2. Trusts_action on guaranty_trustee's authority
The trial court correctly granted summary judgment for plaintiff bank in its action for
costs, expenses, interest, and attorney fees arising from a loan agreement guaranteed by a trust.
Although defendant contended that the trustee had participated in the transaction in violation of
the terms of the trust, the record does not show that the plaintiff had knowledge of the trustee's
breach, and plaintiff did conduct a reasonable investigation into the trustee's authority.
3. Costs_attorney fees_action on indebtedness_guaranty agreement
The trial court correctly awarded attorney fees for plaintiff in an action for expenses,
interest, and costs against a trust which was the guarantor of a loan. The guaranty agreement
constituted evidence of indebtedness under N.C.G.S. § 6-21.2.
Tuggle Duggins & Meschan, P.A., by Kenneth J. Gumbiner and
Michael S. Fox, for defendants.
Carruthers & Roth, P.A., by Kenneth R. Keller and Norman F.
Klick, Jr., for plaintiff.
WYNN, Judge.
On appeal, Craig M. Keefer, Trustee of the Keefer Trust
(See footnote 1)
presents the following questions: (I) Was it an abuse ofdiscretion for the trial court to refuse to hear Keefer Trust's
motion to amend its answer; (II) Did the trial court erroneously
grant summary judgment in favor of FNB Southeast; and (III) Did the
trial court erroneously award attorneys fees to FNB Southeast?
After careful review, we uphold the trial court's judgment.
In November 1999, FNB Southeast, a bank, entered into a loan
agreement with Apparel Sales and Printing, Inc., a company wholly
owned by 3-I, Inc. which in turn was 80% owned by Keefer Trust. In
2000, Apparel Sales and Printing sought modification of the loan
agreement in order to release some of the equipment secured by the
loan. The parties agreed that the Keefer Trust would guarantee the
new loan. Before entering into the collateral substitution
agreement, FNB Southeast requested and examined Keefer Trust's
financial statements and trust documents and obtained an opinion
letter from the trust attorneys regarding the trust's authority to
enter into the agreement. Thereafter, FNB Southeast, Apparel Sales
and Printing, and Keefer Trust trustee, John B. Lane, executed the
modified loan agreement on 17 November 2000. In September 2001,
the loan agreement was modified to permit the loan payments for
August, September and October 2001 to be made by 31 October 2001.
However, when Apparel Sales and Printing failed to make the
payment, FNB Southeast brought the subject action seeking
$785,370.14 plus costs, expenses, interest, and attorney's fees.
Keefer Trust answered on 21 February 2002.
(See footnote 2)
Thereafter, FNB Southeast moved for summary judgment. However, following a 25 March 2002 deposition and FNB Southeast's
production of documents, Keefer Trust moved on 31 May 2002 to amend
its answer to include three affirmative defenses. On 4 June 2002,
the trial court refused Keefer Trust's motion to amend and granted
FNB Southeast's motion for summary judgment. Keefer Trust appeals.
_________________________________________________
[1] Keefer Trust first argues the trial court abused its
discretion in refusing to hear the motion to amend its answer. We
disagree.
Under N.C. Gen. Stat. § 1A-1, Rule 15, after service of a
responsive pleading, “a party may amend his pleading only by leave
of court or by written consent of the adverse party.” Accordingly,
Keefer Trust could amend its answer by FNB Southeast's written
consent, which was never given, or by leave of court. Although
Rule 15 further provides that leave to amend should be freely
given, we review the denial of a motion of to amend under the abuse
of discretion standard. See Duncan v. Ammons Constr. Co., Inc., 87
N.C. App. 597, 361 S.E.2d 906 (1987).
In this case, the trial court held the motion for leave to
amend was not timely filed as of the date of the hearing. Under
N.C. Gen. Stat. § 1A-1, Rule 6(d), “a written motion . . . and
notice of the hearing thereof shall be served not later than five
days before the time specified for the hearing, unless a different
period is fixed by these rules or by order of the court.” “In
computing any period of time prescribed or allowed by these rules
. . . the day of the act, event, default or publication after which
the designated period of time begins to run is not to be included. The last day of the period so computed is to be included . . . When
the period of time prescribed or allowed is less than seven days,
intermediate Saturdays, Sundays, and holidays shall be excluded in
the computation.” N.C. Gen. Stat. § 1A-1, Rule 6.
Here, Keefer Trust filed its motion to amend on Friday, 31 May
2002, and the hearing was held on Tuesday, 4 June 2002. Since the
motion was not timely filed under Rule 6, we find no abuse of
discretion by the trial court in refusing to hear the motion.
[2] Keefer Trust next contends the trial court erroneously
granted FNB Southeast's motion for summary judgment because a
genuine issue of material fact existed as to FNB Southeast's
knowledge regarding the trustee's lack of authority to enter into
the guaranty agreement.
(See footnote 3)
In its complaint, FNB Southeast sought $785,370.14 plus costs,
expenses, interest, and attorney's fees from Keefer Trust basedupon the guaranty agreement. In its answer, Keefer Trust admitted
that Apparel Sales and Printing executed the loan agreement; FNB
Southeast made loans to Apparel Sales and Printing; Keefer Trust
trustee, John B. Lane, executed the substitution and guaranty
agreements; and Apparel Sales and Printing stopped making payments
to FNB Southeast as required.
Nonetheless, despite admitting all of the essential
allegations required to collect on a guaranty, Keefer Trust
contends summary judgment was improvidently granted because a
genuine issue of material fact existed as to whether FNB Southeast
knew or should have known that the Keefer Trust's trustee, John B.
Lane, participated in the transaction in violation of the terms of
the trust. Keefer Trust argues that if FNB Southeast had actual or
constructive knowledge of the trustee's breach of the trust
agreement, FNB Southeast would become liable to Keefer Trust for
any amount paid to FNB Southeast from the trust pursuant to the
guaranty and that such liability would negate any liability of
Keefer Trust to FNB Southeast under the guaranty.
An individual or entity who aids or assists a trustee with
knowledge of the trustee's misconduct in misapplying assets is
directly accountable to the persons injured. See Abbitt v.
Gregory, 201 N.C. 577, 596-99, 160 S.E. 896, 906-07 (1931); see
also Seafare Corp. v. Trenor Corp., 88 N.C. App. 404, 414, 363
S.E.2d 643, 651 (1988)(stating “all persons aiding and assisting
trustees of any character with a knowledge of their misconduct in
misapplying assets are directly accountable to the persons injured.
The wrong of participation in a breach of trust is divided into twoelements, an act or omission, which further completes the breach of
trust by the trustee, and knowledge at the time that the
transaction amounted to a breach of trust or the legal equivalent
of such knowledge” is a “general principle of trust law [that] has
been applied by the North Carolina courts”).
Keefer Trust argues that an affidavit from Lisa Lesavoy,
successor trustee of the Craig M. Keefer Trust, and deposition
testimony from Laura Pratt, Vice President of FNB Southeast, show
that FNB Southeast had actual or constructive knowledge that the
trustee was violating the terms of the trust agreement. In her
affidavit, Ms. Lesavoy states:
12. ... Because of the relationship between
LANE and SAMSON, SAMSON, and, accordingly,
FNB, knew or should have known, prior to
making the aforesaid loan, that LANE had
caused the Keefer TRUST to advance, loan or
invest in excess of $52,770,000.00 in the
CHC's representing in excess of eight-four
(84%) percent of the net Trust assets and more
than eighty-five (85%) percent of the initial
value of the Keefer TRUST, thereby extending
and continuing the hereinbefore described
breach of the express provisions of the
governing instrument; and that most of which
advances or loans were neither collectible nor
secured by a mortgage, security agreement or
other collateral so as to secure the Trust and
gain priority as against other creditors of
the CHC's.
13. After consultation with my counsel, and
for the reasons hereinbefore and hereinafter
set forth, I verily believe that the execution
and delivery of the guaranty by John Lane to
Plaintiff was in breach of the express
provisions of the subject Trust Agreement and
that the Plaintiff, through its officers,
servants and agents knew or should have known
that said guaranty was in breach of the Trust
Agreement.
The affidavit also points out that FNB Southeast received copies ofthe Trust Agreement and trust financial statements indicating
substantial trust assets were committed to closely held
corporations. Furthermore, Keefer Trust contends Laura Pratt's
deposition testimony that FNB Southeast requested, received and
examined the trust agreement and financial statements is an
indication that FNB Southeast had actual notice of the trust's
requirement that certain percentages of the trust's initial
principal value, the principal value of all assets transferred to
the trust from the grantor's custodial account, be retained and not
distributed without court approval. However, Keefer Trust did not
present any evidence that FNB Southeast was aware of the trust's
initial principal value. Indeed, neither the three financial
statements from 1999 and 2000 nor the trust agreement provide the
initial principal value of the trust. Although the trust agreement
refers to an annexed Schedule A that describes the property
transferred to the trust, the Schedule A is not included in the
record on appeal and there is no indication by either party that
FNB Southeast ever received a copy of the document. Accordingly,
the record fails to show that FNB Southeast had actual notice or
knowledge that the trustee was breaching the trust agreement and
his fiduciary duty to the trust when he entered the substitution of
collateral agreement with FNB Southeast.
Moreover, the record fails to show that FNB Southeast had
constructive notice or knowledge of the trustee's breach of the
trust agreement. “At common law a person who deals with another
whom he knows to be a trustee is put upon inquiry as to the extent
of the trustee's powers and charged with knowledge of the factswhich a reasonable investigation would disclose. . . . The third
party must examine the trust instrument and look to other sources
of information in order to satisfy himself that the trustee has
authority to enter into the transaction which he is seeking to
consummate.” Kaplan v. First Union Nat'l. Bank, 99 N.C. App. 570,
573 393 S.E.2d 344, 346 (1990).
In this case, FNB Southeast requested and reviewed the trust
agreement, three 1999 and 2000 trust financial statements, and
received an opinion letter from Haynsworth Baldwin Johnson and
Greaves, L.L.C., legal counsel to the trustee, which stated “the
guaranty documents and the performance by guarantor of his
obligations thereunder do not conflict with or result in a
violation of the trust agreement pursuant to which the trust was
established and is governed . . . [and that] no registration with,
consent or approval of, or other action by any federal, state, or
local governmental authority or regulatory body is required for the
execution, delivery, or performance by guarantor of the guaranty
documents or any other documents delivered to lender in connection
with the lien.” Thus, the record indicates FNB Southeast conducted
a reasonable investigation into the trust's authority to enter into
the substitution of collateral agreement prior to approving the
substitution agreement. Accordingly, we uphold the trial court's
grant of summary judgment in favor of FNB Southeast.
[3] Finally, Keefer Trust contends the trial court erroneously
awarded FNB Southeast's attorneys fees relating to this action
because a guaranty agreement does not constitute evidence of
indebtedness under N.C. Gen. Stat. § 6-21.2 which provides inpertinent part that:
Obligations to pay attorneys' fees upon any
note, conditional sale contract or other
evidence of indebtedness, in addition to the
legal rate of interest or finance charges
specified therein, shall be valid and
enforceable, and collectible as part of such
debt, if such note, contract or other evidence
of indebtedness be collected by or through an
attorney at law after maturity, subject to the
following provisions...
(2) If such note, conditional sale contract or
other evidence of indebtedness provides for
the payment of reasonable attorneys' fees by
the debtor, without specifying any specific
percentage, such provision shall be construed
to mean fifteen percent (15%) of the
outstanding balance owing on said note,
contract or other evidence of indebtedness.
The guaranty in this case was written, signed by the trustee, and,
in the event of Apparel Sales and Printing's default, was a legally
enforceable obligation to pay money, and therefore, constituted
evidence of indebtedness. See Stillwell Enterprises v. Interstate
Equip. Co., 300 N.C. 286, 294, 266 S.E.2d 812, 817 (1980)(holding
the term “evidence of indebtedness as used in G.S. 6-21.2 has
reference to any printed or written instrument, signed or otherwise
executed by the obligor(s), which evidences on its face a legally
enforceable obligation to pay money). Thus, we conclude that the
guaranty agreement in this case constituted evidence of
indebtedness under N.C. Gen. Stat. § 6-21.2. We, therefore,
uphold the trial court's decision to award attorneys fees in this
case.
Affirmed.
Judges HUDSON and CALABRIA concur.
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