¶ … damages is whether or not there is a contract that has been breached. Under Texas law, a plaintiff must be establish four elements in order to prevail on a breach of contract clam. The four elements are: 1) the existence of a valid contract; 2) performance or tendered performance by the plaintiff; 3) breach of the contract by the defendant; and 4) damages sustained by the plaintiff as a result of the breach (Valero Mkfg. & Supply Co. v. Kalama Int'l. LLC). This approval was done by almost immediately by the Bank and the plaintiffs were notified of the approval but were not in receipt of a formal letter of commitment. Upon receipt of the official letter of commitment the plaintiffs were advised of the condition that prior approval of the State of Texas' Economic Development Program was necessary and the situation became far more complicated. At this point, the Bank's representative, Max Brandt, made a representation that the plaintiffs may or may not relied upon, and the bank, contrary to the position assumed by Brandt, refused to waive the Development Program's condition. The result of the bank's refusal, unfortunately, caused the plaintiffs to decide to sell their business which gave rise to the instant lawsuit.
The best evidence available for the plaintiff in establishing a possible breach of contract action is the loan commitment letter issued on March 31, 2005. The letter in question sets forth all the terms and conditions but, unfortunately, it also included a new term of which the plaintiffs were not aware. Additionally, the bank's employee, Max Brandt, assured the plaintiffs that compliance with the new term was not necessary and that the loan would still be available. The plaintiffs apparently relied upon this assurance and went forward with this assurance in hand.
The loan commitment letter which forms the basis of the instance case is an indispensable part of every loan agreement. The commitment letter is, in essence, a contract in which the lender promises to make a loan if certain conditions are met. As evidenced by the facts in the instant case, the parties to the commitment letter rely upon the conditions of the commitment letter to determine their future action. In this regard, the plaintiffs, upon being advised of the condition that the State of Texas, Economic Development Program, had to guarantee the loan took immediate steps to clarify this matter and, having been assured by Brandt that this condition was of no real concern moved forward with their purchase of Pace. Quite simply, the plaintiffs detrimentally relied upon Brandt's representation.
Before addressing the issue of the plaintiffs' detrimental reliance, there is a more preliminary matter that must be addressed. The plaintiffs' purchase of the Pace business was a two step process. The first process involved the actual purchase of the business' assets and the second process was the procuring of a loan that would allow the business the necessary working capital to operate. In the first process, the plaintiffs made an application for a loan to purchase the business. Said loan was within the granting authority of the bank's employee, Max Brandt, and, therefore, did not require loan committee approval. Although the parties may have been aware at the time of the $250,000 loan that an additional $750,000 was needed, there is no indication that Brandt represented to the plaintiffs that there was any guarantee that such loan was a certainty. Nevertheless, the plaintiffs went forward with the purchase of the business with the original $250,000 loan. By doing so, there is a strong argument that they did so at their own peril. This action by the plaintiffs will have significant impact on the plaintiffs' ultimate claim for damages regarding their argument that the Bank breached on the loan agreement.
The application procedure for the $750,000 needed for operating capital was a protracted one and filled with a variety of technical problems. The plaintiffs went to considerable time and expense to prepare their business for loan approval including the formation of an entirely new corporation. The plaintiffs did so, however, without any guaranteed assurance from any bank representative that their loan application was assured. Brandt did advise the plaintiffs that the bank would help the plaintiffs in their attempt to procure such financing.
The problem with the plaintiffs' claim is that it must be based on either a breach of contract or on detrimental reliance and that there are significant problems with both causes of action. As to the contractual action, the plaintiffs will have problems establishing that a contract exists. Although the plaintiffs were advised that the bank had approved its loan, the letter of commitment had not been received and, once it was received, the plaintiffs immediately balked at the acceptance of its terms. This reluctance to accept all the conditions set forth in the commitment letter establishes that there was no meeting of the minds between the parties and, therefore, no contractual relationship.
As to any potential detrimental reliance claim by the plaintiffs, the fact that they took no affirmative action based upon Brandt's representation negates any possibility that the plaintiffs can prevail on the issue. Although the plaintiffs may have relied upon Brandt's representation that the bank would waive the provision regarding Economic Development's approval, there is no evidence indicating that the plaintiffs changed their position based upon this representation. The fact that they determined that they would have to sell their business was only marginally related to Brandt's assurance that the Bank would waive the Economic Development's condition. From the beginning the plaintiffs were aware that they would need the Bank's loan committee's approval on the $750,000 loan to operate their business and yet they bought the business without possessing any guarantee that said loan would be forthcoming. Nothing that Brandt said or did not say affected this decision. Any entrepreneurial action involves risk and the plaintiffs took a calculated risk that did not work out as they planned.
Neither of the possible claims that the plaintiffs' might assert in their lawsuit is likely to be successful in light of the facts in the case. The plaintiffs cannot establish the existence of an actionable contract and there is no basis for their being able to rely upon an action based on detrimental reliance. The facts in the case simply do not support either claim and, as a result, there is no basis for a damages claim against the Bank.
The damages being sought by the plaintiffs are in the form of consequential damages based on the fact that the bank's failure to extend a loan or its placing a condition on the contract that altered the terms of the contract. As has already been discussed, the plaintiffs' claim is likely not viable but in the event that the plaintiffs were to prevail on the underlying contract or detrimental reliance claim a determination of damages based on the data provided needs to be evaluated.
The best available means for determining the possible damages in this case is through the use of the income approach. Under this system of determining damages the past or future income of the involved business is applied to a capitalization rate. In order to reach the range of possible damages a capitalization rate is applied that projects the earnings for a firm based on an average or weighted average of prior years' income. Such figures, however, have to be adjusted for any anomalies or anything that is not recurring or representative of what might occur in the future.
The numbers that have been presented are certainly a good starting point for determining any potential damages in this case but they are…
This approval was done by almost immediately by the Bank and the plaintiffs were notified of the approval but were not in receipt of a formal letter of commitment. Upon receipt of the official letter of commitment the plaintiffs were advised of the condition that prior approval of the State of Texas' Economic Development Program was necessary and the situation became far more complicated. At this point, the Bank's representative, Max Brandt, made a representation that the plaintiffs may or may not relied upon, and the bank, contrary to the position assumed by Brandt, refused to waive the Development Program's condition. The result of the bank's refusal, unfortunately, caused the plaintiffs to decide to sell their business which gave rise to the instant lawsuit.
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