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Keywords

contractdamagestrialverdicttrustcorporationgood faithjury trial

contractbreach of contractjurisdictiondamagesappealtrialverdicttestimonytrustcorporationgood faithappellantjury trial

Related Cases

K.M.C. Co., Inc. v. Irving Trust Co., 757 F.2d 752, 92 A.L.R. Fed. 661, 1 Fed.R.Serv.3d 1095

Facts

In 1979, K.M.C., a Tennessee corporation, entered into a financing agreement with Irving Trust, which included a line of credit and a security interest in K.M.C.'s accounts receivable and inventory. On March 1, 1982, Irving refused to advance $800,000 requested by K.M.C., which would have brought the loan balance close to the $3.5 million limit. K.M.C. argued that this refusal breached an implied duty of good faith, while Irving contended that K.M.C. was already in financial distress.

Irving Trust Company (Irving) appeals from a judgment entered against it in this diversity action for breach of a financing agreement. K.M.C. is a Tennessee corporation headquartered in Knoxville and engaged in the wholesale and retail grocery business.

Issue

Did Irving Trust breach the financing agreement by refusing to advance funds to K.M.C. without prior notice, and was the waiver of the right to a jury trial valid?

The court held that: (1) conducting trial before magistrate on consent of parties was constitutional; (2) borrower's contractual waiver of right to jury trial was not knowing and voluntary; (3) implied obligation of good faith may have imposed on lender a duty to give notice to borrower before refusing to advance funds under financing agreement; (4) lender's power to demand repayment under the financing agreement was subject to good-faith obligation; (5) evidence supported verdict for borrower; (6) expert testimony pertaining to borrower's going concern value at time of alleged breach was properly admitted; and (7) award of $7,500,000 was within reasonable range of damages.

Rule

A waiver of the right to a jury trial must be knowing, voluntary, and intentional, and contracts contain an implied obligation of good faith performance.

The essence of appellant's constitutional argument is that the Magistrates Act improperly confers the judicial power of the United States as exercised under Article III of the Constitution on an Article I court, and that since Article III is concerned with subject matter jurisdiction, this infirmity cannot be corrected by the consent of the parties.

Analysis

The court found that the waiver of the jury trial was not valid because K.M.C.'s president was misled about the enforceability of the waiver. Additionally, the court determined that Irving's refusal to advance funds without notice violated the implied duty of good faith, as it left K.M.C. without operating capital and at the mercy of Irving's discretion.

The Magistrate was of the opinion that there was a very heavy burden on Irving to prove that K.M.C. knowingly, voluntarily and intentionally agreed to the jury waiver provision.

Conclusion

The appellate court affirmed the jury's verdict in favor of K.M.C., concluding that Irving breached the financing agreement and that the damages awarded were reasonable.

Affirmed.

Who won?

K.M.C. prevailed in the case because the court found that Irving breached its duty of good faith by refusing to advance funds without notice, which contributed to K.M.C.'s financial collapse.

The jury found Irving liable for breach of contract and fixed damages at $7,500,000 plus pre-judgment interest.

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