Title: BELGRADE STATE BANK v SWAINSON

State: montana

Issuer: Montana Supreme Court

Document:

No. 13473 I N THE SUPREI4E COURT O F THE STATE O F MONTANA B E L G R A D E STATE BANK, A Montana Corporation, P l a i n t i f f and Respondent, HERBERT EARL SWAINSON, i n d i v i d u a l l y , and a s GUARDIAN of t h e ESTATE O F WANDA K . SWAINSON, W E S T E R N SURETY C O M P A N Y , a corporation, MRS. ROBERT BLACK, JAMES HUNT and L A R R Y JORDAN, Defendants and Appellants. Appeal from: D i s t r i c t Court of t h e S i x t h J u d i c i a l District, Honorable Nat Allen, Judge presiding. Counsel of Record: For Appellants: Huppert and Swindlehurst, Livingston, Montana Arnold Huppert argued, Livingston, Montana Swandal & Douglass, L'ivingston, Montana Kent Douglass argued, Livingston, Montana Byron L. Robb argued, Livingston, Montana For Respondent : Stephen Clarke Mackey argued, B i l l i n g s , Montana Towe, Neely and B a l l , B i l l i n g s , Montana Submitted: March 2 2 , 1977 Decided :@J 5 2 1977 M r . J u s t i c e John Conway Harrison delivered t h e Opinion of the Court. Defendants appeal from the judgment of the d i s t r i c t court, Park County, f o r p l a i n t i f f Belgrade S t a t e Bank. I n 1966 Herbert Earl Swainson (Bert) was appointed guardian of h i s minor daughter's e s t a t e and proceeded t o manage the a s s e t s , which the daughter had inherited from her mother. A p a r t of the e s t a t e was used t o purchase a ranch near Livingston, Montana and the r e s t was put i n c e r t i f i c a t e s of deposit. The d i s t r i c t court judge who presided over the guardianship proceedings allowed the purchase of the ranch a s an investment but he made it c l e a r from the outset t h a t i n no way would he allow the guardianship t o become involved i n a ranching operation. I n 1968, Bert wanted t o run a c a t t l e operation on t h e ranch but he lacked funds with which t o purchase c a t t l e and equipment. He approached h i s brother Jack, who was the executive vice-presi- dent of the Belgrade State Bank, t o apply f o r a loan. Bert had already borrowed i n excess of h i s personal borrowing l i m i t . It was suggested it would look b e t t e r t o the bank examiners i f t h e loan was made t o the e s t a t e o r i n the name of the e s t a t e . After some negotiations with the bank and the judge, an agreement was reached. A p e t i t i o n was f i l e d i n the guardianship proceedings stating: I t That your p e t i t i o n e r made arrangements with a f i n a n c i a l i n s t i t u t i o n t o loan him s u f f i c i e n t money f o r the operation expense of said ranch, as well a s the purchase of c a t t l e , and said f i n a n c i a l i n s t i t u t i o n i s agreeable t o securing said loans with only the c a t t l e o r necessary equipment t h a t may be purchased from said loan funds; t h a t the financial i n s t i t u t i o n has advised your p e t i t i o n e r t h a t they a r e willing t o enter i n t o an Agreement t h a t , i n the event of default i n the payment of said obligations, t h a t they w i l l only look t o the security pledged a s c o l l a t e r a l f o r said loans, and w i l l i n no way seek any deficiency judgment, i n the event of foreclosure. I I The court required a l e t t e r from t h e bank agreeing t o t h i s arrangement and t h a t l e t t e r s t a t e s : "Belgrade, Montana April 21, 1969 "The Honorable Jack D. Shanstrom D i s t r i c t Judge Park County Courthouse Livingston, Montana "Dear Judge Shanstrom: "It is m y understanding t h a t you have signed an Order authorizing Herbert Earl Swainson, a s Guardian of the Person and Estate of Wanda K. Swainson, t o borrow money from our i n s t i t u t i o n f o r the purchase of c a t t l e and operating expenses. "It is m y further understanding t h a t your Order i s conditioned upon us agreeing t h a t , i n the event of default and foreclosure of our mortgage, t h a t the extent of the r e l i e f t o which we would be e n t i t l e d i s t o recover back our security, not t o seek any deficiency judgment against the other guardianship a s s e t s . " W e a r e willing t o do t h i s , with the exception of the f a c t t h a t there i s c e r t a i n farm machinery t h a t M r . Swainson has acquired through loans t h a t would a l s o be pledged a s security. This equipment was not purchased with guardianship funds but through loans with our i n s t i t u t i o n . "Very t r u l y yours, B E L G R A D E STATE BANK By John W. Swainson Executive Vice President. I I The c o u r t ' s order reads i n pertinent part: "Upon reading and f i l i n g t h e v e r i f i e d P e t i t i o n of HEEU3ERT EARL SFJAINSON, Guardian of the Person and Estate of WANDA K. SWAINSON, a Minor, and it appearing from said P e t i t i o n t h a t it i s t o the best i n t e r e s t s of the minor ward t h a t the Guardian be permitted t o borrow moneys t o purchase c a t t l e and t o operate said ranching business; and "IT APPEARING therefrom t h a t a financial i n s t i t u t i o n i s willing t o loan money for said purposes t o the Guardian, and has agreed t o l i m i t t h e i r r i g h t of recovery i n the event of default on said notes, t o repossession of the secured property, and not t o seek a deficiency against the guardianship funds ; "NOW, THEREFORE, I T IS HEREBY ORDERED That the said ~ u a r d i a n , ~ e r b e i t Earl Swainson, may secure loans for the purchase of c a t t l e and t o secure general operating expenses for the ranch owned by said minor ward, con- ditioned upon said financial institution delivering a l e t t e r to t h i s Court, by a qualified officer of said institution, that i n the event of default on said notes, they w i l l only repossess the property secured by said Chattel Mortgages, and w i l l not seek a deficiency judg- ment against any of the other guardianship assets. "Dated: This 23rd day of April, 1969 .'I A substantial amount of money was loaned. and over two hundred head of c a t t l e were purchased. I n l a t e October 1969, Bert Swainson entered into a c a t t l e leasing agreement with one Robert Black. By the terms of t h i s agreement, Bert Swainson would care for 87 head of Black's c a t t l e on the ranch and would receive 70% of the increase for doing this. The agreement provided that a l l the calves be branded with the Black brand; that Black pay a l l taxes on the c a t t l e ; and it s e t the time for the division of the increase as the time of the sale of the increase. The agreement further allowed Black t o select replacement heifers t o be credited against h i s 30% share of the increase. I n July 1970, Ed Towe, president of the Belgrade State Bank (Bank) had some doubts that a l l the c a t t l e purchased were on the ranch so he made a visual inspection. While he was making the inspection, he secured an o r a l accounting of the number of c a t t l e from Bert Swainson, which Towe recorded on a sheet of Swainson letterhead paper. The l i s t included 230 head of cows, 83 head of share cows, 185 calves branded with the estate brand and 56 calves of the leased cows which Swainson said were due him under the lease agreement. After t h i s v i s i t the Bank made two smaller loans for some equipment and t o purchase two Charolais bulls. I n mid-August, and again i n mid-September, the Bank loaned $4,000 on notes payable on demand. Less than a month a f t e r the l a s t $4,000 loan, onboctober 13, 1970 the Bank invoked the insecurity clause of i t s security agreement and took possession of a l l the estate's c a t t l e leaving a l l the lease cows and t h e i r calves on the Swainson ranch. During the summer prior to the seizing of the c a t t l e , the Bank obtained an assignment from Bert Swainson of h i s interest i n the lease c a t t l e and had attempted to get a consent from M r . Black. The Black-Swainson lease agreement contained a non-assign- a b i l i t y clause. N o consent was ever given by either Mr.,or Mrs. Black. Shortly a f t e r the Bank c a t t l e had been taken from the ranch, Larry Jordan, a bulk gasoline distributor and a creditor of the ranching operation, drove by the ranch on h i s distribution route and noticed the lease c a t t l e s t i l l on the land. Jordan approached another creditor of the ranching operation, James Hunt who owned a local lumber yard, and they approached Bert Swainson and offered t o buy a part of h i s interest i n the increase of the BUck c a t t l e , so that he could pay his debts t o them. After some negotiation a sale was arranged. Mrs. Black, whose husband died prior t o the Bank seizing the Swainson c a t t l e , transferred 36 calves, a l l branded with her brand, t o Hunt and Jordan, who gave her a check for the balance of the purchase price over what was owed t o them. M r s . Black had selected heifer calves a s replace- ments and a f t e r t h e i r weight was credited toward her 30% t 3 f the increase due under the contract and apparently a f t e r deducting the amount due her because the death loss exceeded that allowed under the contract, she paid Bert Swainson the balance due, as he requested, in cash. In May 1971, the Bank sent a notice of sale of the collateral to the guardian and the cattle were sold leaving a substantial amount still owing on the Bank's loans to the estate. On October 16, 1972, the Bank filed this action against the guardian, the surety company, and Mrs. Black. On December 3, 1973, the com- plaint was amended joining Hunt and Jordan as defendants. Due to the multiple defendants with conflicting interests, we are faced with numerous issues. In view of the fact we find several issues controlling and dispositive of various defendants, we set forth three issues: 1 ) This issue is directed at the court's failure to rule on the motions to dismiss made at the close of plaintiff's case and again at the close of defendants' case. 2) This raises the question of whether or not Bert Swainson was acting for the guardianship when he entered into the agree- ment of October 31, 1969, with the Bank. 3 ) Issue three concerns attorney fees. Issue 1 ) . This concerns the trial court's failure to grant the defendants' motions to dismiss, which were properly made ( 1 ) at the close of plaintiff's case, when the trial judge took them under advisement, and ( 2 ) at the close of all testimony. Our first consideration is to the motions to dismiss of defendants Black, James Hunt and Larry Jordan. We find the trial court erred in not granting their motions to dismiss. The security agreements dated February 14, 1969 and December 17, 1969, executed by Bert Swainson as guardian of the estate, each contained language stating that after-acquired livestock would be subject to the security agreement. The Bank filed a standard financing statement with the clerk and recorder of Park County. The debtor identified in the two documents filed was the "Wanda Swainson Ranch Estate", no additional debtor was named, no mention was made that after-acquired property was considered collateral. A year after the initial loan to the estate Bert Swainson, individually, entered into the Black contract to care, feed and breed the Black cattle and in return he was to receive 70% of the calf crop. No mention was made of the relationship he had with the estate. All testimony indicated this contract was entered by him as an individual, and all parties so understood that agreement. While Towe testified Bert told him the share cattle were to be considered collateral, this was denied by Bert. There is no testimony to indicate Bert told either the Blacks, Hunt or Jordan of any claim the Bank had to the calves. The Bank's claim rests entirely on the alleged statement of Bert Swainson and Towe testified: "* * * as far as we were concerned I didn't even know about the to lack-Swainson] contract and we weren't relying on that contract anyhow. The cattle were purported to us to be part of the collateral that we had under our security agreement. * + ; *If We find no reliable evidence that any measures were taken by the Bank to notify Mrs. Black of the alleged interest claimed by the Bank. The Bank tried to supply, through the testimony of Jack Swainson, a conversation with Mr. Black. Mr. Black died several m o ~ ~ i h s before repossession and Swainson admitted Black Aid not sign an assignment he had prepared f o r the Bank. A t the time the Bank repossessed i t s c a t t l e , Jack Swainson called Mrs. Black and made no mention of any i n t e r e s t the Bank had i n the share calves. O n October 13, 1970, the Bank repossessed i t s c a t t l e from the ranch. Mrs. Black's cows and calves were not taken, nor was the s h e r i f f notified of any i n t e r e s t t h a t the Bank claimed. The calves remained on the Swainson ranch f o r two weeks when, on October 27, 1970, Mrs. Black and Bert Swainson made a division of the calves. A t a l l times the cows and calves had the Black's brand on them. It was not u n t i l the division of the calves t h a t Jordan and Hunt came onto the scene i n an e f f o r t t o c o l l e c t debts owed them by Bert Swainson. Swainson directed Mrs. Black t o give a b i l l of s a l e t o Hunt and Jordan, who purchased 36 calves, credited Swainson's account and gave him the remainder. Some two years l a t e r , on October 16, 1972, s u i t was f i l e d against Mrs. Black alleging conversion of 56 calves. Here, the Bank went t o considerable e f f o r t i n seeking and getting the approval of the court f o r the loan t o the e s t a t e . N o such e f f o r t s were made by e i t h e r the Blacks o r Swainson i n regard to t h e i r contract. The court was unaware of the Black contract u n t i l l i t i g a t i o n began. The contract between the Blacks and Bert Swainson contained a provision prohibiting assignment o r hypothe- cation of the contract by e i t h e r party, without the written con- sent of the other. The contract is valid and the Bank is estopped from attacking i t s v a l i d i t y . I n addition, Swainson having f a i l e d t o get any assignment from Black, the Bank dealt with Bert Swain- son a t i t s own r i s k . Pasadena Investment Co. v. Pasadena A i r Products l r i c . , 234 E.Supp. 128; Parkinson v. Caldwell, 126 C.k.2d j4c3, 272 P.2d 934; Union Bond & Trust Co. v. M & M Wood Working Co., 256 O r . 384, 474 P.2d 339, 352; 3 Williston on Contracts 3rd. d., $422; 12 Hastings Law Journal 397, 403. In finding t h a t the court erred i n not granting M r s . Black's rnorion co dismiss, it follows t h a t Hunt and Jordan's motion should a l s o have been granted because Mrs. Black had good t i t l e t o transfer. W e next consider whether or not the court erred i n not granting the motion t o dismiss Western Surety Company, the bonding company f o r the Estate of Wanda K. Swainson. Defendant surety company argues it was not a proper party t o the action, and neither the complaint nor proof sustains a claim upon which r e l i e f can be granted. Further, t h a t the bond issued i s t o indemnify the ward against defalcations by the guardian; and u n t i l there i s a loss by the guardianship e s t a t e there can be no l i a b i l i t y on the bond. Burns v. Massachusetts Bonding & Ins. Co., 62 C.A.2d 962, 146 P.2d 24. Western Surety Company argues there can be no l i a b i l i t y against the surety company f o r these reasons: 1) The surety company i s not l i a b l e because the guardianship suffered no loss; 2) The c o u r t ' s order approving the loan transaction i s i l l e g a l under ~ o n t a n a ' s guardianship law; and 3) The c o u r t ' s order approving the loan transaction bars any recovery against it by the Bank. W e concur with Western's argument t h a t u n t i l there i s a defalcation by the guardian, and a l o s s t o the ward, there can be no l i a b i l i t y on the p a r t of the surety company. As t o the second point of the argument t h a t the transaction w a s i l l e g a l , we do not concur. Here he court approved only a loan t o Swainson, specifically ordering t h a t the guardianship would i n no way be l i a b l e f o r any losses. The court, a t the re- quest of the Bank and Bert Swainson, made a specific e f f o r t t o protect the guardianship a s s e t s and the p a r t i e s completely under- stood the loan and i t s limits. I n addition, under Montana's guardianship s t a t u t e s and case law, a guardian has no power t o borrow money from o r t o encumber property of h i s ward without prior approval of the court. Davidson v. Wampler, 29 Mont. 61, 74 P. 82; Alexander v. Windsor, 107 Mont. 152, 81 P.2d 685; Mitchell v. McDonald, 114 Mont. 292, 136 P.2d . 536; Anno. Guardian's Unauthorized Acts, 130 A L R 113-116; 39 Am Jur 2d, Guardian and Ward, § § 91,99; 39 C.J.S. Guardian and Ward, 5 76. I n the i n s t a n t case, the' Bank was required.to f i l e a cove- nant-not t o sue against the e s t a t e , before getting the c o u r t ' s permission t o make the loan. The,re has been no loss t o the e s t a t e nor could there be under the covenant. The Bank's business was with Bert Swainson personally f o r the agreement made by the Bank with the court absolves the e s t a t e of any l i a b i l i t y and the surety i s not l i a b l e on the bond. Sago v. Ashford, 145 Colo. 358 P.2d 599 289f;Western Machinery Co. v. Northwest Improve. Co., 254 F.2d 453. W e note here t h a t the Bank a t a l l times admitted it had no claim against the a s s e t s of the e s t a t e i n view of the c o u r t ' s order, but i f the judgment of the t r i a l court prevailed there was no assurance t h a t the bonding company would not proceed against the guardianship f o r the $10,000 of the bond. The second issue i s whether o r not Bert Swainson could i n any way encumber the guardianship i n making t h i s agreement with the Bank. A l l the evidence c l e a r l y shows the e n t i r e transaction was between the Bank and Bert Swainson. The guardianship became involved only a s a paper front because of banking requirements. The guardianship e s t a t e l e n t i t s name so the Bank could make additional loans t o Bert Swainson a f t e r he had exceeded h i s borrowing capacity. It did so knowingly a f t e r the d i s t r i c t judge supervising the guardianship directed t h a t there was t o be no l i a b i l i t y of any kind against the guardianship. Considering the f a c t s here, where the Bank was i n the unique position with r e l a t i o n t o i t s loan t o Bert Swainson, it cannot shield i t s e l f by looking t o anyone but Bert Swainson. The t h i r d issue concerns attorney fees and needs l i t t l e discussion i n view of our holding i n t h i s case. The t r i a l court erred i n granting attorney fees t o the Bank against each defendant. The Eank argues t h a t the provisions of section 87A-9-201, 9.C.M. 1947, recognize attorney fees i n the collection of any secured obligations against not only the borrower but purchasers aL c o l l a t e r a l and other creditors. Section 93-8613, R.C.M. 1947, provides f o r counsel fees on foreclosures. Answering defendants' argument t h a t attorney fees are reciprocal under section 93-8601.1, R.S.M. 1947, the Eank argues t h a t due t o the dates on the security i n t e r e s t s the provisions i n the s t a t u t e a r e not applicable because rhe s t a t u t e allowing reciprocal rights was passed a f t e r the 5 e ~ u r i t y agreements were signed. W e find no merit t o the Rank's argument. Section 93-8613 is dpplicable solely t o foreclosure actions o r t o security i n t e r e s t s irk :>ersonal property. Except for the action against the e s t a t e , the coillplaint .illeges a tortious conversion against Black, Hunt a ~ l d Jordon. The section a s t o these defendants i s not applicable. A l l defendants, except Herbert Earl Swainson, are e n t i t l e d to dtrorney fees by v i r t u e of section 93-8601.1, R.C.M. 1947. The s t a t u t e i s procedural i n nature and applies t o actions com- rnerlced a f t e r i t s e f f e c t i v e date, even though such action arose x ~ t of events occurring p r i o r thereto. Crncevich v. Georgetown Xec. Corp., 168 Mont. 113, 541 P.2d 56, 32 St.Rep. 963; Anno. 18 ALR3d 733, 736, 740. The judgment of the d i s t r i c t court against Herbert Earl Snainsdn individually is affirmed, but reversed a s t o a l l other delendants. The cause i s remanded with directions t o f i x a t t o r - qey fees f o r defendants.