Opinion ID: 880020
Heading Depth: 1
Heading Rank: 9

Heading: Breach of the Loan Agreement

Text: Bank contends that the evidence is insufficient to sustain the jury verdict that the Bank had breached a loan agreement with the Weinbergs. Under this contention, Bank argues that the Contract of Guarantee was one between the Bank and the FmHA, and created no obligation on the part of the Bank to loan monies to the Weinbergs. The Bank points to cases holding that there is no privity, mutuality, or joint liability between the principal debtor and the guarantor, and again to cases holding liability to the guaranteed party is not subject to the defenses that may exist between the creditor and the debtor, and that the terms of the guaranty measure the liability of the guarantor, but do not constitute a contract between the debtor and the creditor. It cites General Finance Company v. Powell (1943), 114 Mont. 473, 138 P.2d 255; Butte Machinery Co. v. Carbonate Hill Mining Company (1926), 75 Mont. 167, 242 P. 956; Baroch v. Greater Montana Oil Company (1924), 70 Mont. 93, 225 P. 800. In addition, the Bank contends that the Weinbergs may not base their claim of breach upon the promissory note executed November 14, 1975, because that note was validly replaced by a renewal note and subsequent renewal notes carrying maturity dates of one year or less. Again, the Bank argues that the promissory note of November 14, 1975, does not create an obligation on the part of the Bank to do anything. Relying on the parol evidence rule, § 28-2-905, MCA, the Bank states that the writing on the note merely allows the plaintiffs to pay back the principal advances under the note over a period of seven years at 9.5 percent payable semi-annually. Finally, the Bank contends that the promissory note of November 14, 1975, was replaced by the agreement of the parties with a promissory note of December 30, 1976; that the original note was stamped paid with the execution of the second note although the original note was kept in the Bank file and not returned to the borrowers. The Bank officers testified that the Weinbergs executed the replacement note and subsequent notes freely and voluntarily without coercion. It is the Bank's position, therefore, that the Contract of Guarantee was between the Bank and FmHA, that the Weinbergs had no privity or mutuality in the Contract of Guarantee, and that the original note was modified a year later by and with the consent of the Weinbergs. The terms of the writings determined the agreement between the parties and any other agreement is subject to the parol evidence rule. At the close of Weinbergs case in chief, the Bank moved for a directed verdict on the ground that the Weinbergs had failed to carry their burden of proof which the court denied, saying: The court views the evidence at this point to be sufficient to support a jury verdict, here that there was a breach by the Bank of the agreement which the parties entered into wherein the Bank agreed to provide $137,533.40 for 7 years at 9 1/2%. That there is sufficient evidence upon which the jury can find, in breaching that, the Bank acted with malice, actual or constructive ... The Weinbergs respond to these contentions of the Bank, saying that they represent a change of position from that taken by the Bank at trial. The Weinbergs state that in the District Court, the Bank recognized it had an obligation to the Weinbergs to extend a line of credit subject to the Contract of Guarantee for the sums stated for a period of seven years at 9.5 percent. The Bank's further position at trial was that the obligation to extend such line of credit had been changed by the execution of the new note by the Weinbergs on December 30, 1976, together with an accompanying security agreement. The Bank's position of modification was evidenced, say the Weinbergs, by its contentions set forth in the pretrial order which include the following paragraph: That the November 14, 1975 note was paid by the Weinbergs, by their voluntary renewal of the same, in order to obtain the benefit of a modification of the manner in which the Farmers Home Administration Emergency Livestock loans, of which this was one, were administered by banks. This is not a case for the application of the parol evidence rule. Weinbergs are not trying to vary the terms of the promissory note of November 14, 1975. They are contending instead that the note itself, in all its terms, is evidence of an agreement between the Bank and the Weinbergs that a line of credit would be extended to them for seven years at an interest rate of 9.5 percent. The original promissory note is consonant with that contention. The parol evidence statute, § 28-2-905, MCA, includes in its provisions that other evidence of the circumstances under which the agreement was made or to which it relates is admissible. Section 28-3-402, MCA, provides that a contract may be explained by reference to the circumstances under which it was made and the matter to which it relates. Here, the execution of the promissory note of November 14, 1975, and the procurement by the Bank of the Contract of Guarantee, all point to and confirm an agreement between the Weinbergs and the Bank for a line of credit on the terms contended for by the Weinbergs. When the conduct of the parties demonstrates the existence of an agreement between them, evidence of that conduct is admissible to establish the agreement. Veterans Rehabilitation Center, Inc. v. Birrer (1976), 170 Mont. 182, 551 P.2d 1001. The conduct of the Bank seven years later, in looking to the FmHA for performance of its Contract of Guarantee is indeed evidence of the agreement as argued for by the Weinbergs. We hold that there is sufficient evidence to establish a contract in existence between the Bank and Weinbergs for a line of credit, especially since this was the position of the Bank throughout the District Court trial.