No. 84-226 INTHE SUPREME COURT OF THE STATE OF MONTANA 1985

CENTFAL BANK OF MONTANA, Plaintiffand Respondent,

-vsDEAN A. EYSTAD and MARCIA L. EYSTAD, Defendantsand Appellants.

APPEAL FROM: DistrictCourtof theEighthJudicial District, Inand forthe Countyof Cascade, TheHonorableJoel G. Roth, Judge presiding.

COUNSEL OF RECORD:

ForAppellant: Church, Harris, Johnson 6 Williams; WilliamA. Reid, GreatFalls, Nontana

ForRespondent: Alexander

### c Baucus; Ward E. Taleff, GreatFalls, Montana

Submittedon Briefs: July 25, 1985 Decided: December 13, 1985Mr. Justice L. C. Gulbrandson delivered the Opinion of the Court.

Dean andMarcia Eystad appeala judgment

### of the Cascade County District Court permitting Central Bank of Montana

(Central Bank) to foreclose on certain parcels of Eystads' real property and denying Eystads' counterclaims. The issue

on appeal is whether therewas substantial credible evidence to support the District Court's judgment. We hold that there

was such evidenceand,accordingly,we affirm. Appellants set forth three specific issues:

(1) Did the District Court err in ruling that Central Bank could foreclose on Eystads' real property without liability for damages to theirbusiness? (2) Did the District Court err in denying Eystads' counterclaim against Central Bank for an alleged breach of the covenantofgood faith? (3) Did the District Court err in denying Eystads' motion to stay judgment? Eystads have been customers of Central Bank for many years. They own and operate a business engaged in the manufacture and sale of building trusses. Beginning as early as 1963, Eystads obtained loans fromCentalBank and secured the loanswithmortgages on theirhome and businessproperty. In 1977, Central Bank made the first "operating loan" to Eystads. Eystads obtained this loan toprovide funds for the operation of their business. Eystads gave Central Bank a mortgage on realproperty in Great Falls,Montana to securea second operating loan obtained by Eystads in 1977. This mortgage contained a future advance clause to secure future advances from the Bank up to the amountof $60,000. In later years,CentralRank made frequentoperating loans to Eystads.Most of the loans were intended to be secured by the 1977 mortgage, under the future advance clause. These loanswere evidenced by promissory notes generally providing for a lump

sum payment due in six months. In some instances, Eystads would pay only the interest due on the due date and would renew the loanwith a newpromissory note. Often they would also borrow additional funds, with the new promissory note reflecting the new advances as well as the unpaid principal from theprior note. In February 1982, Central Bank renewed an existing $50,000 loan of Eystads for six additional months. On February 2, 1982, prior to the loan renewal, a Central Bank officer wrote to Eystads indicating that in connection with the renewalEystadswould be expected to substantially reduce the amount they owed. On February 4,Eystads executed a new note evidencing the renewal. Central Bank drew up and Eystads signed a newmortgage on business property to secure this loan. This is the mortgage at issue in the instant

case. Central Bank required the new mortgage because the bank may have been unsecured as a result of loans to Eystads

(which loans were intended to be secured by the first mortgage) possibly in excess of the $60,000 future advance clauseof the firstmortgage. The February 4 note was due on August 4, 1982. On August 

### 4, 1982,Eystadsmet with two bank officers. Eystads wanted to pay the interest accrued on the note and requested

a six month extension of the note. Central Bank agreed to a ninety day extensionof the note, setting the new duedate at November 2, 1982. Jeffrey Mortensen, an assistant vice-president of CentralBank,was at theAugust 4thmeeting with Eystads. Hetestified that Eystads were informed at the meeting that their loan would not be renewed after November 2, 1982, without a significantreduction intheoutstandingprincipal. Mortensen alsotestified that thebank officers toldEystads that the amount of reduction shou1.d approximate $25,000. Mrs. Eystad talkedwith abank officer, ScottRubie, on October 28, 1982. She testifiedthat thatday Rubie toldher there was a possibility that the Bank would not again extend the loan. On November 9, 1982, Eystads again met with Central Rank officers. Eystads requested thatthenote due on November 2 be again extended for six months. Jeff Mortensen of the Bank was also atthat meeting. He testified that the bank officials decided on November 9tonot take any action

on the note, now due, for a couple of weeks. He statedthat they made this decision so that Eystads could pursue refinancing from another source for the balance of the debt and so that Eystads could obtain funds owed to them. Mortensen testified that he urged Eystads to pursue this

course of action and that he told Eystads that another extensionof the loanwould not be granted. Mrs. Eystad also testified as to the import of the November 9 meeting. She stated that James Hopkins, the president of Central Bank, indicated to her that Eystads would be required tomake a substentialpayment on theprincipalof the loan, which had become due on November 2, before the Bank would extend the loan. She further testified that Hopkins stated that a substantial payment sufficient to extend the loan would be "around" $4,000 on the principal. On December 7, 1982, Mr. Eystad spoke with Jeff Mortensen and offered to pay approximately $6,300 on theoperating loan dueNovember 2. There apparentlywas amisunderstanding as to whether the total $6,300would be applied

on the principal of the debt. Mr. Eystad requested a six month extension of the note. The Rank, through Mortensen, refused to extend the note and later demanded payment in full. Mr. Eystad made no payment on the operating loan and instead applied approximately $6,000 to pay off a different loan securedby amortgage on otherproperty. The bank officers handling the Eystads' loans kept comment sheets relating to those loans. A comment sheet reflectsgenerally the history and circumstancesof the loan. The comment sheets relating to Eystads' loans were introduced at trial. These sheets, and the February 1982 letter to Eystads, support Central Bank's contentions that (1) the Bank informed Eystads that their operating loanwould not be further renewed or extended without a substantial reduction in the outstanding balance of the loan; and (2) the Bank contemplated,and informed Eystads, that the reduction should be approximately $25,000. Central Bank, unwilling to grant Eystads a further extension on the loan, filed a complaint against Eystads in January 1983. Central Bank sought to foreclosethemortgage

on real property which secured the loan due on November 2. Eystads filed an answer and counterclaim in response to Central Bank. 

### As their principal defense to the action, Eystads asserted that Central Bank was estopped from foreclosing the mortgage. The estoppel defensewas based on the contention that Central Bank hzd for years engaged in the "practice and course of conduct"of renewing and/or extending Eystads' loans without demanding from Eystads a payment on the principal of the loan. Eystads further asserted thatthey relied on this practice and course of conduct to their detriment and that Central Bank changed this business practice without any advance warning to Eystads. Consequently,Eystads counterclaimed against CentralRank for thepremature and wrongful foreclosureof themortgage. Eystads also counterclaimed against Central Bank alleging the tort of bad faith and praying for punitive damages. Under this theory, Eystads alleged that theBank intentional

### ly andmaliciously acted to injureEystads. The case went to trial in November 1983 and the District Court issued its findings of fact, conclusions of law and judgment in January 1984. Eystads make oblique objections alleging that the trial court adopted Central Bank's proposed findings and conclusj.ons verbatim. However, they have not raised this as an issue on appeal. In any case, we find the trial court's findings of fact and conclusions of law tobe detailed and complete. The District Court held that the Bank was not estopped and could properly foreclose on the property. The court found that Eystads were bound by their promissory note and the Bank had no duty to renew or extend the note indefinitely. The counterclaims were rejected as without merit. Eystadsappeal. The first issue iswhether the District Court erred in finding that Central Bank could properly foreclose the mortgage,without liability for damages to Eystads' business. The standard for review is set forth in Rule 52(a), Montana Rules of Civil Procedure,which provides that this Courtmay not set aside findings of fact unless they are clearly erroneous. Expanding on this standard,we have stated:

### When reviewing findings of fact and conclusions of law of a 

### district court, sitting without a jury, this Court has repeatedlyheld such findings and conclusionswill not be disturbed if supported by substantial evidence and by the law.

(Citation omitted.) 

### When reviewing evidence itwillbe viewed in the light most favorable to the prevailing party in the district court,and the credibility of witnesses and the weight assigned to their testimony is for the determination of the district court in anonjury trial. Kartes 

### v. Kartes (1977), 175 Mont. 210, 217, 573 P.2d 191, 1.95;citing Luppold v. Lewis 11977), 172Mont. 280, 284, 563

The lower court made findings that, (1) the Bank was 

### not estopped from foreclosing the mortgage; (2) 

### the Bank's renewals and extensions of Eystads' loanswere discretionary acts and did not imply an obligation to further renew or extend the loans; (3) the Bank gave Eystads adequa-tenotice that a reduction in the principal of the loanwas required;

(4) 

### the Bank gave Eystads adequate notice that further renewals or extensions would possibly not be granted; (5) 

### the Bankwas entitled to repaymentof the loanwhichwas past due; (6) 

### Eystads' offer, in December 1982, to repay $3,000 of the loan principal was not a "substantial reduction" of the outstanding principal of $50,000; and (7) 

### Eystads were not entitled to an extension under the Bank's assurance that an extension would be forthcoming if Eystads made a substantial reduction in the amount owed. Substantial credible evidence supports these findings of 

### fact. The testimony of the bank officers,parts ofwhich have been cited and which the trial court found credible, support the finding that the Bank was acting in good faith and with justifiable business judgment in foreclosing the

### mortgage. The bank's comment sheets, which were introduced into evidence, also support this view. The sheets show the Bank's legitimate concern with the loan and the Bank's efforts to communicate this concern to Eystads. The February 1982 letter from the Bank to Eystads also shows the Bank's forthright communicationsto Eystads. We uphold theDistrict Court as to the first issue. Similarly,we uphold the District Court's decision as to the second issue; i.e., the denial of Eystads' counterclaim for an alleged breach of the covenantofgood faith and fair dea,-inq. Counsel for Eystads have referred to their counterclaimas a claim for the tort ofbad faith. The claim is more properly referred to a.s an alleged breach of the covenant of good faith and fair dealing. We do not concede that there was imposed upon Central Bank a covenant of good faith and fairdealing (as opposed to the obligation of good faith, defined as honesty in fact, imposed upon every contract or duty within the Uniform Commercial Code under fj 

### 30-1-203, MCA). However, even assuminq arguendo such a covenant, there is substantial evidence, in the form of the testimonyof three bank officers, the comment sheets,and the February 1982 letter, that Central Bank did not breach any covenant of good faith and fair dealing. This evidence, which the District Court was free to believe, portrays the bank representatives as candid and reasonable in their dealings with Eystads. Furthermore, a breach of the obligation of good faith imposedby § 

### 30-1-203, MCA, is not, in and of itself, sufficientto support the award ofpunitive damages which Eystads requested. There must be some oppressive, malicious, or fraudulent conduct, above and beyond a breach of the statutory good faith obligation, tosupport an award of punitive damages. See First National Bank of Libby v. Twombly (Mont. 1984), 689 P.2d 1226, 41 St.Rep. 1948. There is substantial evidence to support the trial court1 s denial 

### of Eystads' counterclaim for breach of the covenantofgood fa-ithand fair dealing. The third issue iswhether the District Court erred in denying Eystadslmotion to stay judgment. Eystads cite no authority for the proposition that judgment should have been stayed. Rule 

### 7 of the Montana Rules ofAppellate Civil Procedure provides for a stay of judgment or order pending 

### an appeal. Rule 

### 7 states that, upon application, a District Court may in its discretion grant a stay of judgment. After reviewing the record of the hearing on the motion to stay judgment, we find that the District Court acted within its discretion in denying the motion to stay judgment. Further, Eystads did not post a supersedeas bond to stay Ijudqment. TheDistrict Court judgment is affirmed. ,4

We concur: