No. 88-239 

IN THE STJPREME COURT OF THE STATE OF MONTANA 

1988 

LARRY STERRETT and GLORIA STERRETT, 

Plaintiffs and Appellants, 

-vsMILK RIVER PRODUCTION CREDIT ASSOCIATION, 

et al., 

Defendants and Respondents. 

APPEAL FROM: District Court of the Seventeenth Judicial District, 

In and for the County of Blaine, 

The Honorable Leonard Langen, Judge presiding. 

COUNSEL OF RECORD: 

For Appellant: 

Theodore R. Thompson argued, Havre, Montana 

For Respondent: 

Martin S King argued, Worden, Thane & Haines, Missoula, 

Montana 

John Paul; Alexander & Baucus, Great Falls, Montana 

Submitted: September 22, 1988 

November 3, 1988 

-- Clerk 
Mr. Justice R. C. McDonough delivered the Opinion of the 

Court. 

This appeal from the Seventeenth Judicial District, in 

and for the County of Blaine, involves Larry and Gloria 

Sterrett's claim in tort against the Federal Intermediate 

Credit Bank of Spokane (FICBS). We affirm. 

Sterretts want damages from FICBS based on the alleged 

misrepresentations of Sid Boe, an employee of the Milk River 

Production Credit Association (MRPCA). The District Court 

granted FICBS's motion for summary judgment concluding that 

no agency relationship existed between MRPCA and FICBS, and 

thus FICBS could not be vicariously liable for the alleged 

misrepresentations of MRPCA's employee Boe. We affirm 

because we find no statutory, express, or implied authority 

to Roe from FICBS which would bind FICBS for Boe's actions. 

The relevant facts are as follows: Sterretts entered an 

agreement with Clay McCartney in April of 1980, which 

provided that Sterretts would farm McCartney's land. Sid 

Boe, employee of MRPCA, set up the financing for farming 

McCartney's land. From 1980 to 1982, Sterretts borrowed from 

MRPCA for operating expenses and equipment to farm the land, 

and McCartney borrowed from MRPCA to pay Sterretts for the 

farming. During these years McCartney co-signed the note 

obligating Sterretts. In 1983, McCartney did not co-sign for 

Sterretts' note, and Sterretts' personal property secured the 

loan. 

Sterretts farmed McCartney's land in 1983, and when they 

billed McCartney for the farming, McCartney informed them 

that he had been unable to obtain the loan from MRPCA to pay 

Sterretts. Sterretts have alleged in this action that they 

relied on the representations of Sid Boe that McCartney would 

receive the loan when they farmed the land in 1983. 
Sterretts present the following issues for review: 

(1) Whether the District Court failed to recognize that 

issues of agency were not specifically pleaded by plaintiffs 

in their complaint? 

(2) Whether FICBS failed to properly raise lack of 

agency as an affirmative defense in its answer to the 

complaint? 

(3) Whether issues of agency are susceptible to summary 

judgment ? 

(4) Whether the Federal District Court's decision on 

agency provides the law of the case? 

I. 

Sterretts argument on the first issue is that they 

specifically pleaded active negligence on the part of FICBS, 

and that the lower court erred in not recognizing discovery 

facts raising the question of FICBS's active negligence. The 

facts supporting this argument grow from supervisory duties 

exercised by FICBS over MRPCA. Sterretts point out that 

these duties include: pre-approving loans, controlling 

internal operations, providing training for employees, 

billing for supervisory and examination expenses, approving 

the board of directors, setting salary ranges, approving and 

setting the salary of the president, and establishing 

performance rating guidelines for salary adjustments and 

salary ranges. Sterretts also allege that FICBS paid Sid 

Boe's salary, and thus Sid Boe acted as FICBS's agent. 

FICBS responds that their duties by federal statute 

include supervision of PCA operations. 12 U.S.C. S 2072(15) 

(1982). Under federal case law, according to FICBS, the 

regulatory function exercised by FICBS over MRPCA creates no 

agency relationship. FICBS also argues that under federal 

law the separate corporate nature of the two entities under 
their enabling statutes mandates the conclusion that no 

agency exists. FICBS also argues that unless MRPCA's 

employee Boe was FICBS1s agent, there can be no liability on 

the part of FICBS. 

Sterretts also cite 12 U.S.C. S 2072(15) (1982), as the 

statute authorizing the supervision which allegedly gives 

rise to the agency relationship. The statute authorizes 

supervision by Federal Intermediate Credit Ranks over 

Production Credit Associations to: 

Approve the salary scale of the officers and 

employees of the association and the appointment 

and compensation of the chief executive officer 

thereof and supervise the exercise by the 

production credit associations of the functions 

vested in or delegated to them. 

12 U.S.C. 2072(15) (1982). An identical statute enables 

Federal Land Bank supervision over Federal Land Rank 

Associations to: 

Approve the salary scale of the officers and 

employees of the Federa,- land bank associations and 

the appointment and compensation of the chief 

executive officer thereof and supervise the 

exercise by such associations of the functions 

vested in or delegated to them. 

12 U.S.C. 2012(13) (1982). Except for the entities 

involved, the statutes are identical. The Fifth Circuit 

Court of Appeals in Federal Deposit Insurance Corp. T~. 

Langley (1986), 792 F.2d 547, interpreted 12 U.S.C. S 

2012(13) (1982), to determine if the supervision exercised by 

the Federal Land Banks over the Federal Land Bank 

Associations created a principal-agency relationship between 

the two entities. The plaintiff in Langley alleged that the 

supervision exercised pursuant to the statute created the 
relationship between the Federal Land Bank Association of 

Opelousas and the Federal Land Bank of Jackson (formerly the 

Federal Land Bank of New Orleans). The Court rejected the 

argument holding that the separate corporate structures and 

functions of the organizations mandated a finding that no 

agency relationship arose from the supervision. Langley, 792 

F.2d at 549. The entities at issue here are similarly 

separate in their organization and function. See 12 U.S.C. 

5s 2071 to- 2094 (1982). And, the supervisory duties alleged 

to create the agency relationship arise from an identical 

statute. Thus, Langley provides strong support for FICBS's 

argument. 

However, Sterretts attempt to distinguish Langley. They 

claim that Langley rests on the fact that the plaintiffs in 

Langley sued the wrong Federal Land Bank. ~ccording to 

Sterretts, the Federal Land Bank of Jackson did not 

participate directly in the loan obligation at issue, and 

thus no agency existed. Sterretts misread the case. 

There were two Federal Land Bank Associations in 

Langley, not two Federal Land Banks. The facts show that the 

Federal Land Bank of Jackson approved and disbursed the loan 

at issue, and that the Federal Land Bank of Jackson also sued 

to collect the debt. Langley, 792 F.2d at 547-48. The 

confusion in Langley relates to which Federal Land Bank 

Association was involved in the loan. The plaintiffs in 

Langley alleged that the president of the Federal Land Bank 

Association of Opelousas defrauded them, while the undisputed 

facts showed that the Federal Land Bank Association of Baton 

Rouge processed their loan application. The effect of this 

flaw in the claim lead the Court to comment first on the 

supervisory duties of the Federal Land Bank of Jackson, and 

then on the inconsistent allegations as follows: 
the Langleys fail to demonstrate how such a 

regulatory function converts an officer of an 

association (which was not even responsible for the 

loan application) into an agent of the FLBJ 

[Federal Land Bank of Jackson]. 

Langley, 792 F.2d at 549. The Court's analysis of the 

statutory relationship between the two entities provides the 

main thrust of the opinion. We agree with Langley that 

supervision exercised according to federal statute by FICRS 

over MRPCA did not create an agency relationship. 

Sterretts offer no facts demonstrating any activity by 

FICBS in the loan outside FICBS's supervisory duties which 

would amount to an actual agency, or active negligence. 

There is also a lack of facts showing any ostensible agency. 

Thus, we agree with the District Court that Sterretts' 

argument depends on the creation of an agency under federal 

law, and that no such agency exists. 

11. 

Sterretts argue that lack of agency must be raised as an 

affirmative defense under Rule 8 (c) , M.R.Civ.P., and that 

FICBS cannot now claim the defense because it failed to raise 

the issue when it answered Sterretts' complaint. Lack of 

agency is not explicitly denominated as an affirmative 

defense under Rule 8(c). However, Sterretts claim that lack 

of agency should be included under language in the Rule which 

mandates that a defendant affirmatively plead, "... any other 

matter constituting an avoidance or affirmative defense ...". 

Rule 8(c), M.R.Civ.P. Sterretts cite no cases to support 

this position. FICBS responds that lack of agency is not an 

affirmative defense, and that its general denial of the 
allegation that Sid Boe acted as its agent was sufficient for 

raising agency as an issue. 

In contrast to affirmative defenses under Rule 8(c!, 

M.R.Civ.P., negative defenses are pleaded according to Rule 

8(b), M.R.Civ.P. Rule 8(b): 

is concerned with negative defenses--those that 

controvert the adversary's claim. Rule 8(c), on 

the other hand, is concerned with affirmative 

defenses--the pleading of matter that is not within 

the claimant's prima facie case. 

2A J. Moore, Moore's Federal Practice S 8.27 (2d ed. 1982). 

The issue here may be framed as whether lack of agency is a 

negative or an affirmative defense. 

Facing a similar claim under ~ule 8 (c) , F.R.Civ.P., in 

Porto v. Peden (W.D. Pa.. 1964), 233 F.Supp. 178, the Court 

stated: 

The specific denial of agency warned plaintiff that 

he must prove agency as part of his prima facie 

case; such a denial is a negative defense, 

contradistinguished from an affirmative defense. 

Porto, 233 F.Supp. at 180. We agree with Porto's conclusion 

that lack of agency constitutes a negative defense, and hold 

that FICBS's general denial of agency complies with the 

applicable requirements under Rule 8 (ID) , M. R. Civ.P. See 

Grimsley v. Estate of Spencer (1983), 206 Mont. 184, 199, 670 

P.2d 85, 93 (general denial has the effect of putting every 

material allega-tion in dispute) . Thus, we affirm on this 

issue. 

111. 

Sterretts argue that the agency issue here should not 

have heen decided on summary judgment. According to 
Sterretts, normally agency issues are questions for the jury, 

and here the jury should have decided whether MRPCA's 

employee acted as agent for FICBS. 

FICBS responds that there is no blanket prohibition for 

granting summary judgment on agency issues. FICBS also 

contends that Sterretts failed to present evidence creating a 

material question of fact on the agency issue. 

This Court in Stillman v. Fergus County (Mont. 19861, 

715 P.2d 43, 43 St.Rep. 396, stated: 

While there are no Montana cases on the subject, 

there is a long line of California cases which hold 

that, normally, allegations of agency are questions 

of fact and should not be decided on motion for 

summary judgment. ... However, when dealing with 

a government entity, such as a county, this is not 

always true. A principal cannot delegate authority 

it does not possess. 

Stillman, 715 P.2d at 44. As previously noted, Langley 

mandates the conclusion that FICBS1s supervisory duties do 

not create an agency relationship between FICBS and MRPCA1s 

employees. 

Except for the allegations and facts presented on 

FICBS's supervision pursuant to federal statute, Sterretts 

have failed to show participation by FICBS in the loan made 

by MRPCA. Once FICBS made its argument on the effect of 

Langley, Sterretts had the burden of coming forward with 

facts demonstrating participation by FICBS which would create 

a material fact question on the agency issue. In the absence 

of such a showing, summary judgment was appropriate. Fleming 

v. Fleming Farms (Mont. 1986), 717 P.2d 1103, 1106, 43 

St.Rep. 776, 779. Thus we affirm on this issue. 
IV. 

Sterretts maintain that when the Federal District Court 

declined jurisdiction and remanded this case "for trial", it 

settled the agency issue and precluded summary judgment. We 

disagree. 

Generally, courts lacking subject matter jurisdiction 

over a cause of action have no power to adjudicate issues in 

the action. See Restatement of Judgments $ 7 (1942). The 

basis for the Federal District Court's decision to deny 

FICBS's removal petition was lack of subject matter 

jurisdiction. Thus, the Court, already having found itself 

without subject matter jurisdiction, had no power to decide 

the agency issue. AFFIRMED. 

We Concur: A