Stensvad v. Miners and Merchants Bank of Roundup, 80-210

• Citation: 39 St.Rep. 27,196 Mont. 193,640 P.2d 1303
• Decision Date: 25 February 1982
• Docket Number: No. 80-210,80-210
• Court: United States State Supreme Court of Montana
• Parties: L. D. STENSVAD, personally and as representative of the investing shareholders of Agri-Services, et al., Plaintiffs and Respondents, v. The MINERS AND MERCHANTS BANK OF ROUNDUP, Montana, Defendant and Appellant.

Page 1303

640 P.2d 1303

196 Mont. 193

L. D. STENSVAD, personally and as representative of the investing shareholders of Agri-Services, et al Plaintiffs and Respondents, v. The MINERS AND MERCHANTS BANK OF ROUNDUP, Montana, Defendant and Appellant.

No. 80-210.

Supreme Court of Montana.

Submitted Sept. 16, 1981.

Decided Jan. 7, 1982.

Rehearing Denied Feb. 25, 1982.

Towe, Ball, Enright & Mackey, Thomas Towe, argued, Gerald Neely, argued, Billings, for defendant and appellant

Wright, Tolliver, Guthals & Prater, Kenneth Tolliver, argued, Billings, for plaintiffs and respondents.

SHEEHY, Justice.

Appeal is by Miners and Merchants Bank from a judgment rendered against it on Stensvad's complaint in the District Court, Fourteenth Judicial District, Musselshell County. The bank had counterclaimed against Stensvad on unpaid promissory notes.

The District Court found that the bank had breached an agreement to finance Stensvad's corporations and after that breach had converted or appropriated his property, resulting in damages to Stensvad of $1,631,047, plus lost profits in the sum of $511,695. The court granted a set-off of $1,750,234 as of January 31, 1979 by reason of the indebtedness of the plaintiff to the bank. The court's net judgment of $392,508 against the bank was subsequently reduced nunc pro tunc by deducting $117,904 on June 23, 1980. The resulting judgment against the bank is $274,604.

The bank appealed from the judgment. There is no cross-appeal.

This action arises from a cattle-feeding operation located at Roundup and Melstone, Montana. The banking relationship between L. D. Stensvad and the Miners and Merchants Bank of Roundup (hereinafter Stensvad and the bank) commenced in 1965. The activities of the four corporations, all of which L. D. Stensvad represents in this case, played intertwining roles in the operation. Originally L. D. Stensvad Cattle Company would buy cattle and place them for feed in feedlots operated by M & S Cattle Feeders and by M. V. Enterprises, Inc. Agri-Services, Inc. purchased feed which it sold to the cattle feed operators. In reality, however, the four corporations for the purposes of this case are L. D. Stensvad, personally, although there were other investing stockholders not shown in the record.

During 1965 and subsequent years, the bank loaned to Stensvad funds for the purchase and feeding of cattle for his personal account. In November 1968, Stensvad purchased feed mill facilities at Roundup, Montana, which substantially expanded his capacity to feed cattle. In the spring of 1968, he acquired 300 acres of land near Roundup and completed construction of a 3,500 animal feedlot. In the fall of 1969, an opportunity arose to place investor-owned cattle in Stensvad's feedlots. The investors desired financing to allow them to purchase cattle on margin and to feed cattle on margin. Arrangements were made between the bank and the various investors whereby the bank loaned to the investors funds for the purchase of feeding costs. The program was popular with investors, and the feedlot at Roundup was expanded with temporary facilities to accommodate additional cattle.

In early 1970, the bank indicated an inability to provide purchase money financing for the expanding investors-feeders group. As a result, this portion of the financing was placed with the Production Credit Association of Lewistown, Montana, during the spring of 1970, with the bank continuing to provide financing for the feeding costs of the cattle.

However, in order to simplify its recordkeeping, the bank requested and obtained a change in procedure which allowed the bank to loan the feeding cost funds directly to one of the four plaintiff corporations which were created for the purpose of conducting this business. During the summer of 1970, the bank advanced funds for the construction of additional feedlot capacity at Roundup, as well as for feed. The PCA made loans to investors for the purchase of cattle to be fed at the facilities.

As of March 9, 1970, the PCA participation was on the following basis: the borrowers (the California investors) advanced the sum of $100 per head in cash, or part in cash and part by letter of credit so as to provide $50 per head for feed to be supplied by Stensvad, and $50 toward the purchase of the cattle. The PCA agreed to finance the balance of the purchase price of the cattle.

Until such time as Stensvad completed his financing with the PCA on each purchase, he obtained interim financing from the bank. The monies advanced by the bank for the construction of additional feedlot capacity were carried by the bank on short-term notes, although the parties had in mind that such indebtedness would eventually be placed on long-term notes. As of June 1971, however, this had not been done.

In June 1971, Edward Towe, a principal stockholder of the bank, indicated to Stensvad his intention to withdraw as a participant in the cattle-feeding program unless Stensvad withdrew his efforts from the creation of a new bank in Roundup. Meetings between the bank and Stensvad culminated in a Stensvad agreement to withdraw from participation in the founding of the new bank and the bank's agreement to continue to provide financing as it had previously done for the cattle-feeding operation, operated by Stensvad and the plaintiff corporations.

In furtherance of this renewed commitment, the plaintiffs' furnished to the bank a complete portfolio of security interests in the plaintiffs' assets, as well as a guarantee from Otto Stensvad, the father of the plaintiff.

The arrangement under the June meeting continued until August or September 1971, when the bank found that it was overextended on its loans to the Stensvad corporations. Its officers went to Stensvad and asked that he arrange for the PCA to take over the feeding costs which would be involved in the fattening of the cattle with the bank to handle the interim financing. On September 7, 1971, the PCA, through its executive committee, changed its financing arrangement to this extent:

1. The margin requirement from investors was kept at $100 per head in cash or $50 per head in cash and $50 per head letter of credit to be paid by the borrower to the PCA prior to the disbursement of any loan funds.

2. PCA would finance the full purchase price of the cattle and provide $80 per head for feed. Feed requirements were to be budgeted by months, and PCA was not to advance these funds until the feed was actually consumed. No advancement of funds for stockpiling of feed was to be allowed. The feeder was to be paid by PCA upon presentation of invoices every two weeks.

On September 16, 1971, Stensvad wrote the bank setting out his need for interim financing after the changed PCA program. He said:

"This does not mean, however, that there will be no need for any operating capital for our feed yards because as each lot of cattle is fed, there will be a 30 day delay between the time said cattle are put on feed and any money is received from the P.C.A., for we will be on a 30 day billing program. Since we purchase our feed and pay weekly, you can see that we will need interim financing for this purpose. In addition, of course, interim financing will be necessary to pay for cattle purchased for custom feeders between the time the cattle are contracted for, or bought outright, and the time the P.C.A. pays for the same. There is also a need for interim financing for accounts receivable and inventory for our regular retail trade at Agri-Services ...

"The question may arise in your minds as to why I still need $500,000 operating capital when I have stated that I am having my feed financed by the P.C.A. This is explained above and I will further clarify it here. I will still need operating interim financing for a 30 day period for feed being fed to cattle owned by custom feeders. The security therefor (sic) would be accounts receivable. The inventory necessary for each company for interim financing for cattle contracted for and purchased by L. D. Stensvad Cattle Co., an expected increase in accounts receivable and inventory at Agri-Services ..."

On Friday, September 17, 1971, another meeting was held at the bank between representatives of the bank, and Stensvad and Stensvad's attorney. In essence, the parties at that time agreed:

During the transaction period from the old PCA program to the new, there would be 4,000 or 5,000 head of cattle under the old program, and as each pen was sold, Stensvad would repay the Miners and Merchants Bank the amount of money advanced by it when those cattle were put on feed. Since new cattle were being purchased under the new program to replace the cattle sold, and because of the proposal to build up the number of cattle to as many as 13,000 to 15,000 head, the bank agreed "to immediately reloan the amount of money repaid to the Miners and Merchants Bank when each pen of cattle under the old program has been sold to enable me to feed the cattle for the 30 days" before the PCA provided the feed monies.

Stensvad confirmed the Friday, September 17, 1971 agreement in a letter of September 21, 1971, setting forth substantially "It was explained to the Miners and Merchants Bank that under the old program, the operating capital which had been extended to me amounted to $502,000. That under the new program, the total amount of operating capital which would be necessary would still amount to a total amount of $500,000, but that the operating capital would be earmarked as follows: (setting out the allocation between the 4 Stensvad corporations)."

what is said above here, and in addition stating:

On September 30, 1971, another meeting was held between the representatives of the bank and Stensvad. The only written evidence of the meeting is provided by Wally Otto, the PCA representative, who prepared a memorandum of the meeting. The bank apparently decided that the financial condition of the Stensvad operation was...