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Defaulting party strikes out in claims against lender

A holding company for a Madison County winery that defaulted on a commercial loan, and whose collateral was seized by the bank, could not assert the bank breached a contract because the company’s interpretation was contrary to the reasonable meaning of the agreement.


In 2008, Sweely Holdings LLC and SunTrust Bank engaged in an $18.3 million commercial-lending relationship to provide capital for the Sweely Holdings Estate Winery in Madison County, Virginia. In addition to personal property at the winery estimated to have a value of $2.5 million, Sweely offered four parcels of real property as collateral for the loans.

Sweely defaulted on these loans in May 2010. Pursuant to the loan documents, SunTrust seized $1.8 million of Sweely’s cash assets from an account. After Sweely had declared its intention to seek bankruptcy protection, the parties entered into a workout agreement that provided Sweely with another opportunity to pay its debt. When Sweely failed to do so, SunTrust took action against Sweely’s collateral.

Sweely then filed suit against SunTrust, three of its employees and its outside counsel, alleging various causes of action, including, among others, breach of contract, fraud in the inducement and constructive fraud. The circuit court sustained SunTrust’s demurrer to the amended complaint and dismissed all counts with prejudice.


Sweely contends that the workout agreement forbade SunTrust from foreclosing on any of the four properties even if Sweely never paid a dollar of the underlying debt because Sweely had a right to convey the collateral to SunTrust against SunTrust’s will by issuing a deed in lieu of foreclosure. The circuit court read the workout agreement differently, as do we.

Though inartfully written, the provisions reveal a finely tuned balance of contractual rights and duties. SunTrust was free to accept and record a deed in lieu of foreclosure if it was willing to assume there were no subordinate liens against the collateralized property (thereby taking the risk there were some) that would need to be extinguished by foreclosure. SunTrust was also free to accept, without recording, a deed in lieu of foreclosure and thereby conduct a friendly foreclosure if the risk of subordinate liens was unacceptable.

Without this choice, SunTrust would have been contractually obligated to accept and record the deed in lieu of foreclosure, afford Sweely a credit against its overall debt, and ultimately forfeit any right to pursue a deficiency judgment against Sweely — all in exchange for property potentially subject to recorded or unrecorded subordinate liens. The agreement as a whole undermines this interpretation as both unreasonable and unrealistic. For these reasons, the circuit court did not err in its decision to dismiss Sweely’s breach of contract claim with prejudice.

The circuit court dismissed Sweely’s claims for fraud in the inducement and constructive fraud on the ground that the factual allegations themselves defeated any reasonable inference of “justifiable reliance” on the alleged misrepresentation. “[T]here simply are no facts,” the circuit court held, “that would allow Sweely to reasonably rely on . . . the information that was given to [it] by the bank about the appraisals.” On appeal, Sweely argues that the circuit court misapplied the justifiable-reliance doctrine. We disagree.

The allegations in the amended complaint, when placed in the context of the relevant documents in the record and the parties’ arguments, demonstrate that any alleged reliance by Sweely on the appraisal information was unjustified as a matter of law. Thus, the circuit court also did not err in its decision to dismiss the fraud in the inducement and constructive fraud claims on demurrer.


Sweely Holdings LLC v. SunTrust Bank, Record No. 171165, Nov. 21, 2018. SCV (Kelsey) from Madison Cir. Ct. (Bouton). VLW No. 018-6-030, 18 pp.