Case Title: FIRST WYOMING BANK, CASPER v. MUDGE

Citation: 

Docket Number: 87-52

State: wyoming

Court: Wyoming Supreme Court

Date: 1988-01-05T00:00:00Z

Document:
FIRST WYOMING BANK, CASPER v. MUDGE1988 WY 1748 P.2d 713Case Number: 87-52Decided: 01/05/1988Supreme Court of Wyoming
 
 
 
 
FIRST WYOMING BANK, 
CASPER, 
APPELLANT (DEFENDANT), RICHARD PAVLICEK AND GLENN DEMING, 
(DEFENDANTS),

v.

ROBERT M. MUDGE, SYBIL A. 
MUDGE, EDWARD W. MUDGE, AND EDNA F. MUDGE, APPELLEES 
(PLAINTIFFS).

Appeal from the Natrona 
County District Court, Dan Spangler, J.

Cameron S. 
Walker of Schwartz, Bon, McCrary & Walker, Casper, for appellant 
(defendant).

John R. Hursh, 
and William L. Miller of Hursh, Miller & Fasse, P.C., Riverton, for appellees 
(plaintiffs).

Before BROWN, C.J., and THOMAS, CARDINE, URBIGKIT 
and MACY, JJ.

URBIGKIT, 
Justice.

[¶1.]     This is an appeal from 
an action instituted by Robert M. Mudge, Sybil A. Mudge, Edward W. Mudge, and 
Edna F. Mudge (Mudges), appellees, by a third-party complaint in response to a 
foreclosure action instituted by First Wyoming Bank, Casper (Bank), appellant, 
to foreclose a security interest in a corporate enterprise inventory. This 
third-party complaint was severed from the original foreclosure action when the 
earlier decision was appealed and the foreclosure decision affirmed in M & M 
Welding v. Pavlicek, Wyo., 713 P.2d 236 (1986). The third-party complaint 
alleging intentional interference with a contract by the Bank resulted in a jury 
verdict for the Mudges of $123,997.33.

[¶2.]     We affirm this decision 
also, as essentially invoking a sufficiency-of-the-evidence 
inquiry.

[¶3.]     Appellant Bank presents 
the issues for review as trial-court error:

1. Improper instructions 
to the jury.

2. Failure to grant 
defendant's motions for a directed verdict.

3. Exclusion of certain 
evidence.

I. 
FACTS

[¶4.]     The parties and the 
facts involved in this appeal are essentially identical to those in M & M 
Welding v. Pavlicek, supra, where the facts are set out in more detail, and only 
the facts pertinent to this appeal will be highlighted here. On July 31, 1981, 
the Mudges made an agreement to sell the family corporate welding business to 
Redding. This 
written agreement included transfer of the Mudges' stock in M & M Welding, 
Inc., with inventory, equipment, and the business site real property. 
Additionally, the document contained a nonencumbrance covenant clause, Section 
3(f), which later led to this litigation, and which 
provided:

"3(f). It is agreed that 
the assets of M & M Welding, Inc., a Wyoming corporation, or its successor 
corporation shall not be mortgaged for more than the presently existing 
indebtedness without Sellers['] consent until the total purchase price herein 
agreed to be paid shall have been paid in full. Such consent shall not be 
unreasonably withheld."

To facilitate 
the security status of the transaction, the corporate stock was placed in escrow 
until the buyer completed payments under the contract while operating the 
business during the purchase payment period.

[¶5.]     The sales transaction 
closed in September, 1981, and the buyer took over the operation of M & M 
Welding. Almost immediately, he applied to appellant for a loan of $100,000 to 
cover obligations from other investments. At some time, as evidenced by its 
inclusion in the Redding loan file, the Bank's lending officers 
had been given an unsigned copy of the purchase agreement that contained the 
nonencumbrance covenant. The date when the Bank actually received the agreement 
is disputed, as well as by whom it was seen. In any event, no encumbrance 
consent was ever obtained from the Mudges, and the Bank took a security interest 
in the inventory and equipment for the purpose of securing a first priority upon 
loan default.

[¶6.]     Subsequently, Redding did go into 
default on his purchase payments, causing the Mudges to cancel the sales 
agreement and in August, 1982 reclaim the M & M stock from escrow. The 
Mudges first became aware of the security agreement given by Redding to the Bank when 
the Bank made foreclosure claim to the inventory and equipment as a result of 
the disputed security agreement, which action effectively shut down M & M 
Welding. To free up their collateral and be able to continue the business, the 
Mudges individually put up a letter of credit for $100,000, which was 
substituted for the property which was the subject of the pending bank 
foreclosure action. The Bank subsequently drew down the letter of credit. The 
Bank won the first go-around in M & M Welding v. Pavlicek, supra, but in the 
second round, now here on appeal, lost the jury verdict on a theory of 
intentional interference with a contractual relationship for the amount of the 
letter of credit, purchase cost, and interest.

II. INTENTIONAL 
INTERFERENCE RULE IN WYOMING LAW

[¶7.]     This court has adopted 
the Restatement (Second) of Torts, § 766, p. 7 (1979) definition of the tort of 
intentional interference with a contract:

"`"One who intentionally 
and improperly interferes with the performance of a contract (except a contract 
to marry) between another and a third person by inducing or otherwise causing 
the third person not to perform the contract, is subject to liability to the 
other for the pecuniary loss resulting to the other from the failure of the 
third person to perform the contract."'" Davenport v. Epperly, Wyo., 744 P.2d 1110, 1111 (1987), quoting Toltec Watershed Improvement District v. Johnston, 
Wyo., 717 P.2d 808, 813-814 (1986).

See also Allen 
v. Safeway Stores, Inc., Wyo., 699 P.2d 277, 280 
(1985).

[¶8.]     It is well established 
in Wyoming 
that the elements of a claim of tortious interference with a contract that the 
plaintiff must prove are: (1) the existence of the contract; (2) the defendant's 
knowledge; (3) intentional and improper interference inducing or causing a 
breach; and (4) resulting damages. Davenport v. Epperly, supra; Texas West Oil 
and Gas Corporation v. Fitzgerald, Wyo., 726 P.2d 1056, 1062 (1986); Toltec 
Watershed Improvement District v. Johnston, supra, 717 P.2d at 813-814; Erickson 
v. Magill, Wyo., 713 P.2d 1182, 1186 (1986); Dehnert v. Arrow Sprinklers, Inc., 
Wyo., 705 P.2d 846, 850 (1985); Allen v. Safeway Stores, Inc., supra, 699 P.2d  
at 280; Martin v. Wing, Wyo., 667 P.2d 1159, 1162 (1983); Basin Electric Power 
Cooperative-Missouri Basin Power Project v. Howton, Wyo., 603 P.2d 402, 404 
(1979); Kvenild v. Taylor, Wyo., 594 P.2d 972, 977 (1979); Board of Trustees of 
Weston County School District No. 1 v. Holso, Wyo., 584 P.2d 1009, 1016-1017, 
reh. denied 587 P.2d 203 (1978). 

III. JURY 
INSTRUCTION

[¶9.]     Appellant argues that 
it was error to give to the jury Instruction No. 3:

"In this case, the 
Plaintiffs have the burden of proving by a preponderance of the evidence the 
following:

"(1) The existence of a 
valid contractual relationship;

"(2) knowledge of the 
contractual relationship on the part of the Defendant; and

"(3) intentional and 
improper interference by the inducing or otherwise causing a breach of the 
relationship;

"(4) which resulted in 
damage to the Plaintiffs."

[¶10.]  We would disagree, since this instruction 
correctly recites the Restatement of Torts (Second) § 766 (1979) elements of 
proof of the tort of intentional interference with contractual relations which 
this court has previously adopted. Texas West Oil and Gas Corporation v. 
Fitzgerald, supra. The instruction succinctly followed prior Wyoming case law which 
will not here be rewritten.

IV. DIRECTED 
VERDICT

[¶11.]  Appellant next argues that it was 
erroneous not to grant appellant's motions for a directed verdict because 
appellees failed to prove damages, lacked standing to sue, and failed to present 
evidence to satisfy the elements of tortious interference with a contractual 
relationship. We disagree. This court in Cody v. Atkins, Wyo., 
658 P.2d 59, 63 (1983) defined criteria for granting a directed verdict. The 
rule is that the test to determine if a motion for directed verdict should be 
granted is:

"* * * whether the 
evidence is such that, without weighing the credibility of the witnesses or 
otherwise considering the weight of the evidence, there can be but one 
conclusion as to the verdict that reasonable men could have reached." 9 Wright 
& Miller, Federal Practice & Procedure: Civil § 2524, pp. 
545-546.

[¶12.]  Further, when considering the motion for 
granting a directed verdict, the evidence will be considered which is favorable 
to the party against whom the motion is directed, by giving all reasonable 
inferences to that evidence. Texas West Oil and Gas Corporation v. Fitzgerald, 
supra; Carey v. Jackson, 
Wyo., 603 P.2d 868 
(1979).

[¶13.]  The appellant argues that there was 
insufficient evidence presented specifically on the second, third, and fourth 
elements of the tort, and that therefore his motion for directed verdict should 
have been granted. However, the contention is unsustained when the evidence is 
viewed most favorably to the Mudges as appellees. Directed to the second 
element, knowledge of the contract, the Mudges presented testimony through 
Redding that he 
gave a copy of the purchase agreement to the Bank's lending officers before the 
$100,000 note transaction occurred. Also, more critically, Bordewick, president 
of the Bank during that time frame, testified as a subpoenaed witness that in 
his opinion the Bank file reflected knowledge, and:

"Q. Now, would you 
expect, as a question of lending policy or banking policy, that if a lender was 
after a hundred thousand dollar loan and that he had been involved in purchasing 
a million dollar business, that the bank would in fact want to have access to 
and examine the agreement that was involved?

"A. I would think 
so."

Thus, 
considering the evidence most favorable to the Mudges, there was sufficient 
evidence in the record to conclude that the Bank had knowledge of the terms of 
the purchase agreement from a document to be found in its files which had been 
provided before it took a security interest in the contractually constrained 
chattels.

[¶14.]  The third element, intentional 
interference with a contract without justification, is also alleged not to be 
present because the interference was not improper. This court recently clarified 
the definition for improper interference in Wyoming in Toltec Watershed Improvement District v. 
Johnston, supra, 
717 P.2d at 814:

"Factors to be considered 
for the action are listed as follows:

"`In determining whether 
an actor's conduct in intentionally interfering with a contract or a prospective 
contractual relation of another is improper or not, consideration is given to 
the following factors:

"`(a) the nature of the 
actor's conduct,

"`(b) the actor's 
motive,

"`(c) the interests of 
the other with which the actor's conduct interferes,

"`(d) the interests 
sought to be advanced by the actor,

"`(e) the social 
interests in protecting the freedom of action of the actor and the contractual 
interests of the other,

"`(f) the proximity or 
remoteness of the actor's conduct to the interference and

"`(g) the relations 
between the parties.' Restatement (Second) of Torts, § 766, pp. 26-27 
(1979)."

[¶15.]  Further, this court recognizes 
Restatement (Second) of Torts, § 773 (1979), that one who interferes with a 
contract by asserting a bona fide claim in good faith is not liable for tortious 
interference with contractual relations. Toltec Watershed Improvement District 
v. Johnston, 
supra. Evidentiary analysis establishes a justified basis for the jury to have 
found as a predicate for liability that the Bank did not act in good faith in 
inducing the borrower to violate his purchase agreement so that the lender would 
obtain priority chattel security for its $100,000 loan. While the Bank's motive 
to have a first priority in the collateral for loan is not in itself improper, 
the fact, as the jury concluded, that the Bank knew about the restrictive 
covenant and then preempted the collateral in requiring the Mudges to post a 
letter of credit to pay to get their property back, displayed a classic case of 
the tort of intentional interference with a contractual relation. In simplistic 
terms, it consisted of inducing the buyer to break his purchase contract terms 
in order to offer a new loan security priority to the 
Bank.

[¶16.]  Next, the argument is made that the real 
parties in interest were not the Mudges as third-party complainants. The facts 
do not sustain their argument. The Mudges originally sold and sought protection 
in sale-price payment by the nonencumbrance clause. Upon repossession, they 
individually were faced with protection of the reclaimed business, and purchased 
the letter of credit with attendant cost.

[¶17.]  Appellant additionally contends that the 
fourth element, resulting damages, was not proven. Again, we disagree. This 
argument has the same character and contention found in the 
real-party-in-interest denial. A party is entitled to all damages which will 
compensate for all the detriment proximately caused by the breach of the duty. 
Texas West Oil and Gas Corporation v. Fitzgerald, supra; Martin v. Wing, supra. 
The letter of credit was in the amount of $100,000; the initial cost of the 
letter was $2,000; and the interest was $21,997.38. Thus, the jury's decision 
that the Mudges were entitled to recover their incurred costs in the total 
amount of the verdict is justified, considering that but for the Bank's improper 
interference the Mudges would not have obtained the letter of credit or incurred 
the consequent cost of $123,997.38. The letter of credit was acquired to provide 
validity to the corporate stock repossession and proximately measured the 
sustained damage. There was no error in denying the directed verdict 
motion.

[¶18.]  We answer the first two issues 
affirmatively, and there is no need to proceed to appellant's third issue 
because we find there was sufficient evidence to uphold the jury's verdict. 
Clarke v. Vandermeer, 
Wyo., 740 P.2d 921 (1987). The case 
was submitted to and decided by the jury on a theory of contractual interference 
for monetary benefit with a known nonencumbrance covenant between the 
prospective borrower and a third party. This case, in classical terms, fits the 
historical perspective of this tort theory.1 The practical litigative issue was 
knowledge and consequent disregard, which was adversely determined by jury 
verdict.

[¶19.]  Affirmed.

FOOTNOTES

1 For an extended 
reference to authorities and law journal writings on the subject, see Texas West 
Oil and Gas Corporation v. Fitzgerald, supra, 726 P.2d  at 1066, n. 2, Urbigkit, 
J., dissenting.