No. 13473 INTHE SUPREI4E COURT OF THE STATE OF MONTANA

BELGRADE STATE BANK, A Montana Corporation, Plaintiff and Respondent,

HERBERT EARL SWAINSON, individually, and as GUARDIAN of the ESTATE OF WANDA K. SWAINSON, WESTERN SURETY COMPANY, a corporation, MRS. ROBERT BLACK, JAMES HUNT and LARRY JORDAN, Defendants and Appellants.

Appeal from: DistrictCourt of the Sixth Judicial 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, Billings, Montana Towe, Neely and Ball, Billings, Montana

Submitted: March 22, 1977 Decided

### :@J 

## 52 

## 1977Mr. Justice John Conway Harrison delivered the Opinion of the Court.
Defendants appeal from thejudgment of the district court, Park County, forplaintiff Belgrade StateBank. In 1966 Herbert Earl Swainson (Bert) was appointed guardian of hisminor daughter's estateand proceeded tomanage the assets, which the daughter had inherited fromher mother. A part of the estatewas used topurchase a ranch near Livingston, Montana and the rest was put incertificatesof deposit. The district courtjudge who presided over the guardianship proceedings allowed the purchase of the ranch as an investment but he made it clear from the outset that inno way would he allow the guardianship to become involved ina ranching operation. In 1968, Bert wanted to run a cattle operation on the ranch but he lacked funds with which topurchase cattleand equipment. He approached hisbrother Jack, who was the executive vice-president of the Belgrade StateBank, toapply fora loan. Bert had already borrowed inexcess of his personal borrowing limit. It

was suggested it would lookbetter to thebank examiners if the loanwas made to the estate or inthe name of the estate. After

some negotiations with the bank and thejudge, an agreement was reached. A petition was filedinthe guardianshipproceedings stating:

It

That your petitioner made arrangements with a financialinstitution to loan him sufficient money for the operation expense of said ranch, aswell as the purchase of cattle, and said financialinstitution isagreeable to securing said loans with only the cattle ornecessary equipment that may be purchased from said loan funds; that the financial institutionhas advised your petitioner that they arewilling toenter into an Agreement that, inthe event of default inthe payment of said obligations, that they willonly look to thesecuritypledged as collateral for said loans, and willinno way seek any deficiencyjudgment, inthe event of foreclosure.II The court required a letter from thebank agreeing to this arrangement and that letter states: "Belgrade, Montana April 21, 1969 "The Honorable Jack D. Shanstrom

DistrictJudge Park County Courthouse Livingston, Montana "Dear Judge Shanstrom: "It 

### is my understanding that you have signed an Order authorizingHerbert Earl Swainson, asGuardian of the Person and Estate of Wanda K. Swainson, to borrow money from our institution for the purchase of cattleand operating expenses. "It ismy further understanding that your Order 

### is conditioned upon us agreeing that, inthe event of default and foreclosure of our mortgage, that the extent of the relief towhich we would be entitled is to recover back our security, not to seek any deficiencyjudgment against the other guardianship assets. "We arewilling todo this, with the exception of the fact that there iscertain farmmachinery thatMr. Swainson has acquired through loans thatwould alsobe pledged as security. This equipment was not purchased with guardianship funds but through loans with our institution. "Very truly yours, BELGRADE STATE BANK By John W. Swainson Executive Vice President.II The court's order reads inpertinent part: "Upon reading and filingthe verified Petition of HEEU3ERT EARL SFJAINSON, Guardian of the Person and Estate of WANDA K. SWAINSON, a Minor, and it appearing from said Petition that it 

### is to the best interests of the minor ward that the Guardian be permitted toborrow moneys topurchase cattle and to operate said ranching business; and "IT APPEARING therefrom that 

### a financial institution iswilling toloan money for saidpurposes tothe Guardian, and has agreed tolimittheir right of recovery inthe event of default on saidnotes, to repossession of the secured property, and not to seek 

### a deficiency against the guardianship funds;

### "NOW, THEREFORE, ITIS HEREBY ORDERED That the said ~uardian, ~erbeit Earl Swainson, may secure loans for the purchase of cattle and to secure general operating expenses for the ranch owned by saidminor ward, conditioned upon said financial institution delivering a letter to this Court, by a qualified officer of said institution, that inthe event of default on saidnotes, they 

### willonly repossess the property secured by said ChattelMortgages, and willnot seek a deficiency judgment 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 cattlewere purchased. In lateOctober 1969, Bert Swainson entered into a cattle leasing agreement with one Robert Black. By the terms of this agreement, Bert Swainson would care for 87 head of Black's cattle

on the ranch and would receive 70%of the increase for doing this. The agreement provided that allthe calves be branded with the Black brand; that Black pay alltaxes on the cattle; and it set the time for the division of the increase as the time of the sale of the increase. The agreement further allowed Black to select replacement heifers tobe credited against his 30%share of the increase. InJuly 1970, Ed Towe, president of the Belgrade StateBank (Bank) had some doubts that allthe cattlepurchased were on the ranch so he made a visual inspection. While he was making the inspection, he secured an oralaccounting of the number of cattle from Bert Swainson, which Towe recorded on a sheet of Swainson letterheadpaper. The list included 230 head of cows, 83 head of share cows, 185 calves branded with the estatebrand and 

### 56 calves of the leased cows which Swainson saidwere due him under the lease agreement.After thisvisit theBank made two smaller loans for some equipment and topurchase two Charolais bulls. Inmid-August, and again inmid-September, the Bank loaned $4,000 on notes payable on demand. Less than a month after the last $4,000 loan, onboctober 13, 1970 the Bank invoked the insecurity clause of its security agreement and took possession of allthe estate's cattle leaving allthe lease cows and their calves

on the Swainson ranch. During the summer prior to the seizing of the cattle, the Bank obtained an assignment from Bert Swainson of his interest inthe lease cattle and had attempted to get a consent from

### Mr. Black. The Black-Swainson lease agreement contained a non-assignability clause. No consent was ever given by eitherMr.,or Mrs. Black. Shortly afterthe Bank cattlehad been taken from the ranch, Larry Jordan, a bulk gasoline distributor and a creditor of the ranching operation, drove by the ranch on his distributionroute and noticed the lease cattle stillon 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 tobuy a part of his interest inthe increase of the BUck cattle, so that he could pay his debts to them. After some negotiation a salewas arranged. Mrs. Black, whose husband died prior to the Bank seizing the Swainson cattle, transferred 

### 36 calves, allbranded with her brand, toHunt and Jordan, who gave her a check for the balance of the purchase price over what was owed to them. Mrs. Black had selectedheifer calves asreplacements and aftertheirweight was credited toward her 30%t3f the increase due under the contract and apparently afterdeducting

### the amount due her because the death loss exceeded that allowed under the contract, shepaid Bert Swainson the balance due,as he requested, in cash. InMay 1971, the Bank sent a notice of sale of the collateral to the guardian and the cattlewere 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. OnDecember 3, 1973,the complaint was amended joining Hunt and Jordan as defendants. Due to the multiple defendants with conflicting interests,

we are facedwith numerous issues. Inview of the factwe 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 ofplaintiff's case and again at the close of defendants' case. 2) 

### This raises the question ofwhether or not Bert Swainson

was acting for the guardianshipwhen he entered into the agreement 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 innot granting their motions to dismiss.

### The security agreements dated February 14, 1969 and December 17, 1969,executed by Bert Swainsonas 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 statementwith the clerk and recorder of Park County. The debtor identified in the two documents filedwas the "Wanda SwainsonRanch Estate", no additional debtor

was named,no mentionwasmade 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 returnhe was to receive 

### 70% of the calf crop. No mentionwas made of the relationshiphe had with the estate. All testimony indicated this contractwas entered by him as an individual, and allparties so understood that agreement. While Towe testified Bert told him the share cattlewere to be considered collateral, this was denied by Bert. There is

no testimony to indicateBert 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 ofBert Swainson and Towe testified: 

# "*** as far aswe were concerned 

### Ididn't even know about the 

### to lack-Swainson] contract and weweren't relying on that contract anyhow. The cattlewere purported to us to be part of the collateral thatwe had under our security agreement.

# * +; *If 

### We findno reliable evidence that any measures were taken by the Bank tonotify Mrs. Black of the alleged interest claimed by the Bank. TheBank tried to supply, through the testimony of Jack Swainson,a conversationwith Mr. Black. Mr. Black diedseveral mo~~ihs before repossession and Swainson admitted Black Aid not sign an assignment he had prepared for the Bank. Atthe time the Bank repossessed its cattle, Jack Swainson calledMrs. Black and made no mention of any interest the Bank had inthe share calves. On October 13, 1970, the Bank repossessed its cattle from the ranch. Mrs. Black's cows and calves were not taken,

nor was the sheriff notified of any interest that the Bank claimed. The calves remained on the Swainson ranch for two weeks when,

on October 27, 1970, Mrs. Black and Bert Swainson made a division of the calves. Atalltimes the cows and calves had the Black's brand on them. It was not until the division of the calves that Jordan and Hunt came onto the scene inan effort to collect debts owed them by Bert Swainson. Swainson directed Mrs. Black togive a billof sale to Hunt and Jordan, who purchased 

### 36 calves, credited Swainson's account and gave him the remainder. Some two years later, on October 

### 16, 1972, suitwas filed againstMrs. Black alleging conversion of 

### 56 calves. Here, the Bank went to considerable effort in seeking and getting the approval of the court for the loan to the estate. No such effortswere made by either the Blacks or Swainson inregard to their contract. The court was unaware of the Black contract until litigationbegan. The contract between the Blacks and Bert Swainson contained a provision prohibiting assignment orhypothecation of the contract by eitherparty, without the written consent of the other. The contract is valid and the Bank is estopped from attacking itsvalidity. In addition, Swainson having failed to get any assignment from Black, the Bank dealt with Bert Swainson a t i t sown risk. Pasadena Investment Co. v. Pasadena AirProducts lric., 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 Or. 384, 474 P.2d 339, 352; 3Williston on Contracts 3rd. 

### d., $422; 12Hastings Law Journal 397, 403. In finding that the court erred innot grantingMrs. Black's rnorion co dismiss, it follows that Hunt and Jordan's motion should alsohave been granted because Mrs. Black had good titleto transfer. We next consider whether or not the court erred innot granting the motion todismissWestern Surety Company, the bonding company for the Estate of Wanda K. Swainson. Defendant surety company argues it was not a proper party to the action, and neither the complaint nor proof sustains a claimupon which relief

can be granted. Further, that the bond issued isto indemnify theward against defalcations by the guardian; and until there isa loss by the guardianship estate there can be no liability

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 liability against the surety company for these reasons: 1) The surety company isnot liablebecause the guardianship sufferedno loss; 2) The court's order approving the loan transaction is illegalunder ~ontana's guardianship law; and 3) The court's order approving the loan transaction bars any recovery against it by the Bank. We concur withWestern's argument that until there is a defalcationby the guardian, and a loss to the ward, there can be no liability on the part of the surety company.As to the second point of the argument that the transaction

was illegal, we do not concur. Here he court approved only a loan to Swainson, specifically ordering that the guardianship would inno way be liable for any losses. The court, atthe request of the Bank and Bert Swainson, made a specific effort to protect the guardianship assets and the parties completely understood the loan and itslimits. In addition, under Montana's guardianship statutes and case law, a guardian has no power toborrow money from or to encumber property of hisward without prior approval of the court. Davidson

v. Wampler, 29 Mont. 61, 74 P. 82; Alexander v. Windsor, 107 Mont. 152, 81P.2d 685; Mitchell v. McDonald, 114Mont. 292, 136 P.2d

. 536; Anno. Guardian's Unauthorized Acts, 130ALR 113-116; 39 Am Jur 2d, Guardian and Ward, §§ 91,99; 39 

### C.J.S. Guardian and Ward, 

### 5 76.

### In the instant case, the'Bank was required.to filea covenant-notto sue against the estate, before getting the court's permission tomake the loan. The,rehas been no loss to the estatenor could therebe under the covenant. The Bank's business

was with Bert Swainson personally for the agreement made by the Bank with the court absolves the estateof any liability and the surety 

### isnot liable on the bond. Sago v. Ashford, 145 Colo. 358 P.2d 599 289f;Western Machinery Co. v. Northwest Improve. Co., 254 F.2d 453. We note here that the Bank at alltimes admitted it had no claim against the assets of the estate inview of the court's order, but if thejudgment of the trialcourt prevailed there was

no assurance that thebonding company would not proceed against the guardianship for the $10,000 of the bond.The second issue iswhether ornot Bert Swainson could in any way encumber the guardianship inmaking this agreement with the Bank. Allthe evidence clearly shows the entire transaction

was between the Bank and Bert Swainson. The guardianship became involved only as a paper front because of banking requirements. The guardianship estate lent itsname so the Bank could make additional loans toBert Swainson afterhe had exceeded his borrowing capacity. It did so knowingly after the districtjudge supervising the guardianship directed that therewas tobe no liability of any kind against the guardianship. Considering the facts here, where the Bank was inthe unique position with relation to its loan to Bert Swainson, it cannot shield itself by looking to anyone but Bert Swainson. The third issue concerns attorney fees and needs little discussion inview of our holding inthis case. The trialcourt erred ingranting attorney fees to the Bank against each defendant. The Eank argues that the provisions of section 87A-9-201, 9.C.M. 1947, recognize attorney fees inthe collection of any secured obligations against not only the borrower but purchasers aL collateral and other creditors. Section 93-8613, R.C.M. 1947, provides for counsel fees on foreclosures. Answering defendants' argument that attorney fees are reciprocal under section 93-8601.1, R.S.M. 1947, the Eank argues that due to the dates on the security interests the provisions inthe statute are not applicablebecause rhe statuteallowing reciprocal rights was passed after the 5e~urity agreements were signed. We find no merit to the Rank's argument. Section 93-8613 is dpplicable solely to foreclosure actions or to security interests irk :>ersonalproperty. Except for the action against the estate,the coillplaint .illeges a tortious conversion against Black, Hunt a~ld Jordon. The section as to these defendants isnot applicable.

Alldefendants, except Herbert Earl Swainson, are entitled

to dtrorney fees by virtue of section 93-8601.1, R.C.M. 1947. The statute isprocedural innature and applies to actions comrnerlced after itseffective date, even though such action arose x~t of events occurring prior thereto. Crncevich v. Georgetown Xec. Corp., 168Mont. 113, 541P.2d 56, 32 St.Rep. 963; Anno. 18ALR3d 733, 736, 740. The judgment of the district court against Herbert Earl Snainsdn individually is affirmed, but reversed as to allother delendants. The cause isremanded with directions to fixattorqey fees for defendants.