Whaley v. Maryland State Bank

BLOOM, Judge. Maryland State Bank, appellee, obtained a judgment by confession in the Circuit Court for Wicomico County against L. Byrd Whaley and the other seven directors of Delmarva Poultry Cooperative, Inc. (Delmarva), appellants, on October 5, 1979. Appellants’ motion to vacate the judgment was granted, and they filed an answer to appellee’s declaration. They later filed a counterclaim alleging fraud.

The case went to trial and the jury returned verdicts in favor of appellee both on its declaration and on appellants’ counterclaim. Delmarva, as its corporate name implied, was a cooperative comprised of about 120 chicken growers in Delaware’s Kent and Sussex Counties and Maryland’s Wicomico and Worcester Counties. Members of Delmarva bought shares of stock in proportion to the size of their chicken houses. In addition to the capital generated by the shareholders’ investments, Delmarva obtained financing from loans guaranteed by the Farmers Home Administration (FmHA).

Basically, an FmHA guarantee covers 90 percent of a loan made by or through a “servicing bank.” To obtain such a guaranteed loan, the borrower and the servicing bank must make a joint application to the FmHA. At settlement the borrower signs two notes, one for the guaranteed 90 percent portion of the loan and the other one for the remaining 10 percent of the loan. Typically, the guaranteed portion of the loan is sold to an investor in the “secondary market,” ⁶⁷⁵ such as an insurance company or an investment house. The unguaranteed portion, however, is often held by the servicing bank.

The transaction which gave rise to this litigation was Delmarva’s second FmHA guaranteed loan. In order to expedite the loan settlement, Delmarva’s financial officer, Bert Rumph, suggested that the directors personally execute a note for an amount equal to the unguaranteed 10 percent portion of the loan to Delmarva. This note would then be used as collateral to secure the unguaranteed portion of the loan. 1 Consequently, a meeting of the co-op was scheduled on short notice for the morning of April 26, 1978. This meeting was attended by appellants and by appellee’s executive vice-president and chief operating officer, Robert E. Noll.

Appellants allege that at this meeting Noll made certain false statements which induced appel ⁶⁷⁶ lants to sign the promissory note. Specifically, appellants in their brief contend that Noll represented to appellants that there was a “secondary market” for the 10% portion; that he would try to sell it there; that he felt he could sell it in the secondary market but simply had not yet had enough time to work out the details; that he had already talked to specific investors who were interested; that he felt he could sell it in a reasonably short period of time; that the directors’ undertaking [obligation on the note] would, accordingly, be temporary; that if he could not sell it, the directors would not be responsible after seven years.... Subsequently, Noll failed to sell the 10 percent portion on the secondary market, Delmarva’s already precarious financial situation worsened, and Delmarva ceased operations. In July of 1979 appellee demanded payment on appellants’ note; and when nothing was paid, these proceedings began.

At trial, the court instructed the jury on appellants’ counterclaim for fraud. The court, however, did not give appellants’ requested instructions concerning negligent misrepresentation or breach of a confidential relationship. Appellants contend that the court’s refusal to give the requested instructions constitutes reversible error. Appellants’ requested instruction on negligent misrepresentation (Prayer No. 11) was based on Martens Chevrolet, Inc. v. Seney, 292 Md. 328 , 439 A.2d 534 (1982), in which the Court of Appeals recognized the existence of an actionable tort of negligent misrepresentation independent of the tort of deceit.

Appellants’ Prayer No. 11 defined “negligent misrepresentation;” distinguished it from fraud, deceit, or intentional misrepresentation; listed all of the essential elements of the tort and contained a statement to the effect that if the jury found all of the elements of the tort to exist it would award appellants “such damages as will compensate them for their actual loss and injury.” Appellants’ requested instruction on confidential relationship (Prayer No. 10) defined “confidential relationship,” ⁶⁷⁷ described certain circumstances under which the relationship can arise and contained a statement to the effect that if the jury found that such circumstances prevailed between Noll and any of the directors (appellants) then a confidential relationship existed between Noll and any such director. In noting their exceptions to the court’s instructions, appellants said, regarding their tenth and eleventh prayers: Secondly, we take exception to the lack of instruction on innocent misrepresentation as a complete defense to the bank’s action on the note. Third, we take exception to the failure to instruct on negligent misrepresentation, which we contend is not only a defense to the note, but also a basis for the affirmative claim and recovery of compensatory damages. Specifically, we except to the court’s failure to grant our prayer number ten regarding confidential relationship and also failure to — as I already alluded to, failure to give prayer number eleven regarding fraudulent misrepresentation.

I. CONFIDENTIAL RELATIONSHIP Appellant’s exception to the court’s failure to give an instruction on confidential relationship was inadequate to preserve that matter for our review. Maryland Rule 554 is explicit. Section d requires the party making an objection to any portion of the court’s instructions or failure to instruct to state distinctly the portion or omission or failure to instruct to which he objects and for the ground of his objection; section e provides that upon appeal the party assigning error in the instructions shall be restricted to (1) the particular portion of the instructions given or the particular omission therefrom or the particular failure to instruct distinctly objected to before the jury retired and (2) the grounds of objection distinctly stated at the time, and no other errors or ⁶⁷⁸ assignments of error in the instructions shall be considered by the appellate court. A mere reference to the number of a requested instruction which the trial court has declined to grant is not a sufficient compliance with section d of the rule to permit review of the instructions.

Jones v. Federal Paper Bd. Co., 252 Md. 475 , 250 A.2d 653 (1969); Bauman v. Woodfield, 244 Md. 207 , 223 A.2d 364 (1966); Shafer v. Bull, 233 Md. 68 , 194 A.2d 788 (1963); Belt’s Wharf v. Internat. Corp., 213 Md. 585 , 132 A.2d 588 (1957); Morris v. Peace, 14 Md.App. 681 , 288 A.2d 600 (1972); Podolski v. Sibley, 12 Md.App. 642 , 280 A.2d 294 (1971). In Sergeant Co. v. Pickett, 283 Md. 284, 286-287 , 388 A.2d 543 (1978), however, the Court of Appeals held that an exception to the failure of the trial court “to instruct the jury on plaintiffs requested instruction ... [number] ten, unavoidable [sic] consequences” sufficiently complied with sections d and e of Rule 554.

But there the trial judge, by stating that he did not think that particular requested instruction was applicable to the case, clearly indicated that he understood the precise point being asserted and rejected it out of hand. In this case the record does not make clear “that all parties and the court understood the reason for the objection.” Id. at 288-289 , 388 A.2d 543 , quoting Exxon Corp. v. Kelly, 281 Md. 689 , 694 n. 6, 381 A.2d 1146 (1978). In any event, even if the issue had been preserved for our review, we would hold that the refusal to give the requested “confidential relationship” instruction was not reversible error. The prayer as presented may well have constituted a correct statement of the law, but standing alone it is meaningless to the case.

To instruct the jury that from a given set of circumstances it might find the existence of a confidential relationship without telling the jury what effect that relationship would have on appellants’ defense to the bank’s claim or their own counterclaim would give the jury nothing but an abstract principle of law. Appellants’ tenth prayer would have had meaning only if ⁶⁷⁹ given in conjunction with their rejected fifth prayer, to the effect that punitive damages may be allowed where the wrong involves a breach of duty arising from a relationship of trust or confidence. To support an award of punitive damages, “there must first be an award of at least nominal compensatory damages.” Shell Oil Co. v. Parker, 265 Md. 631, 644 , 291 A.2d 64 (1972). Here, the jury found no liability on the part of the bank.

Failure to instruct the jury on punitive damages or on confidential relationship as it relates to punitive damages could not have