Opinion ID: 1857446
Heading Depth: 1
Heading Rank: 4

Heading: loan agreements

Text: On April 24, 1986, a Farmers Home Administration (FmHA) guaranteed loan to Evergreen was approved. This loan, which was managed by First National, was in the form of a master note evidencing a revolving loan with a 3-year life. A total amount of $50,000 could be extended to Evergreen under the condition that all but $10 had to be repaid to First National each year before any additional money could be loaned. Bank records indicate that $9,000 was initially loaned to Evergreen on May 14, 1986. Evergreen repaid $8,990 to First National on May 19. An additional $40,010 was loaned to Evergreen on December 19. These funds were to be paid back sometime in May 1987. In May 1987, Julius Osten spoke to Larry Harkrader, vice president of commercial lending at First National, and told him that funds were available to pay off the FmHA loan, but that an additional 1,100 head of cattle were being moved into Evergreen's custom feeding operation. First National was then asked if it would give Evergreen permission to use the funds that would have been used to pay off the FmHA loan for additional operating expenses. Harkrader approved the use of the funds for that purpose instead of requiring that the FmHA loan be paid off in full. On October 19, 1987, Evergreen paid $49,990 on the FmHA guaranteed loan pursuant to the requirements of the master note. Evergreen subsequently requested to have money advanced under the master note, but First National denied the request. In addition to the guaranteed FmHA loan, Evergreen had a separate letter of credit from First National for $50,000 dated January 26, 1987. This money was to be loaned to Evergreen so that it could expand its feeding operation. First National did not loan any of these funds to Evergreen. Along with the $100,000 credit represented in the above agreements, Evergreen had also applied for a $100,000 loan in September 1987. First National also denied this request. First National claimed that it did not loan Evergreen additional funds because Evergreen did not pay its loan balance down to $10 when the loan became due in May 1987. First National also claimed that Evergreen's cash-flow predictions for 1988 indicated Evergreen did not actually need the money. Evergreen claimed that First National's refusal to loan it $100,000 caused Evergreen to sustain immense losses due to lost profits, silage spoilage, and increased cost of feed. Julius Osten testified that he met with a First National loan officer in early 1987 and requested an additional $50,000 to buy high moisture corn in September, October, and November. First National's January 26, 1987, letter to Osten informed him that the senior loan committee had agreed to make an additional operating loan of $50,000 to Evergreen subject to the conditions that livestock and feed inventory reports were to be submitted on a regular basis and a 1985 income tax return was to be submitted. Osten claimed that he received First National's approval in May 1987 to use the $50,000 FmHA guaranteed loan to buy corn. In September 1987, Julius Osten met with Clark Lehr from First National and asked for additional financing to buy more wet corn in October. Lehr's letter of September 18, 1987, advised Osten that First National would not extend additional credit beyond Evergreen's current loan commitments. The letter stated: Yesterday the Senior Loan Committee considered your request for additional financing to purchase wet corn this fall. It was the decision of the Committee that the First National Bank will be unable to extend additional credit beyond your current loan commitments. In carefully reviewing your request, the bank does not feel comfortable enough with the cash flow of your operation to extend additional credit. The cash flow you submitted for 1987 indicated that your present operating loan would be paid to a zero balance sometime in May, and you would be operating on your own cash for the balance of the year. Currently your operating loan is at its maximum balance of $50,000.00 and has been there since the first of the year. If you are successful in repaying this loan in the next thirty days as you have indicated, then this note would be available to cover wet corn purchases for the upcoming year. To meet FmHA requirements, we would need a cash flow for 1988 indicating the repayment of these funds before they could be disbursed. The bank certainly acknowledges that there could be wet corn available during harvest at what may turn out to be an attractive price. Please understand that any additional loan commitment we extend to you will be completely outside your 90% FmHA guarantee framework, which further complicates your request. Thank you for submitting your tax returns and they are available for you to pick up here at the bank the next time you are in. Julius Osten testified that on October 19, 1987, Evergreen paid $49,990 plus interest on its $50,000 FmHA guaranteed loan, leaving a balance of $10. Osten claimed First National told him that if he did not pay the note, First National could not lend him more money. Osten stated that he again went to First National during the last week of October and asked for $100,000 to buy wet corn, referring to the $50,000 FmHA guaranteed loan and the $50,000 letter of credit dated January 26, 1987. Osten testified he was told that according to `your cash flow, you don't need it. We are not going to borrow it to you.' Evergreen then discontinued banking with First National and did not obtain any further bank credit until the fall of 1989, when an operating loan of $165,000 was approved by the Schuyler State Bank.