No. 80-210 IN THE SUPREME COURT OF THE STATE OF MONTANA 1981

L. D. STENSVAD,personally and as representative of the investing shareholders of AGRI-SERVICES, et al., Plaintiffsand Respondents,

THEMINERS AND MERCHANTS BANK OF ROUNDUP, MONTANA, Defendant and Appellant.

Appeal from: District Court of the FourteenthJudicial District, In and for the County of Mussellshell Honorable R. D. McPhillips, Judge presiding. Counsel of Record: For Appellant: Towe,Ball, Enright and Mackey, Billings,Montana Thomas Towe argued, Billings,Montana Gerald Neely argued, Billings,Montana For Respondents: Wright, Tolliver,Guthals and Prater,Billings,Montana Kenneth Tolliver argued,Billings, Montana

Submitted: September 16, 1981 Decided: January 7, 1982 Filed: 

## 7- ,/

### ffZMr. Justice John C. Sheehy delivered the Opinion of the Court. Appeal is by Miners and Merchants Bank from a judgment rendered against it on Stensvad's complaint in the District Court, Fourteenth Judicial District,Musselshell County. mhe bank had counterclaimed against Stensvad on unpaid promissory notes. The District Court found that the bank had breached an agreement to finance Stensvad's corporationsand after that breach had converted or appropriated his property, resulting indamages to Stensvad of $1,631,047,plus lost profits in the sum of $511,695. The courtgranted a set-off of $1,750,234

as of January 31, 1979 by reason of the indebtednessof the plaintiff to the bank. The court's net judgmentof $392,508 against the bank was subsequently reduced nunc pro tunc by deducting $117,904 on June 23, 1980. The resulting judgment against the bank is $274,604. The bank appealed from the judgment. There is no cross-appeal. This action arises from a cattle-feeding operation located at Roundup and Melstsne,Montana. The banking relationshipbetween L. D. Stensvad and the Miners and Merchants Bank of Roundup (hereinafter Stensvad and the bank) commenced in 1965. The activities of the four corporations, all of which L. D. Stensvad represents in this case, played intertwining roles in the operation. Originally L. D. Stensvad Cattle Companywould buy cattle and place them for feed in feedlots operated by M & SCattle Feeders and by M. V. Enterprises, Inc. Agri-Services, Inc. purchased feed which it sold to the cattle feed operators. In reality, however, the four corporations for the purposes of this caseare L. D. Stensvad,personally, although therewere other investing stockholders not shown in the record. During 1965 and subsequentyears, the bank loaned to Stensvad funds for the purchase and feeding of cattle for his personal account. InNovember 1968, Stensvad purchased feedmill facilitiesat Roundup, Montana, which substantially expanded his capacity to feed cattle. In the spring of 1968,he acquired 300 acres of land near Roundup and completed constructionof a 3,500 animal feedlot. In the fall of 1969, an opportunity arose to place investor-owned cattle in Stensvad's feedlots. The investors desired financing to allow them to purchase cattle onmargin and to feed cattle

onmargin. Arrangements were made between the bank and the various investors whereby the bank loaned to the investors funds for the purchase of feeding costs. Theprogram was popular with investors,and the feedlot at Roundup was expanded with temporary facilities to accomodate additional cattle. In early 1970, the bank indicated an inability to provide purchase money financing for the expanding investorsfeeders group. As a result, this portion of the financing

was placed with the ProductionCreditAssociation of Lewistown, Montana, during the spring of 1970,with the bank continuing to provide financing for the feeding costs of the cattle. However, in order to simplify its recordkeeping, the bank requested and obtained a change inprocedure which allowed the bank to loan the feeding cost funds directly to one of the four plaintiff corporations which were created for the purpose of conducting this business. During the

summer of 1970, the bank advanced funds for the construction of additional feedlot capacity at Roundup, as well as for feed. The PCAmade loans to investors for the purchase ofcattle to be fed at the facilities. As of March 9, 1970, the PCA participation was on the followingbasis: the borrowers (theCalifornia investors) advanced the sum of $100per head in cash, orpart in cash and part by letter of credit so as to provide $50per head for feed to be suppliedby Stensvad,and $50 toward the purchase of the cattle. The PCA agreed to finance the balance of the purchase price of the cattle. Until such time as Stensvad completed his financing with the PCA on each purchase,he obtained interim financing from the bank. Themonies advanced by the bank for the constructionof additional feedlot capacitywere carried by the bank on short-termnotes, although the parties had in mind that such indebtedness would eventually be placed on long-termnotes. As of June 1971, however, this had not been done. In June 1971, Edward Towe, a principal stockholder of the bank, indicated to Stensvad his intention to withdraw as

a participant in the cattle-feeding program unless Stensvad withdrew his efforts from the creation of a new bank in Roundup. Meetings between the bank and Stensvad culminated in a Stensvad agreement to withdraw fromparticipation in the founding of the new bank and the bank's agreement to continue to provide financing as ithad previously done for the cattle-feeding operation,operated by Stensvad and the plaintiff corporations. In furtheranceof this renewed commitment, the plaintiffs' furnished to the bank a complete portfolio of security interests in the plaintiffs' assets,

aswell as a guarantee from Otto Stensvad, the father of the plaintiff.The arrangement under the Junemeeting continued until August or September 1971,when the bank found that itwas overextended on its loans to the Stensvad corporations. Its officerswent to Stensvad and asked that he arrange for the PCA to take over the feeding costswhich would be involved in the fattening of the cattle with the bank to handle the interim financing. On September 7, 1971, the PCA, through its executive committee,changed its financing arrangement to this extent: 1. Themargin requirement from investorswas kept at $100per head in cash or $50per head in cash and $50per head letter of credit to be paid by the borrower to the PCA prior to the disbursement of any loan funds. 2. PCA would finance the full purchase price of the cattle and provide $80per head for feed. Feed requirements

were to be budgeted by months, and PCAwas not to advance these fundsuntil the feedwas actually consumed. No advancement of funds for stockpiling of feed was to be allowed. The feederwas to be paid by PCA upon presentation of invoices every twoweeks. On September 16, 1971, Stensvad wrote the bank setting out his need for interim financing after the changed PCA program. He said: "Thisdoes notmean, however, that therewill be no need for any operating capital for our feed yards because as each lot of cattle is fed, therewill be a 30 day delay between the time said cattle areput on feed and anymoney is received from the P.C.A., forwe will be on a 30 day billing program. Sincewe purchase our feed and pay weekly,you can see that we will need interim financing for this purpose. In addition, of course, interim financing will be necessary to pay for cattle purchased for custom feedersbetween the time the cattle are contracted for, orbought outright,and the time the P.C.A. pays for the same. There is also a need for interim financing for accounts receivable andinventory for our regular retail trade at Agri-Services 

# . ..

"The questionmay arise in yourminds as to why I stillneed $500,000 operating capitalwhen I have stated that I am having my feed financed by the P.C.A. This is explained above and Iwill further clarify ithere. I will stillneed operating interim financing for a 30 day period for feed being fed to cattle owned by custom feeders. The security therefor [sic]would be accounts receivable. The inventory necessary for each company for interim financing for cattle contracted for and purchased by L. D. Stensvad Cattle Co., an expected increase in accounts receivableand inventory at Agri-Services 

# . .."

On Friday, September 17, 1971,another meeting was held at the bank between representativesof the bank, and Stensvad and Stensvad's attorney. In essence, the parties at that time agreed: During the transaction period from the old PCAprogram to the new, therewould be 4,000 or 5,000 head of cattle under the old program, and as each pen was sold, Stensvad would repay theMiners and Merchants Bank the amount of money advanced by itwhen those cattle were put on feed. Sincenew cattle were being purchased under the new program to replace the cattle sold, and because of the proposal to build up the number of cattle to asmany as 13,000 to 15,000 head, the bank agreed "to immediately reloan the amount of money repaid to theMiners and Merchants Bank when each pen of cattle under the old program has been sold to enableme to feed the cattle for the 30 days"before the PCA provided the feed monies. Stensvad confirmed the Friday, September 17, 1971 agreement in a letter of September 21, 1971, setting forth substantiallywhat is said above here, and in addition stating:"It was explained to theMiners and Merchants Bank that under the old program, the operating capital which had been extended tome amounted to $502,000, That under the new program, the total amount of operating capital which would be necessary would still amount to a total amount of $500,000,but that the operating capital would be earmarked as follows: [settingout the allocation between the 4 Stensvad corporations]." On September 30, 1971, another meeting was held between the representativesof the bank and Stensvad. The only written evidence of the meeting isprovided by Wally Otto, the PCA representative, who prepared amemorandum of the meeting. Thebank apparently decided that the financial condition of the Stensvad operationwas deteriorating badly. Otto reported that the currentbalance due to the bank was $440,000, secured by 1,000 head of cattle,not assigned, and 2,000head of cattle, contracted forbut not delivered, feed inventory of $90,000,accounts receivable of $180,000, machinery at $35,000, and prepaid fees to ~tensvad. The bank then requested the PCA to make all future checks jointlypayable to thebank and Stensvad to which all parties agreed. The bank gave PCA a general release covering the cattlepurchased and the feed paid for under the new program and the bank delivered also to the PCAmanager an assignment that it had received from Stensvad granting to the bank all of L. D. Stensvad Cattle Company's rights to monies after the investor loans had been paid. The record is unclear as to what occurred between September 30 and October 7, 1971. However, on October 7, 1971, the Board of Directors of the bank adopted the following resolutionwith regard to the Stensvad operations: "Themotionwas made and seconded thatpresent assigned income shall be received and applied to present notes with regard to all Stensvad Corporation loans and only the requested amount, namely, $10.00 per head per 15days for each animal in the feed lot shall be advanced in addition to the advances needed to finance interm [sic]purchases of cattle for refinancing through PCA."Motionwas made and seconded that no funds shall be advanced hereafter for interm [sic] financing of cattle purchased or for costs of feed in the Stensvad cattle operation (all corporation) unless such cattle and the feed in question are to be fed to cattle located in the feed lots at Roundup and Melstone, only." Stensvadwas notified of the resolutionby letter on October 8, 1971. In the time that elapsed between the Junemeeting and September 1971, Stensvad,although requested,had not presented the bank with financial statements. Sometime, the date is unclear, the bank received statements reflecting the financial condition of the corporations. L. D. Stensvad Cattle Company

was particularly in bad shape. The accountant's report showed a negative balance of about $271,000. Of the assets claimed by the corporation,approximately $150,000 represented bounced checks, and one of the liabilities was for nearly $385,000 forprepaid feed. On October 11, 1971,by letter from Stensvad's attorney, Stensvad notified the bank that he considered the directors' resolution a breach of the agreements made between Stensvad's corporationsand the bank. The letter demanded that the bank assume control of the physical plant and operations of the company. Stensvad claimed he had no operating fundswith which to pay employees,purchase feed or pay other expenses because of the Board of Directors decision of October 7. By letter of October 14, 1971, the bank confirmed to the PCA representative that itwould corrtinue to finance the interim funds necessary for operating money until permanent financing was obtained from the PCA through its commitment of October 11, 1971. On October 19, the PCA wrote to Stensvad's corporations that itwas notifying the investors in the cattle feeding program of the assignment of themonies to the bank. Apparently at this time Stensvad was "outof trust"with the investors.On November 16, 1971, the bank advised PCA that it would continue its loan arrangementswith the Stensvad Cattle Company for the interimpurchase of cattle and their feeding subject to a limitation of $5per head per week. Also onNovember 16, 1971, the bank issued a letter stating itwas taking over all the assets of the Stensvad Corporations and notified all that no cattlewere to be removed from the feedyardsor soldwithout firstmaking arrangements with the bank.Over the course of the next several months, the bank sold the assets of the Stensvad corporations. The sale of personal property resulted in the recoupmentof $354,111.73. The cattlewere eventually sold for $520,000, The real estate was foreclosed upon, and eventually sold to Faunco, another companywhich thereafter hired Larry Stensvad to run the cattle operation. The District Court found that the commitment of the bank to finance the Stensvad corporations in the manner agreed to in June and in September 1971was a binding agreement upon the bank; that no "change of circumstances" occurred between September 17 and October 7, 1971 when the bank's board of directors adopted the resolutionwe have set forth above; that the effect of the resolutionwas to eliminate any financing for the cattle operation conducted by the plaintiffs, to severely limit the corporation'sability to do business and to cause the eventual withdrawal of the PCA from financing the Stensvad operations. The District Court, in reaching judgment,adopted November 11, 1979, as the accounting date between the parties. As of that date, the court found that Stensvad was indebted to the bank for all borrowings in the amount of $1,022,325.71.The District Court concluded that the bank was entitled to interest, though ithad found that the bank had breached the agreement to finance. Based onvaluationswhich the District Court found the property to be worth at the time of the foreclosuresand sales, and its computationof lost profits, the court entered a judgmentbased on the following elements: DISTRICT COURTAWARD A. STENSVAD CLAIM 1. Conversion of personal

## -- $354,111 property 2. Conversion of cattle

## ---- 382,000 3. Conversion of feedlot & elevators

## --------------- 814,936 4. Mishandling of business

## - 80,000 5. Lost profits

## ------------ 511,695 $2,142,742 B. BANK COUNTERCLAIM 1. Principle

## --------------$1,022,325 2. Interest through 1/31/79 

## ----------------- 727,909 3. Interest from 2/1/79 to judgment

## ---------------- 117 I904

NET JUDGMENT TO STENSVAD

## -------------- $ 274,604 The issues argued by the bank in this appeal are

as follows: 1. Whether the bank agreed to finance the Stensvad operation sufficientto keep the Stensvad companies in operation and sufficient to complete the business on hand

or not less than the time required to complete the fattening of two cycles of cattle? 2. Whether, if such an agreement is found to have existed, it is unenforceable on grounds of indefiniteness, lack ofmutuality, or failure of consideration?3. If such an agreement is found to be enforceable, whether itwas terminable atwill or breached by the bank? 4. Whether, if such an agreement is enforceable and not terminable at will and breached by the bank, the evidence supports the awarding of any damages?

a. Whether any damages are limited to the agreed interestrate and the interest rate required to obtain the money elsewhere? b. If not,whether thepropermeasure of damages is atmost the amount of lostprofits plus mismanagement of assets?

c. Whether lost profits, if any, were proximately caused by the bank resolution of October 

### 7, 1971? d. Whether there is any reasonablecertainty that any lostprofits would have in fact occurred?

e. If so,whether the District Court erred in allowing testimony and exhibits showing grossprofits per animal? f. If not, whether the level of lostprofits awarded is appropriate? g. Whether the damages awarded formismanagement of assets find support in the evidence, should have been admitted,

are a duplication of lost profits, and are excessive? h. Whether the award of the cost of the fixed assets in the amount of $814,936 is supported by the evidence, excessive in amount, or even available in conversion? 5. Whether the District Court erred in vacating its earlier order for a summary judgment in favor of the bank? The respondent urges that the findingsmade by the District Courtwere proper in all respects,and additionally,although ithas not cross-appealed, urges that the District Court erred in allowing interest to the bank after the bank's breach of contract,and in failing to credit the cash funds received by the bank when liquidation of the Stensvad property against the loan balance before calculating interest due to the bank. THE BANK'S CONTRACTTO LEND MONEY The first issuewemust determine iswhether the District Court erred in finding that a contract existed between the bank and Stensvad to finance the feeder operation. The District Court found that as of September 21, 1971, agreements had been reached between the bank and Stensvad to the effect that Stensvadwould furnish or continue to furnish the bank with security interests in all of the plaintiff's assets; that the bank would continue to furnish financing for the four to five thousand head of cattle then in the plaintiff's feed lots,without modification; feed financing sufficientto feed the cattleunder themodified agreement for 30 days; interim financing for the purchase of new cattle; feed financing for newly purchased cattleprior to their sale to PCA financed owners; feed financing for rancher owned cattle, and inventory and accounts receivable financing forAgri-Services, Inc. In the absence of an express agreementas to the term of the bank's contracts, the court determined that it was in the contemplation of theparties that the termwould be related to the investor-feeding contracts, the time required to fatten for sale two cycles of cattle.Presumably the consideration moving to the bank was the interest,at rates ranging from 8 1/2 percent to 10percent per annum on the unpaid balances, thatwould be collected during the operation of the agreement. An extra element of prejudice, however,was the agreement of Stensvad not to engage in the formation of anotherbank in Roundup. Such considerationmeets the statutory definition of good consideration,section 28-2-801, MCA, a benefit agreed to be conferred upon a promissor to which the promissor is not likely entitled, or a prejudice suffered or agreed to be suffered by the promissee other than what he is at the time lawfully bound to suffer. The District Court also concluded that the PCAparticipation in the Stensvad operationwas dependent upon the agreement of the bank to furnish the necessary funds. While the exactnature of the bank's agreement is arguable,especially as to term, the findings of the court must be supported on appeal where substantial evidence supports such findings and may not be set aside by us unless clearly erroneous. Rule 52(a)

### ,M.R.Civ.P. The intention of the parties to a contractmay be furnishedby their conduct and declarations. Glantz v. Gabel (1923), 66Mont. 134, 212 P. 858; section 28-2-103, MCA

# .We conclude the District Court did not err in finding

an agreement on the part of the bank to finance the Stensvad operation. THEAWARD OF $511,695FOR LOST PROFITS To support this award, the District Court found and concluded that the bank's wrongful breach of contract prevented Stensvad from earning profits in his business; that Stensvadhad enough qualified investors to fill the lots to capacity; that the term of the investment contractswith the investors

was the time required to fatten two cycles of cattle; that the bank's contract, though not expressed definitely,would reasonably require financing for two cycles of fattening; that Stensvad would realizenet profits on yardage services,

a 12 1/2 percent bonus from the investor's profits, and its anticipated feed profits; that a reasonable estimate of such profitswas $511,695. The bank objects to this item on the grounds that the Stensvad operationwas not shown to be profitable; that the profits found by the court are gross, and not net profits, and are duplicativeof other damages allowed. The proper objective of an award of damages for wrongful breach of contract is to place the party wronged in as good position as if the contracthad been performed. Kirby v. Kinyon-Noble Lumber Company (1976),171Mont. 329, 332, 558 P.2d 452, 454. The bank contends that themeasure of damages should be limited to the cost of obtainingmoney elsewhere, when money iswrongfully withheld. See Miller v. Federal Land Bank of Spokane (9thCir. 1978), 587 F.2d 415, 424, cert-den.441U.S. 962, 99 S.Ct. 2407, 60L.Ed.2d 1067. Damages for loss of profits may be awarded if not speculative. Silfvastv. Asplund (1935),99Mont. 152, 161, 42 P.2d 452, 456. The rule thatprohibits speculativeprofits does not apply to uncertainty as to the amount of suchprofits but to uncertainty or speculation as to whether the loss of profits is the result of the wrong and whether suchprofit would have been derived at all. Tri-Tron Intern. 

### v. Velto (9th Cir. 1975), 525 F.2d 432, 437. Once liability is shown, that is the certainty that the damages are caused by thebreach, then loss of profits on a reasonablebasis for computationand the best evidence available under the circumstances will support a reasonably close estimate of the loss by a District Court. Smithv. Zepp (1977), 173 Mont. 358, 370, 567 P.2d 923, 930. But no damages are recoverablewhich are not clearly ascertainable both in nature and origin, and only profits which are reasonably certainmay be awarded. Smithv. Fergus County (1934),98 Mont. 377, 386, 39 P.2d 193, 195. The award of lostprofits in this casemay be sustained only ifwe can say that the profits are not based on speculation, since no profit record of the Stensvad enterpriseswas shown prior to the breach. We find here clearly that the damages for lostprofits are speculative. There is no reasonable certainty in the record that Stensvad lostprofits as the result of thewrong, or that a profit would have been derived at all. Tri-Tron Intern., supra. In reaching our decision on this phase of the case,we have looked at evidencepresented during themain trial,and in supplemental hearings. Theprocedural situation came about because the court ordered that the bank's claims of set off would be heard subsequent to the trial. The court made findingson all of the issues, except loss of profits by its order of December 14, 1978, and provided for supplemental hearings in that order respecting the loss of profits and additional evidence to be offered by the parties on the remaining claims. A supplementary hearing was held before the District Court on January 22, 1979,and at that time, the parties entered into certain stipulations of fact, offered to enter into other stipulations of fact, and eventually agreed thataffidavitsor other forms of evidence would be offered to the court for its consideration. Thereafter, on February 20, 1979,an affidavit of Larry D. Stensvadwas filed setting forthhis claimed valuation of certain items, including cost of assets,proceeds from the sale of personal property by the bank and other items. On March 27, 1979, thebank filed amotion asking the court to adopt as facts certainproposed stipulations of factwhich

were attached to the motion, to take judicialnotice of the accuracy of certain calculations, and to strike the affidavit of Larry Stensvad earliermentioned. We find no record of how the court ruled on thesemotions, except thatwe find that someof the proposed factswere used in the court's final judgment from the affidavit of Stensvad. Inasmuchas all relevant evidence is admissible (Rule 402,Mont.R.Evid.), we will advert to certain of the proferred evidence, as well as the record of the trial, in explaining why we determine that there is no reasonable certainty in the record or otherwise that Stensvad lost profits as the result of the claimed wrong of the bank, or that aprofit would have been derived at all. The financial statements forAgri-Services, Inc., show that on June 30, 1971, on total assets of $426,228.80, the corporationhad retained earnings of $1,739.89. Included in the liabilitieswas an overdraft to the bank of $65,692.67. Cash on hand was $2,793.36. The statementas of October 31, 1971, for the same corporation, showed retained earnings totaling $4,368.15 on total assets of $401,871.10. In that four month interim, however, the short-term notes payable to the bank had increased to $198,999.99, from $187,000.00 on June 30, 1971. -16-The financial statements forM & S Cattle Feeders, Inc., show as of November 30, 1971, retained earnings of $7,813.89 on total assets of $260,638.59. Claimed assets include a stock subscription reserve of $17,499.57. The notes payable to the bank increase from $82,500.00 on June 30, 1971, to $110,874.79 onNovember 30, 1971. On June 30, 1971,this corporation had no cash on hand, and an overdraft to the bank of $241.22. The financial statements for M. V. Enterprises, Inc. show retained earningsbefore provision for income taxes of $55,261.86, on total assets of $336,261.51. Notes payable to the bank at that time are shown in the sum of $159,597.86. The accountants noted with respect to the June 30, 1971 statement, that inasmuch as M. V. Enterprises, Inc. was part of a "brother-sister"group of controlled corporations,and the accountants not having been able to determine any intercorporate transactions, the income tax liability could not be determined. We find no November 30, 1971 statement for M. V. Enterprises. The financial statementof L. D. Stensvad Cattle Co. for June 30, 1971, isworthless. As it is, it reflects total assets of $421,802.55, and total liability of $692,860.72, for a negative net worth of $271,058.17. Even the claimed assets are questionable. The accountant reports: "NOTE 3. This amount of $76,500.00 is represented by a check of $45,000.00 that did not clear Mr. Wilson's bank and $31,500.00 that

### Mr. Wilson did not remit to L. D. Stensvad Cattle Co. on client's deposit. Collection probability not ascertained as of now. "NOTE 4. This $121,000.00 represents amounts withheld by Mr. Jack Dean from California cattle feeding clients as a commission. L. D. Stensvad Cattle Co. believes this is an error and steps to collect this are in process. Collection probability not ascertained as of now."The liabilities include an item of $383,568.26 owed to Custom Feeding clients for advance payments on feed. Most telling are the reports of the bank examiners who investigated the bankability of the loans made by this bank to the Stensvad corporations. With respect to theAgri-Services, Inc. statementof June 30, 1971, the examiners noted: "Theoperating resultsmentioned above indicate insufficient cash flow to service and repay indebtedness over a reasonableperiod of time, there is no evidence of controlof the proceeds of sales from inventory,and the extent to which collateral is shared between this loan and placed paper behind the SBA loan, indicates questionable margin at best. Furthermore, the indicated 

### 7 1/2% owner equity is too small to be expected to protect against shrinkage in value in the event it should be necessary to resort to force liquidation." With respect to M. V. Enterprises, Inc.: "Areview of the checking accounts of subject and affiliated companies indicates frequent transfers of funds in substantial amounts between thevarious affiliates to cover checksbeing presented for payment and which apparentlywere issuedwithout sufficient funds on deposit to cover at the time of issue orwhen originally presented here forpayment. In view of these intercompany transactions and the apparent common controlling ownershipvested in Larry D. Stensvad theborrowings of the affiliated companies must be considered together,and all of them appear to have the commonweaknesses of undercapitalization and disproportionate total debt and short-term debt and virtually noworking capital which necessitates relianceon credit to sustain operations." With respect to M & S Cattle Feeders:

"Reviewby bank management subsequent to date of examination and subsequent to 60M [$60,000] advancemade by bank indicates current assets regarded as a source of repayment funds are limited to feed inventories aggregating 31.4 M [$31,400]." With respect to L. D. Stensvad Cattle Co.: "Checkson subject company have been issued in substantial amounts at timeswhen insufficient funds were on deposit to cover them. In this connection it is observed that the checking account of this firm was overdrawn in the amountof $83,907.10 on 3-22-71 and the firmwas indebted on loanshere on that date in the amount of 110M so that the liabilities of that firm were far in excess of subject banks lending limit on that date. Overdrafts have been noted on other occasions also. "Atthe time of a return visit to the bank on 11-12- 71a fiscalyear end (6-30-71)P.S. [financial statement]had not been received for the L.D. Stensvad Cattle Company, Inc. Despite the nearly 3 1/2 months since the end of the fiscal year reportedly the accountant for the firm has been unable to compile a financial statement thatwill balance orwhich he isprepared to certify and ithas been indicated that unresolved differences are in excess of 200 MIan amount between 2 and 3 times the NW [networth] of the corporation in the 12-31-70PS above. In the absence of the statement for this firm a consolidated PS for the affiliated corporations cannot be compiled, thus, the overall financial condition of the related firms cannotbe determined. Furthermore the PSs onhand for the other corporationsdo not include information on intercompany receivables and payables that also would be needed formeaningful consolidation. Also, the bank iswithout information as to any obligations to other creditors of the L. D. Stensvad Cattle Company, Inc., and does not have a PS of Patton-StensvadCattle Feeders inwhich L. D. Stensvad has aminority (40%)stock interest and which has dealingswith the L. D. Stensvad Cattle Company, Inc. "Itappears that the bank isproviding virtually all of the operating capital for the various enterprises in addition to financing the fixed assets of the corporations and conclusive evidence of collateral coverage cannot be ascertained. Assets sufficient to cover liabilities is suggested but not definitely established and the bank is making every effort to exercise control of cash proceeds for application on debts here." We turn now to examine the method used by the District Court in arriving at the lost profits figure of $511,695.00. In its findings of fact, the District Court found that L. D. Stensvad Cattle Company derived net profits from fees charged cattle owners for yarding services,and from 12 1/2% bonus based upon the cattleowners' profit from the sale of cattle. It found that the profit figure of $511,695.00 is the amount theplaintiffs would reasonablyhave been expected to realizefrom yardage fees and the 12 1/2 percent bonus payments based upon the completion of existing business. The District Court did not indicatewhat portion of the profit figure it attributed to bonus payments. In order to determine bonus payments, however, itmust have utilized plaintiffs' trial exhibit no. 49,which purported to establish

a netmargin for investorsbased on a 600pound steer when purchased, and sold at 1,050pounds for a gain of 450pounds. In that exhibit, figures are utilized from the United States Departmentof Agriculturewhich showed the price that feeder cattle would bring in Kansas City as compared to the price that fat or fed cattlewould bring in Omaha -- on the

sameday. The differencewas tabulated to find the gross -- margin on that day for the cattle investor. Offset against thismargin was the cost of feed which thewitness determined frombarley prices published by theMontana Crop Reporting Service,plus 30 cents for freight and handling. From these figures,based on the ratio of feed used to pound of weight gained, thewitness computed a cost of gain, (averaging20.8 centsper pound in 1972) which when multiplied by the theoretical 450pound gain in the steer,produced the cost of feed for the steer. Thedifference between the gross margin and the cost of feed represented a netprofit, on exhibit no. 49, to the cattle investor. Thewitness testified that irrespective of different prices thatmight prevail in the Roundup market or other Montana markets for the purchaser's sale of feeder cattle or fed cattle, themargin of profit could neverthelessbe determined in the manner set forth in exhibitno. 49 because itwould be the same nationwide. Such figureswere computed for eachmonth fromNovember 1971 until December 1974on exhibit no. 49. The evidence doesnot indicate the date of eachmonth onwhich the computations

weremade. It is strongly speculativewhether such figures had any relationship to the Stensvad feeder operation. Most important,no computation for interest cost to the California investor that would be charged by the bank or by the PCA for the monies advanced by these institutionsappears in exhibit

no. 49. Likewise,plaintiffs' exhibitno. 52 purports to show the income to be derived by Stensvad's operations,based upon the numbers of cattle to be fed in the pens from the business onhand on the date of the bank's alleged breach. A number is given in that exhibit for the average number of cattleper month, usually 13,000head in the pens. Income is determined by multiplying the average number of cattle times 15 centsper day for 30 days. Offset against the income thus generated are fixed costs and variable costs. Fixed costs are shown as an unvarying $11,604.36. Variable costs are determined by multiplying the average number of cattle for thatmonth by the figure of $1.44. The difference between the income generated,and the sum of the fixed costs and variable costs yields a profit to Stensvad on the exhibit. When exhibit no. 52was offered in evidence, itwas stated that the computation for fixed costs and variable costs on that exhibitwould be "connectedup." However, such connecting up was never done. The result is a very speculative figure of profit used by the District Court in computing lostprofits. Stensvad contends in brief that the net operating profits of the Stensvad operation for the fiscalyear ending June 1972would be $207,615.12 and for the 1973 fiscalyear $334,237.68. In addition, the bonus payments thatwould havebeen received under the projections would equal $230,985.00 for 1971-1972, and $103,400.00 for 1972-1973. The total of these figures is $876,237.80. The court's finding 

### of lost profits is approximately 59 percent of this total figure. We are unable to determine, and no brief of the parties delineates the basis for the award. We cannot escape the conclusion that on the basis of the record here presented and the underlying evidence, that the award of the court for lostprofitswas based entirely

on speculation,and no reasonable certainty appears to us to indicate that suchprofits were lost by the allegedwrong of the bank in refusing to further finance the Stensvad operations. This is not to say that in a proper case,damages for lost profits are not recoverable,arising out of a breach by

a lender of a contract to loanmoney. The authorities agree that such damagesmay be awarded, see Hunt v. United Bank & Trust. Co. (Cal. 1930), 291 P. 184, especiallywhen the lenderknows the intended use of the proceeds. In such case the profits whichwould have been made, as contemplated by the parties, are recoverable,Milbourn v. Buzzard (Okla. 1926)

## , 252 P. 15, if they are established by factual data to a reasonable certainty, even in the absence of a past history of profitable operations. Welch v. U. S. Bancorp. Realty and Mortg. (Ore. 1979), 596 P.2d 947, 963-964. The borrower is not restricted in his damages to the cost of obtaining money elsewhere, as the bank contends in this case. See Welch, supra. DAMAGES RECOVERABLE FOR BREACH OF CONTRACT The District Court concluded,after finding that the contract to lendmoney existed, that the bank had breached its contract, and resultantly had taken over the property of Stensvadwrongfully. The damages awarded by the District Court are attacked from all directionsby the bank. We have already indicated that the lostprofits awarded by the bankare improper in this case. We turn now to examine the other elements of damages awarded by the court in favor of Stensvad. There can be little argument that the amount of $354,111.00 for the conversion of personal property awarded by the court isproper. It is substantially supported in the evidence and was the subject of a stipulation between the parties. The item for conversionof cattle, $382,000.00, includes

a profit of $104,897.73 made by the bank in the difference between what the bank would have received had the cattle been sold inNovember 1971, and the amount actually received at the later time of sale. The District Court, by awarding the full amount received by the bank from the sale of the cattle, $382,000.00, gave Stensvad the benefit of the profit made by the bank inmaking the sale as itdid. The item of $80,000.00 for mishandling of business, however, must be examined by us, and amended downward. The District Court awarded Stensvad the sum of $80,000.00, for the "losses sustainedby the plaintiffs during the process of the Bank's wrongful foreclosure, for loss of downpaymentson cattle, for loss of livestock throughdeath, and for losses sustained through the disruption in shipment of the cattle." The evidence sustains $58,000.00 of that award. Larry Stensvad testified that at the time of the take-over by the bank, his operationshad paid out $58,000.00 on agreements for the purchase of cattle,and that these sumswere forfeited to the prospective sellers when Stensvadwas unable to complete the contracts of purchase. Such an item of damages iswithin the contemplationof section 27-1-311, MCA, with respect to themeasure of damages for the breach of contract, because they were proximately caused by the take-over, andin the ordinary course of things would be likely to result therefrom. The remaining part of the $80,000.00 award, that is the

sum of $22,000.00, is apparentlybased on this portion of the record: "Q. Mr. Stensvad, Iwould like to direct your attention to the situation involving the cattle that were moved from the lot in Roundup to the lot at Melstone by the bank after the bank took control of these cattle. Did you have occasion to review the closeout figuresproduced by the bank, with regard to these cattle? A. The bank didn't produce the closeout figures on them. Iproduced the closeout figures on them. "Q. How did you obtain this information? A. Well, Ihad the information on what the cattleweighed when theywent in down there, and then when the cattle were shipped, in terms of weight and numbers. And when the cattle were shipped out of the Melstone yards in the spring of 1972, Iwas there and obtained copies of the weights when the cattle went out, and numbers, so that I could compare the weights going out with the weights going in, as well as numbers. And then Ialso--the bank used forms thatwe were using at the time,before they took over, to keep track of daily feed fed out to the cattle,while they had it. And Ihad the opportunity to have those records to prepare feed consumption and cost data on the cattle while they had them in there. Then 

### I returned these documents to the yards down there, when Icompleted my calculations. "Q. From these documents that youhad at this point in time,did youprepare a calculation as to the amount ofmoney thatwas lost by reason of the manner and means inwhich the cattlewere cared for and fed. A. Yes, Idid. "Q. And what was that amount? A. The amount was a few dollars over $22,000.00." Missing from the foregoing testimony is any basis upon which it could be determined that the bank overspent for feed, or underfed the cattle, or that the amounts spent by the bank in caring for the cattle until theywere soldwere unreasonable. Damageswhich are not clearly ascertainable inboth their nature and origin cannotbe recovered for a breach of contract. Section 27-1-311,MCA.We next consider the award of $814,936.00 for the loss of Stensvad's feedlotsand elevators. The District Court in its findingsbased this award upon the original cost of constructionand acquisition. Among the various values of the feedlotand elevators appearing in the evidence, the award is top dollar. On the books of three of the Stensvad corporations (L. D. Stensvad Cattle Co. had no fixed assets) the feedlotsand elevators were carried at a depreciated value of $430,944.81 in total. At the request of Larry Stensvad, inApril 1972,Hall and Hall, appraisers from Billings, appraised the fair market value of the Melstone feedlot, the Roundup feedlot, the Roundupmill and rolling stock, and found a total market value of $488,000.00. At the time of the sheriff's sale on foreclosure,the bank bid in for the feedlot and elevators the sum of $200,000.00, and was the successful bidder. Later the bank contracted to sell the feedlots and elevators to Roundup Feeders, Inc., a corporation formed by the owners of the bank, for $350,000.00. Roundup Feeders, Inc. in turn leased the properties to a corporationnamed Faunco, Inc., for cattle feeding operationsunder the management of Larry Stensvad,which resulted in a payment of $176,731.00 lease payments either to Roundup Feeders, Inc. or the bank, the record is not clear. On March 27, 1979, the bank offered to stipulate that as of June 30, 1971, the value of the fixed assets of the Stensvad corporationswas $696,968.00. In Bos v. Dolajak (1975),167Mont. 1, 6, 534 P.2d 1258, 1260,we quoted with approval from Spackman v. Ralph M. Parsons Company (1966),147Mont. 500, 506, 414 P.2d 918, 921, though it related to personal property, the following quotation:"As for the issue of compensatory damages, the question is always a difficult one. In tort actions, the wrongdoer is liable, in general, for any injurywhich is the natural and probable consequenceof the wrong. Thesemay include both the direct and indirect,but reasonably probable, resultsof thewrong. Where damage to the property is concerned, the purpose of awarding damages is to return theparty injured to the same, or as nearly possible the same, conditionas he enjoyed before the injury to his property. The injured party is to be made as nearlywhole as possible--but not to realizea profit. Compensatory damages are designed to compensate the injured party for actual loss or injury--nomore, no less.

### " In 

### - Bos, supra,we approved a measure of damages based on replacement cost of a silo, in an action for breach of contract to erect a silo,but in that case it appeared that the replacement itemwas a second-hand silo and its costwas well within the actual market value of the silo thatwas destroyed. The fairestvalue of the feedlotsand elevators in this case, found by a professional and untinged by any personal bias of the parties, is the fairmarket value found by Hall & Hall, the sum of $488,000.00. We find the District Court should have used that figure in a determination of the proper amount to be awarded to plaintiff for his ouster from the feedlots and elevators. It should be noted however, that Hall & Hall's appraisal included Stensvad's rolling stock. Thevalue of the rolling stock is already included in the personal property award of $354,111.00. The auction receipts from the sale of the rolling stockwhichwere included in that amount were $66,064.70. We should in fairnessdeduct the value of the rolling stock from Hall & Hall's appraisal of the feedlots and elevators, which leaves a net figure rounded market value of $411,935.00 as the proper value of the feedlotsand elevators. Accordingly,we amend the DistrictCourt's award of damages to Stensvad as follows:1. Conversion of personal property 2. Conversion of cattle 3. Value of feedlot and elevators 

### 4. Mishandling of business 5. Lostprofits TOTAL THE SET-OFF TO THE BANK The District Court found, and the parties agree, that the principal amount of the notes due and owing to the bank as ofNovember 11, 1971, was the sum of $1,022,325. The DistrictCourthowever, awarded interest on that amount to the date of the judgment. Inview of the fact that the Stensvadproperty I aken.by the bank and sold as, collateral for the indebtednessdue it, exceeded invalue as

we have above shown the amount of theprinciple indebtedness, it is improper in this case to award interest to the bank on the note balances to the date of judgment. Once the value of the collateral had been applied to the principle indebtedness throughmeans of foreclosure and other sales,Stensvad's obligation for further interest on those notes to the extent of collectionwas obviously terminated. Thebank is entitled to a set-off of no more than the amount of the principal indebtedness as of the date of the breach found by the District Court. THE ISSUEOF SUMMARY JUDGMENT When this actionwas first commenced, the then presiding district judge granted summary judgment in favor of the bank. Plaintiff filed a motion for reconsideration of the summary judgmentwhen a second judgewas qualified to sit on the cause. The second judge, considering the issues, reversed the summary judgment and opened the cause for trial. In spite of the bank's contentions to the contrary, it is clear thatmaterial questions of fact existed from the inceptionof this litigation and that the first entry of summary judgment was improper. We find no merit therefore in the bank's contention that the District Court improperly reversed the stand on the summary judgment question. CONCLUSION The amount of the Stensvad claim, aswe find it above, is subject to a set-off to the bank in the sum of $1,022,325. We therefore remand this cause to the District Court with instructions to modify the judgment heretofore entered in this cause,and to enter judgment in favor of Stensvad in the sum of $183,721, which when paid, shall constitute full and final settlement of all claims of L. D. Stensvad, personally, and as representative of investing shareholders of the corporations and of the corporations. Interest on the amount of the judgment shall run from the date of its entry after remittitur herein. Costs to Stensvad.

We Concur:

wefJustice



## ........................... JusticeMr. JusticeFred J. Weber dissents: I commend Justice Sheehy for his careful and competent analysis of the complex and confusing facts inthis case. He has done an excellentjob inputting together an understandable opinion. I agree with the conclusion of themajority that the bank did have an agreement to loan money to the Stensvad interests. However, I find there was an ample factual basis for the termination by the bank of that agreement to loan money, and the subsequent taking of possession of the Stensvad properties. The majority opinion refers to the reports of bank examiners, who examined the Stensvad loan on November 12, 1971, just prior to the taking possession of the assets by the bank. The examiners point out that on November 12, nearly three and one-half months after the end of the fiscal year of Stensvad CattleCo. Inc., the firm had been unable to compile a financial statementwhich would balance and which the accountant was prepared to certify. The examiners noted that asof June 30, 1971, checks had been issued in substantial amounts when insufficient funds were available to cover. The majority opinion points out that asof June 30, 1971, L. D. Stensvad CattleCo. had a negative networth of $271,058.17 with questionable assets even on that statement. In addition, there isevidence thatduring theweeks prior to taking of possession by thebank, Stensvad failed to remitsubstantial funds to the bank, Stensvad had failed to make payments tohis investors, and funds were being diverted toother feedlotoperations indirectdisregard of bank instructions. Aspointed out in the majority opinion, during allof 1971, Stensvad was grossly under financed,which made his operations subject to any adverse turns in themarket. Allof these facts are a sufficientbasis for the action taken by the bank. I would therefore hold that thebank properly terminated the agreement to loanmoney to Stensvad, and refused tomake additional loans, and properly took possession of the various assetswhich constituted security for the loans. I do concur with themajority opinion that the award of lostprofits atthe District Court level was speculative and not sustainable. I also agree that the valuation of the personal property inthe amount of $354,111.00 and the value of the feedlotand elevators inthe amount of $411,935.00 is correct. I would reduce the cattlevaluation of $382,000.00 by the profitof $104,897.73 made by the bank because I would not find a conversion of the cattle. I would also eliminate the award of $58,000.00 for mishandling of business. Last, I would award interest to the bank after the appropriate reduction of its loan totalsINTHE SUPREME COURT OF THE STATE OF MONTANA

No. 80-210

L. D. STENSVAD, personally and as representative of the investing shareholders of AGRI-SERVICES, INC., M. V. ENTERPRISES, INC., M. & S. CATTLE FEEDERS, and L. D. STENSVAD CATTLE CO., allMontana Corporations, 

### - plaintiffs, 

## FEB257982

vs

# . E,$ERK OF SUPREMEcOuRT &*ATE PFMONTANA THE MINERSAND MERCHANTS BANK OF ROUNDUP, MONTANA, Defendants.

ORDER DENYING PETITION FOR REHEARING

Wedeny petition of defendant bank for rehearing of our opinion entered January 7, 1982with the following comments: 1. Petitioner bank contended it is entitledto a set-off for interest accrued on the principal indebtedness on the notes from the date of breach until the monies received on foreclosures by the bank were applied on the notes. We so indicated in our opinion. However, we carefully searched the record to determine the applicable amounts and dates, and were unable to identify either in any case. This Court is bound by the record before

us. Therefore, we held that the set-off would be the amount of principal indebtedness as of the date of t,he breach on facts found by the DistrictCourt. 2. Petitioner contends respondent isnot entitled to the benefit of theprofit realized by the bank after it had taken possession of the cattle and eventually sold the same. We do

not agree, but point out that ifwe did, itwould result ina higher judgment against the bank inthe amount of the profit. 3. Petitioner contends thatits foreclosure of the properties has been hampered by lis pendens filedby Stensvad. Wehave no record of thatbefore us, but inany event, Stensvad,

we assume, must dismiss any lispendens which relate toissues settled inthis appeal upon payment of judgment by respondent. According, thepetition forrehearing is denied. DATED this

## 2By of February, 1982.

Chief Justice /

I / 

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# _'--L---LI