WebBank v. American General Annuity Service Corp.

Citations: 2002 UT 88; 54 P.3d 1139; 454 Utah Adv. Rep. 48; 2002 Utah LEXIS 115; 2002 WL 1880295Docket: 20010253, 20010256, 20010259

Court: Utah Supreme Court; August 16, 2002; Utah; State Supreme Court

SummaryOriginalCytator Case TreatmentBackward CitatorAnalysis

EnglishEspañolSimplified EnglishEspañol Fácil

American General Annuity Service Corporation appeals the trial court's summary judgment favoring WebBank, which the Supreme Court of Utah reverses and remands. The case involves a structured settlement agreement, a financial arrangement that provides injured plaintiffs, like Susan Soliz, with compensation through periodic payments rather than a lump sum. Structured settlements became common in the 1960s and 1970s, gaining tax advantages following a 1982 amendment to the Internal Revenue Code, designed to prevent personal injury victims from mismanaging their settlements.

In Soliz's case, she entered a structured settlement with a defendant, agreeing that her payments could not be accelerated or assigned, while American General was responsible for future payments. However, needing a lump-sum payment, Soliz engaged in a financial transaction with WebBank, which is pivotal to the dispute. The structured settlement payments to Soliz continued without issue until her need for immediate cash prompted this transaction.

Soliz entered into a Loan and Security Agreement with WebBank, agreeing to transfer her future structured settlement payments in exchange for a lump-sum loan. WebBank required a final court order affirming its security interest in the structured settlement payments as collateral for the loan, with repayments to be made directly from American General to WebBank, bypassing Soliz. 

Procedurally, WebBank initiated a declaratory judgment action between November 1999 and April 2000 to clarify the agreement's conditions. Both WebBank and American General filed cross-motions for summary judgment. Initially, the trial court granted partial summary judgment to WebBank and allowed further discovery to determine whether the transaction was a loan or a sale. After renewed motions, the court ultimately ruled that the transaction was a loan. American General appealed, arguing that the determination should have been a factual issue for trial, asserting ambiguity in the transaction's nature despite the clarity of the agreement terms. 

WebBank contended that the court's ruling was correct, emphasizing that the security agreement clearly indicated an intent to create a secured transaction under Article 9 of the UCC, which governed the agreement. WebBank asserted that no exemptions from Article 9 applied.

A trial court can grant summary judgment when no genuine issue exists regarding any material fact, and the moving party is entitled to judgment as a matter of law, as outlined in Utah R. Civ. P. 56(c). The propriety of such a judgment is a legal question, reviewed without deference to the trial court’s conclusions. In this case, the key issue on appeal revolves around the intentions of WebBank and Soliz—whether their transaction was a secured loan or a disguised sale of Soliz’s structured settlement payments. American General contends that the trial court incorrectly classified the transaction as a loan, arguing that the determination of intent is a factual question requiring a trial. In contrast, WebBank asserts that the trial court's interpretation of their security agreement as a loan was correct, based on the clear language of the agreement. The analysis will focus on whether the trial court's interpretation and classification of the transaction as a loan was appropriate and whether the agreement's language was unambiguous. The transaction involved a security agreement and a promissory note, both of which are interpreted according to established contract rules.

The primary objective in contract interpretation is to determine the parties' intentions. In this context, the intent of the parties is paramount, particularly in distinguishing between secured transactions and absolute sales, where the parties' intent is crucial. The interpretation process involves examining the contract's language, considering each provision holistically to give effect to all parts. If the contract's language is clear and unambiguous, the intentions can be derived from its plain meaning, allowing for legal interpretation without additional evidence. Conversely, if ambiguity exists—defined as a term or provision with multiple reasonable interpretations—extrinsic evidence may be necessary to clarify the parties' intentions. This ambiguity can arise not only from unclear terms but also from the overall nature of the transaction, even if the contract language itself appears clear. Determining whether an ambiguity exists is a legal question, while assessing the parties' intent in the face of ambiguity becomes a factual inquiry.

A motion for summary judgment cannot be granted if a contract ambiguity exists and there is a factual dispute regarding the parties' intentions. In the case at hand, the trial court concluded that WebBank and Soliz had engaged in a secured transaction through a loan backed by future structured settlement payments. The trial court found no ambiguity in the security agreement that would necessitate external evidence to clarify intent, thus supporting summary judgment. WebBank contended that the security agreement was clear and unambiguous, affirming the trial court's decision. However, the court disagreed, citing similarities to the Colonial Leasing case where the nature of an agreement (lease vs. security agreement) was ambiguous. The Colonial Leasing ruling established that ambiguity, whether in specific terms or the agreement's overall character, permits the introduction of parol evidence to ascertain the parties' intentions. Consequently, the court reversed the summary judgment and remanded the case to allow for the consideration of extrinsic evidence regarding the transaction's true nature, emphasizing that the inquiry should focus on the substance rather than the form of the transaction.

Determining whether a transaction qualifies as a security transaction or an absolute sale hinges on the parties' intent, assessed through the facts and circumstances surrounding the transaction, including the agreement's language. The essence of the agreement, rather than its form, is crucial in establishing a security interest. Parol evidence can be utilized to clarify the parties' intentions, making this determination a factual question for the trier of fact. In the case of American General and WebBank, both parties offer plausible interpretations of the contract, debating whether it constitutes a secured transaction or a sale/assignment. American General cites provisions indicating a sale or assignment, while WebBank refers to elements suggesting a loan transaction. Despite the contract language appearing unambiguous, there exists an overall ambiguity regarding the transaction's true nature. This ambiguity necessitates the examination of extrinsic evidence to ascertain the parties' intentions. The trial court's summary judgment in favor of WebBank was inappropriate due to the unresolved factual dispute about the parties' intent, prompting a reversal and remand for a trial to explore this issue further.

The court remands the case to determine the parties' intent and the true nature of the transaction, specifically whether it is classified as a loan or a sale. As a result, the court does not address the applicability of certain exceptions to Article 9 of the UCC. The trial court's summary judgment in favor of WebBank is deemed improper, and a trial is ordered to clarify the transaction's character and the parties' intentions. Chief Justice DURHAM and other justices concur with Justice RUSSON's opinion. 

The legal context includes over seventy declaratory judgment actions initiated by WebBank and purported borrowers between November 1999 and April 2000, with the trial court consolidating four actions for appeal. A stipulated motion led to the dismissal of other actions against Metropolitan Insurance. American General remains the sole appellant after Allstate Insurance settled with WebBank. 

The transaction in question is governed by the 1997 version of Article 9 of the UCC, as the Structured Settlement Protection Act, enacted in 2002, does not retroactively affect this case. The Act outlines guidelines for transferring structured settlements and requires court approval for such transfers, exempting them from Article 9. The structured settlement agreement likely contains an anti-assignment provision, which could prevent Soliz from transferring her payments to WebBank. American General aims to classify the transaction as a sale or assignment to invoke this provision, potentially invalidating WebBank's transaction with Soliz.

WebBank aims to classify the transaction in question as a loan or secured transaction to have it governed by Article 9 of the UCC. Under Utah's version, specifically subsection 70A-9-318(4), an anti-assignment provision in a structured settlement agreement is ineffective if it restricts the assignment of an account or the creation of a security interest in future payments. WebBank argues that if the transaction is recognized as a loan, this provision would enable Soliz to transfer her future structured settlement payments to WebBank in exchange for an immediate lump-sum payment. WebBank contends that viewing the transaction as a loan or secured transaction would render the anti-assignment clause ineffective, contrasting with a sale or simple assignment, where the clause would apply.