
evidentiary proffers of a defendant seeking to open, modify, or vacate a confessed judgment
qualify as a meritorious defense – are reviewed under non-deferential appellate scrutiny. See
Nils, LLC v. Antezana, 171 Md. App. 717, 727-28, 912 A.2d 45, 51 (2006) (“On the issue of
whether what is offered by a party seeking to open, modify, or vacate a confessed judgment
qualifies as a meritorious defense, that is a question of law for the judge.”); Shafer Bros. v.
Kite, 43 Md. App. 601, 606, 406 A.2d 673, 676 (1979) (“The issue of what can constitute a
meritorious defense, assuming that the supporting facts are believed, is a question of law.”).
The Peases devote a portion of their brief to canvassing the legislative history of the
Maryland Credit Agreement Act. Wachovia devotes most of its brief to arguing that the
Maryland Credit Agreement Act bars consideration of the Peases’ allegations and evidentiary
proffers of alleged negligence, fraud, and breach of fiduciary duty. Read together, the
parties’ briefs ask, in effect, this Court to cut through what might be a Gordian Knot of
statutory interpretation and determine whether § 5-408(b) bars consideration of the Peases’
allegations and evidentiary proffers.
To be sure, “[c]onstruing statutes . . . is a large and essential part of the judicial
process” and “[i]t is one of the principal functions which courts were created to perform . .
. .” Magnum v. Md. State Bd. of Censors, 273 Md. 176, 192, 328 A.2d 283, 292 (1974); see
Atl. Sea-Con., Ltd. v. Robert Dann Co., 80 Md. App. 161, 165, 560 A.2d 592, 594 (1989),
rev’d on other grounds, 321 Md. 275, 582 A.2d 981 (1990). Wading up to our eyebrows in
the waters of statutory interpretation,7 however, is not required where the perceived-as7
The Concurring and Dissenting opinion’s efforts to grapple with the Maryland Credit
Agreement Act’s plain language, legislative history, and how other jurisdictions may have
relevant statutory provision does not control the alleged facts of a given case. See Boffen v.
State, 372 Md. 724, 736, 816 A.2d 88, 95 (2003) (quoting Chen v. State, 370 Md. 99, 106,
803 A.2d 518, 521-22 (2002)) (“In discerning legislative intent, ‘we look first at the language
of the relevant statutory provision or provisions.’”) (emphasis added).
Pertinent to our case, and pursuant to Md. Rule 2-611(d), we are alert to the fact that
the practical effect of a hearing judge opening, modifying, or vacating a confessed judgment
is to “permit the defendant to file a responsive pleading.” Admittedly, at this juncture in
these proceedings, it is a bit unclear upon what grounds that pleading would be based and
what its aim might be. The lack of clarity is occasioned by, on one hand, the Peases arguing
before the trial court, and reiterating in their brief before this Court, that, if the judgments are
opened, modified, or vacated, they intend to file counterclaims against Wachovia, asserting
treated debatably similar facts under arguably similar statutory schemes, where not entirely
necessary, call to mind the story of the Exodus. The Midrashic interpretation of the Exodus
from Egypt recounts that, upon reaching the Red Sea, the waters did not automatically part
before the Israelites. MIDRASH RABBAH, VOL. III 272 (S.M. Lehrman, trans., 3d ed. 1983).
While the Israelites stood by the shore contemplating their impending doom, Nahshon Ben
Amminadab entered the water until the sea reached his nostrils. THE JEWISH ENCYCLOPEDIA
VOL. IX 146 (Funk & Wagnall 1905); MIDRASH RABBAH, supra. It was not until this act of
self-sacrifice that the sea’s waters parted. Imagine, however, that there was a way for the
Israelites to continue on their path without having to wade in water over their heads. The
Concurring and Dissenting opinion here takes on the Maryland Credit Agreement Act at least
up to its eyebrows; we wade in, however, only up to our nostrils.
We regret that the quality of our abridged analysis apparently does not meet the more
rigorous standards expected by the subscribers to the Concurring and Dissenting opinion.
(Concurring and Dissenting slip op. at 2) (“[T]his
argument merits more discussion than the brief treatment that the majority opinion accords
it.”); (Concurring and Dissenting slip op. at 7) (“[A] more careful examination . . . is key to
the same tort-based theories raised before the trial court and this Court: negligence, fraud,
and breach of fiduciary duty. On the other hand, before the hearing judge, the Peases also
acknowledged that they would seek to have the credit agreement declared void ab initio for
the same reasons. At oral argument here, the Peases’ counsel stated that “the defenses in this
case . . . create a tort defense to the creation of the promissory note.”8 (Emphasis added.)
The Concurring and Dissenting opinion highlights a different colloquy at oral
argument between the Peases’ counsel and Judge Murphy to support its view that we should
decline to address the Peases’ pursuit of a void ab initio claim. Md. __, __ , __ A.2d __,
__ (2010) (Concurring and Dissenting slip op. at 2-3 n.1). Apparently, Judge Adkins hears
the Peases’ counsel say, on the recording of oral argument, “we challenged that the loan that
was executed, through the negligence or through fraud, was improperly created and therefore
could either be void ab initio or as a setoff,” and infers from the past-tense of the verb
“challenged” that the Peases only pursued the void ab initio objective before the Circuit
Court, but not before this Court. Id. (first emphasis added). After our careful review of the
oral argument recording, we hear the Peases’ counsel utter the word “challenge” (the present
tense); thus, we understand the Peases’ counsel to mean that he is currently – before this
Court – arguing that, upon remand, the Peases be allowed to seek a declaration that the SBA
loan was void ab initio (or voidable).
Notwithstanding our difference of opinion about which tense the verb “challenge”
took in the exchange between counsel and Judge Murphy, the Peases’ counsel – during what
seems elsewhere on the recording of oral argument to be part of his prepared arguments, and
not in direct response to an inquiry by a member of the Court – unequivocally states that it
was his belief that the defenses asserted by his clients (then and now) operate to void the
SBA loan ab initio. Finally, the Peases’ counsel, in his brief at 19, cites a Law Review
article for the proposition that “[f]raud may serve both as a defense to a suit on a contract and
as an independent tort.” Todd C. Pearson, Limiting Lender Liability: The Trend Toward
Written Credit Agreement Statutes, 76 MINN. L. REV. 295, 314-15 (1991).
Concededly, while the Peases’ counsel could have been clearer before this Court that,
upon remand, his clients intend to pursue the void ab initio claim before the Circuit Court,
when viewing the proposition that “fraud may serve . . . as a defense to a suit on a contract”
through the lens of what was argued in the trial court and at appellate oral argument, the
more reasonable interpretation of the record is that the Peases, before this Court, argue that
they be allowed to proceed anew before the Circuit Court, claiming, among other things, that
the SBA loan was void from the inception (or was at least voidable). Accordingly, it is fair
and proper to comment on that contention in this opinion.
Thus, it is not clear then or now whether the Peases’ incipient responsive pleading would
assert that they are entitled to damages, notwithstanding the enforceability of the credit
agreement, or whether they will argue the credit agreement represented by the SBA
commercial loan and guarantees is not enforceable in the first instance. Because different
outcomes, vis á vis the application of the Maryland Credit Agreement Act, might result from
these alternative approaches, after determining precisely the situations to which the General
Assembly intended the Act apply, we will address the (1) counterclaims and (2) the void ab
initio objectives in turn.
A. The Maryland Credit Agreement Act
The Maryland Credit Agreement Act, Md. Code (2006 Repl. Vol.), Courts and
Judicial Proceedings Art., § 5-408, provides, in pertinent part, that “[a] credit agreement is
not enforceable by way of action or defense unless it: (1) [i]s in writing; (2) [e]xpresses
consideration; (3) [s]ets forth the relevant terms and conditions of the agreement; and (4) [i]s
signed by the person against whom enforcement is sought.” § 5-408(b). As one would
expect, however, with a statute entitled the “Maryland Credit Agreement Act,” the Act only
serves as a statute of frauds with respect to “credit agreements.” See Bill Analysis of H.B.
704 (1989) (“The intent of this bill is to establish a statute of frauds that makes certain credit
agreements . . . unenforceable unless they are in writing . . . .”) (emphasis added). The Act
provides that a “credit agreement” is a “covenant, promise, undertaking, commitment, or
other agreement by a financial institution to: 1. [l]end money; 2. [f]orbear from repayment
of money, goods, or things in action; 3. [f]orbear from collecting or exercising any right to
collect a debt; or 4. [o]therwise extend credit.” § 5-408(a)(2)(i). The Act goes on to explain
that the term “‘credit agreement’ includes agreeing to take or not to take certain actions by
a financial institution in connection with an existing or prospective credit agreement.” § 5408(a)(2)(ii). Both the parties in this case and the Concurring and Dissenting opinion wrestle
with the Maryland Credit Agreement Act without first considering a threshold issue: whether
the Act even applies – in whole or in part – to the Peases’ assertions of negligence, fraud, and
breach of fiduciary duty.
The legislative history of the Act, though not extensive, illuminates the types of
situations to which the General Assembly intended the Act apply. In 1989, at the time the
legislation was enacted, “multimillion dollar lawsuits [were] being filed and recovery [was]
being made based on alleged verbal promises to lend and based on modifications of existing
loan agreements.” Notes to H.B. 704 (1989). Thus, the purpose of the bill was to “protect
lenders against claims that the lender made a verbal promise to loan money and then refused
to do so, or that the lender verbally agreed to extend the terms of a loan.” Bill Analysis of
H.B. 704 (1989). We interpret the plain language and the legislative history of the Maryland
Credit Agreement Act consistently to mean that a court should only engage the statute of
frauds portion of the Act when, either through affirmative claim or defense, a commercial
borrower or lender either attempts to recover on a verbal promise to lend/borrow, or seeks
to enforce a verbal modification of an existing credit agreement.
Md. Rule 2-611(d) requires a trial judge to find “that there is a substantial and
sufficient basis for an actual controversy as to the merits of the action” before opening,
modifying, or vacating the confessed judgment. If, however, the Maryland Credit Agreement
Act bars admission of certain evidence supporting the “basis for an actual controversy,” it
logically follows that such evidence is not, then, “substantial and sufficient.” We now move
to apply our understanding of the Maryland Credit Agreement Act to the (1) potential
counterclaims and (2) the void ab initio objective, both asserted by the Peases before the trial
court and this Court, as the theories upon which a future “responsive pleading” might be
based, to determine whether the Act bars consideration at this stage of the proceedings of
allegations and evidentiary proffers supporting either or both such objectives.
B. As Counterclaims
As explained supra, the Peases assert that, if successful in opening or vacating the
confessed judgment, they will employ their allegations – negligence, fraud, and breach of
fiduciary duty – as the bases for counterclaims against Wachovia. If the Act, however,
would bar such counterclaims, or the evidence on which they rest, the allegations and
evidentiary proffers cannot constitute a “substantial and sufficient basis as to the merits of
the action” sufficient to open or vacate the confessed judgments. See Schlossberg v. Citizens
Bank of Md., 341 Md. 650, 656, 672 A.2d 625, 627 (1996) (stating that a confessed judgment
can only be opened if “the defendant has a potentially meritorious defense”). As discussed
supra, the statute of frauds portion of the Act only applies in the first instance to bar assertion
of the Peases’ counterclaims if they constitute either an attempt to enforce either (1) an oral
credit agreement; or (2) a verbal modification of their existing loan agreement. Simply put,
in filing these counterclaims against Wachovia, the Peases would be doing neither.
The filing of offensive counterclaims using the tort theories of negligence, fraud, and
breach of fiduciary duty would be on the basis that, as the Peases acknowledge, any recovery
on such claims would serve as a set-off against any judgment on the guarantees in favor of
Wachovia.9 Accordingly, where such counterclaims are allowed to be filed, the Peases
would not seek thereby to enforce or modify an oral agreement, but would be asserting such
claims notwithstanding the implicitly conceded enforceability of the credit agreement (the
SBA commercial loan and guarantees). On the other hand, the legislative history of the Act
is clear that, if the Peases were asserting the counterclaims as a means to defeat directly or
attain a modification of the credit agreement with Wachovia, the Maryland Credit Agreement
Act would be triggered and bar consideration of the underlying allegations and evidentiary
proffers in determining whether the confessed judgments should be opened, modified, or
vacated.10 See Notes to H.B. 704 (1989) (“[A]ll this legislation is saying is that . . . if you are
“Counterclaim” has been defined as “the assertion of a right to have an affirmative
judgment against the adversary based upon a setoff . . . .” Imbesi v. Carpenter Realty Corp.,
357 Md. 375, 380, 744 A.2d 549, 552 (2000) (emphasis added).
Wachovia misplaces its reliance on a recent decision of the United States District
Court for the District of Maryland, Kuechler v. The Peoples Bank, 602 F. Supp. 2d 625 (D.
Md. 2009). In Kuechler, the Plaintiffs took out a $500,000 commercial loan used to purchase
a piece of property. Kuechler, 602 F. Supp. 2d at 627. The Plaintiffs’ personal guarantee on
the loan was secured by an indemnity mortgage on both their personal residence and the tobe-purchased property. Id. After the borrower defaulted, Peoples Bank demanded full
payment on the Plaintiffs’ guarantee. Kuechler, 602 F. Supp. 2d at 628. In response, the
Plaintiffs sued Peoples Bank, alleging, inter alia, that the bank engaged in illegal bank
going to sue me to enforce an alleged loan agreement, get it in writing and get it signed.”).11
Because the Peases would be asserting the counterclaims against Wachovia for negligence,
fraud, and breach of fiduciary duty, not to enforce a verbal agreement to borrow or to modify
their existing agreement to borrow, but to constitute a set-off against any recovery obtained
by Wachovia under a concededly enforceable credit agreement, these counterclaims plainly
practices, professional negligence, and intentional and negligent misrepresentation in
underwriting the loan. Kuechler, 602 F. Supp. 2d at 631. The Plaintiffs premised these
lender-liability claims on allegations that “Peoples Bank, in order to induce Plaintiffs to
execute the mortgage on their home, assured them that the foreclosure sales proceeds of the
. . . Property would be applied against the $500,000 loan.” Kuechler, 602 F. Supp. 2d at 628.
Such an allegation, however, was at odds with the express language of the credit agreement.
Kuechler, 602 F. Supp. 2d at 632. Judge J. Frederick Motz held that “Peoples Bank’s
promise to take or not to take certain actions, such as foreclosing on the Davidson property
before foreclosing on the Kuechler’s residence . . . . was not in writing, it is [therefore] not
enforceable.” Id. In effect, the Plaintiffs’ claim in Kuechler was essentially that the bank’s
inducements and assurances effectuated a modification of the original credit agreement. See
id. Of course, the legislative history of the Maryland Credit Agreement Act is clear that such
alleged modifications are unenforceable unless in writing. As noted supra, in the case sub
judice, however, to the extent that the Peases seek to assert counterclaims against Wachovia,
they are not alleging that the alleged tortious acts of negligence, fraud, and breach of
fiduciary duty effectuated a modification of their credit agreement with Wachovia.
Not all jurisdictions have held that offensive use of counterclaims are allowed under
their respective credit agreement statutes of frauds. For instance, Illinois’s credit agreement
statute of frauds, 815 ILL. COMP. STAT. 160/2 (2007), which bars actions by a debtor “on or
in any way related to a credit agreement,” has been held to bar counterclaims related to a
written credit agreement. See First Nat’l Bank in Staunton v. McBride Chevrolet, 642 N.E.2d
138, 142 (Ill. App. Ct. 1994) (“There is no limitation as to the type of actions by a debtor
which are barred by the act, so long as the action is in any way related to a credit
agreement.”). Because the Maryland Credit Agreement Act, however, is not as broadly
worded, we do not need to construe similarly our statute to bar counterclaims, even if they
are, in some way, related to the transaction leading to the execution of the written credit
are not the sort of situation to which the General Assembly intended the Act apply.12 See
Steven C. Bahls, Farm and Ranch Credit: Duty-Based Theories of Lender Liability, 19 WM.
MITCHELL L. REV. 367, 399 (1993) (“Since many . . . claims do not seek to establish or
modify a credit agreement, the [credit agreement] statutes may not apply.”). As such, § 5408(b), which serves as the Act’s statute of frauds, does not bar at the threshold the Circuit
Court from considering the Peases’ allegations – in assessing the legal sufficiency of whether
the appropriate legal theory of each counterclaim states a prima facie cause of action – as
grounds to open, modify, or vacate the confessed judgment.13
Thus, we do not agree with the view, espoused by the Court of Special Appeals in
ST Sys. Corp. v. Md. Nat’l Bank, 112 Md. App. 20, 32, 684 A.2d 32, 38 (1996), that the Act’s
“economic policy is only upheld if tort claims based on an unenforceable alleged agreement
are excluded.”(Emphasis in original.)
It is worth noting that a recent decision from the United States District Court for the
Western District of Missouri concluded that Missouri’s Credit Agreement Act did not apply,
in the first instance, to tort allegations similar to those before us. In Four A’s Investment Co.,
LLC v. Bank of Am. Corp., 2010 U.S. Dist. LEXIS 66976 (W.D. Mo. 6 July 2010), a
borrower sued Bank of America for negligent misrepresentation, fraudulent
misrepresentation, negligence, and breach of covenant, stemming from the borrower’s
desired loan from Bank of America. Specifically, the borrower alleged that the bank “made
oral representations that the loan would be approved within a certain time” and that the bank
“misrepresented the status of the loan when asked about why the process was taking so
long.” Four A’s Investment Co., LLC, 2010 U.S. Dist. LEXIS 66976, at *12. In response
to these allegations, Bank of America asserted that, because the borrower was seeking a
commercial loan, Missouri’s Commercial Credit Agreement Statute of Frauds, MO. REV.
STAT. § 432.047, which provides that “[a] debtor may not maintain an action upon or a
defense . . . in any way related to a credit agreement unless the credit agreement is in writing
. . . ”, barred such claims. In response, the borrower argued, inter alia, that “their common
law theories have nothing to do with a credit agreement, but rather with the way the loan
process was conducted” and that “their suit is independent of any . . . credit agreement.”
Four A’s Investment Co., LLC, 2010 U.S. Dist. LEXIS 66976, at *13. The court ultimately
held that “because [the borrower is] not seeking to enforce an oral promise to loan money .
C. As Void Ab Initio14
The Peases assert in the alternative that, if successful in opening or vacating the
confessed judgments, they will use their allegations – sounding in negligence, fraud, and
breach of fiduciary duty – as the bases for arguing that the SBA loan agreement and
guarantees were void ab initio. As above, if the Act would bar the consideration of such
parol evidence where the objective is to show that the credit agreement was void ab initio,
then the parol evidence on which such a theory rests cannot constitute a “substantial and
. . MO. REV. STAT. § 432.047 does not apply to bar plaintiff’s common law claims.” Four
A’s Investment Co., LLC, 2010 U.S. Dist. LEXIS 66976, at *14 (emphasis added). Similar
to Four A’s Investment Co., the Peases, if successful in opening the confessed judgment,
seek to use the common law tort theories as an offensive maneuver. Thus, because both
cases deal with assertions “hav[ing] nothing to do with a credit agreement, but rather with
the way the loan process was conducted, Four A’s Investment Co., LLC, 2010 U.S. Dist.
LEXIS 66976, at *13, Four A’s Investment Co., LLC bolsters the view that the Maryland
Credit Agreement Act does not apply to the facts before us. See also King v. Parish Nat’l
Bank, 885 So. 2d 540 (La. 2004) (holding the Louisiana credit agreement statute, LA. REV.
STAT. ANN. § 6:1122 (2008), inapplicable to allegations of bad faith that were separate from
any credit agreement).
According to the Concurring and Dissenting opinion, we fail “to recognize that a
successful claim of fraudulent inducement renders the contract voidable, not void ab initio.”
__ Md. __ , __ , __ A.2d __ , __ (Concurring and Dissenting slip op. at 3). It is not that we
“fail to recognize” this apparently well-settled rule of law; rather, we view it as immaterial.
That is, the Maryland Credit Agreement Act applies to bar certain evidence notwithstanding
the likelihood of success in utilizing that evidence to prove a certain legal theory. Thus, it
is immaterial that the Peases would be unsuccessful in using such evidence to prove that the
SBA loan was void ab initio; rather, the only issue is whether, in so arguing, the Peases
would be seeking to enforce a modification of the SBA loan agreement. Because we hold
that they are seeking to enforce a modification of the agreement, the Act applies to bar the
admission of the proffered evidence, regardless of whether they could be successful in
actually enforcing such a modification.
sufficient basis as to the merits of the action” sufficient to open the confessed judgment.
Because we believe that the Act applies to bar evidence aiming to show that a credit
agreement is void ab initio, we hold that such parol evidence cannot constitute a “substantial
and sufficient basis as to the merits of the action,” and is therefore barred from consideration
in the context of deciding whether to grant a motion to open, modify, or vacate a confessed
judgment based on the credit agreement.
Again, the Act would only bar the Peases’ parol evidence tending to show the loan
agreement was void ab initio if the admission of such evidence constitutes an attempt to
enforce either: (1) an oral credit agreement; or (2) a verbal modification of their existing
credit agreement. Here, while consideration of such evidence to nullify the credit agreement
is not an attempt to enforce an oral credit agreement, we think it is an attempt to enforce a
verbal modification of the credit agreement existing between the Peases and Wachovia. We
The SBA note and the accompanying guarantees set forth the rights and duties of the
Peases and Wachovia. These rights and duties include, in pertinent part, the Peases’ duty to
repay Wachovia $1,118,300, and, if default and acceleration occur under the note, failing
repayment, Wachovia’s right to execute on the guarantors’ assets, including the real property
upon which Bush is situated and the Peases’ residence. The Peases’ attempts to declare the
credit agreement void ab initio, at least on the bases appearing in this record, constitute an
attempt to have a court declare that they need not pay back the $1,118,300 and/or that
Wachovia may not execute on the borrowers’ or the guarantors’ assets; as such, the Peases
are arguing for the enforcement of what is, in effect, an oral modification of the original
terms of the loan and guarantees. This is precisely the type of maneuver that the statute of
frauds portion of the Maryland Credit Agreement Act was enacted to forestall. See Notes to
H.B. 704 (“Multimillion dollar lawsuits are being filed and recovery is being made based on
. . . modifications of existing loan agreements.”).
This case requires this Court to consider the interplay between the law and rules
governing confessed judgments and the Maryland Credit Agreement Act. “Judgments by
confession are not favored in Maryland because Maryland courts have long recognized that
the practice of including in a promissory note a provision authorizing confession of judgment
lends itself far too readily to fraud and abuse.” Garliss v. Key Fed. Sav. Bank, 97 Md. App.
96, 103, 627 A.2d 64, 68 (1994) (citation omitted). Not surprisingly then, Md. Rule 2-611(d)
provides that “the court shall order the judgment by confession opened,” upon showing of
a “substantial and sufficient basis for an actual controversy as to the merits of the action . .
. .” (Emphasis added.) A party can only successfully show the requisite “substantial and
sufficient basis,” however, if the allegations and evidentiary proffers supporting such a basis
will be arguably admissible. It is at this juncture that the Maryland Credit Agreement Act
becomes relevant. That is, if the statute of frauds section of the Maryland Credit Agreement
Act would apply to bar consideration of certain parol evidence at the merit-stage of the
litigation, such evidence may not be considered in deciding a motion to open, modify, or
vacate a confessed judgment.
We hold that the General Assembly did not intend the Maryland Credit Agreement
Act to apply to a borrower asserting tort counterclaims against a lender, even where the
asserted factual underpinnings of the tort or torts derive from transactions relating to the
execution of the credit agreement. As such, to the extent the Peases’ responsive pleading will
assert counterclaims against Wachovia, the evidentiary proffers upon which these
counterclaims appear to be based are not barred by the statute of frauds provision of the
Maryland Credit Agreement Act from consideration in deciding whether to open or vacate
the confessed judgment.15 Accordingly, the Circuit Court erred in refusing to consider
whether the Peases’ allegations and evidentiary proffers plead sufficiently and substantially
an actual controversy. To the extent, however, that the Peases claim that the SBA loan
agreement was void ab initio, they ask the court effectively to enforce an oral modification
of their written credit agreement. Because the applicable statute of frauds applies to bar a
party from effectuating the enforcement of a claimed oral modification, the evidence upon
which such an argument rests would be, in that instance, inadmissible.
In the Circuit Court, the hearing judge conceded that, but for his determination that
he could not consider the Peases’ factual allegations and evidentiary proffers at the threshold,
he “would certainly find that the Plaintiff would be . . . able to present a defense . . . by
perhaps misrepresentation about the home being used as collateral . . . .” Because he did not
make a determination whether, pursuant to Md. Rule 2-611(e), there exists in this case a
This Court expresses no opinion as to whether the Peases will be successful in
satisfying the trial court that there exists a “substantial and sufficient basis for an actual
controversy as to the merits of the action,” as required by Md. Rule 2-611(d).
“substantial and sufficient basis for an actual controversy as to the merits of the action,” we
remand the case, in light of this opinion, so that the court may consider whether the Peases’
allegations of negligence, fraud, and breach of fiduciary duty meet this threshold.
JUDGMENT OF THE CIRCUIT
COURT FOR BALTIMORE CITY
VACATED; CASE REMANDED TO
THAT COURT FOR FURTHER
PROCEEDINGS NOT INCONSISTENT
WITH THIS OPINION; COSTS TO BE
ASSIGNED 50% TO THE PEASES
AND 50% TO WACHOVIA.
In the Circuit Court for Baltimore City
Case No. 24-C-08-000810
IN THE COURT OF APPEALS
September Term, 2009
WILLIAM PEASE, ET AL.
WACHOVIA SBA LENDING, INC.
Concurring and Dissenting Opinion
by Adkins, J., which Bell, C.J., and Murphy, J.,
October 21, 2010
Adkins, J., concurring in part and dissenting in part.
I agree with the majority’s conclusion that the Maryland Credit Agreement Act does
not apply to, and therefore does not preclude, the Peases’ counterclaims of fraud, negligence,
and breach of fiduciary duty, although I think its reasoning should be amplified. I disagree,
however, with the majority’s holding that the use of oral statements to prove that a contract
is void ab initio is barred by the Act.
In its holding that tort claims are not barred by the Act, the majority relies primarily
on legislative history indicating that the Act was intended only to apply to bar enforcement
of “(1) an oral credit agreement; or (2) a verbal modification of their existing credit
agreement.” The majority emphasizes that the Act was enacted in response to the numerous
“multimillion dollar lawsuits [that were] being filed . . . based on alleged verbal promises to
lend and . . . modifications of existing loan agreements.” Maj. Slip Op. at 14 (quoting Notes
to H.B. 704 (1989)). I would explore, which the majority does not, how this legislative
history is helpful to interpreting specific words of the Act.
Specifically, I believe that the legislative history sheds light on the meaning of
“enforceable” as used in Subsection (b) of the Act – “a credit agreement is not enforceable
by way of action or defense[.]” Maryland Code, (1973, 2006 Repl. Vol.), § 5-408 of the
Courts and Judicial Proceedings Article (“CJP”). The Act defines “credit agreement” to
include “agreeing to take or to not take certain actions by a financial institution in connection
with an existing or prospective credit agreement.” CJP § 5-408(a)(ii). It then provides that
a “credit agreement” is not “enforceable by way of action or defense” unless it is in writing.
CJP § 5-408(b)(1). Wachovia argues that these provisions mean that any oral agreement or
representation made by a bank in connection with a loan is barred, even when used to support
a tort action. Thus, Wachovia interprets the word “enforce” to include an action in tort based
on the oral agreement. This was the interpretation reached in ST Systems v. Md. Nat’l Bank,
112 Md. App. 20, 32, 684 A.2d 32, 38 (1996). Under this construction, a suit for damages
in tort would “enforce” the oral agreement in the sense that it would impose liability on the
bank for breaching the agreement. In my view, this argument merits more discussion than
the brief treatment that the majority opinion accords it. I set forth my reasons for rejecting
Wachovia’s argument in Section II hereof. Ultimately, though, I agree with the majority that
the Act does not bar suits or counter-claims for damages in fraud, negligence, or breach of
I depart from the majority when it veers into discussion of an argument that the
contract is void ab initio,1 and holds that the Act would bar such a claim. First, the majority
The Peases do not argue in their briefs that the loan was void ab initio, mentioning
the phrase in their brief only as part of their review of what they filed in the Circuit Court.
At oral argument, the following colloquy occurred:
Judge Murphy: [How does this case] play into the line of
cases that say when there is a motion to reopen we apply a pretty
liberal standard to allowing a hearing on the merits?
Counsel for Peases: Correct your honor, the line of cases
indicates that confess judgments are freely opened upon a
showing of a meritorious defense. A meritorious defense is
described in [Nils, LLC v. Antezana, 171 Md. App. 717,] a
fails to recognize that a successful claim of fraudulent inducement renders the contract
voidable, not void ab initio. See Julian v. Buonassissi, 414 Md. 641, 667, 997 A.2d 104, 119
(2010) (“We have long recognized that contracts obtained by fraud are not absolutely void,
but are voidable at the election of the parties affected by the fraud[.]”)(internal quotations and
citations omitted); Wenstrom Consolidated Dynamo & Motor Co. of Balt. City v. Purnell, 75
Md. 113, 120, 23 A. 134, 136 (1891) (“[W]here a [party] has been deceived and induced to
enter into a [contract], by misrepresentation and fraud . . ., such contract, while not absolutely
void, is voidable[.]”); Restatement (Second) of Contracts Section 164(1) (1981) (“If a party’s
manifestation of assent is induced by either a fraudulent or a material misrepresentation by
the other party upon which the recipient is justified in relying, the contract is voidable by the
recipient.”).2 According to the Restatement, the same would be true in a successful claim of
defense that challenges the execution of the loan or the amount
due under the note. We challenged that the loan that was
executed, through the negligence or through fraud, was
improperly created and therefore could either be void ab initio
or as a setoff. In the event of a set-off, courts have stated that
set-off is a meritorious defense. It is required under the Rule
6-11(c) that by motion of the defendant . . . shall state a legal
and factual basis for defense of that claim. . . .The defenses in
this case that we claimed . . . create a tort defense to the creation
of the promissory note.
Presumably the majority relies on counsel’s mention of the term as the justification for
reaching the issue, even though it is not argued in the Peases’ briefs. I would not do so.
The Restatement (Second) of Contracts (1981) gives the following example of a void
contract in Section 163, Illustration 2:
negligent material misrepresentation inducing a contract. See Restatement (Second) of
Contracts § 164 cmt. b (1981) (“A representation need not be fraudulent in order to make a
contract voidable under the rule stated in this Section.
However, a non-fraudulent
misrepresentation does not make a contract voidable unless it is material, while materiality
is not essential in the case of a fraudulent misrepresentation.”).3 Thus, this case presents no
issue about the effect of the Maryland Credit Agreement Act on credit agreements claimed
to be void ab initio.
I also disagree with the majority’s holding that the Act bars use of oral statements that
would render a contract void ab initio. The majority reasons that any “consideration of
[Wachovia’s oral representations] to nullify the [commercial loan] . . . is an attempt to
A and B reach an understanding that they will execute a written
contract containing terms on which they have agreed. It is
properly prepared and is read by B, but A substitutes a writing
containing essential terms that are different from those agreed
upon and thereby induces B to sign it in the belief that it is the
one he has read. B’s apparent manifestation of assent is not
The Peases may also encounter problems with a “voidable” theory, because they
would seek to void a loan agreement where they had already received the money. We have
previously recognized the restitution obligation of a party seeking rescission. See, e.g.,
Lazorcak v. Feuerstein, 273 Md. 69, 75-77, 327 A.2d 477, 481-482 (1974) (“[T]he party
seeking rescission must indicate to the other party at least the intent to restore the parties to
the relative positions which they would have occupied if no such contract had ever been
made[.]”) The court will relax the restoration requirement, but only in limited circumstances.
See Funger v. Mayor of Somerset, 244 Md. 141, 151, 223 A.2d 168, 174 (1966) (listing
seven situations in which rescission without restoration is appropriate). Under these
standards, the Peases would presumably still have to account for the money they received if
the contract were voided. Thus, the Peases’ more viable claim is a set-off by way of a claim
enforce a verbal modification of the [commercial loan] existing between the Peases and
Wachovia.” Maj. Slip Op. at 20. This determination utterly misconstrues the doctrine of
“void ab initio.”
When a contract is void ab initio, it is “[n]ull from the beginning, as from the first
moment when a contract is entered into[.]” Black’s Law Dictionary 1709 (9th ed. 2009). It
is as if the contract never existed in the first place. Cf. Julian v. Buonassissi, 414 Md. 641,
666, 997 A.2d 104, 119 (2010) (“A void contract ‘is not a contract at all[.]’”) (quoting
Restatement (Second) of Contracts § 7 cmt. a (1981)). The contract never forms because
there is no mutual assent, such as in situations where fraud in factum is alleged:
At the heart of the assertion of [fraud in factum] is the absence
of that degree of mutual assent prerequisite to the formation of
a binding contract; absent the proverbial “meeting of the minds”
one cannot be said to have obligated himself in law and the
purported transaction is regarded as void.
Richard A. Lord, 26 Williston on Contracts § 69:4, at 502 (4th ed. 2003)(quoting Bancredit,
Inc. v. Bethea, 172 A.2d 10, 12 (N.J. Super. Ct. App. Div. 1961)) (emphasis added). Thus,
contracts that are void ab initio are not legally recognized:
When deeds are . . . void ab initio, [they are] wholly wanting in
legal fitness to stand even as security for advances. They have
in truth no lawful existence, and to use the expression of Mr.
Sugden, 525, “It would be wholly inconsistent and absurd to
recognize them for any lawful purpose.”
Slingluff v. Smith, 76 Md. 558, 560, 25 A. 674, 675 (1893) (emphasis added). As we said in
Western Maryland R. Co. v. Blue Ridge Hotel Co., 102 Md. 307, 331, 62 A. 351, 355 (1905),
a contract that is void ab initio,
will not be enforced by any species of action in a Court of
Justice; . . . it cannot be made good by ratification, or by any
succession of renewals, and no performance on either side, can
give validity to the unlawful contract, or form the foundation of
any right of action upon it.
(quoting 10 Cyc. 1146 (1904)).
The majority’s reasoning is flawed. It characterizes a claim that a contract is void ab
initio as one barred by the statute because “it is an attempt to enforce a verbal modification
of the credit agreement.” Certainly, the Act bars using oral agreements to prove a contract
modification in a suit to enforce the modified contract.
contemplates that there is something that is to be modified. See Black’s Law Dictionary
1095 (9th ed. 2009) (defining “modification” as a “change to something[.]”) (emphasis
added). If the claim is that a party’s tortious conduct prevented the contract from ever
forming at the outset, then there is simply nothing to enforce, and the Act does not apply.
Accordingly, the Act would not bar a claim that a bank’s tortious conduct rendered the
original commercial loan void ab initio.
I respectfully dissent from the majority on this issue.
As the Circuit Court’s analysis of the Peases’ tort claims was overshadowed by its
belief that the Maryland Credit Agreement Act categorically precluded the court from
opening the confessed judgment, I believe that a more careful examination of that Act is key
to this appeal. This Court has never before interpreted Maryland’s Credit Agreement Act.
As with any statute, the general principles of interpretation apply:
In statutory interpretation, our primary goal is always to
discern the legislative purpose, the ends to be accomplished, or
the evils to be remedied by a particular provision, be it statutory,
constitutional or part of the Rules. We begin our analysis by first
looking to the normal, plain meaning of the language of the
statute, reading the statute as a whole to ensure that no word,
clause, sentence or phrase is rendered surplusage, superfluous,
meaningless or nugatory. If the language of the statute is clear
and unambiguous, we need not look beyond the statute’s
provisions, and our analysis ends. If, however, the language is
subject to more than one interpretation, or when the language is
not clear when it is part of a larger statutory scheme, it is
ambiguous, and we endeavor to resolve that ambiguity by
looking to the statute’s legislative history, case law, and
statutory purpose, as well as the structure of the statute.
People’s Ins. Counsel Div. v. Allstate Ins. Co., 408 Md. 336, 351-52, 969 A.2d 971, 979-80
(2009) (quotation marks and citations omitted).
The Maryland Credit Agreement Act was adopted in 1989 as a tool to limit lender
liability.4 See Senate Judicial Proceedings Committee, H.D. 704, 1989 General Assembly
of Maryland Floor Report (“Floor Report”). It precludes a credit agreement from being
enforceable “by way of action or defense unless it: (1) Is in writing; (2) Expresses
consideration; (3) Sets forth the relevant terms and conditions of the agreement; and (4) Is
signed by the person against whom its enforcement is sought.” CJP § 5-408(b). Under the
Act, a credit agreement “means a covenant, promise, undertaking, commitment, or other
agreement by a financial institution to: 1. Lend money; 2. Forbear from repayment of money,
goods, or things in action; 3. Forbear from collecting or exercising any right to collect a debt;
or 4. Otherwise extend credit.” CJP § 5-408(a)(2)(i). The term “credit agreement” also
“includes agreeing to take or to not take certain actions by a financial institution in
connection with an existing or prospective credit agreement.” CJP § 5-408(a)(2)(ii).
According to the plain meaning of the Act, neither a commercial lender nor a
commercial borrower may attempt to enforce an oral promise in an action on the contract.
This bar includes any oral agreement to take or to not take certain actions in connection with
Numerous jurisdictions across the country have enacted similar legislation. See, e.g,
Ala. Code § 8-9-2(7) (2010) (Alabama); Alaska Stat. § 09.25.010(a)(13) (2010); Ariz. Rev.
Stat. Ann. § 44-101(9) (2010) (Arizona); Ark. Code Ann. § 4-59-101(d) (2010) (Arkansas);
Colo. Rev. Stat. § 38-10-124 (2009) (Colorado); Conn. Gen. Stat. § 52-550(a)(6) (2010)
(Connecticut); Fla. Stat. § 687.0304(2) (2009) (Florida); Idaho Code Ann. § 9-505 (2010);
§ 815 Ill. Comp. Stat. 160/2 (2010) (Illinois); Ind. Code § 26-2-9-4 (2010) (Indiana); Iowa
Code § 535.17 (2009); Kan. Stat. Ann. §§ 16-117 through -118 (2009) (Kansas); La. Rev.
Stat. Ann. § 6:1122 (2009) (Louisiana); Mich. Comp. Laws § 566.132 (2010) (Michigan);
Minn. Stat. § 513.33 (2009) (Minnesota); Mo. Rev. Stat. § 432.045 (2009) (Missouri); Nev.
Rev. Stat. § 111.220(4) (2009) (Nevada); N.C. Gen. Stat. § 22-5 (2009) (North Carolina);
Okla. Stat. tit. 15, § 140 (2010) (Oklahoma); Or. Rev. Stat. § 41.580(1)(h) (2009) (Oregon);
Tenn. Code Ann. § 29-2-101(b) (2010) (Tennessee); Tex. Bus. & Com. Code Ann. § 26.02
(Vernon 2009) (Texas); and Utah Code Ann. § 25-5-4 (2009).
an existing or prospective credit agreement. Thus, the Peases will not succeed in any claim
that the promises made by Martin or Wachovia to forbear enforcing their judgment lien on
the Peases’s home constituted a modification of the terms of the commercial loan. The issue
that is not so clear, however, is whether the statutory bar against using these oral promises
in defense of a contract enforcement suit will bar their use in all other causes of action – such
as the fraud, breach of fiduciary duty, and negligence claims that the Peases assert as set-offs,
to the confessed judgment.
In examining this question, I see cases interpreting Maryland’s general statute of
frauds as apt guides. See CJP § 5-901. Indeed, legislative history reveals that the General
Assembly enacted the Maryland Credit Agreement Act with the “intent . . . to establish a
statute of frauds . . . [for] certain credit agreements made by financial institutions . . . .”
Floor Report, supra. Like the Act, CJP Section 5-901 requires that certain promises must be
“in writing and signed by the party to be charged” to be enforceable.5 The statute of frauds
applies to any guaranty, agreement made on consideration of marriage, or agreement that
cannot be performed within one year from the making of the promise. See CJP § 5-901.
In interpreting this general statute of frauds, we have drawn a distinction between
actions in contract and those in tort, explaining that “contracts which are voidable by reason
of the statute of frauds . . . can still afford a basis for a tort action . . . .” Daugherty v.
Kessler, 264 Md. 281, 286, 286 A.2d 95, 98 (1972) (quotation marks and citation omitted).
CJP Section 5-901 codified the common law rule. See Collection & Investigation
Bureau, Inc. v. Linsley, 37 Md. App. 66, 67-68, 375 A.2d 47, 48 (1977) (discussing the
historical origins of Maryland’s statute of frauds).
As properly articulated by the CSA, “the statute of frauds does not bar a tort suit for either
fraud or negligent misrepresentation because those counts are not based ‘on . . . [the]
contract’ between the parties but are based on misrepresentations that induced the contract.”
Greenfield v. Heckenbach, 144 Md. App. 108, 140, 797 A.2d 63, 82 (2002) (citing 73
Am.Jur.2d Statute of Frauds § 492 (2001) (“tortfeasors and fraudulent intermeddlers will not
be permitted to use the statute of frauds as a defense to a wrongful act or as a means of
consummating a fraudulent design.”)). Although not the only basis for my decision, this
Court’s previous treatment of our general statute of frauds lends support to a more narrow
interpretation of the Maryland Credit Agreement Act.
Other states have also likened their credit agreement statutes to their general statutes
of frauds, and on that basis reasoned that oral promises made in the context of a credit
agreement could support tort claims. In Missouri, a credit agreement is an “agreement to
lend or forbear repayment of money, to otherwise extend credit, or to make any financial
accommodation” and a “debtor may not maintain an action upon or defense to a credit
agreement unless the credit agreement is in writing . . . .” Mo. Rev. Stat. § 432.045 (2009).
When debtors alleged that a lender had conspired to fraudulently induce them into defaulting
on their loan by making promises to remove liens on another property, the Missouri Court
of Appeals held that the trial court improperly granted summary judgment in favor of the
lender based upon an erroneous belief that Missouri’s credit agreement statute barred the
debtors’ claims. See Mika v. Cent. Bank of Kansas City, 112 S.W.3d 82, 90 (Mo. Ct. App.
2003). The court explained that a fraud exception to the general statute of frauds had existed
for over one hundred years in that state, and that there was nothing in the express language
or the legislative history of the statute to indicate that the legislature intended a different rule
to be applied to credit agreements. Id. Moreover, the court reasoned, it would work a “gross
injustice” to allow the “application of the bar [to] itself work a fraud[.]” Id.
Likewise, the Oklahoma Supreme Court has ruled that “[s]tatutes of frauds are enacted
to prevent frauds not to perpetrate them. Such statutes are not intended to be used as shield
or breastwork for a wrongdoer.” Brown v. Founders Bank and Trust Co., 890 P.2d 855, 863
(Okla. 1994). In Brown, the court held that Oklahoma’s credit agreement statute did not bar
a debtor’s claim of fraud where the bank that provided the debtor’s SBA loan dictated the
location of the debtor’s prospective construction project but did not disclose that it owned
the land targeted for development. Id. at 859, 863. The Oklahoma credit agreement statute
No lender or borrower may maintain an action to enforce or seek
damages for the breach of any term or condition of credit
agreement . . . unless such term or condition has been agreed to
in writing and signed by the party against whom it is sought to
be enforced or against whom damages are sought.
Okla. Stat. tit. 15, § 140(B) (2010).6
The same conclusion was reached in Connecticut, whose statute of frauds provides
in relevant part:
A credit agreement is defined as “an agreement by a financial institution to lend
money, extend credit or otherwise make any other financial accommodation, or to renew,
extend, modify, rearrange or forebear the repayment of any such loan, extension of credit or
financial accommodation . . . .” Okla. Stat. tit. 15, § 140(A)(1) (2010).
(a) No civil action may be maintained in the following cases
unless the agreement, or a memorandum of the agreement, is
made in writing and signed by the party, or the agent of the
party, to be charged: . . . (6) upon any agreement for a loan in an
amount which exceeds fifty thousand dollars.
Conn. Gen. Stat. § 52-550(a)(6) (2010). In Union Trust Company v. Jackson, 679 A.2d 421,
425 (Conn. App. Ct. 1996), the Connecticut Appellate Court reversed the trial court’s grant
of summary judgment in favor of a lender because the borrowers had presented evidence to
create an issue of material fact regarding part performance, a common law exception to the
statute of frauds. Texas also joins this trend. Its statute provides that a “loan agreement
in which the amount involved in the loan agreement exceeds $50,000 in value is not
enforceable unless the agreement is in writing and signed by the party to be bound or by that
party's authorized representative.” Tex. Bus. & Com. Code Ann. § 26.02(b) (2009). In 1001
Texas defines a “loan agreement” as:
. . . one or more promises, promissory notes, agreements,
undertakings, security agreements, deeds of trust or other
documents, or commitments, or any combination of those
actions or documents, pursuant to which a financial institution
loans or delays repayment of or agrees to loan or delay
repayment of money, goods, or another thing of value or to
otherwise extend credit or make a financial accommodation. The
term does not include a promise, promissory note, agreement,
undertaking, document, or commitment relating to:
(A) a credit card or charge card; or
(B) an open-end account, as that term is defined by
Section 301.002, Finance Code, intended or used primarily for
personal, family, or household use.
Tex. Bus. & Com. Code Ann. § 26.02(a)(2) (2009).
McKinney Limited v. Credit Suisse First Boston Mortgage Capital, 192 S.W.3d 20, 29-30
(Tex. App. 2005), the Court of Appeals held that Texas’s credit agreement statute of frauds
did not bar actions sounding in tort, including common law fraud, and thus grant of summary
judgment on that issue in favor of the creditor was improper.8 While not all states embrace
the reasoning of these cases,9 I think this is the better-reasoned interpretation.
Michigan’s intermediate appellate court adopted a different interpretation of its
statute, which provides that “[a]n action shall not be brought against a financial institution
to enforce . . . promises or commitments of the financial institution unless the promise or
commitment is in writing and signed with an authorized signature by the financial institution
. . . .” Mich. Comp. Laws § 566.132(2) (2010). The statute governs promises to lend money,
extend or modify credit, or waive a provision of a loan. Id. In Crown Technology Park v.
D & N Bank, F.S.B., 619 N.W.2d 66 (Mich. Ct. App. 2000), the Michigan Court of Appeals
held that the state’s credit agreement statute barred a borrower’s promissory estoppel suit
because its language forbidding “an action” to enforce an oral credit agreement, without
specifying the type of action prohibited, constituted an “unqualified and broad ban” of “any
action.” Id. at 72-73 (emphasis in original). There, the borrower alleged that the bank made
representations that it would waive its prepayment penalty, leading the borrower to pay off
the loan earlier than originally contracted. Id. at 69. The borrower also based its claim for
negligence in the inducement on the same representations. Id. at 73-74. The court applied
an identical analysis to that tort claim because it considered that claim to be “intimately
related to [the borrower’s] promissory estoppel argument” and was nothing more than “an
action to enforce an oral promise[.]” Id. The court did make clear, however, that “[i]f a
borrower ha[d] a separate claim for negligence that [did] not rely on enforcing the terms of
an alleged oral promise, then [the statute would not be] a bar to adjudicating the claim on its
merits.” Id. at 73. I am not certain how to interpret this comment.
Some states have interpreted their credit agreement statutes to bar actions,
counterclaims or cross claims, but not affirmative defenses. These states read the text of their
statutes to prohibit “only debtor-initiated action against a creditor.” Sees v. Bank One, Ind.,
N.A., 839 N.E.2d 154, 159 (Ind. 2005) (reversing trial court’s grant of summary judgment
in favor of creditor where debtor pled the affirmative defense of fraud in the inducement).
In Hibernia National Bank v. Contractor’s Equipment & Supply, 804 So. 2d 760 (La. Ct.
App. 2001), Louisiana’s intermediate appellate court allowed an alleged debtor to introduce
evidence that she was no longer a guarantor on a loan which the bank sought to enforce
against her in an action initiated by her creditor. One year later, however, the Louisiana
In still other states, legislatures have included more far-reaching language in their
credit agreement statutes, which the courts have interpreted as barring all actions in tort
related to unenforceable agreements. For example, Colorado’s credit agreement statute
precludes a debtor or a creditor from “fil[ing] or maintain[ing] an action or a claim relating
to a credit agreement involving a principal amount in excess of twenty-five thousand dollars
unless the credit agreement is in writing and is signed by the party against whom
enforcement is sought.” Colo. Rev. Stat. § 38-10-124(2) (2010) (emphasis added). Thus,
in Hewitt v. Pitkin County Bank & Trust Company, 931 P.2d 456, 459 (Colo. App. 1995), the
Colorado Court of Appeals held that Colorado’s credit agreement statute barred debtor’s
numerous tort claims because that state’s legislature intended borrowers and lenders to “put
it in writing,” to ensure the enforceability of any claims they may have in the future. The
Illinois credit agreement statute also contains the same expansive language: “A debtor may
Supreme Court refused to allow a debtor’s claims for negligent misrepresentation and breach
of fiduciary duty because La. Rev. Stat. Ann. Section 6:1122 “preclude[d] all actions for
damages arising from oral credit agreements, regardless of the legal theory of recovery
asserted.” Jesco Construction Corp. v. NationsBank Corp., 830 So. 2d 989, 992 (La. 2002).
Florida’s intermediate appellate court has similarly interpreted Section 687.0304 of the
Florida Code to forbid counterclaims such as breach of an oral agreement, Metro Building
Materials Corporation v. Republic National Bank of Miami, 919 So. 2d 595 (Fla. Dist. Ct.
App. 2006), but not affirmative defenses such as waiver, estoppel and bad faith, Brenowitz
v. Central National Bank, 597 So. 2d 340 (Fla. Dist. Ct. App. 1992). On the other hand,
Minnesota courts deem Section 513.33 of the Minnesota Code to be a bar to the affirmative
defenses of “unilateral and mutual mistake, no meeting of the minds, and contract
modification,” which sound in contract. BankCherokee v. Insignia Dev., LLC, 779 N.W.2d
896, 902 (Minn. Ct. App. 2010). That state is silent as to whether defenses sounding in tort
would also be prohibited. Because Maryland’s statute expressly prohibits defenses seeking
to enforce an oral credit agreement, I do not focus on the distinction between debtor-initiated
actions and affirmative defenses. See CJP § 5-408(b).
not maintain an action on or in any way related to a credit agreement unless the credit
agreement is in writing . . . .” § 815 Ill. Comp. Stat. 160/2 (2010) (emphasis added). There,
the intermediate appellate court interpreted the “related to” language to be a clear bar to
actions based on the common law exceptions to that state’s statute of frauds, including
promissory estoppel and fraud. See Kwem v. First Nat'l Bank, 655 N.E.2d 1211, 1212-13
(Ill. App. Ct. 1995).
Additionally, when the American Bar Association’s (“ABA”) Task Force on Lender
Liability Limitation Amendments to State Statutes of Frauds drafted its own model credit
agreement statute, it chose language that expressly prohibited any “action for legal or
equitable relief . . . .” John L. Culhane, Jr. & Dean C. Gramlich, Lender Liability Limitation
Amendments to State Statutes of Frauds, 45 BUS. LAW. 1779, 1792 (1991). It then listed the
type of actions forbidden, including “promissory or equitable estoppel[,]” “part
performance[,]” and “negligent misrepresentation.” Id. This was done in order to “foreclose
‘end runs’ under [common law] theories . . . [because] experience [told the Task Force] that
borrowers [would] seek such relief, and that courts may sometimes afford such relief.” Id.
Our General Assembly, however, chose not to include words such as “relating to” or
specify tort theories as among the actions prohibited. The Maryland Act merely states that
a credit agreement shall not be enforceable if it is not in writing. It contains no language
indicating an intent to jettison all actions that rely on oral representations made in a
commercial loan setting. If our General Assembly had intended the Credit Agreement Act
to preclude tort actions, as did the ABA Task Force and the legislatures of Colorado and
Illinois, then it could have drafted language to facilitate that end.
Timing and context are key to my interpretation – the Act was enacted after the tort
exception to the general statute of frauds had already been established. Compare Daugherty,
264 Md. at 286, 286 A.2d at 98, with CJP § 5-408 (Act enacted in 1989, seventeen years after
this Court’s decision refusing to interpret the general Statute of Frauds as barring oral
statements supporting tort actions). When analyzing a statute, “we presume that the
Legislature has acted with full knowledge of prior and existing law, legislation and policy[.]”
Taylor v. Mandel, 402 Md. 109, 131, 935 A.2d 671, 684 (2007). The General Assembly’s
decision not to word the Credit Agreement Act more broadly than the general statute of
frauds is an indication that it did not intend for the Act to be interpreted differently.
The legislative history of the Act is also instructive. The Senate Judicial Proceedings
Committee, in its analysis of House Bill 74 (the genesis of CJP Section 5-408) explained that
this legislation “will protect lenders against claims that the lender made a verbal promise to
loan money and then refused to do so, or that the lender verbally agreed to extend the terms
of a loan.” Senate Judicial Proceedings Committee, H.D. 704, 1989 General Assembly of
Maryland Floor Report. Notes attached to that bill explain: “All this legislation is saying is
that in a commercial setting, if you are going to sue me to enforce an alleged loan agreement,
get it in writing and get it signed.” See Bill File, H.D. 704, 1989 Gen. Assem., 399th Sess.
(1989).10 This legislative history indicates that the thrust of the Act was to preclude claims
seeking to enforce an oral contract to lend or modify the terms of a loan, which is not the
type of claim advanced by the Peases. The Act contains no suggestion that a broader bar,
which would apply to tort claims, was intended.
The Credit Agreement Act precludes admission of verbal representations made by
Martin and/or Wachovia as support for a claim or defense on the contract. I would hold that
the Act does not bar proof of the elements of a tort – distinct from a contract claim or
defense – such as the duty of care required in negligence, or the specific intent to defraud
required in fraudulent misrepresentation.11 This is no mere distinction without a difference.
This session of the General Assembly was originally referred to as the 395th
Session, and documents from that session bear that designation. The revised numbering
“incorporates William J. Shepherd’s discovery [of an unrecorded session in 1876] during his
research for . . . the State Archives[,] . . . [as well as] three of the extralegal conventions that
sat between 1774 and 1776.” See 186 Archives of Maryland 127 (1994-95), available at
am186--127.html (last visited Aug. 10, 2010). The revised numbering is “the standard by
which legislative sessions are counted to include all sessions convened.” Id.
Wachovia also cannot rely on the parol evidence rule to quell the Peases’ claims of
fraud and negligent misrepresentation. In Greenfield v. Heckenbach, 144 Md. App. 108, 797
A.2d 63 (2002), purchasers of real estate asserted claims of fraud and negligent
misrepresentation against the couple that had sold them the property. Before the purchase,
the sellers had shown the then-prospective buyers building plans of a house the sellers were
constructing on an adjoining property. Id. at 115, 797 A.2d at 67-68. According to the plans,
the newly constructed structure would not obstruct the buyers’s view of the water. Id. at 11516, 797 A.2d at 68. Later, the parties entered into a contract of sale that contained an
This Contract and any Addenda thereto contain the final and
entire agreement between the parties, and neither they nor their
agents shall be bound by any terms[,] conditions, statements,
The torts of negligence12 and breach of fiduciary duty13 require a showing of a duty owed to
warranties or representations, oral or written, not herein
Id. at 117, 797 A.2d at 68. After returning from vacation, however, the buyers discovered
that the sellers’s new house, which deviated from the original plans, did indeed block the
buyers’s view of the water. Id. at 118, 797 A.2d at 69. The buyers sued and the sellers
argued that any oral representations made by them regarding their construction plans were
barred by the parol evidence rule. Id. at 113, 797 A.2d at 66. The CSA concluded that the
parol evidence rule could not work to exclude evidence of the representations when that
evidence was being introduced to support tort claims of fraud and negligent representation,
[a] party to a contract cannot, by misrepresentation of a material
fact, induce the other party to the contract to enter into it to his
damage, and then protect himself from the legal effect of such
misrepresentation by inserting in the contract a clause to the
effect that he is not to be held liable for the misrepresentation
which induced the other party to enter into the contract. The
effect of misrepresentation and fraud cannot be thus easily
avoided. If it could be, the implied covenant of good faith and
fair dealing existing in every contract would cease to exist.
Id. at 137, 797 A.2d at 80 (quoting Martens Chevrolet, Inc. v. Seney, 292 Md. 328, 338 n.7,
439 A.2d 534 (1982).
The following four elements compose the tort of negligence: (1) a duty owed to the
plaintiff (or to a class of which he is a part), (2) a breach of that duty, (3) a legally cognizable
causal relationship between the breach of duty and the harm suffered, and (4) damages. See
Jacques v. First Nat’l Bank of Md., 307 Md. 527, 531, 515 A.2d 756, 758 (1986) (emphasis
added). Ordinarily, there is no affirmative duty of disclosure between parties dealing at
arm’s length, but a party does have “the duty to disclose facts discovered after having made
a representation to another if one knows or believes these facts make untrue or misleading
the original statement (even though the statement may have been true, or believed true, when
made).” 2 Fowler V. Harper, Fleming James, Jr., & Oscar S. Gray, Harper, James and Gray
on Torts § 7.14 (3rd ed. 2006).
To prevail on a claim of breach of fiduciary duty, a party must prove: “(1) the
the debtor. In ordinary loan transactions, the relationship between a debtor and a creditor is
a contractual one, and is not fiduciary in nature. See Parker v. Columbia Bank, 91 Md. App.
346, 368, 604 A.2d 521, 532 (1992). To sustain an action sounding in tort, the complaining
party must prove “a duty or obligation imposed by law independent of that arising out of the
contract itself[.]” Heckrotte v. Riddle, 224 Md. 591, 595, 168 A.2d 879, 882 (1961). The
rigorous proof requirements of these and other torts will insure that neither borrowers nor
would-be borrowers can evade the restrictions of the Act by simply adding a new label to
their claims or defenses.14
existence of a fiduciary relationship, (2) a breach of duty owed by the fiduciary to the
beneficiary, and (3) harm resulting from the breach.” Alleco Inc. v. Harry & Jeanette
Weinberg Found., 340 Md. 176, 192, 665 A.2d 1038, 1046 (1995) (emphasis added).
Thus, I do not agree with the CSA’s view that the economic policy of CJP Section
5-408 “is only upheld if tort claims based on an unenforceable alleged agreement are
excluded.” ST Systems Corp. v. Maryland Nat’l Bank, 112 Md. App. 20, 32, 684 A.2d 32,
38 (1996) (emphasis in original). In ST Systems, Maryland National Bank offered
conditional commercial financing to ST Systems Corporation. Id. at 24-25, 684 A.2d at 34.
One condition of the loan was that no material adverse change in the financial condition of
either ST Systems or its principal could arise prior to the loan closing date. Id. at 26, 684
A.2d at 35. After the closing documents were drawn, the principal of ST Systems informed
the bank, for the first time, that he had an outstanding personal liability of $4,000,000. Id.
at 25-26, 684 A.2d at 35. As a result, the bank withdrew the financing proposal. Id. at 26,
684 A.2d at 35. ST Systems filed a complaint against Maryland National Bank alleging
breach of contract and various tort claims based on the bank’s conduct during the loan
negotiations, including fraud in the inducement and breach of fiduciary duty. Id. The CSA
affirmed the trial court’s dismissal of ST Systems’s tort claims because it interpreted the
Maryland Credit Agreement Act as excluding all tort claims based on an unenforceable
alleged agreement. Id. at 32, 684 A.2d at 38. The court stated that “[s]ubjecting lenders to
expensive tort claims would allow parties to avoid [the Act’s] protective reach, thereby
rendering [it] merely a symbolic shell without any real effect.” Id. The CSA also concluded
that if the legislature had wished to allow tort claims based on oral representations, it would
Accordingly, here, to prove a claim in negligence the Peases would have to prove that
Wachovia owed a duty to them more extensive than the mere obligation of good faith dealing
implied in every contract. See Clancy v. King, 405 Md. 541, 565, 954 A.2d 1092, 1106
(2008) (“Even if [a] contract [does] not contain this general good faith term, Maryland
contract law implies such an obligation”). Arguably, an even greater burden of proof lies in
the tort of fraud, where the Peases would have to show that the bank actually had the intent
to defraud.15 See Parker, 91 Md. App. at 359, 604 A.2d at 527. These requirements are not
insignificant hurdles for the Peases to overcome. I am confident that adopting this holding
will not expose lenders, such as Wachovia, to an excessive amount of tort litigation or
judgments based on oral representations made during the commercial lending process.
have so expressed its intent in the Act. Id. at 33, 684 A.2d at 38. This is clearly at odds with
our interpretation, which rests on the established presumption that the legislature knew of the
caselaw permitting tort actions based on agreements that were otherwise invalid because of
the statute of frauds, and thus would have specified a different result if it so desired. See
In an action for civil fraud based on an affirmative misrepresentation, a plaintiff must
(1) the defendant made a false representation to the plaintiff, (2)
either the falsity of the representation was known to the
defendant or the representation was made with reckless
indifference to its truth, (3) the misrepresentation was made for
the purpose of defrauding the plaintiff, (4) the plaintiff relied on
the misrepresentation and had the right to rely on it, and (5) the
plaintiff suffered compensable injury as a result of the
Hoffman v. Stamper, 385 Md. 1, 28, 867 A.2d 276, 292 (2005) (emphasis added).
Accordingly, like the majority, I would remand the case to the trial court so that it may
determine whether the Peases can allege a potentially meritorious tort defense that is
sufficient to open, modify, or vacate the confessed judgments against them. I confess that
I am somewhat skeptical of the Peases’s ability to do this on the facts as currently contained
within their complaint. Nevertheless, with more discovery, they may be able to better
develop the record.
Chief Judge Bell and Judge Murphy authorize me to state that they join in the views
expressed in this concurring and dissenting opinion.