No. 88-326 

IN THE SUPREME COURT OF THE STATE OF MONTANA 

MONTANA RANK OF CIRCLE, N.A., a corporation, 

Plaintiff and Counterdefendant and Respondent, 

VS. 

RALPH MEYERS & SON, INC., a corporation, and 

KEITH MEYERS, 

Defendants, Counterplaintiffs and Third-Party 

PI-aintiffs, and Appellants. 

APPEAL FROM: The District Court of the Seventh Judicial District, 

In and for the County of McCone, 

The Honorab1.e Dale Cox, Judge presiding. 

COIJNSEL OF RECORD : 

For Appellant: 

Zames A Patten; Patten Law Firm, Billings, Montana 

For Respondent: 

Kyle A Gray; Holland & Hart, Billings, Montana 

James M. Ragain; Holland & Hart, Billings, Montana 

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Submitted: February 3, 1989 

Decided : February 23, 1989 
Mr. Chief Justice J. A. Turnage delivered the Opinion of the 

Court. 

This lawsuit is a debt collection and foreclosure 

action against the principal Ralph Meyers and Sons (Corporation) and its surety and guarantor, Keith Meyers (Meyers) 

individually, with additional counts by plaintiff Montana 

Bank of Circle (Bank) alleging fraud, wrongful conversion and 

controlling stockholder individual liability (piercing the 

corporate veil). Defendants counterclaimed against the Bank 

and filed a third-party suit against the bank holding company, Montana Banksystem, Inc. (MBI), for breach of the implied 

covenant of good faith and fair dealing. 

The District Court, Seventh Judicial District, McCone 

County, sitting without a jurv, granted summary judgment in 

favor of the plaintiff Bank on Counts I (default), XI (foreclosure of security interest), and VIX (individual liability) 

of its complaint, establishing both defendants' liability on 

the underlying note and dismissing all other claims. The 

summary judgment dismissed the counterclaim and third-party 

action as well. 

The District Court based its summary judgment on the 

surety and guaranty documents which were signed by Meyers and 

which the court ruled were in effect at the time the corporation defaulted on its note. Defendants appeal. 

The issue on appeal is whether there is any genuine 

issue of material fact precluding summary judgment on Meyers' 

contentions that he is not personally liable for the default 

of his corporation and that the Rank acted in bad faith 

toward him individually. 

We affirm. 
I. THE SURETY AND GTJARANTY AGREEMENTS 

Corporation borrowed $293,000 from the Bank on Septemher 30, 1986, and signed a promissory note and security 

agreement evidencing the debt. Prior to this occasion, the 

course of dealing between the parties is outlined below: 

7-25-83 Loan with $200,000 Guaranty 

6-11-84 Loan with Securitv & 

$500,000 Surety Agreements 

10-30-84 $100,000 Surety Agreement 

11-20-84 $150,000 Surety Agreement 

6-06-85 $120,000 Loan with Surety Agreement 

10-07-85 $300,000 Loan with Security Agreement 

9-30-86 $293,000 Loan in Question 

All of the above loans were repaid prior to the September 1986 loan in question. 

The October 7, 1985, loan was repaid in September 1986 

with proceeds from the loan in question. No surety or guaranty documents were executed contemporaneously with the 

October 1985 loan or the September 1986 loan. Bank argues 

that none were necessary because the surety documents that 

had previously been executed between the parties all expressly stated that they were "open and continuing" in nature, 

covering all indebtedness of the principal whenever or however incurred. 

Meyers contends that each surety was attached to a 

specific note and should be exonerated as a matter of law 

when each note was repaid; since no surety agreement was 

executed at the time of the September 1986 loan, he argues 

that he is not personally liable for the corporate default. 
Thus, the legal question becomes, what exonerates a surety 

under this contract? 

The specific language relied on by Rank is as follows: 

SURETY AGREEMENTS 

For a valuable consideration, Borrower 

[the corporation] and surety [Keith 

Meyers'J iointly, severally, and-unconditionally are bound - to paqr --- to the Bank, 

its successors or assigns, on demand, in 

lawful money of the United States of 

America, - any -- and - all indebtedness - - of the 

Borrower to -- Bank, as follows: 

3. Nature of Surety's Undertaking. - The 

liability - of Surety -- shall - be open - and 

continuous for -- so long - as -- this --- surety 

agreement -- is in force. Surety intends 

to be responsible at all times for the 

performance of all obligations of Bor-- 

rower to Rank within the limits of 

Section 1. Thus, no payments made upon 

Borrower's indebtedness will discharge 

- or diminish the liabilitv '--- of Suretv for 

any and allremaining -and -- succeeding 

indebtedness of Borrower -- to Rank. The 

liability of Surety will be enforceable 

against both the separate and community 

property of Suretv whether now owned or 

hereafter acquired. 

5. Duration of Suretv Aareement. This 

surety agreement wilf tLke effect when 

received by Bank, without the necessity 

of anv acce~tanke bv Bank. and will 

contike -- in Lfull forGe until -- such time 

- as Surety notifies -- Bank in writing, at. 

the branch or office of Rank to which 

this surety agreement is delivered in 

the first. instance, - of Surety's - election 

- to terminate -- the same. [Emphasis 

added. 1 
GUARANTY 

. . . The undersigned hereby absolutely 

- and unconditionally guarantees prompt 

payment when due and at all times thereafter of any and all existing and future 

- indebtedness and-liahi-lity of every 

kind, nature and character (includinq 

all renewals, extensions and modifications thereof) -- from the Borrower -- to the 

Bank, howsoever and whensoever created, 

- or arising, or evidenced, or acquired; 

and the underxgned waives nFtice of the 

acceptance of this Guaranty and of an!7 

and all such indebtedness and liability. 

This Guaranty is made and shall continue 

--L--- 

as to anv and all such indebtedness -- and 

liability of the Borrower to the Bank 

incurred - or arising prior - to receipt - by 

--- the Bank of written notice of the termination hereof from the undersisned . . . [Emphasis added.] 

Meyers relies on 5 28-11-413, MCA, which reads: 

Effect of performance or offer - of performanceon surety's liability. Performance of the principal obligation or an 

offer of such performance, duly made as 

provided in this code, exonerates a 

surety. 

Meyers argues that "performance of the principal obligation" means payment of each note. Thus, he argues that 

each surety obligation was exonerated as he repaid each 

outstanding loan, contrary to the express lanquage in the 

contract. 

Bank argues that when the contract is silent as to 

termination, the statute will apply to terminate the suretyship for the debts of the principal which have been repaid. 

Howe~rer, the statute would not supply the date - or method of 
termination when the unambiguous written contract expresses 

that termination may only be effected by written notice. 

We affirm the lower court's finding that the sureties 

were not exonerated by operation of law under S 28-11-413, 

MCA . 

Meyers raises exoneration as defined under 28-11-413, 

MCA, as his third affirmative defense in his amended answer 

and counterclaim dated February 18, 1988. However, the 

contracts which he signed expressly waive his right to exoneration in that manner: Paragraph #3 ". . . Thus, - no payments 

made upon Borrower's indebtedness will discharge surety's 

obligation . . . " (Emphasis added.) 

We conclude that this is a valid waiver of rights. 

Because it is not a constitutional right, nor a waiver in 

violation of public policy, Meyers was entirely free to 

contract away his right to the statutory exoneration of his 

suretyship, which he did. See, Kelly v. Lovejoy (19771, 172 

Mont. 516, 565 P.2d 321 (waiver may he proved by a course of 

acts or conduct so as to induce the belief that the intention 

and purpose was to waive); and Thiel v. Johnson (Mont. 1985), 

711 P.2c? 129, 42 St.Rep. 2010 (waiver may be express or 

implied). 

A similar waiver under a guaranty contract occurred in 

Riverside Nat. Bank v. Manolakis (Okla. 1980), 613 P.2d 438. 

We find the analysis in Manolakis persuasive. In that case, 

the guarantor argued that his obligations were satisfied by 

operation of law because the creditor bank had failed to seek 

a deficiency judgment against the principal within ninety 

days as per Oklahoma statutory law. Such failure released 

the principal. However, the court concluded that the quarantor bras still liable, saying: 

What defenses remain available to a 

quarantor under [the statute1 . . . must 
be determined by the terms of the guaranty contract, i. e. , by the breadth of 

the guarantor's promise. In the case 

before us, the guarantor, by the clear 

provisions of his promise, expressly 

waived all of the available [statutory] 

defenses. 

Manolakis, 613 P.2d at 439. 

Meyers likewise waived his statutory defenses available 

to him as a surety and no exoneration is effected in t.hj.s 

case under § 28-11-413, MCA. 

However, this Court finds the central question here is 

not merely one of exoneration, but more realistically, what 

was the nature of the relationship between the parties. 

Meyers, Corporation and Bank began a course of dealing, based 

on a series of written contracts, to establish a Line of 

credit for the benefit of Corporation. As is st-andard banking practice in Montana, Bank would not loan such large 

amounts of money to a closely-held family corporation without 

a personal guaranty or surety from the major individual 

stockholder. The intent of the parties to aid corporation by 

lending money but to protect Rank with personal guaranties is 

entirely clear from the written documents which establish 

thj s relationship. 

Based on this relationship, we find no alternative but 

to affirm the lower court's findings that the surety agreements are in effect and Meyers is in fact personally liable 

for the default of Corporation. We affirm that the sureties 

dated Octoher 30, 1984 for $100,000; November 20, 1984 for 

$150,000; and June 6, 1985 for $120,000 were in effect and 

cumulatively cover the $293,000 default. However, the surety 

dated June 11, 1984, for $500,000 fails as a matter of law 

because Meyers did not sign it in his individual capacity on 
the line designated for the surety. It was not duly 

executed. Thus, that contract fails. 

As noted above, Paragraph 3 of the agreement outlining 

the nature of surety's undertaking states, "The liability of 

surety shall be -- oPen and continuous for so long as this 

agreement is in force . . . Thus, no payments upon Borrower's 

indebtedness will discharge the liability of surety for any 

-- and - all remaining and succeeding indebtedness of Borrower to 

Bank." This express language must be given effect. until 

terminated. Paragraph #5 states termination is only effected 

when surety notifies Bank in writing. Additionally telling 

is the fact that in triple size, bold face, capital letters 

directly above Meyers' signature it reads, "EFFECTIVE UNTIL 

TERMINATED IN THE MANNER SET FORTH . . . ABOVE," negating 

any possibility that the termination clause was merely adhesive language. Meyers admits he gave no such written termination to Bank. To have Meyers be individually liable for 

the line of credit established by Corporation and evidenced 

by the guaranty and four sureties is the obvious and expressed intent of the parties. 

Meyers sought to introduce parol evidence as to his 

contrary intent to have each surety agreement be "note specific," i.e., for the suretyship to be released and start 

anew as each debt was repaid. Although his counsel admitted 

at. the hearing on sum mar:^ judgment that each document is 

clear and unambiguous on its own, he argued that when taken 

as a series of transactions, they create an ambiguity as to 

Meyers' intent regarding the continuing nature of his liability. Thus, he argues that ambiguity should either be resolved against the Bank as makers of the documents, or by 

allowing him to introduce parol evidence. 

The lower court found no ambiguity in the documents, 

the same was ad-mitted by both counsel., and refused all parol. 
evidence of contrary intent. We agree. The rule has long 

been that where no ambiguity exists in the written documents, 

no par01 evidence may be taken, Nordlund v. School District 

(Mont. 1987), 738 P.2d 1299, 44 St.Rep. 1183, and the duty of 

the court is simply to apply the language as written. 

The lower court also enforced the express language of 

the guaranty which held Meyers individually liable to the 

extent of $200,000. We agree. The operative language is 

substantially the same as the sureties discussed above. 

A guarantor differs from a surety in that a surety 

holds primary liability equal with that of the original 

borrower. However, a guarantor does not become liable until 

an intervening act occurs, such as a default of the original 

borrower. Compare §§ 28-11-401 and 28-11-101, MCA; see also, 

Stensvad v. Miners & Merchants Bank of Roundup (1979), 183 

Mont. 160, 598 P.2d 1083. 

In the instant case, Bank exhausted its remedies 

against Corporation and the collateral. Thus, it was ripe to 

proceed against Meyers as both a surety and a guarantor. 

We note here that had the above-mentioned surety documents failed legally as per Meyers' argument that they were 

exonerated, their language still would have effected a guaranty against Meyers individually under the facts of this 

case. Because Montana has no comparable exoneration statute 

for guaranties as it does for sureties, and because Bank had 

already sought recovery against the Corporation, and the 

collateral after a default, at the very least Meyers would be 

a guarantor under all of the duly-executed documents. In its 

broadest sense, every suretyship includes a guaranty. Suretyship, Simpson (1977) . Thus, the operative language in 

these surety agreements also effectuated a guaranty. The 

District Court is affirmed on that issue. 
11. BAD FAITH 

The District Court summarily dismissed defendants' bad 

faith claims against both the Rank and MBI. We affirm. 

Defendants' contentions fail both as a matter of factual proof and as a matter of law. Meyers named certain livestock and equipment as collateral for his loans in the 

security agreements he executed. However, immediately after 

procuring the loan in question, Meyers sold the collateral to 

pay off a debt to Saul Stone, a new York stockbroker, for 

losses he incurred in the futures market. Additionally, 

Meyers applied the proceeds from the corporate loan to the 

same debt. It is undisputed that Meyers took these actions 

without advising the Bank of his intent to do so and, in 

fact, did not advise the Bank of his actions until the Corporation was about to default. 

In his deposition, Mevers testified that the facts 

amounting to the Bank's had faith (and MBL as being "inextricably intertwined" to the Bank) were (1) failing to renegotiate the defaulted note with the Corporation, (2) publishing 

slanderous statements about Meyers in the District Court 

complaint, and (3) spreading rumors about Meyers' financial 

inability in order to "shut him down" in his 

ranching/business community. 

This Court has never held that a Montana bank is under 

a duty to renegotiate a defaulted loan and Meyers is unable 

to point to case law anywhere which so holds. That argument 

is without merit. Because there is no evidence that a duty 

exists, Rank is entitled to summary judgment. First Trust 

Co. of Montana v. McKenna (1980), 188 Mont. 534, 614 P.2d 

1027. See also, Central Bank of Montana v. Eystad (Mont. 

1385), 710 P.2d 710, 42 St.Rep. 1850 (the bank has no duty to 

renew or extend the note indefinitely); S 20-1-211, MCA (bank 

need only act in a commercially reasonable manner) ; First 
Nat'l Montana Bank of Missoula v. McGuiness (Mont. 1985), 705 

P.2d 579, 42 St.Rep. 1288 (the exercise of good business 

sense does not constitute bad faith). 

Likewise, Meyers' second argument pertaining to the 

"bad faith filing of fictitious and slanderous claims" printed by Bank in its complaint is also without merit. It has 

long been held that statements made in a iudicial proceedinq 

are absolutely immune and a cause of action for defamation 

cannot be predicated thereon. Section 27-1-804 (2), MCA; see 

Bollinger v. ~Tarrett (1965), 146 Mont. 355, 406 P.2d 834 

("[Tlhere is no libel because any publication made in a 

judicial proceeding is privileged" ) . Rank and MRI were 

entitled to summary judgment on that issue. 

Lastly, is the question of certain rumors which Meyers 

alleges that Bank instigated against him in order to put him 

out of business. This allegation fails both factually and 

legally. Because of the long and involved facts, we choose 

to discuss the legal aspects of this issue instead. 

The relationship between the parties was defined by 

their underlying commercial contracts. Based on those underlying contracts, two crucial facts come to light: (1) Bank 

did not breach the contracts; (2) Mevers breached the 

contracts. 

It can be said fairly that the underlying contracts 

subsumed the entirety of the relationship between Rank and 

Meyers. They had no course of dealing or external relationship, absent their commercial contract. Thus, Montana lab7 

requires an initial finding that Bank breached that contract 

to have liability for bad faith conduct attach. 

Since the Rank had not breached the underlying contract 

(promissory note and security agreement), it cannot be said 

that Rank acted unreasonably and in bad faith. Nordlund v. 

School Dist. No. 14 (Mont. 1987), 738 P.2d 1299, 44 St.Rep. 
1183, and Maxwell v. Sisters of Charity of Providence (D. 

Mont. 1986), 645 F.Supp. 937. 

Additionally, "it. is a well-settled rule of contract 

law that a party who commits the initial breach cannot complain of a subsequent breach." Malloy v. Judge's Foster Home 

(Mont. 1987), 746 P.2d 1073, 44 St.Rep. 1996. Meyers committed the initial breach when he secretly sold the Bank's 

collateral and is barred from subsequently claiming the Bank 

treated him unfairly and in bad faith on their contract. 

Based on the conduct of the parties with regard to the 

underlying contracts, no liability can attach for bad faith. 

Summary judgment in favor of the Bank was proper. 

Meyers' attempt to hold MBI, the bank holding company, 

liable for bad faith is baseless. He admitted at hearing 

that he and his corporation had no independent relationship 

with MBI into which the covenant could be implied. But, he 

argued that the Bank owed. him a duty of good faith as its 

customer and that MBI was likewise bound by this duty because 

it is "inextricably intertwined" with the Bank. 

Meyers was unable to put forth any Montana law to 

support his contention that an affiliation between two parties may transfer one party's duty of good faith onto another 

party. Likewise, Meyers brought forth no evidence by way of 

affidavit or deposition testimony, or otherwise, to prove a 

relationship between MBI, the Bank and himself. 

MBI argues that summary judgment for them was proper on 

this count because of Meyers' failure of proof. The summary 

iudqment hearing was the time for Meyers to put forth the 

evidence of these relationships, if any existed. We agree. 

Meyers and his corporation had a bank-customer relatjonship with Bank. However, no evidence was presented which 

suggested this was a special. or fiduciary relationship onto 

which the covenant is applied under Tribby v. Northwestern 
Bank of Great Falls (Mont. 1985), ?04 P.2d 409, 42 St.Rep. 

1133. 

There was no evidence that Bank encouraged the loans, 

advised Meyers or acted as his confidant. To the contrary, 

Meyers admitted he deliberately did not tell the Bank of his 

corporate conduct until it was over. MBI cannot be held 

liable for had faith under these facts. Summary judgment was 

proper. 

The appellate standard of review of a summary judgment 

is the same as that used hy the trial court. In order for 

summary judgment to issue, the movant must show that there is 

no genuine issue as to all material facts. Rindrim v. University of Montana (Mont. 1988), P.2d , 45 St.Rep. 

2316. Based on the foregoing credible evidence, Rank and MFT 

have met their burden. We conclude that no genuine issues of 

material fact exist. 

Judqment af fi-rmed . 

We concur: 

V 

Justices