Bankwest, Inc. v. Valentine, 16501

• Decision Date: 14 February 1990
• Docket Number: No. 16501,16501
• Citation: 451 N.W.2d 732
• Parties: BANKWEST, INC., a South Dakota corporation, Kadoka, South Dakota, Plaintiff-Appellant, v. Laverne L. VALENTINE, Federal Land Bank of Omaha and Stanley County, a political subdivision of the State of South Dakota, Defendants-Appellees.
• Court: South Dakota Supreme Court

Page 732

451 N.W.2d 732

BANKWEST, INC., a South Dakota corporation, Kadoka, South Dakota, Plaintiff-Appellant, v. Laverne L. VALENTINE, Federal Land Bank of Omaha and Stanley County, a political subdivision of the State of South Dakota, Defendants-Appellees.

No. 16501.

Supreme Court of South Dakota.

Argued Nov. 28, 1989.

Decided Feb. 14, 1990.

J. Crisman Palmer and Daniel E. Ashmore of Gunderson, Palmer, Goodsell & Nelson, Rapid City, for plaintiff and appellant.

David L. Bergren of Bergren & Duffy, Fort Pierre, for defendants and appellees.

WUEST, Chief Justice.

Bankwest, Inc., (Bank), brought an action against Laverne Valentine (Laverne) seeking payment of a promissory note executed in favor of the Bank by Laverne's son, Bob Valentine (Bob), and co-signed by Laverne. Laverne raised several affirmative defenses in this action and also submitted a counterclaim against the Bank seeking damages on the grounds of deceit. This case was submitted to a jury which returned a verdict in favor of Laverne on the Bank's claim, and in favor of the Bank on Laverne's counterclaim. Judgment was entered in accordance with the verdict. Bank appeals this judgment. We affirm.

Laverne's son, Bob, is an electrician. At the time of the transactions in question, he owned and operated a business called Martin Electric. Bob's wife, Deborah Valentine (Deborah), was also a part owner of this business. On many occasions, Bob and Deborah, d/b/a Martin Electric, obtained loans from the Bank for various business purposes. Many times it was necessary for Laverne to co-sign certain notes with Bob and Deborah so that Martin Electric could obtain further loans. By the end of 1985, several years after Martin Electric began operating, it was estimated that Laverne had guaranteed or co-signed approximately $150,000 worth of loans for Martin Electric.

In January of 1986, Martin Electric had a large contract on a school project and it was in need of additional capital to complete this contract. At that time, Martin Electric's financial condition was poor. It was unable to collect its accounts receivable and it had accumulated a large amount of debt. Bob inquired about an additional loan from the Bank and was informed that the Bank would need more collateral before it would lend any more money to Martin Electric. As a result, Bob once again sought the assistance of Laverne, and she agreed to help.

On January 29, 1986, Laverne and Bob met with a Bank representative at the Bank's office in Pierre, South Dakota. According to Laverne and Bob, the sole purpose of meeting with the Bank at this time was to obtain operating capital from the Bank so that Martin Electric could complete its contract on the school project. They also testified that the central focus of the discussions with the Bank concerned the amount of money Martin Electric needed to complete the school project. At this meeting, the Bank produced a computer print out, with numbers allegedly provided by Bob, listing the projected earnings and expenses of Martin Electric for the following twelve months. This document indicated that Martin Electric would need approximately $129,000 in order to complete the school project. As a result of the discussions that took place, Laverne co-signed a promissory note executed by Bob in the Banks favor for the amount of $130,000. She also signed and delivered a mortgage to the Bank covering certain property she owned in South Dakota. After this had been done, the parties concluded the meeting.

The record indicates that Deborah was to be the last person to sign the note. The very next day after Bob and Laverne's meeting with the Bank, Deborah went to the Bank to sign the note and to obtain funds from this note so that she could pay the overdue bills of Martin Electric. Although Deborah did sign the note, the Bank refused to give her any operating funds from this note. The record indicates that the Bank took approximately $117,000 of the proceeds from the note and applied it to debts owed to the Bank by Martin Electric. The proceeds which remained from this note were deposited in Martin Electric's bank account. This account, however, was overdrawn in an amount that exceeded the value of the remaining proceeds from the note. As a result, Martin Electric did not receive any funds outright from this note. Rather, the money was simply used to pay off the bank debts of Martin Electric.

One year later, Martin Electric filed for bankruptcy. The Bank, then unable to collect its debt from Martin Electric, brought suit against Laverne seeking payment of the note in question. Laverne denied liability on the note, raising the affirmative defenses of fraud, mistake of fact and failure of consideration. She also submitted a counterclaim against the Bank on the grounds of deceit. This case then proceeded to trial. During the trial, the Bank moved for a directed verdict at the close of Laverne's case and also after both parties had rested. Both motions were denied. This case was submitted to a jury and a verdict was returned against the Bank on its claim against Laverne, and against Laverne on her counterclaim against the Bank. The Bank then moved for a judgment notwithstanding the verdict or in the alternative, for a new trial. This motion was also denied. On appeal, the Bank contends the trial court erred in denying the aforementioned motions.

We first address the issue of whether the trial court erred in denying the Bank's motions for directed verdict. A motion for directed verdict under SDCL 15-6-50(a) questions the legal sufficiency of the evidence to sustain a verdict against a moving party. Carlson v. First Nat. Bank, 429 N.W.2d 463, 466 (S.D.1988); Nelson v. Schroeder Aerosports, Inc., 280 N.W.2d 107, 108 (S.D.1979). Upon such a motion, the trial court must determine whether there is any substantial evidence to sustain the action. Sabag v. Continental South Dakota, 374 N.W.2d 349, 355 (S.D.1985); Smith v. Halverson, 273 N.W.2d 146, 149 (S.D.1978). The evidence must be accepted which is most favorable to the nonmoving party, and the trial court must indulge all legitimate inferences therefrom in his favor. Carlson, supra. If sufficient evidence exists so that reasonable minds could differ, a directed verdict is not appropriate. Id. The trial court's decisions and rulings on such motions are presumed correct and this Court will not seek reasons to reverse. Lytle v. Morgan, 270 N.W.2d 359, 360 (S.D.1978).

In the present case, Laverne has raised several affirmative defenses with regard to the Bank's complaint. However, for the purposes of this opinion, we deem it necessary to discuss only the issues concerning Laverne's affirmative defense of failure of consideration. In regard to the Bank's allegation that the trial court erred in denying its motions for directed verdict, we conclude that at the time these motions were made, sufficient evidence existed to support Laverne's defense of failure of consideration. Therefore, we hold that the trial court did not err in denying these motions.

Consideration for a contract may not be other than that which is accepted or regarded as such by both parties. Richter v. Industrial Finance Co., Inc., 88 S.D. 466, 221 N.W.2d 31 (1974). In the present case there is much dispute as to what constituted consideration for Laverne's agreement to sign and deliver a mortgage and a promissory note to the Bank. Laverne and Bob both testified that the mortgage and note were executed to the Bank in consideration for the Bank's promise to provide operating capital to Martin Electric. According to Bob, the Bank specifically told him and Laverne that after the mortgage was cleared by the Bank, the Bank would be able to give Martin Electric more operating funds. Additionally, Laverne testified the Bank informed her that the money acquired by way of the promissory note was to be furnished so Bob could complete the school project. She further testified that the whole discussion which took place when the parties met in Pierre was to the effect that the Bank was going to provide Martin Electric with operating capital in exchange for the execution of the promissory note and the mortgage. Although Bank argued that its forbearance from filing suit on the notes due was consideration for the note, the trial court, under these circumstances, was bound to view the evidence most favorably to Laverne and to indulge all legitimate inferences in her favor. Therefore, based upon the evidence presented, the trial court should have concluded that the Bank's promise to provide operating capital to Martin Electric was the consideration for Laverne's promise to execute the note and mortgage in favor of the Bank.

Given this conclusion as to consideration, we believe that reasonable minds could differ as to whether a failure of consideration existed in this case. In American State Bank v. Cwach, 85 S.D. 562, 187 N.W.2d 107 (1971), we set forth the following rule regarding failure of consideration:

... where there is a total failure of consideration and the defendant has derived no benefit from the contract or none beyond the amount of money which he has advanced, such total failure of consideration may be shown in bar of the action.

If any benefit was derived by the defendant (Laverne), it must, of course, be one that was offered and received by the parties as an element of the contract in order for the plaintiff (Bank) to defeat the defendant's claim of failure of consideration. See, Richter, supra, 88 S.D. at 472, 221 N.W.2d at 34. Thus, in the present case, the benefit derived by Laverne must be in the form of operating capital for Martin Electric since that is the only benefit offered by the Bank and accepted by Laverne as an element of the contract (when viewing the evidence most favorably to Laverne).

At the time when the Bank made its motions for directed verdict, no evidence had been established which clearly indicated that Martin Electric...