Key Decisions

August 2012 – Internal Memorandum Did Not Create A Duty

(filed under: Key Decisions Archive | August 16, 2012)

An Internal Memorandum Suggesting That Information Be Disclosed Did Not Create A Duty To Do So

SCC Acquisitions v. Central Pacific Bank
(Cal. Ct. of App., 4th Dist.), filed June 25, 2012


Central Pacific Bank loaned over $7.3 million to Fillmore Sun for costs involved in purchasing certain property and for “paying the predevelopment costs related to the development of the Property.” SCC Acquisitions, Inc. and Bruce Elieff were guarantors on the loan.

Under the terms of the one-year loan, Fillmore Sun would pay only the interest on the loan until the maturity date of the loan, August 24, 2006, at which time the entire principal would be due. The loan also contained a provision that if there were no uncured default outstanding at the time of the maturity date, in the bank’s sole and absolute opinion and judgment, the maturity date would be extended. The clause also provided “[t]he granting of such extension, however, is not intended to imply any agreement for any other or further extension of the Maturity Date.”

The loan maturity date was extended five times. It was not extended a sixth time. When Filmore Sun then defaulted, Gray 1 CPB, LLC, which had bought the loan as part of a loan pool sale, sued Filmore Sun, SCC Acquisitions and Elieff.

Filmore Sun, SCC Acquisitions and Elieff filed a cross-complaint for rescission based on sham guaranties, breach of contract and the implied covenant of good faith and fair dealing, promissory estoppel, and intentional fraud based on suppression of facts. They asserted that because an internal bank memorandum existed, that suggested that if the bank had decided not to extend the loan again, it should give Filmore Sun advance warning, then that memorandum created a duty to give such notice. They also asserted that a term sheet that was provided by the bank in conjunction with a possible sixth extension constituted a misrepresentation.

A jury found against Filmore Sun, SCC Acquisitions and Elieff.


The Court of Appeal affirmed.

The court discussed the elements of a claim for fraud and how a duty to disclose material facts might arise. It held that the internal memorandum did not create a duty to disclose. It said: “That the bank thought it appropriate to notify the borrower of a decision not to renew the loan did not, under any theory, ‘create’ a duty to notify the borrower.”

The court also held that the term sheet that was provided to Filmore Sun did not constitute a representation that the loan would be extended. It noted: “Here, the face of the term sheet plainly states it was not a commitment, representation, or promise to renew the loan on the terms set forth therein.”


The court refused to allow internal documentation to create legal duties that would not otherwise have existed. It is likely that the result would differ if the borrowers had detrimentally relied on a representation.