Baldwin v. First Nat. Bank of Black Hills

• Decision Date: 30 January 1985
• Docket Number: No. 14338,14338
• Parties: 40 UCC Rep.Serv. 662 Howard BALDWIN, Defendant and Appellant, v. FIRST NATIONAL BANK OF the BLACK HILLS, Plaintiff and Appellee.
• Court: South Dakota Supreme Court

Page 85

362 N.W.2d 85

40 UCC Rep.Serv. 662

Howard BALDWIN, Defendant and Appellant, v. FIRST NATIONAL BANK OF the BLACK HILLS, Plaintiff and Appellee.

No. 14338.

Supreme Court of South Dakota.

Argued Oct. 22, 1984.

Decided Jan. 30, 1985.

Ralph C. Hoggatt, Deadwood, for defendant and appellant.

George A. Bangs of Bangs, McCullen, Butler, Foye & Simmons, Rapid City, for plaintiff and appellee; Joseph M. Butler, James P. Hurley, and Jacqueline M. Rasmussen of Bangs, McCullen, Butler, Foye & Simmons, Rapid City, on the brief.

FOSHEIM, Chief Justice.

Howard Baldwin (Baldwin) appeals from an order granting First National Bank of the Black Hills, now Norwest (Bank), pre-trial possession of certain equipment and from a directed verdict granted Bank. Bank filed a Notice of Appeal. We affirm in part, reverse in part, and remand.

Baldwin was an independent contractor who erected power lines for rural utility companies. He started negotiating loans with Bank in 1975. On December 31, 1980, his loans were restructured, and on December 3, 1981, two of his loans were combined. There are four relevant security agreements:

March 15, 1975 covering all machinery and equipment used in Baldwin Construction.

March 15, 1975 covering inventory, accounts, contract rights and chattel paper.

December 31, 1980 covering equipment, farm products, consumer goods and certain titled goods.

December 3, 1981 covering the security agreements dated 12-31-80 and 3-15-75, although it is not designated to which 3-15-75 security agreement this document referred. Accounts receivable are not checked as collateral in this agreement.

Pursuant to the December 3, 1981 agreement, Baldwin was to make semi-annual payments of $9,300. The first payment was due July 1, 1982.

In January of 1982, Baldwin developed concrete motor mount pads for use in the oil industry. He built two of these pads to be tried by a Wyoming oil company. In April, 1982, the company ordered four pads. Baldwin then approached a Gillette, Wyoming bank for financing of the project using the purchase orders as collateral. Appellee Bank refused this financing. Baldwin gave the Wyoming bank permission to check his credit. Bank released information by telephone to the Wyoming bank regarding an Internal Revenue Service (IRS) levy on Baldwin's account. Upon learning this, the Wyoming bank informed Baldwin that they did not want trouble with the IRS and refused to finance his project.

Baldwin informed Bank that his July 1, 1982 payment would be late because of the Wyoming bank's refusal. Baldwin claims he was granted an extension until mid-October, when he expected his check for the first two units from the oil company. Bank disputes any firm extension agreement, but claims if an extension was agreed upon, it was only until October 1. On October 18, 1982, Baldwin received the check. He offered to pay Bank the late payment on October 25, 1982. Bank refused. Bank advised Baldwin it required at least $15,000.00 and a second mortgage on his home as further security. Baldwin refused the second mortgage. He again offered the late payment on December 1, 1982, which Bank refused.

Baldwin was served with a Summons, Complaint, Affidavit in Claim and Delivery and an Order to Show Cause on October 18, 1982. No formal or written demand on the note was made. The complaint prayed for a judgment awarding Bank possession of the collateral or an order directing that the collateral be sold and the proceeds applied to the note. No request was made for judgment on the total amount due on the note, nor was any mention made of an assignment of accounts receivable or earnings. The Court issued an order directing the sheriff to seize Baldwin's property for Bank.

Before trial, Bank learned that Baldwin had unpaid earnings due from a local rural power cooperative. Without any court action, Bank mailed certified letters to the six cooperatives. The letters stated that Baldwin had a delinquent debt with Bank, and that Bank had a security interest in his accounts receivable. Bank further requested these cooperatives to make all payments jointly to Baldwin and Bank. One cooperative, Butte Electric, complied with Bank's request. Baldwin requested that the court release his check. The court refused on the grounds that contested issues of fact existed for the jury. Ruling on the release of the check was accordingly deferred.

The trial court did, however, grant Bank's Motion for Directed Verdict on Baldwin's invasion of privacy and due process claims. Baldwin's request for punitive damages was also denied. The jury was allowed to determine only Baldwin's tortious interference with a contractual relationship claim and Bank's entitlement to Baldwin's equipment in its Claim and Delivery action. The jury found Bank was not entitled to the collateral, but that there had been no tortious interference with contract.

We dispose first of the issues arising from Bank's release of information to the Gillette, Wyoming bank. Baldwin alleged this was in violation of the Privacy Act, 5 U.S.C. § 552a, et seq. That statute applies to "agencies" defined in § 552(e). ¹ Under 5 U.S.C. § 552(e), Bank is clearly not an "agency." Nor is Bank a "debt collector" within the meaning of the Fair Debt Collection Practices Act, 15 U.S.C. § 1692a(6). ²

Baldwin also claims the release of information constituted a tortious invasion of his privacy. A similar claim was addressed in Montgomery Ward v. Shope, 286 N.W.2d 806 (S.D.1979). Only an unreasonable, unwarranted, serious and offensive intrusion upon the seclusion of another is regarded as tortious. Id. Baldwin expressly gave the Wyoming bank permission to check his credit. The most likely place for that credit inquiry is the institution that had previously extended him credit. Baldwin's position seems to be that even though he agreed to have his credit checked, those who could provide that information had no right to give it. Granting a directed verdict on this issue was not erroneous. Id. at 810.

Baldwin next disputes the directed verdict granted Bank on his claims that Bank's mailing the May, 1983 letter to his potential employers invaded his privacy, and constituted reckless, negligent, willful and malicious conduct. Bank claims its actions were fully protected both by the security agreements and SDCL 57A-9-502(1). ³

The trial court is not free to weigh the evidence or gauge the credibility of the witnesses on a motion for directed verdict. These are matters for the jury. It must accept that evidence which is most favorable to the party against whom the motion is sought, and indulge all legitimate inferences in its favor that can fairly be drawn therefrom. Cox v. Brookings Intern. Life Ins. Co., 331 N.W.2d 299 (S.D.1983). If, when so viewed, there is any substantial evidence to sustain the cause of action or defense it must be submitted to the jury. This must also be our view of the evidence when the trial court determination is challenged on appeal. Id.; see also, Budahl v. Gordon & David Associates, 323 N.W.2d 853 (S.D.1982); Johnson v. John Deere Co., 306 N.W.2d 231, 235 (S.D.1981); Ehlers v. Chrysler Motor Corp., 88 S.D. 612, 617, 226 N.W.2d 157, 159 (1975); Thorstenson v. Mobridge Iron Works Co., 87 S.D. 358, 208 N.W.2d 715 (1973); Myers v Quenzer, 79 S.D. 248, 254, 110 N.W.2d 840, 843 (1961).

In order for Bank's May 1983 letter to have been properly sent under SDCL 57A-9-502(1), Bank must have proven that there was either an agreement allowing Bank to take such action or Baldwin defaulted on his note; and that Bank notified only "account debtors" ⁴ or "obligors on instruments." ⁵ Bank was unable to make this showing. The clause in the security agreement allowing for notification to account debtors refers to accounts used as collateral. It was disputed whether Bank had a security interest in Baldwin's accounts receivable. As stated, it is not clear from the December 3, 1981 security agreement whether it refers to the March 15, 1975 agreement covering machinery and equipment, or the agreement covering accounts. Accounts receivable are not identified as collateral on the December 3, 1981 document. The Bank's complaint in Claim and Delivery did not refer to any interest in accounts. In fact, the first mention made of accounts was the May 1983 letter. Neither did Bank prove default, which is a pre-condition. See SDCL 57A-9-501, 9-502. The jury found Bank was not entitled to the equipment, which implicitly means they found with Baldwin on his claimed extension and that he therefore was not in default.

Not all of the rural cooperatives to whom the challenged letter was mailed were "account debtors," SDCL 57A-9-105(1)(a), or "obligors on instruments," SDCL 57A-9-105(1)(i). They were potential employers. The only cooperative which owed Baldwin money for services was Butte Electric. This, however, does not justify Bank's letter to Butte Electric because, as noted, whether Bank possessed a security interest in accounts was disputed and Bank failed to show default. Compare also, Surety Savings & Loan Co. v. Kanzig, 53 Ohio St.2d 108, 113, 7 Op3d 187, 372 N.E.2d 602, 23 U.C.C.Rep.Serv. 804, 808 (Callaghan) (1978), (A creditor must read 9-502(1), (SDCL 57A-9-502(1)), with 9-318, (SDCL 57A-9-318), and must state which account has been assigned, and make a specific direction to pay the secured party and a reasonable identification of the rights assigned).

Baldwin further alleged that in mailing the letter, Bank acted negligently or in bad faith. See Pedi Bares v. First Nat. Bank of Neodesha, 223 Kan. 477, 480, 575 P.2d 507, 511 (1978). Normally, questions of negligent or malicious conduct are questions for the jury. See, Myers v. Lennox Co-op. Ass'n., 307 N.W.2d 863 (S.D.1981); Stenholtz v. Modica, 264 N.W.2d 514 (S.D.1978). Baldwin additionally claimed that the May 1983 letter invaded his privacy. Montgomery Ward, supra. In Montgomery Ward, we said that a creditor does have the right ...