Out of business Ford dealership sues bank for making improper loans

Steve Gonzalez Mar. 24, 2005, 9:41am

A Red Bud Ford Mercury dealership filed suit against First State Bank of Red Bud (FSB), a bank officer, and a former employee blaming them for the business losing sales and going under.

Hampton-Hentscher Ford Mercury claims the bank's chief executive officer, Loren Harms, and its office manager, Terry Harms, fraudulently concealed the fact that they altered a corporate resolution to add Terry as an employee able to conduct business at FSB on behalf of the dealership without consent of the directors.

According to the complaint filed in St. Clair County on March 18, Terry Harms obtained 16 “floor plan” loans in the amount of $1,838,000, purportedly being secured by used car inventory--plus an additional six similar loans for $565,000.

Floor plan, or wholesale lending, is a form of retail goods inventory financing in which each loan advance is made against a specific piece of collateral. As each piece of collateral is sold by a dealer, the loan advance against that piece of collateral is repaid.

On April 18, 2001, Hampton-Hentscher claims it discovered that a large number of their cars were floor planned at multiple institutions including FSB and Ford Motor Credit.

The complaint states that upon learning of the existence of the unauthorized loans, the dealership undertook an audit and discovered the dealership was “out of trust” with its inventory of automobiles to the extent of approximately $170,000. Other accounting improprieties required an infusion of $400,000 in new capital in order to bring current outstanding debts.

“The dealership has sustained damage to its reputation and good will, resulting in a loss of sales and ultimately to the closing of the dealership,” the complaint states.

The dealership claims FSB breached its duty of good faith by forging a corporate document giving authority to Terry Harms to enter into loans which he was not authorized to do and failing to inform them that Terry was attempting to obtain loans.

Hampton-Hentscher, represented by Belleville attorneys Ted Harvey and Michael Donelson, is seeking at least $200,000 in damages plus punitive damages, attorney fees and all other relief the court deems just and equitable.

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