No. 89-08 

IN THE SUPREME COURT OF THE STATE OF MONTANA 

1989 

PHIL-CO FEEDS, INC., 

a Montana corporation, 

Plaintiff and Respondent, 

-vsFIRST NATIONAL BANK IN HAVRE, 

a National Banking corp., 

Defendant and Appellant. 

APPEAL FROM: District Court of the Twelfth ~udicial ~istrict, 

In and for the County of Hill, 

The Honorable Chan ~ttien, Judge presiding. 

COUNSEL OF RECORD: 

For Appellant: 

Theodore K. Thompson; Thompson & Swenson, Havre, 

Montana 

For Respondent: 

Laura Christofferson; Gallagher, Archambeault and 

~nierim, Wolf point, Montana 

t - 

Submitted on ~riefs: May 18, 1989 

. . 

L... Filed: 

August 15, 1989 

> 

. - s" Clerk 
Mr. Justice John C. Sheehy delivered the Opinion of the 

Court. 

The ~irst ~ational Bank in Havre appeals from a judgment 

rendered against it after jury verdict in the District Court 

of the Twelfth ~udicial ~istrict, Hill County. The verdict 

was for the principal sum of $44,787.91, and judgment was 

entered by the ~istrict Court in favor of Phil-co Feeds, Inc. 

on September 12, 1988, for the sum of $63,219.75 which 

includes prejudgment interest. 

We affirm the judgment of the District Court. 

We will state the facts generally from the viewpoint of 

the plaintiff and additional facts as may be necessary for 

the discussion of each issue. 

~hil-Co Feeds, Inc. (Phil-CO) is a Montana corporation 

located in Malta, Montana, engaged in the business of selling 

grain and feed supplement, and other animal health care 

products for use in animal feeding and feedlot operations. 

Raymond J. Shape, with his wife, Mary Jane Shape, 

insofar as pertinent here, fed livestock in feedlots located 

on Shape's ranches at Harlem and Roy, Montana. Shape 

financed his feedlot operations through ~irst National Bank 

of Havre by means of various loans for the feedlot 

operations. It appears that ~irst National was the sole 

provider of operating funds for Shape. 

In September of 1981, Shape approached ~ic Lefdahl, 

manager of Phil-Co about the purchase of feed for the feedlot 

operations at Harlem and Roy. An agreement was made between 

Phil-Co and Shape at that time that Shape would be allowed to 

charge feed on a monthly basis and then Shape would be billed 

by Phil-Co on the first of each successive month and that all 

statements would be paid in full by Shape by the tenth of 
each month. Shape advised Phil-co that all his financing was 

being handled by First National Bank. 

In November of 1981, Phil-Co sent Shape the October bill 

which required payment through the first few days of 

November. Shape paid the bill but later complained that he 

had been required by Phil-Co to pay for feed bills that were 

not yet due, that is, for the days in November. Shape asked 

that he be refunded the monies that he had paid beyond his 

October bill and Phil-Co complied. The feed bills from 

Phil-co to Shape were averaging $2,000 per day, or $60,000 

per month. It was the opinion of ~ic Lefdahl that Shape 

"over-reacted" about the amount of the bill related to the 

November charges. Lefdahl decided to inquire with First 

~ational Bank about Shape's financial ability to handle the 

feed bills. 

On November 19, 1981, Lefdahl telephoned Randy smith, an 

officer of ~irst National Bank, and inquired as to Shape's 

financial ability to pay for the feed that was being 

furnished to Shape. Randy smith advised Lefdahl that Shape 

could handle the feed bills under his credit line with First 

National Bank and also that Phil-Co had no reason for concern 

about the amount of the feed bill, because ~hil-Co would be 

paid first out of the proceeds of the sale of the livestock 

even before the Bank, saying that ~hil-Co had an "automatic 

first lien" for payment of the feed bill on the cattle being 

fed. 

On December 11, 1981, Shape delivered a post-dated check 

to Phil-Co for payment on the November feed bill in the sum 

of $40,000. The actual balance due was $53,447.74. The 

post-dated check bore the date of December 16, 1981. Lefdahl 

called Randy Smith at the Bank to determine whether the check 

was good and whether it would be honored by the Bank. Randy 

Smith told Lefdahl that Shape was in "tough shape," that the 
check would not be honored, and that Lefdahl should get out 

of his deal with Shape as quickly as possible. 

I. 

Should the District Court have Dismissed the Complaint 

-- and the Amended complaint -- on the Grounds of -- Res ~udicata? 

In March of 1982, Shape filed a petition for protection 

in the United States Bankruptcy Court, Great Falls Division. 

In the bankruptcy action Phil-Co filed a complaint in the 

Bankruptcy Court against First National Bank. The Bank in 

that action filed a motion to dismiss Phil-CO'S complaint and 

eventually the Bankruptcy Judge, Honorable Orville Gray, 

issued his order granting Bank's motion to dismiss. 

Phil-Co appealed Judge Gray's decision to the United 

States ~istrict Court, Great Falls Division. On May 11, 

1983, the U.S. District Court Judge, Honorable Paul at field 

affirmed the decision of Judge Orville Gray. 

The Bank contends on appeal here that the decision in 

the Bankruptcy Court is res judicata as to the issues raised 

in the present cause before this Court. However, ~hil-co 

contends that res judicata does not apply because the action 

in Bankruptcy Court was only for the purpose of determining 

the priority of right to proceeds left in bankruptcy estate 

as between the Bank and ~hil-Co. ~hil-Co contends that the 

Bankruptcy Court decided only the issue of equitable 

subordination, and that under 11 U.S.C., Section 349, the 

effect of the dismissal in the Bankruptcy Court was to 

restore in effect all parties to the status quo before the 

bankruptcy petition was filed. 

Judge Orville Gray's order granting the motion to 

dismiss was on these grounds: 

1. That the motion to dismiss filed by defendants 

be and the same is hereby granted. 
2. That for clarification, the court also ruled 

that even if plaintiff should plead the alleged 

statements of Mr. Randy Smith, the court would 

still rule that such statements are not a legal 

basis for recovery under the principle of equitable 

subordination. 

Judge Hatfield's order on appeal to the Bankruptcy Court 

indicated that "the order of the Bankruptcy Judge dismissing 

the plaintiff's claim for equitable subordination under 11 

U.S.C. Section 510 (c) be accepted in whole by this Court." 

As counsel for ~irst Bank correctly points out, res 

judicata applies when the following criteria are met: 

(1) The parties or their privies are the same; 

(2) The subject matter of the action is the same; 

(3) The issues related to the subject matter are 

the same; and 

(4) The capacities of the person are the same in 

reference to the subject matter and the issues 

between them. 

See Fox v. 7L Bar Ranch Company (19821, 198 Mont 201, 

206, 645 P.2d 929, 931; Federal Land Bank of Spokane v. 

Heidema (Mont. 1986), 727 P,2d 1336, 1337; Phelan v. Lee 

Blaine Enterprises (1986), 220 Mont. 296, 299, 716 P.2d 601, 

603. 

On June 22, 1983, the Bankruptcy Court dismissed Shape's 

bankruptcy proceedings under Chapter 11 with prejudice upon 

the grounds that no plan had been filed, that no assets 

remained in the estate, that the costs of administration 

exceeded the assets and there was no chance of reorganization 

under Chapter 11. The dismissal was with prejudice, 

including all adversary matters pending in relation to the 

Chapter 11 proceedings. 

~hil-Co's complaint and amended complaint in the state 

court set forth theories of liability based on 
misrepresentation, equitable estoppel, fraud and bad faith. 

The issues in the Bankruptcy Court were related to the narrow 

issue of equitable subordination between competing interests 

of two creditors of the alleged bankrupt. Thus the claim of 

res judicata fails with respect to two of the criteria set 

forth above: the subject matter of the actions are not the 

same, and the issues relating to them are not the same. We 

hold therefore the res judicata does not apply in this action 

based upon the proceedings taken in the Bankruptcy Court, and 

the appeal to the Federal District Court. 

~hil-Co further contends on this issue that under the 11 

U.S.C., Section 349, the dismissal with prejudice of the 

bankruptcy proceedings restores all parties involved in the 

bankruptcy to status quo. That may well be the effect of the 

federal statute, but in light of our holding as to res 

judicata it is not necessary for us to reach any conclusion 

with respect to the federal statute at this point. 

11. 

Was First National Bank prejudiced by the Filinq of an 

Amended - Complaint by the Plaintiff Three Weeks prior - to 

Trial? 

 rial of this cause in ~istrict Court had been set for 

August 9, 1988, when, on July 15, 1988, Phil-Co moved the 

~istrict Court for permission to amend its complaint. 

Phil-Co stated that it had "learned of additional facts 

through the discovery process and justice requires that the 

amendment be allowed." First National Bank argues that 

Phil-Co could not have discovered any additional information 

from discovery that it did not have prior to the original 

complaint and that the amended complaint dramatically changed 

factual pleading and theories. One of its reasons was that 

the complaint had been filed four and one half years earlier. 

First National points to United Methodist Church v. D. A. 
Davidson (Mont. 1987), 741 P.2d 794, 797, and McGuire v. 

Nelson (1973), 162 Mont. 37, 42, 508 P.2d 558, 560, for cases 

finding an abuse of discretion when the district court grants 

an amendment to pleading on the eve of trial. 

First National contends that the original complaint 

alleged theories amounting to bad faith, breach of fiduciary 

duty, breach of the implied covenant of good faith and fair 

dealing, and fraud. It contends that the amended complaint 

changed the theories to equitable estoppel, fraud, and bad 

faith. prior to settling instructions, the ~istrict Court on 

its own motion dismissed plaintiff's claims of equitable 

estoppel, fraud, bad faith, and punitive damages. The court 

permitted the case to go forward to the jury on theories of 

constructive fraud and negligent misrepresentation. First 

National now contends that the Court injected theories into 

the case which were not pleaded. 

The general concept of the Montana Rules of Civil 

Procedure is to allow a party to obtain such relief as he or 

she may be entitled to under the testimony and proof. Thus 

Rule 8(a) allows the plaintiff to set forth a short and plain 

statement of his claim showing that he is entitled to relief, 

and a demand for the judgment to which he deems himself 

entitled. Relief in the alternative or several different 

types may be demanded. Rule 8 (e) is specific that when two 

or more statements of a claim or defense are alleged, if any 

one of them made independently would be sufficient, the 

pleading is not made insufficient by the insufficiency of one 

or more of the alternative statements. Rule 15(a) states 

that amendments to pleadings may be given freely "when 

justice requires." In actions involving multiple claims or 

involving multiple parties, Rule 54(b) permits the court to 

revise at any time before the entry of judgment a decision 

adjudicating all the claims and rights and liabilities of the 
parties. Especially notable is the last sentence of Rule 

54(c) which provides that except in cases of judgment by 

default, "every final judgment shall grant the relief to 

which a party in whose favor it is rendered is entitled, even 

if the party has not demanded such relief in his pleadings." 

In this case, the action of the District Judge in 

limiting through instructions the theories of recovery to 

constructive fraud and negligent misrepresentation had the 

effect of removing much of the Bank's claimed prejudice 

through the allowance of the amended complaint. The facts 

upon which the theories of constructive fraud, negligence and 

misrepresentation are based were quite well known to the 

plaintiff and at all times to the court during the 

litigation, so that First National is unable to demonstrate 

any prejudice that resulted from the permitted amendments. 

We therefore hold against ~irst National on this issue. 

-- id the Statute of Frauds - ~equire - a is missal -- of the 

complaint --- in this case? 

First National Bank contends that since ~hil-Co alleged 

both in its complaint and amended complaint that the Bank had 

failed to honor the check which paid Shape's debt to Phil-Co 

that pursuant to S 28-2-903, MCA, the cause should have been 

dismissed. 

Section 28-2-903 (1) (b) , MCA, provides: 

The following agreements are invalid unless the 

same or some note or memorandum thereof is in 

writing and subscribed by the party to be charged 

or his agent: 

(b) A special promise to answer for a debt, 

default, or miscarriage of another . . . 

First ~ational then points to several instances in the 

testimony when one or another of the witnesses stated that 
the Bank had "agreed" that it would see to it that Ray 

Shape's bill was paid. Additionally, Phil-co did not respond 

to two requests for admission which would therefore be deemed 

admitted: 

Request No. 21: ~dmit that Phil-Co Feeds, Inc., 

never received a written agreement from the First 

~ational Bank in Havre agreeing to pay Ray Shape's 

feed bill. 

Request No. 22: ~dmit that no representative of 

Phil-Co Feeds, Inc., ever requested Raymond Shape 

to secure an agreement with the First ~ational Bank 

in Havre to pay his feed bill owed to Phil-Co 

Feeds, Inc. 

The Statute of Frauds applies to liabilities based on 

contract, and not to theories of liabilities based on fraud 

or negligent misrepresentation. 

Under the evidence here, Lefdahl called Randy smith and 

requested information regarding Ray Shape's ability to pay 

any statement on his extremely large feed bill. Randy smith, 

a banker, chose to divulge information regarding Ray Shape to 

~ic Lefdahl and did make certain affirmative statements 

indicating that Shape could pay and that it did not matter if 

Shape did not pay as Phil-co had an automatic feed lien which 

would be paid first. Phil-Co relied on this information and 

extended credit to Ray Shape from November, 1981 to December 

11, 1981 when ~ic Lefdahl again called Randy smith to confirm 

that the check to Phil-co drawn by Ray Shape on ~irst 

~ational Bank was good. At that time, he was advised the 

check would not be honored and Lefdahl took action to protect 

Phil-Cots interests. 

The requests for admission in this case are not 

pertinent because they relate to written agreements, and 

plaintiff's case in tort is not based on a written agreement. 

Therefore the Statute of Frauds does not apply. 
We uphold the District Court on this issue. 

IV. 

Was First National Bank Prejudiced by the District 

Court's Refusal - to Permit Certain Evidence & Testimony? 

On the cross examination of Donald Cole, an attorney 

representing Phil-Co at the time Shape was doing business 

with him, and who is also representing one of its officers 

and directors, Lee Robinson, the Bank attempted to elicit 

testimony from Cole regarding his representation of Lee 

~obinson. When objection was sustained, the Bank made an 

offer of proof which would have shown that Cole had 

represented Lee Robinson with respect to a claim against 

Shape for the purchase by Shape from Robinson of a certain 

Versatile Tractor. Because of his trouble in collecting the 

debt from Shape, Bank wanted to establish that Lee ~obinson 

knew prior to the time that ~hil-Co became involved with 

Shape that Shape did not pay his debts as they became due. 

Bank contends that this would have shown that ~obinson, as a 

director of Phil-Co, knew or should have known before Phil-Co 

began giving credit to Shape that he was a poor credit risk. 

The court denied the offer of proof upon the ground that any 

knowledge that Lee Robinson might have had as to the credit 

record of Shape could not be imputed to the corporation in 

this case. Plainly the District Court was correct. 

Bank further raises the issue of the refusal by the 

District Court to admit the deposition of Sid Boe as evidence 

in the cause. Bank asserts that the testimony of Sid Boe 

would have demonstrated that Phil-Co had knowledge that the 

Bank was not providing operating credit or monies to pay for 

feed to Ray Shape. This information, however, would be 

irrelevant to the present action. Under the testimony here, 

Lefdahl called the Bank and was assured that even if Shape 

did not receive money from the Bank for feed that 
nevertheless Phil-Co had an "automatic feed lien," and would 

be paid before the Bank. Evidence in the cause indicated 

that there was no such automatic feed lien. The District 

Court correctly refused this testimony. 

The ~istrict Court also refused as irrelevant the 

admission of two security agreements offered by the Bank. 

The evidence indicated that the agreements were signed in 

January of 1982, but were back dated to December 8, 1981 and 

were security agreements which related to arrangements made 

through the owner of the cattle for payment for the feed 

after December 11, 1981, when the Bank informed Phil-Co that 

it would not honor Shape's last check for $40,000. 

Unless the offered evidence naturally and logically 

tends to establish a fact in issue, it is not admissible. 

Britton v. Farmers Insurance Group (Mont. 1986), 721 P.2d 

303. The test of relevancy is whether an item of evidence 

will have any value, as determined by logic and experience in 

proving the proposition for which it is offered. 

McConnell-Cherewick v. herew wick (1983), 205 Mont. 75, 666 

P.2d 742. The evidence in this case, offered by the 

defendant and refused by the District Court, had no relation 

to the representations made by the bank's officer, upon which 

Phil-Co relied. We find no error on these issues. 

v. 

-- Did the ~istrict Court prejudice First National Bank % 

Requiring -- it to Produce Randy Smith for Examination - at ~rial? 

In the course of the trial before the District Court, 

counsel for Phil-Co announced that the plaintiff would rest. 

Immediately thereafter, a colloquy between court and counsel 

for the Bank ensued as follows: 

MR. KNIERIM: We will rest. 

MR. THOMPSON: I know the jury has been like a 

jumping jack back and forth, but now we are going 
to put our case on, I wonder if I can have a ten 

minute break. I anticipated that they would have 

more witnesses than what they did, and I would like 

to have about a ten minute recess. 

THE COURT: I understand that Mr. Smith is present 

in the court. 

MR. THOMPSON: No, he is not. 

THE COURT: In the courthouse? 

MR. THOMPSON: No. he is not. 

THE COURT: He is here in Havre. 

MR. THOMPSON: I would be able to have Mr. Smith 

available for testimony in a few minutes. 

THE COURT: I think in the interest of judicial 

economy, you better have him in here subject to 

examination by the plaintiff as a possible witness. 

MR. THOMPSON: Your Honor, we will call him in our 

case. 

THE COURT: The court has ordered him called now, 

Mr. Thompson, and I want to get this case settled 

out so that there is some understanding by the jury 

of what is going on. And I want you--we will have 

a recess. You get a hold of Mr. smith and get him 

up here so he can be examined by the plaintiff. 

MR. THOMPSON: Okay. Perhaps we can have a recess 

for ten or fifteen minutes. 

THE COURT: ~ine. We are in recess for 15 minutes. 

WHEREUPON, the court took its recess at 2:05 p.m. 

Randy Smith appeared in court at 2:20 p.m., and the 

trial resumed, with Randy Smith being examined by the 

plaintiff as an adverse witness as part of the plaintiff's 

case in chief. 

Counsel for the Bank now contend that the record does 

not show the "volcanic anger" of the District Judge at the 
time and his demeanor in the course of the discussion. Bank 

contends that the jury may have been prejudiced by the court 

in directing the production of Randy Smith for examination. 

Immediately before the colloquy above reported, there was a 

conference before the bench, off the record. Because the 

conference off the record is not reported, this Court can not 

indulge in speculation as to what the District Court learned 

at that time. 

Insofar as the contention of the Bank is now raised, no 

objection was made by Bank's counsel at the time of the 

action by the judge nor was there any motion for mistrial. 

Therefore there was no preservation of any issue of judicial 

misconduct for appeal. ~vangeline v. ~illings Cycle Center 

(Mont. 1981), 626 P.2d 841. We do not find error on this 

point. 

VI . Conclusion 

The foregoing are the issues raised by the appellant in 

this cause, and our disposition of the same. Because we find 

no error on the part of the ~istrict Court on the issues 

raised, we affirm the judgment. n 

:7/;ua 

Chief Justlce 

PVL 42. 

Justlce