Johnson v. Farmers & Merchants State Bank

• Decision Date: 03 August 1982
• Docket Number: No. 51512.,51512.
• Parties: Agnes JOHNSON, as personal representative of the Estate of Warren Johnson, deceased, Respondent, v. FARMERS AND MERCHANTS STATE BANK OF BALATON, et al., Appellants, Minnesota Mutual Life Insurance Company, Defendant.
• Court: Minnesota Supreme Court

320 N.W.2d 892 (1982)

Agnes JOHNSON, as personal representative of the Estate of Warren Johnson, deceased, Respondent, v. FARMERS AND MERCHANTS STATE BANK OF BALATON, et al., Appellants, Minnesota Mutual Life Insurance Company, Defendant.

No. 51512.

Supreme Court of Minnesota.

June 25, 1982.

Rehearing Denied August 3, 1982.

Blethen, Gage, Krause, Blethen, Corcoran, Berkland & Peterson and Kelton Gage, Mankato, for appellants.

Barna, Guzy, Merrill, Hynes & Giancola, James W. Reuter and Miggie E. Cramblit, Fridley, for respondent.

Erickson, Zierke, Kuderer, Myster & Madsen and Gary G. Wollschlager, Fairmont, amicus curiae for Northwestern Nat. Life Ins. Co.

Heard, considered and decided by the court en banc.

KELLEY, Justice.

Appellants, Farmers and Merchants State Bank of Balaton (Bank), Balaton Agency, Inc. (Agency) and V. G. Schaffer (Schaffer) appeal from an order of the trial court dated June 11, 1980, denying their motion for Amended Findings of Fact, Conclusions of Law and Order for Judgment, or in the alternative, for a new trial. We affirm in part and reverse in part.

Respondent Agnes Johnson, the widow of Warren Johnson, commenced this action against appellants alleging (1) that appellant Bank had made misrepresentations to Warren Johnson during his lifetime relating to line of credit life insurance; (2) that the Bank had breached a fiduciary duty to the deceased; (3) that the Bank had charged Warren Johnson usurious interest on various loans; and (4) that the Bank had violated the Truth in Lending Act, 15 U.S.C. § 1639 (1976) and Regulation Z, 12 C.F.R. § 226.8 (1976) with respect to a note dated January 27, 1977. As against appellants Schaffer and Agency, the complaint alleged negligence in failing to provide Warren Johnson with adequate line of credit life insurance to cover his debts to the Bank. Respondent further sought punitive damages against Schaffer and Agency for the intentional infliction of emotional distress.¹

In answers to interrogatories on a special verdict, the jury found (1) that appellants Agency and Schaffer were negligent in their dealings with Warren Johnson in regard to line of credit life insurance on his life; (2) that the Agency failed to deliver a "line of credit" insurance policy or certificate of insurance issued on the life of Warren Johnson to him; and (3) that Warren Johnson was negligent in regard to the line of credit life insurance on his life up until the time of his death in 1977. The jury then found the decedent, Warren Johnson, was 24% causally negligent; that Agency and Schaffer were 75% causally negligent; and that Minnesota Mutual Life Insurance Company, the company which issued the line of credit life insurance policy, was 1% causally negligent.² The trial court ordered judgment on the negligence claims against Agency and Schaffer in the amount of $55,331, representing 76% of the difference between the line of credit life insurance of $40,000 on the life of Warren Johnson and his total indebtedness to the Bank at the time of his death. The court also awarded judgment against the appellant Bank in the amount of $1,000, representing twice the interest charged on the January 27, 1977 bank note plus $1,250 attorneys fees for violation of the Truth in Lending Act.³

Appellants assert (1) lack of sufficient evidence to sustain the court's findings of fact and conclusions of law with respect to the negligence claim against Schaffer and the Agency; (2) that the trial court erred in finding a violation of the Truth in Lending Act in connection with the January 27, 1977 note and in computing damages thereon; and (3) that the court erred in evidentiary rulings (a) admitting statements made by decedent prior to his death to third persons, (b) admitting statements of various residents of the Balaton community on appellant Schaffer's "community reputation" as opposed to his reputation for "truth and veracity," (c) admitting evidence with respect to "overline" loans, and (d) in excluding evidence offered by appellants concerning activities of respondent and her son in furnishing copies of pleadings to local newspapers for the purpose of injuring the appellant Schaffer.

Warren Johnson was a successful farmer and livestock feeder in the Balaton, Minnesota community. He commenced farming in the early 1950's and built up his farming operation by increasing his personal property, modernizing and improving his farm buildings, and by acquiring additional farm land. He was actively involved in community affairs during his life, serving on his town board, serving as president of the local elevator board and as treasurer of the school district board. Although he had a limited formal education, he was an intelligent, strong-willed man who understood money problems. Warren Johnson died in a tractor rollover accident in July 1977 when he was 56 years of age.

Appellant Schaffer and his wife own all of the stock in Balaton Insurance Agency which, in turn, owns 97% of the stock in the Bank. Schaffer is the president of both corporations. The business of both corporations is done in the same building, and the employees of the Bank are also employees of the Agency.

Since the early 1950's, Warren Johnson had been a regular customer of the Bank. During that time, he had borrowed close to half a million dollars in over 70 separate transactions. In the spring of 1973, Warren Johnson owed the Bank approximately $40,000. At that time, he purchased a Minnesota Mutual Life Insurance Company line of credit policy from the Agency.⁴ This policy insured Johnson's life with the Bank named as an irrevocable beneficiary.⁵ "Line of credit" insurance differed from credit life insurance in that, on death, proceeds of the former would be applied toward payment of all loans the debtor had with the bank up to the policy limits, whereas the latter insured payment only of a specific loan. The purchaser of a line of credit policy did not receive a policy. Instead, the insurer — here Minnesota Mutual — issued a certificate of insurance to which a copy of the application was attached. The application for this line of credit insurance was for $40,000, which Johnson signed at the time of purchasing the insurance in 1973. At that time he also signed a check for the premium which had a notation on it, "$40,000 Life — 1 yr."

In 1976, Johnson purchased his sister's half-interest in the family farm. An officer of the Bank suggested to him that he increase his line of credit insurance. He declined and indicated that the $40,000 policy he bought in 1973 was adequate because his wife could liquidate the personal property and still have the land unencumbered. Again, in 1977, Schaffer talked with Johnson about his line of credit insurance. But again Johnson declined to purchase more insurance. In 1976, the Bank (or the Agency) sent Johnson a premium notice. This notice showed an increase in premium. Upon receipt of the same, Johnson came to the Bank to inquire why the premiums were higher than they had been in prior years. An officer of the Bank ascertained that the increase was due to an age change,⁶ and wrote Johnson a memorandum of explanation which, on its face, recited that the amount of the Minnesota Mutual Life Insurance Company line of credit policy was $40,000.

At the time of his death, Johnson owed the Bank $116,646.78 in principal and interest on various loans and notes. Respondent claims that an employee of the Bank and Agency, William Emerson, had assured Johnson in 1973, when the latter bought the line of credit insurance, that the policy was a "blanket policy" covering all of Johnson's bank debts. Shortly after Johnson's death, respondent and one or more of her sons went to the Bank to talk to Schaffer. They then learned there was only $40,000 in proceeds from the line of credit policy to apply on the decedent's debts. Respondent was unable to find a line of credit policy, an application therefor, a certificate of insurance or any correspondence from the Bank or Agency containing evidence of policy limits in her personal and farm records.

At trial, Emerson admitted he may have used the term "blanket policy" when the insurance was sold in 1973, but contended he explained to Johnson that the policy would blanket all debts he owed to the Bank at the time of his death up to the face amount of the policy, which was $40,000.

Over strenuous objection, respondent was permitted to introduce in evidence statements made by the deceased to her as well as statements made by him to others to the effect that he, Johnson, believed that all his debts to the Bank were covered by a "blanket policy." Appellants contend the statements of Johnson were hearsay and not admissible under any exception to the hearsay rule.

The following issues are raised by the appeal:

1. Did the evidence support the jury's special verdict, adopted by the trial court in its findings, on the negligence claims against Schaffer and the Agency?

2. If there was evidence to support the verdict, did the trial court commit error in admitting evidence with respect to (a) Johnson's statements to his wife and others; (b) statements of witnesses concerning appellant Schaffer's "community reputation" as opposed to his reputation for "truth and veracity"; (c) appellant Bank's "overline" loans, recordkeeping and delivery of insurance policies to customers of the Bank other than Johnson?

3. Did the trial court err in ordering recovery from appellants Agency and Schaffer in an amount greater than the maximum amount of line of credit life insurance obtainable by decedent from the Bank during his lifetime?

4. Was the January 27, 1977 note executed by the decedent to the Bank exempted from the Truth in Lending Act?

1. If the evidence did not sustain the jury's verdict and the trial court's findings of fact on the negligence question, it is, of course, unnecessary to consider issues 2(a), (b), (c) and 3. Respondent claims negligence on the part of...