No. 13196 

IN THE SUPREME COURT OF THE STATE OF MONTANA 

1976 

THE STATE OF MONTANA on the Relation 

of David G. Drum and Dorothy G, Drum, 

Petitioner, 

THE DISTRICT COURT OF THE THIRTEENTH 

JUDICIAL DISTRICT OF THE STATE OF MONTANA, 

IN AND FOR THE COUNTY OF YET,T,OWSTONE, and 

ROBERT H. WILSON, Presiding Judge Thereof, 

and FIRST NATIONAT, BANK AND TRUST COMPANY, 

of Billings, Montana,, 

ORIGINAL PROCEEDING : 

Counsel of Record: 

For Petitioner: 

Hutton, Sheehy and Cromley, Billings, Montana 

John C. Sheehy argued, Billings, Montana 

For Respondents: 

Hibbs, Sweeney and Colberg, Billings, Montana 

William T. Wagner argued and Hugh Sweeney appeared, 

Billings, Montana 

Submitted: February 5, 1976 

Decided : APR 1 g 1976 

;;p~ 12 1976 Filed : 
Mr. Justice Frank I. Haswell delivered the Opinion of the Court. 

The original opinion in this cause was rendered on 

December 30, 1975 and appeared in 32 St.Rep. 1297. We granted 

rehearing on January 15, 1976, and rehearing was held on February 5, 1976. The original opinion is now withdrawn and this 

opinion substituted. 

This case involved an application by relators for a writ 

of supervisory control to compel dismissal of a civil action 

against them unless Chase Manhattan Bank of New York City was 

joined as a party plaintiff, 

The First National Bank and Trust Company, Billings, 

Montana, sued relators David G. Drum and Dorothy G. Drum, his 

wife, to collect a balance in excess of $1,000,000 allegedly 

owed on ten promissory notes. Relators moved to dismiss the 

action on the ground it was not prosecuted in the name of the 

real party in interest and for failure to join an indispensable 

party plaintiff. The foundation of this motion was relators' 

claim that First National's entire interest in six of the claims 

sued upon had been transferred to Chase Manhattan Bank prior to 

the commencement of the action, and part of First National's 

interest in the four remaining claims had been so transferred. 

The district court, Yellowstone County, Hon. Robert H. 

Wilson, district judge, denied relators' motion to dismiss by 

order dated September 23, 1975. 

The salient facts forming the basis of this litigation 

can be gleaned from the pleadings, attached exhibits, the deposition of Lee W. Johnson, and the affidavits of relator David G. 

Drum, and relators' attorney. These reveal extensive transactions relating generally to financing cattle operations and involving relators, three corporations controlled by relator David 

G. Drum, First National, and Chase. 
In May 1972, Chase notified relator David G. Drum 

by letter that it would extend to him personally "through the 

vehicle of a loan participation with The First National Bank 

of Billings a $2,000,000 share in a line of credit totaling 

$2,225,000. Among other conditions, relator Dorothy G. Drum 

was required to execute a loan guarantee, which she did. Personnel from Chase went to Billings and finalized a written loan 

agreement between relator David G. Drum and First National. 

At the time the loan agreement was executed, the maximum lending capacity of First National to a single borrower was approximately $750,000. 

Pursuant to the loan agreement, relator David G. Drum 

borrowed money under the line of credit extended. As he borrowed 

various sums from time to time, he would execute promissory notes 

payable to First National in the amount advanced. First National, 

in turn, would execute a participation agreement or certificate 

wherein it sold to Chase a participating interest in each loan 

so made, adhering as closely as possible to the agreed 90% share 

of Chase in all outstanding loans. The participation agreement 

provided, among other things, that Chase could direct First 

National to enforce the obligations of Drum under the notes. 

The loan participation device was allegedly utilized by 

Chase in preference to a direct loan to Drum because of more 

favorable interest charges available under the laws of Montana 

(10%) than was permitted under the laws of New York (8-1/2%). 

On May 2, 1975, at the request of Chase, First National 

filed an action against relators to collect the balance of 

principal owing, interest, attorney fees, and costs on ten promissory notes representing loans under the foregoing arrangement. 

The total principal indebtedness and participation alleged 

on each note was: 
First 

Note 

1 

2 

3 

4 

5 

6 

7 

8 

9 

10 

Totals 

Chase 

$ zoo.00 

806,704.20 

1,000.00 

72,450.00 

500.00 

2,795.20 

12,460.31 

1,000.00 

162,000.00 

6,966.01 

National 

$ 28,520.72 

Total 

$ 28,720.52 

820,918.91 

6,205.47 

72,450.00 

500.00 

2,795.20 

12,460.31 

3,000.00 

162,000.00 

6,966.01 

This suit was filed as Cause No. 66792, in the district 

court of Yellowstone County. First National was the sole plaintiff. Defendants were David G. Drum and Dorothy G. Drum. Chase 

was not a party in this action. 

Relators also alleged in the records before this Court 

that Chase extended a $15,000,000 line of credit to three corporations controlled by relator David G. Drum under a similar participation operation. The loan agreement was between First National 

on the one hand, and the three corporations on the othex: Montana 

Beef Industries, Inc. in which Drum owns 92% of the outstanding 

capital stock; T-Bone Feeders, Inc., in which Montana Beef Industries, owns all the outstanding capital stock; and Feeder Supply 

Corporation in which Drum owns all the outstanding capital stock. 

As First National made the loans from time to time, it secured 

promissory notes from the borrowers and transferred participating 

interests to Chase. 

The three corporations filed suit against First National 

and Chase under Cause No. 67125 in the district court of Yellowstone County. This action was based on the alleged collection 

of usurious interest by means of a scheme allegedly initiated by 

Chase to book "phony loans" to cover the excess of interest 

charges. Chase subsequently secured its dismissal from this 

suit on the ground that it can be sued only in a New York court 

under the provisions of the National Banking Act, 12 U.S.C. B 94. 
Following dismissal of Chase in Cause No. 67125, relators filed three counterclaims against First National in its 

action against them on the ten promissory notes (Cause No. 66792). 

The first counterclaim seeks attorney fees for relators 

in defending themselves to the extent of Chase's interest in the 

ten promissory notes based upon the principle of mutuality. 

The second counterclaim by relator David G. Drum seeks 

the sum of $346,842.35 representing surplus funds from the sale 

of a building to Coors Brewery which Drum alleges was wrongfully 

exacted from him and applied to an alleged usurious loan indebtedness of Feeder Supply Corporation. According to him this corporation is wholly owned by him and was formed to provide storage 

facilities for grain; he put $200,000 of his personal funds into 

this corporation to provide the required equity for a loan of 

$680,000 from Chase and First National to construct the building. 

Chase made a direct loan to Feeder Supply Corporation of $618,000 

and First National made a direct loan to this corporation of 

$61,200 each taking separate security instruments. About two years 

later Drum negotiated a sale of the building to Coors Brewery 

for $875,000 and offered to pay the total mortgage indebtedness 

in exchange for a release. First National and Chase declined, 

according to Drum, and when the sale was consummated they applied 

the surplus, over Drum's protest and objection, to alleged usurious 

loan indebtedness of Feeder Supply Corporation under the $15,000,000 

line of credit extended to the three corporations, described 

heretofore. 

The third counterclaim by relator David G. Drum seeks 

$279,500 in feed bills expended by Feeder Supply Corporation when 

First National refused to pay them as agreed under the terms of 

the loan agreement between First National and the three corporations extending the $15,000,000 line of credit. 
In the meantime, relators' motion for dismissal of 

Cause No. 66792 was pending. The motion for dismissal was in 

two parts: 

(1) A motion for outright dismissal of six of the claims 

evidenced by promissory notes on the ground that all interest 

of First National therein had been transferred to Chase prior to 

commencement of the action. 

(2) A motion for dismissal of the remaining four claims 

evidenced by promissory notes unless Chase was made a party plaintiff on the ground that part of First National's interest therein 

had been transferred to Chase prior to commencement of the action. 

Following denial of their motion for dismissal, relators 

applied to this Court for a writ of supervisory control seeking 

a judgment of dismissal unless Chase was joined as a party plaintiff . 

The essence of relators' contentions is that Chase is an 

indispensable party under Rule 19(b), M.R.Civ.P. and in equity 

and good conscience the action should not proceed in its absence 

among the parties now before the Court. Relators claim that as 

a practical matter Chase is using First National as a "front" to 

collect debts of which Chase is more than 95% owner; that in so 

doing Chase is insulating itself in the courts of Montana from 

relators' just and valid defenses and counterclaims against Chase. 

Relators point out that Chase is hiding behind 12 U.S.C. S 94 in 

resisting claims against it in the courts of Montana. They contend 

that Chase's goal is to secure judgment against relators and 

execute on their property before relators can secure judgment 

against Chase in the courts of New York. 

Respondents, on the other hand, contend that Chase is not 

an indispensable party to this suit by First National against the 

Drums to collect the ten promissory notes because of the nature 
of the relationship between the Drums, First National and 

Chase in the loan transactions evidenced by the ten promissory 

notes. They point out that Chase is neither the owner, holder, 

or payee of any of the notes or the security, and accordingly 

complete relief can be accomplished between First National and 

the Drums without prejudice to the rights or liabilities of 

those against either. Respondents argue that neither Rule 19, 

M.R.Civ.P., nor recent decisions of this Court require that 

Chase be made a party, and in any event Chase cannot be sued 

in the courts of Montana under 12 U.S.C. B 94 of the National 

Banking Act. On this basis respondents conclude that Chase 

cannot be made a party to this action and that the action should 

proceed between First National and the Drums without dismissal. 

We conclude that the nature of the loan transactions that 

underlie the ten promissory notes does not give rise to reciprocal 

rights and liabilities therein between the Drums and Chase. The 

loan agreement establishes the rights and liabilities between the 

parties to it, viz. First National and the Drums. The participation agreement or certificate establishes the rights and liabilities 

between the parties to it, viz. First National and Chase. Neither 

establishes any contractual relationship, rights or liabilities 

between the Drums and Chase. 

The nature of the relationship is simply a borrower--lead-- 

participant arrangement between Drum, First National and Chase 

respectively, which is described in detail in the article "The 

Developing Law of Participation Agreements", The Business Lawyer, 

April 1968, pp. 689-696. In the instant case Chase is neither a 

party to the loan agreement nor an owner, holder or payee of 

any of the notes. The entire loan transaction is between Drum 

and First National. First National is the owner, holder and payee 

of the notes and the sole secured party in the collateral. 
Chase's only involvement is in the participation agreement. Such agreement is simply a shared loan where the "lead", 

First National, sold a share of the loan to the "participant", 

Chase. The relationship between the two is governed by the terms 

of the participation agreement or certificate. Here First National is the sole owner, holder and payee of the notes and has full 

dominion over the security. Drum owes First National the full 

amount of the loan as evidenced by the notes, and First National, 

in turn, owes the participant its share as evidenced by the participation certificate. Drum cannot challenge the amount of 

First National's claim on the ground that some portion of it is 

ultimately payable to Chase under the terms of the participation 

agreement. It is no concern of Drum what First National does 

with the proceeds of the repaid loan. 

This relationship is not changed by the circumstances of 

the instant case where Chase may have been the primary mover, 

arranger or instigator of the loan; drafted and approved the loan 

documents; held a major share of the "action"; and "called the 

tune". The nature of the transaction and relationship of the 

parties is governed by the loan documents, principally the loan 

agreement between Drum and First National and the participation 

agreement between First National and Chase. 

Relators' contention that Chase is an indispensable party 

under Rule 19(b), M.R.Civ.P., and that the action should not proceed in its absence is not tenable. Rule 19(b), provides: 

"(b) DETERMINATION BY COURT OF WHENEVER JOINDER 

NOT FEASIBLE. If a person as described in subdivision (a) (1) - (2) hereof cannot be made a party, 

the court shall determine whether in equity and 

good conscience the action should proceed among 

the parties before it, or should be dismissed, 

the absent person being thus regarded as indispensable. The factors to be considered by the 

court include: first, to what extent a judgment 

rendered in the person's absence might be prejudicial to him or those already parties; second, 
the extent to which, by protective provisions 

in the judgment, by the shaping of relief, or 

other measures, the prejudice can be lessened 

or avoided; third, whether a judgment rendered 

in the person's absence will be adequate; fourth, 

whether the plaintiff will have an adequate 

remedy if the action is dismissed for nonjoinder." 

In the first place, in our view, Rule 19(b) is not 

applicable to this case. It applies only to "a person as 

described in subdivision (a) (1) - (2) hereof. " The pertinent 

part of Rule 19(a) describing such person provides: 

"(a) PERSONS TO BE JOINED IF FEASIBLE. A person 

who is subject to service of process shall be 

joined as a party in the action if (1) in his 

absence complete relief cannot be accorded among 

those already parties, or (2) he claims an interest 

relating to the subject of the action and is so 

situated that the disposition of the action in his 

absence may (i) as a practical matter impair or 

impede his ability to protect that interest or 

(ii) leave any of the persons already parties 

subject to a substantial risk of incurring double, 

multiple, or otherwise inconsistent obligations 

by reason of his claimed interest. * * *" 

Here complete relief can be accorded First National and 

the Drums without Chase being made a party. First National can 

adjudicate its claims for collection of the notes. Chase is not 

a real party in interest because the holder of the notes is 

entitled to sue in its own name, section 87A-3-301, R.C.M. 1947, 

and additionally First National is the owner and sole payee on 

the notes. The Drums can adjudicate any defenses or claims involving the notes against First National. Any interest of Chase 

relating to the notes will not in Chase's absence impair or impede its ability to protect that interest, because it can look 

to First National for relief under the terms of its participation 

agreement. Judgment in the present case would not subject the 

Drums to the risk of multiple or otherwise inconsistent obligations 

as the rights and liabilities of the Drums under the notes would 

be finally concluded. Accordingly, Chase is not "a person as 

described in subdivision (a) (1)-(2)" of Rule 19(a) so Rule 19(b) 

is inapplicable. 

-9- 
Assuming, arguendo, that Rule 19(b) did apply, we would 

also reach a result denying joinder of Chase. Essentially the 

Drums seek to expand the scope of this action beyond the ten 

promissory notes sued upon, so they can press claims in the 

Montana courts against Chase directly arising out of unrelated 

loan transactions with corporations that David G. Drum controls. 

At the outset it is clear that Chase cannot be sued in 

the courts of Montana under the provisions of the National Banking Act. The relevant statute, 12 U.S.C. § 94, provides: 

"Actions and proceedings against any association under this chapter may be had in any 

district or Territorial court of the United 

States held within the district in which such 

association may be established, or in any State, 

county, or municipal court in the county or 

city in which said association is located having jurisdiction in similar cases." 

This statute is mandatory and not permissive. Kader v. First 

National Bank of Fort Myers (1975), 387 F.Supp. 535; Northside 

Iron & Metal Co., Inc. v. Dobson & Johnson, Inc. (1973), 480 

F.2d 798. It even prevents joinder in the same action of national 

banks located in different states or districts who were sued 

for damages based on a civil conspiracy to defraud. Mercantile 

National Bank at Dallas v. Langdeau (1963), 371 U.S. 555, 83 

S.Ct. 520, 9 L ed 2d 523. Chase simply cannot be sued in the 

courts of Montana, absent consent or waiver. While we are not 

in sympathy with this legislation, we are compelled to follow it. 

Finding themselves in this position, the Drums seek to 

compel joinder of Chase on pain of dismissal of this action. 

Where do the equities lie? Admittedly, it would be advantageous 

to Drums to get Chase before the Montana court in this action and 

press their alleged counterclaims against Chase directly. But 

where will that leave First National if the action is dismissed 

for nonjoinder? It will be left with no remedy in the courts 

of its own state to collect the money it loaned to the Drums. 
Drums, on the other hand, can assert any valid defense or counterclaim they may have on the notes as readily against First National 

as they can against Chase in the instant action. In our view 

the balance of equities lies with First National and the Drums' 

contention that under Rule 19(b), M.R.Civ.P., Chase should be 

made a party or the action dismissed, cannot be sustained. 

Nor do this Court's recent decisions in State ex rel. 

Slovak v. District Court, 166 Mont. 485, 534 P.2d 850, 32 St. 

Rep. 420, and State ex rel. Nawd's TV and Appliance Inc. v. 

District Court, Mont . , 543 P.2d 1336, 32 St.Rep. 1222, 

require joinder of Chase. These cases involve subrogated insurers who stand in the shoes of their insureds and can sue the 

defendant directly. Here Chase does not stand in First National's 

shoes with the right to sue Drums directly, but must look to 

First National for relief under the terms of the participation 

agreement. 

For the foregoing reasons, we hold the district court's 

order of September 23, 1975, was correct. This application for 

supervisory control is dismissed. 

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Justice