Chemical Bank v. Pic Motors Corp.

452 N.Y.S.2d 41 (1982)

Purchase the Printed Copy at bsmsphd.com

Nature of the Case

To access this section all you need to do is click here and register.

Facts

PIC, a car dealership, entered into an inventory financing agreement with Bank (P). P lent funds to PIC under an established line of credit on the security of PIC's inventory of automobiles as collateral. This is a common means of financing for all car dealerships and is known as a floor plan financing. Sales to purchasers in the ordinary course of business are made free of P's lien. But P conducts periodic audits to ensure that the cars PIC puts into the plan are owned by PIC and proper payoffs on the loan are made for each sale to a customer. Under a curtailment policy, the loan was proportionately reduced and finally paid in full for inventory remaining unsold over specified periods of time. D had personally guaranteed the loans in writing. In 1978 D sold his interest to Manfred Robl and resigned as an officer and director of PIC. D's guarantee continued, as agreed, during all the relevant periods of time. Under the guarantee, D guaranteed, absolutely and unconditionally, to P the payment of all liabilities of the Borrower to P of whatever nature. In July 1979 P informed D that PIC was 'out of trust.' More than 50% of the inventory was unaccounted for. D arranged for the sale of the remaining inventory, and partial repayment was made. P instituted suit for the balance against PIC, and the individual guarantors, including D. D asserted that the deficiency was caused by the failure of P to conduct regular inspections and to enforce its curtailment policy. P alleged that two of P's employees either negligently or in complicity with Robl submitted incorrect or false inventory reports and approved loans on nonexistent automobiles. D asserts that he was assured, as a condition of his continuing guarantee upon his sale to Robl, that regular inspections and enforcement of the curtailment policy would continue. D asserts that P impaired the value of the collateral, thus relieving him from liability. There is no provision in the inventory financing agreement or in the guarantee obligating P to conduct inspections or to maintain the curtailment policy. P got summary judgment and D appealed.