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 ofMcCone, The Honorab1.eDale Cox,Judgepresiding.

COIJNSEL OF RECORD:
ForAppellant:
ZamesA Patten; Patten Law Firm,Billings,Montana
For Respondent: Kyle

### A Gray; Holland & Hart, Billings, Montana JamesM. Ragain; Holland & Hart,Billings,Montana

3- 3 0
I< L'l LA' --I ;": c1 LtJ m r(- 3- : Submitted: February 3, 1989 Decided: February 23, 1989Mr. Chief Justice J. A. Turnagedelivered 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 conversionand 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), forbreach of the implied covenantof good faith and fair dealing. The District Court, Seventh Judicial District, McCone County, sitting without a jurv, granted summary judgment in favor of theplaintiff Bank on Counts I (default),XI (foreclosure of security interest), and VIX (individualliability) 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 aswell. The District Court based its summary judgment on the surety and guaranty documentswhichwere signed by Meyers and which the courtruledwere in effect at the time the corporationdefaulted on itsnote. Defendantsappeal. The issue on appeal is whether there is any genuine issueofmaterial fact precluding summary judgment onMeyers' contentions that he is not personally liable for the default of his corporation and that the Rank acted in bad faith towardhim individually. We affirm.

### I. THE SURETYAND GTJARANTYAGREEMENTS 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 Loanwith $200,000 Guaranty
6-11-84 Loan with Securitv & $500,000 Surety Agreements 10-30-84 $100,000Surety Agreement 11-20-84 $150,000Surety Agreement

6-06-85 $120,000 Loan with Surety Agreement
10-07-85 $300,000 Loan with Security Agreement

9-30-86 $293,000Loan in Question
All of the above loans were repaid prior to the September 1986 loan in question. The October 7, 1985, loanwas 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 express

### ly stated that they were "open and continuing" in nature, covering all indebtednessof 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: SURETYAGREEMENTS
For a valuable consideration, Borrower

[the corporation] and surety [Keith Meyers'Jiointly, 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~tankebv 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.1GUARANTY



# .. . The undersigned hereby absolutely and unconditionally guarantees prompt - payment when due and at all times thereafter of

### any and all existing and future indebtednessand-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 underxgnedwaives nFtice of the acceptance of this Guaranty and 

### of an!7 and all such indebtednessand liability.

This Guaranty ismade and shall continue as to anv and all such indebtednessand --L--- -- liability of the Borrower to the Bank incurred - or arising prior - to receipt 

### - by the Bank ofwritten notice of the termi

### --- nation hereof from the undersisned 

# . . .

[Emphasisadded.] Meyers relies on 5 28-11-413, MCA, which reads: Effect of performance or offer 

### - of

### performanceon surety's liability. Performance oftheprincipal obligation or an offer of such performance, duly made as provided in this code, exonerates a surety. Meyers argues that "performanceof 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 oftermination 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 expresslywaive his right to exoneration in thatmanner: Paragraph #3

# ".



# ..Thus, - nopayments made upon Borrower's indebtedness will discharge surety's obligation

# .

# .." (Emphasisadded.) 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 thebelief that the intention and purposewas towaive); and Thielv. Johnson (Mont.1985), 711 P.2c? 129, 42 St.Rep. 2010 (waivermay 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 inManolakis persuasive. In that case, the guarantor argued that his obligations were satisfied by operation of lawbecause the creditorbank had failed to seek

a deficiency judgment against the principal within ninety days as per Oklahoma statutory law. Such failure released theprincipal. However, the court concluded that the quarantorbras still liable, saying: What defenses remain available to a quarantor under [thestatute1 

# . ..mustbe 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, 613P.2d at 439. Meyers likewise waived his statutory defensesavailable 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-andardbanking practice in Montana, Bank would not loan such large amounts ofmoney to

### a closely-held family corporation without

a personal guaranty or surety from the major individual stockholder. The intent of theparties to aid corporationby lendingmoney but toprotect Rank with personal guaranties is entirely clear from the written documents which establish thjs 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 $293,000default. However, the surety dated June 11, 1984, for $500,000 fails as a matter of law because Meyers didnot sign it in his individual capacity onthe 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,nopayments upon Borrower's indebtednesswill discharge the liability of surety for

### any and all remaining and succeeding indebtednessof 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 admitshe gave no suchwritten 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 theparties. Meyers sought to introduce parol evidence as to his contrary intent to have each surety agreementbe "note specific," i.e., for the suretyship to be released and start
anew as each debtwas 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 introduceparol evidence. The lower court found no ambiguity in the documents, the same was ad-mittedby both counsel.,and refused all parol.evidence of contrary intent. We agree. The rule has long been that where no ambiguity exists in thewritten 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 languageaswritten. 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 guarantordoes 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, 598P.2d 1083. In the instant case, Bank exhausted its remedies against Corporation and the collateral. Thus, itwas 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 thevery least Meyerswould be

a guarantorunder 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 againstboth the Rank and MBI. We affirm. Defendants' contentions failboth 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 inquestion,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 Corporationwas about todefault. In his deposition, Mevers testified that the facts amounting to the Bank'shad faith (andMBL asbeing "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/businesscommunity. 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 anywherewhich soholds. 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 (thebank has no duty to

renewor extend the note indefinitely); S 20-1-211,MCA (bank need only act in a commercially reasonable manner); FirstNat'l Montana Bank of Missoulav. McGuiness (Mont.1985), 705 P.2d 579, 42 St.Rep. 1288 (the exercise of good business sense does not constitutebad 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 iudicialproceedinq

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 judgmenton that issue. Lastly, is the question of certain rumors which Meyers alleges that Bank instigated againsthim 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 commercialcontracts. 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 tohave liability forbad 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), 645F.Supp. 937. Additionally, "it. is a well-settled rule of contract law that a party who commits the initialbreach cannot complain of a subsequentbreach." 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 MBIwas likewisebound by this duty because it is "inextricablyintertwined"with the Bank. Meyers was unable to put forth any Montana law to support his contention that an affiliation between two partiesmay transferoneparty'sduty ofgood faith onto another party. Likewise, Meyers brought forth no evidenceby way of affidavit or deposition testimony, or otherwise, to prove a relationship betweenMBI, the Bank and himself. MBI argues that summary judgment for themwas 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 relatjonshipwith Bank. However,no evidencewaspresentedwhich suggested this was a special. or fiduciary relationship onto which the covenant is applied under Tribby 

### v. NorthwesternBank 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 ofhis corporate conduct until it was over. MBI cannot be held liable for had faith under these facts. Summary judgmentwas 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, themovantmust 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 affi-rmed 

# .

We concur:

V

Justices