Branch Banking & Trust Company et al.
Rex A. Nichols and Claudene Nichols
Modified on denial of reh'g: 7/10/15
Appeal from Baldwin Circuit Court (CV-10-900411).
Branch Banking & Trust Company ("BB&T"), Rusty Winfree, and Todd Fullington (hereinafter collectively referred to as "the appellants") appeal a judgment entered by the Baldwin Circuit Court in favor of Rex A. Nichols ("Sonny") and Claudene Nichols ("Claudene") on the Nicholses' claims against the appellants and on BB&T's counterclaim against the Nicholses. We reverse the circuit court's judgment and remand the cause to the circuit court for further proceedings.
Facts and Procedural History
In late 2005, Sonny began talking to Winfree about obtaining financing from Colonial Bank ("Colonial"), Winfree's employer, for the purchase of approximately 500 acres of real property in Stapleton, Alabama ("the Stapleton property"). The Nicholses intended to develop the Stapleton property into a subdivision. Both Sonny and Claudene had worked in the real-estate market in Baldwin County for several years before the events underlying this action. The Nicholses had a longstanding relationship with Colonial and had worked with Winfree on prior loans for real-estate-development projects. Sonny testified that he and Winfree were "business friendly" and that he treated Winfree like a confidant and trusted him to be honest with him.
In December 2005, Sonny wrote Winfree a letter describing a development opportunity for the Stapleton property and requesting financing through Colonial for purchasing the Stapleton property. The letter did not set forth the requested terms for the proposed financing, but Sonny testified that he had been talking to Winfree about structuring the loan as a "carried-interest" loan, the terms of which were to be similar to those Colonial had given the Nicholses when financing a prior development project ("the Sehoy project"). The Nicholses describe the loan for the Sehoy project as follows:
"The loan to acquire and develop Sehoy was known as a 'carried interest loan, ' on which interest accrues and is added to the principal balance of the loan. 'Development costs, ' the money for constructing the streets and connected structures, are part of the loan balance. The bank is repaid by receiving 80-90 percent of the proceeds from lot sales."
The Nicholses' brief, at 7.
Around February 6, 2006, Sonny contacted Winfree and asked whether the requested financing for the Stapleton property had been approved. Sonny indicated that he needed to know whether the loan had been approved so that he could send $214, 000 in earnest money as a down payment to purchase from Blue Sky Timber Properties, LLC ("Blue Sky"), 362 acres of the Stapleton property owned by Blue Sky. Sonny testified that Winfree told him that the loan had been approved and that he could send the earnest money, which, Sonny states, was nonrefundable. Sonny paid the earnest money for the purchase of the 362 acres from Blue Sky. On February 13, Winfree informed Sonny that Colonial had not yet approved the loan for the Stapleton property, which included the 362 acres.
In mid-February 2006, the Nicholses met with Winfree and Fullington, who was Winfree's supervisor at Colonial, to discuss the financing for the Stapleton property. Laura Hotard Scott, who worked as Sonny's executive assistant on development projects, also attended the meeting. Sonny testified that, at the meeting, Fullington apologized to the Nicholses, stating that Colonial could not make a carried-interest loan for the Stapleton property at that time but that, if the Nicholses would pay the interest on the loan for the first two years, Colonial would "put the interest from that property onto the development loan, " i.e., it would carry the interest on the loan going forward. Scott also testified that Fullington promised the Nicholses, if they would "do the initial purchase of the land and pay the interest for two years, that after that two-year period, [Colonial] would ... rework the loan with the interest and the development costs to proceed with the project." Fullington testified that he did not remember making that promise.
On February 27, 2006, the Nicholses executed a loan agreement with Colonial, in which Colonial agreed to lend the Nicholses, "upon the terms and subject to the conditions herein set forth, a loan in the principal amount up to but not exceeding the sum of $2, 734, 515.00, " which was to be "used by [the Nicholses] for business purposes only to purchase the [Stapleton] property." The loan agreement went on to provide that the loan would be "evidenced by and subject to the terms of a promissory note of even date herewith in a form satisfactory to [Colonial], executed by [the Nicholses], and any renewals, modifications or extensions thereof" and would be secured by, among other things, a mortgage on the Stapleton property. The promissory note and mortgage were also executed on February 27, 2006.
Section 8.02 of the loan agreement provided, in pertinent part:
"All covenants, agreements, representations and warranties made herein or in connection herewith shall survive the execution and delivery hereof and shall continue in full force and effect so long as the Loan or other Liabilities, indebtedness or other obligations to [Colonial] are outstanding and unpaid, and each representation and warranty shall be deemed to have been reaffirmed at the time each advance is made hereunder."
Section 8.09 of the loan agreement provided, among other things:
"[The loan] agreement, together with the Note and the other Loan Documents, constitutes and embodies the entire agreement and understanding between the parties, supersedes all prior agreements, representations and understandings related to the subject matter hereof or thereof, and may not be modified or amended except by a written agreement executed by the [Nicholses] and [Colonial]. No oral promise, agreement, representation or statement made by [Colonial] may be relied upon, or create any liabilities of [Colonial] and shall not be binding or have any effect whatsoever unless reduced to writing and executed by [Colonial]."
The promissory note provided, in pertinent part:
"[The Nicholses] ... HEREBY PROMISE TO PAY, to the order of Colonial Bank, N.A. or its assigns ..., to such account or place as the holder hereof may designate in writing, the principal sum of TWO MILLION SEVEN HUNDRED THIRTY FOUR THOUSAND FIVE HUNDRED FIFTEEN and NO/100 UNITED STATES DOLLARS (US $2, 734, 515.00) or such lesser amount as shall be outstanding at maturity, together with interest on the outstanding principal amount of this Note from the date hereof until such principal has been paid in full, at a variable rate per annum equal to the 30-day LIBOR Index plus 2.25 percent to be adjusted with a floor of 6.86%. [The Nicholses] shall pay interest monthly on the 27th day of each month commencing March 27, 2006 and the 27th day of each month thereafter. The outstanding principal amount under this Note, together with all unpaid interest and any other costs outstanding pursuant to the Loan Documents shall be due and payable on February 27, 2008 (the 'Maturity Date')."
Using the loan funds, Sonny purchased the Stapleton property, and the Nicholses began paying interest on the loan, in accordance with the terms of the loan documents. Sonny testified that in late 2007, as the maturity date on the note approached, he began contacting Colonial regarding renewing the loan; he further testified that, around the same time, Winfree became slow to communicate with him. Sonny also testified that before the February 27, 2008, maturity date on the promissory note, he spoke to Fullington about renewing the loan, with Colonial carrying the interest going forward. The February 27 maturity date passed without any change being made to the terms of the loan.
On March 11, 2008, the Nicholses were notified that Colonial would not carry the interest on the loan or provide additional funds for development of the property. On March 18, 2008, the Nicholses signed the first of several 90-day-extension agreements, in which they promised to continue paying interest pursuant to the terms of the original loan documents in exchange for extending the maturity date on the note. Sonny testified that, at the time he signed the loan-extension agreements, he was in severe financial distress because of Colonial's failure to carry the interest on the loan.
On September 18, 2008, the Nicholses entered into another 90-day-extension agreement for repayment of the loan. The September 18 extension included both 'release' and 'covenant not to sue' provisions. The release provision of the September 18 extension provided, in pertinent part:
"In consideration of the agreements of [Colonial] contained herein and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, [the Nicholses] ... hereby absolutely, unconditionally and irrevocably release, remise and forever discharge [Colonial], and its successors and assigns, ... ([Colonial] and all such other Persons being hereinafter referred to collectively as the 'Releasees' and individually as a 'Releasee'), of and from all demands, actions, causes of action, suits, covenants, contracts, controversies, agreements, promises, sums of money, accounts, bills, reckonings, damages and any and all other claims, counterclaims, defenses, rights of set-off, demands and liabilities whatsoever ... of every name and nature, known or unknown, suspected or unsuspected, both at law and in equity, which [the Nicholses] ... may now or hereafter own, hold, have or claim to have against the Releasees or any of them for, upon, or by reason of any circumstances, action, cause or thing whatsoever which arose or has arisen at any time on or prior to the day and date of this Agreement, including, without limitation, for or on account of, or in relation to, or in any way in connection with the Premises, ... the purchase thereof, the originator of any loan related to the Premises, ... the Loan Documents or this Agreement or transactions thereunder or related therein."
Sonny argues that in late 2008 and early 2009 he made proposals to Colonial on how the Nicholses might reduce the loan balance. He also testified that he continued to discuss development of the Stapleton property with Colonial throughout 2008 and that Colonial's officers expressed concerns about whether a market existed for the planned development on the property. Sonny testified that he talked to Fullington about selling five-acre parcels on the Stapleton property. Sonny testified that Fullington said, "Show me there's a market, " which, Sonny testified, he understood to mean that, if Sonny could show Colonial that a market existed for five-acre parcels, Colonial would lend the Nicholses additional money to develop the Stapleton property to serve that market. Fullington testified, however, that he made no promise to Sonny on behalf of Colonial that if Sonny could demonstrate that a market existed for five-acre parcels on the Stapleton property, Colonial would lend the Nicholses additional money to develop that property.
On June 5, 2009, the Nicholses and Colonial executed a "First Amendment to Loan and Security Agreement, " in which Colonial agreed to extend the maturity date on the note for one year in exchange for a principal-reduction payment of $135, 000 from the Nicholses. The parties renewed the promissory note with a new maturity date of June 5, 2010. Aside from a few specific additions unrelated to our analysis here, the other terms of the loan agreement and other loan documents remained in effect. Sonny again testified that the Nicholses executed the amended loan agreement because Colonial's failure to renew the loan to the carry the interest had put them in a distressed financial condition.
Between June 10, 2009, and June 23, 2009, Sonny and his son obtained sales contracts for eight parcels of the Stapleton property, but Sonny testified that, when he showed those contracts to Fullington and asked Colonial to release the lots from the mortgage securing the promissory note on the property, Fullington insisted that Sonny provide him with closing dates for those sales, not merely sales contracts. Sonny testified that he and Fullington reached an agreement that, as a condition to releasing the parcels from the mortgage, Colonial would receive 80% of the proceeds from the sale of parcels on the Stapleton property. Fullington testified that he agreed to ask Colonial about releasing the parcels for 80% of the sales proceeds but that Colonial did not ...