Gmac, Aka Ally Financial, Inc., App. v. Everett Chevrolet, Res.

Citation: Not availableDocket: 68374-8

Court: Court of Appeals of Washington; January 26, 2014; Washington; State Appellate Court

Original Court Document: View Document

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The court addresses an appeal involving GMAC and Everett Chevrolet, Inc., alongside John Reggans and his marital community. This is the second review of the case, following a prior remand that reversed an earlier trial court decision. GMAC provided financing to Everett Chevrolet, securing its interest in the dealership's equipment, inventory, and proceeds through a Wholesale Security Agreement (WSA) established in 1996, along with a Revolving Line of Credit Agreement (RLCA) from 2000. Due to a decline in the auto market, Everett Chevrolet's financial situation worsened, leading GMAC to terminate its credit lines in December 2008 and demand payment totaling approximately $6.27 million. GMAC sought replevin rights as a secured creditor, but the trial court initially denied this request. After securing discretionary review, the appellate court reversed this denial.

On remand, GMAC filed for summary judgment to dismiss counterclaims of bad faith from Everett Chevrolet, which the trial court denied. GMAC's appeal contends that the trial court erred in this denial. The appellate court emphasizes that in summary judgment, the moving party must demonstrate no material fact issues exist, shifting the burden to the opposing party to show otherwise. The court also notes that it reviews such denials de novo, affirming that any issues not raised on appeal are considered abandoned.

GMAC maintains that its right to demand repayment under the WSA is not constrained by a duty of good faith. EC counters this claim, asserting that GMAC's position relies on a misunderstanding regarding the existence of a demand note. The court concludes that the WSA does indeed contain a demand obligation, which is consistent with prevailing legal standards that allow for the enforcement of such obligations regardless of good faith considerations. The interpretation of the WSA hinges on determining whether it contains a demand obligation, paralleling the precedent set in Allied Sheet Metal Fabricators Inc. v. Peoples National Bank, which establishes that a demand obligation is enforceable immediately upon execution.

The court emphasizes that contract interpretation is guided by the parties' intent, following Washington's objective manifestation theory. It favors interpretations that give effect to all contractual language and avoids reading ambiguity into contracts unless necessary. A demand note is defined as payable immediately upon execution, with no additional conditions required for enforcement. The WSA's "upon demand" clause is deemed clear and unambiguous, indicating that EC is obligated to repay GMAC upon demand for any amounts advanced, including applicable interest. This provision reflects a true demand obligation, thereby supporting GMAC's right to enforce repayment without needing to establish a prior demand beyond the terms of the agreement.

Payment for GMAC's advances becomes due upon demand, with no fixed time or contingency specified for this obligation. The agreement clearly indicates that EC is obligated to pay GMAC upon demand, which is a material term of their lending relationship. This "upon demand" provision follows the language establishing the lending relationship and has been emphasized in amendments to the agreement, indicating its centrality. EC's argument that the provision is not a demand obligation due to alleged contingencies related to vehicle sales is unpersuasive, as those contingencies pertain only to post-sale payments and do not impact the demand for payment of outstanding amounts. EC's assertion that no immediate amounts were due at the execution of the agreement because no funds had been advanced is also rejected; a monetary obligation is considered due if no conditions or timeframes are specified. There is no ambiguity in the agreement, as all provisions can be harmonized without inconsistency. EC's claim that the "faithfully and promptly" language creates ambiguity is unfounded; this language pertains solely to the timing of payments after vehicle sales and does not negate the demand obligation.

The provision allows EC to sell or lease vehicles serving as collateral for its debts to GMAC in the normal course of business. It requires EC to promptly remit the proceeds from these sales or leases to GMAC to fulfill its financial obligations. This obligation is distinct and supplementary to EC's existing requirement to pay GMAC "upon demand." The language mandates that EC must remit proceeds faithfully and promptly, without affecting the separate demand obligation for payment. There is no genuine dispute regarding the relationship between these provisions, and the presence of a "default" provision does not create ambiguity regarding EC's payment responsibilities. The default provision allows GMAC to repossess collateral without further notice if EC defaults but does not alter the obligations established in the earlier provisions. Courts prefer interpretations that give effect to all provisions of a contract, and EC's interpretation would render the demand provision meaningless. EC's reliance on case law from other jurisdictions, including Mente Chevrolet Oldsmobile Inc. v. GMAC, does not effectively support its argument of ambiguity within the WSA. The referenced case involved a different interpretation of payment obligations under a financing agreement, which does not align with the current contractual language.

GMAC contended that the "faithfully and promptly" clause in the financing agreement was clear and unambiguous, but the federal district court rejected this motion. The Third Circuit upheld the district court's decision, determining that the phrase was ambiguous due to its lack of definition and multiple possible interpretations. The court addressed GMAC's assertion regarding another clause in the financing agreement that purportedly allowed for immediate payment but did not elaborate on its contents. It stated that the interplay between this clause and the "faithfully and promptly" clause was a factual issue suitable for jury consideration. The court clarified that its focus was on the "upon demand" language in a different provision, which it deemed unambiguous, asserting that the presence of the "faithfully and promptly" clause did not introduce ambiguity into the "upon demand" provision.

The court also noted that it would not speculate on the unspecified clause mentioned in the footnote. It concluded that the relationship among the provisions in the agreement was a legal question favoring GMAC, ruling out ambiguity. Additionally, the court dismissed EC's argument for collateral estoppel based on prior litigation as it was raised for the first time on appeal without adequate justification. Lastly, the court referenced a Maryland trial case involving similar provisions, where ambiguity was found, but emphasized that such a trial court decision carries no precedential weight, even in Maryland or Washington.

The court disagrees with the previous judge's conclusion regarding the ambiguity of the "upon demand" provision in the WSA, stating it is independent of the "faithfully and promptly" provision and unaffected by the "default provision." Unlike the Bob Smith Automotive case, there is no claim that similar provisions in other agreements create ambiguity. The Revolving Line of Credit Agreement (RLCA) includes a clear demand provision that requires immediate repayment upon demand, which GMAC invoked in December 2008 without EC contesting its enforceability. This establishes a definitive demand obligation in both the WSA and RLCA. The court emphasizes that the duty of good faith cannot impede the right to make demands under these obligations, aligning with Washington case law, particularly the Allied case, where a bank's right to collect on demand notes was upheld despite claims of bad faith. The court affirmed that the agreements' terms granted the bank the authority to act without prior notice, underscoring the binding nature of the contractual terms agreed upon by the parties.

The court affirmed the summary judgment favoring Allied, with the supreme court denying review. This decision aligns with the majority view among courts regarding demand instruments and good faith claims, where the application of good faith is typically rejected to preserve the maker's intention to grant the holder the option to demand payment, regardless of reasons. In this case, GMAC's "upon demand" provision allowed it to request payment for accrued amounts for any reason, which was upheld despite GMAC specifying reasons in its communication. EC's claim that GMAC's demand was barred by a duty of good faith was dismissed, as the potential detriment to EC's business did not negate GMAC's right to demand payment.

EC contended that GMAC's action constituted a declaration of default rather than a simple demand, arguing that this should estop GMAC from claiming it could have made a straightforward demand. However, EC did not provide sufficient evidence to support the elements of equitable estoppel, particularly failing to demonstrate reasonable reliance or resulting injury from GMAC's actions. The court noted that EC's reliance on GMAC's December 19, 2008 letter was misplaced, as the earlier December 15 letter had already made a valid demand for payment, undermining EC's claims.

Regarding breach of specific contract terms, GMAC argued that the duty of good faith pertains only to the performance of specific contract terms and that EC failed to identify any specific term breached in bad faith. The court agreed, referencing the case of Badgett v. Security State Bank, where the bank's refusal to negotiate did not impose a new obligation. Ultimately, the court upheld the summary judgment in favor of GMAC, indicating that EC’s claims lacked merit.

Division Two of the appellate court reversed a prior ruling, finding sufficient evidence for a reasonable inference that the Bank had a good faith obligation to consider the Badgetts' proposals based on their course of dealing. However, the supreme court reversed this decision, clarifying that the duty of good faith does not add substantive terms to a contract but requires parties to perform their agreed obligations in good faith. The court emphasized that this duty is tied to specific contract terms and cannot exist independently of the contract. As such, there cannot be a breach of good faith solely based on a party insisting on its contractual rights. 

In this case, EC failed to identify any specific contractual term that GMAC allegedly breached. EC's arguments regarding GMAC's failure to disclose material facts as a breach of good faith were insufficient, as they did not connect to specific contract terms. EC's claims that GMAC's actions interfered with its business operations did not meet the standards set by prior case law (Badgett) and lacked specificity. Additionally, EC's new argument regarding GMAC's breach of the "faithfully and promptly" provisions was raised for the first time on appeal, which the court did not consider. 

The court concluded that the demand provisions in the WSA and RLCA were not precluded by the duty of good faith, and that EC's failure to allege a specific contract term constituted grounds for improper denial of summary judgment. Regarding EC's tortious interference claims, the court determined that GMAC had not abandoned its argument for summary judgment against these claims, as they were included in GMAC's motion. Consequently, the trial court's denial of summary judgment pertained to all claims identified by GMAC, including tortious interference, which were considered interconnected from the beginning.

GMAC filed a motion to strike certain ultra-jurisdictional authorities cited by EC in its brief and requested sanctions for the use of unauthorized citations to unpublished cases. The court granted the motion to strike in part, disregarding certain materials but denied the motion for sanctions. Under RAP 10.4(h) and GR 14.1(b), parties may cite unpublished opinions only if permitted by the issuing court's jurisdiction. EC cited three unpublished cases, two of which were considered by the court, but did not provide a copy of one, Weed v. Ally Financial Inc., leading to its exclusion from consideration. GMAC sought sanctions for this citation, but the court found no substantial prejudice to GMAC and denied the sanctions request.

Regarding the appearance of fairness, GMAC argued that the case should be remanded to a different trial judge to maintain public confidence in the judicial process. The court emphasized the importance of judges appearing impartial and noted that litigants must present evidence of bias to support claims of perceived partiality. Although GMAC presented evidence of perceived bias, the court decided it was unnecessary to determine if the trial judge violated the appearance of fairness doctrine. Instead, the court concluded that remanding the case to a different judge would best serve a just resolution. The court reversed the order denying GMAC's motion for summary judgment, remanded the case for further proceedings, and instructed the new judge to enter summary judgment in favor of GMAC and address any additional necessary proceedings. The court granted GMAC's motion to strike in part and denied the sanctions motion.