No. 13473 

IN THE 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: District Court 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 5 2 1977 
Mr. Justice John Conway Harrison delivered the Opinion of the 

Court. 

Defendants appeal from the judgment of the district court, 

Park County, for plaintiff Belgrade State Bank. 

In 1966 Herbert Earl Swainson (Bert) was appointed guardian 

of his minor daughter's estate and proceeded to manage the assets, 

which the daughter had inherited from her mother. A part of the 

estate was used to purchase a ranch near Livingston, Montana 

and the rest was put in certificates of deposit. The district 

court judge who presided over the guardianship proceedings allowed 

the purchase of the ranch as an investment but he made it clear 

from the outset that in no way would he allow the guardianship to 

become involved in a ranching operation. 

In 1968, Bert wanted to run a cattle operation on the ranch 

but he lacked funds with which to purchase cattle and equipment. 

He approached his brother Jack, who was the executive vice-president of the Belgrade State Bank, to apply for a loan. Bert had 

already borrowed in excess of his personal borrowing limit. It 

was suggested it would look better to the bank examiners if the 

loan was made to the estate or in the name of the estate. After 

some negotiations with the bank and the judge, an agreement was 

reached. A petition was filed in the guardianship proceedings 

stating: 

It That your petitioner made arrangements with a 

financial institution to loan him sufficient money 

for the operation expense of said ranch, as well as 

the purchase of cattle, and said financial institution 

is agreeable to securing said loans with only the cattle 

or necessary equipment that may be purchased from said 

loan funds; that the financial institution has advised 

your petitioner that they are willing to enter into an 

Agreement that, in the event of default in the payment 

of said obligations, that they will only look to the 
security pledged as collateral for said loans, 

and will in no way seek any deficiency judgment, 

in the event of foreclosure. I I 

The court required a letter from the bank agreeing to this 

arrangement and that letter states: 

"Belgrade, Montana 

April 21, 1969 

"The Honorable Jack D. Shanstrom 

District Judge 

Park County Courthouse 

Livingston, Montana 

"Dear Judge Shanstrom: 

"It is my understanding that you have signed an 

Order authorizing Herbert Earl Swainson, as Guardian 

of the Person and Estate of Wanda K. Swainson, to 

borrow money from our institution for the purchase of 

cattle and operating expenses. 

"It is my further understanding that your Order is 

conditioned upon us agreeing that, in the event of 

default and foreclosure of our mortgage, that the extent 

of the relief to which we would be entitled is to recover 

back our security, not to seek any deficiency judgment 

against the other guardianship assets. 

"We are willing to do this, with the exception of 

the fact that there is certain farm machinery that Mr. 

Swainson has acquired through loans that would also be 

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. I I 

The court's order reads in pertinent part: 

"Upon reading and filing the 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 to borrow moneys 

to purchase cattle and to operate said ranching business; 

and 

"IT APPEARING therefrom that a financial institution 

is willing to loan money for said purposes to the Guardian, 

and has agreed to limit their right of recovery in the 

event of default on said notes, to repossession of the 

secured property, and not to seek a deficiency against the 

guardianship funds ; 
"NOW, THEREFORE, IT IS 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 said minor ward, conditioned upon said financial institution delivering 

a letter to this Court, by a qualified officer of said 

institution, that in the event of default on said notes, 

they will only repossess the property secured by said 

Chattel Mortgages, and will not 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 cattle were purchased. 

In late October 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 all the calves be branded with the 

Black brand; that Black pay all taxes 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 to be credited against his 30% share 

of the increase. 

In July 1970, Ed Towe, president of the Belgrade State Bank 

(Bank) had some doubts that all the cattle purchased were on the 

ranch so he made a visual inspection. While he was making the 

inspection, he secured an oral accounting of the number of cattle 

from Bert Swainson, which Towe recorded on a sheet of Swainson 

letterhead paper. The list 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 this visit the Bank made two smaller loans for some 

equipment and to purchase two Charolais bulls. In mid-August, 

and again in mid-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 all the 

estate's cattle leaving all the 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 

in the 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 either Mr.,or Mrs. 

Black. 

Shortly after the Bank cattle had been taken from the ranch, 

Larry Jordan, a bulk gasoline distributor and a creditor of the 

ranching operation, drove by the ranch on his distribution route 

and noticed the lease cattle still 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 to buy a part of his interest in the increase of the BUck 

cattle, so that he could pay his debts to them. After some 

negotiation a sale was arranged. Mrs. Black, whose husband died 

prior to the Bank seizing the Swainson cattle, transferred 36 

calves, all branded with her brand, to Hunt and Jordan, who gave 

her a check for the balance of the purchase price over what was 

owed to them. Mrs. Black had selected heifer calves as replacements and after their weight was credited toward her 30% t3f the 

increase due under the contract and apparently after 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 complaint 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 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 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 mo~~ihs before repossession and Swainson admitted Black 

Aid not sign an assignment he had prepared for the Bank. At the 

time the Bank repossessed its cattle, Jack Swainson called Mrs. 

Black and made no mention of any interest the Bank had in the 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. At all times 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 in an effort to collect debts owed 

them by Bert Swainson. Swainson directed Mrs. Black to give a 

bill of 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, suit was filed against Mrs. 

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 efforts were made by either the Blacks or Swainson in regard 

to their contract. The court was unaware of the Black contract 

until litigation began. The contract between the Blacks and Bert 

Swainson contained a provision prohibiting assignment or hypothecation of the contract by either party, without the written consent of the other. The contract is valid and the Bank is estopped 

from attacking its validity. In addition, Swainson having failed 

to get any assignment from Black, the Bank dealt with Bert Swainson a t i t s own risk. Pasadena Investment Co. v. Pasadena Air 
Products 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; 3 Williston on Contracts 3rd. 

d., $422; 12 Hastings Law Journal 397, 403. 

In finding that the court erred in not granting Mrs. Black's 

rnorion co dismiss, it follows that Hunt and Jordan's motion should 

also have been granted because Mrs. Black had good title to transfer. 

We next consider whether or not the court erred in not 

granting the motion to dismiss Western 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 claim upon which relief 

can be granted. Further, that the bond issued is to indemnify 

the ward against defalcations by the guardian; and until there 

is a 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 is not liable because the guardianship 

suffered no loss; 

2) The court's order approving the loan transaction is 

illegal under ~ontana's guardianship law; and 

3) The court's order approving the loan transaction bars 

any recovery against it by the Bank. 

We concur with Western's argument that until there is a 

defalcation by 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 in no way be liable for any losses. The court, at the request of the Bank and Bert Swainson, made a specific effort to 

protect the guardianship assets and the parties completely understood the loan and its limits. 

In addition, under Montana's guardianship statutes and case 

law, a guardian has no power to borrow money from or to encumber 

property of his 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 ALR 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 file a covenant-not to sue against the estate, before getting the court's 

permission to make the loan. The,re has been no loss to the 

estate nor could there be under the covenant. The Bank's business 

was with Bert Swainson personally for the agreement made by the 

Bank with the court absolves the estate of any liability and 

the surety is not 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 all times admitted it had no 

claim against the assets of the estate in view of the court's 

order, but if the judgment of the trial court prevailed there was 

no assurance that the bonding company would not proceed against 

the guardianship for the $10,000 of the bond. 
The second issue is whether or not Bert Swainson could in 

any way encumber the guardianship in making this agreement with 

the Bank. All the 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 its name so the Bank could make 

additional loans to Bert Swainson after he had exceeded his 

borrowing capacity. It did so knowingly after the district judge 

supervising the guardianship directed that there was to be no 

liability of any kind against the guardianship. Considering the 

facts here, where the Bank was in the 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 in view of our holding in this case. The trial court 

erred in granting 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 in the 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 in the statute are not applicable because 

rhe statute allowing 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 :>ersonal property. 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 is not applicable. 

All defendants, except Herbert Earl Swainson, are entitled 

to dtrorney fees by virtue of section 93-8601.1, R.C.M. 1947. 

The statute is procedural in nature and applies to actions comrnerlced after its effective date, even though such action arose 

x~t of events occurring prior 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 district court against Herbert Earl 

Snainsdn individually is affirmed, but reversed as to all other 

delendants. The cause is remanded with directions to fix attorqey fees for defendants.