## Facts

- Traders Bank provided “floor plan” financing to an automobile dealership owned by Sherman “Brett” Dils IV, secured by vehicle inventory and sale proceeds.
- A 2004 audit revealed the dealership was “out of trust,” with inventory/proceeds valued at $1,110,000 missing and required payments not remitted to the bank.
- On February 19, 2004, Sherman Dils III executed a commercial variable promissory note to Traders Bank for $1,110,000 to cover the dealership’s out-of-trust obligation.
- The note was secured by deeds of trust on multiple parcels of real property owned by Sherman Dils III, Pamela Dils, and Dils Rentals, Inc.
- Traders Bank partially reactivated the dealership’s floor plan financing after the note was signed; about fourteen months later the dealership failed.
- Sherman Dils III alleged he signed the note in reliance on the bank’s oral promise to fully reinstate the dealership’s financing, and that the bank had no intent to fully reinstate it when the promise was made.

## Issues

1. Whether the maker of a promissory note has standing to assert a tort claim for fraud in the inducement as a defense and counterclaim to enforcement of the note when the alleged misrepresentation was an oral promise made without intent to perform.
2. Whether standing exists even if the primary beneficiary of the lender’s alleged promise was a third party (the dealership), rather than the note maker.

## Decision

- The Supreme Court of Appeals of West Virginia answered the certified question in the affirmative.
- The court held that a promissory note maker has standing to assert fraud in the inducement as a defense and/or counterclaim where the maker shows financial-detriment reliance on the lender’s oral promise and the lender allegedly lacked contemporaneous intent to fulfill that promise, even if a third party would have benefited.
- The matter was returned for further proceedings with the fraud-based defense and counterclaim permitted to proceed; the court did not decide the merits of the fraud allegations.

## Legal Principles

- A promissory note maker has standing to assert fraud in the inducement in response to a lender’s enforcement action when the maker alleges (1) reliance to his financial detriment, and (2) an oral promise the lender had no contemporaneous intention of performing.
- The fact that a third party is the beneficiary of the alleged promise does not negate the note maker’s standing when the maker’s own financial exposure is directly affected.
- On certified questions presenting issues of law, appellate review is de novo, and the court may reformulate the certified question to fully address the governing legal rule.

## Conclusion

West Virginia recognizes that a promissory note maker may raise fraud in the inducement as both a defense and a counterclaim to enforcement of the note when the maker alleges detrimental reliance on a lender’s oral promise made without intent to perform, even if the promised performance was directed to benefit a third party.


Traders Bank v. Dils, 226 W. Va. 691, 704 S.E.2d 691 (W. Va. 2010)