Berkeley Bank for Cooperatives v. Meibos

• Decision Date: 17 January 1980
• Docket Number: No. 15824,15824
• Citation: 607 P.2d 798
• Parties: BERKELEY BANK FOR COOPERATIVES, Plaintiff and Appellant, v. Gary A. MEIBOS, dba Meibos Bros., etc., Defendant and Respondent.
• Court: Utah Supreme Court

Page 798

607 P.2d 798

BERKELEY BANK FOR COOPERATIVES, Plaintiff and Appellant, v. Gary A. MEIBOS, dba Meibos Bros., etc., Defendant and Respondent.

No. 15824.

Supreme Court of Utah.

Jan. 17, 1980.

John H. Allen and Janeen J. Aggen of Callister, Greene & Nebeker, Salt Lake City, for plaintiff and appellant.

Harold A. Hintze and Walter J. Plumb, III of Fox, Edwards & Plumb, Salt Lake City, for defendant and respondent.

STEWART, Justice:

Plaintiff brought actions against each of the defendants, nine dairy farmers, for collection of promissory notes which defendants executed in favor of their dairy cooperative, Dairymen Associates, Inc. (herein "Dairymen"), for assignment from plaintiff to Dairymen. Each defendant alleged as a defense that plaintiff had fraudulently induced him to execute the note. ¹ The nine cases were consolidated for trial before the District Court for Salt Lake County, sitting with a jury. From judgments entered on the jury verdicts in favor of each defendant, and the Court's denial of plaintiff's motions for directed verdicts and judgments notwithstanding the verdicts, plaintiff appeals. The principal issue on this appeal is whether as a matter of law defendants can avoid the obligations of the promissory notes, which they concededly signed, on the ground that the signing of the notes was fraudulently induced.

Each of the defendants is a director of Dairymen, and each contracted with Dairymen to deliver milk for marketing. During the period pertinent to this action, William H. Finney was the general manager of Dairymen. He was neither a producer of milk nor a director of the corporation. In January 1975 Finney negotiated with plaintiff for certain loans to Dairymen. These negotiations culminated in two loans by plaintiff to Dairymen: the first, a term loan in the amount of $380,000, and the second, a "seasonal" loan of amounts as needed during the season up to $180,000. The total amount of the term loan was disbursed to the cooperative, but only $126,000 of the seasonal loan was disbursed.

As security for these loans, plaintiff took mortgages on all the property of Dairymen, which consisted of four parcels of real property, all the dairy equipment and rolling stock, the trade name "Heber Valley Milk," and all accounts receivable. The plaintiff also requested promissory notes from the defendants.

A great deal of evidence was produced at the trial concerning whether any of plaintiff's representatives made any representations to defendants in order to induce them to sign the individual promissory notes, and if so, whether the representations were made directly to defendants or to Finney with the intent that he convey these representations to defendants, and at what times these representations were made. Although the evidence was conflicting in many respects, there was substantial evidence upon which the jury could find all the elements of fraud. The evidence demonstrates that the defendants refused to sign individual notes prior to a meeting held at the Minoa Restaurant in Salt Lake City on February 4, 1975, at which most of the defendants and two representatives of plaintiff were present, and that defendants signed the notes on or about March 26, 1975, at or after a second meeting held in Tremonton, Utah, and attended by Finney and most of the defendants. Defendants contend that they were induced to sign the notes in reliance on the misrepresentations made to them at these meetings. Plaintiff contends that defendants had no right to rely on any representations made which were inconsistent with the terms of the notes.

Under date of March 26, 1975, defendant Russell Wayment, president of the cooperative, executed a loan agreement for a seasonal loan of $180,000, a loan agreement for a term loan of $380,000, a promissory note in favor of plaintiff in the principal amount of $180,000, a promissory note in favor of plaintiff in the principal amount of $380,000, a security agreement, and a realty mortgage. Also, under date of March 26, 1975, each of the defendants, except Harvey Higley, executed an installment promissory note. Sometime subsequent to March 26, 1975, defendant Russell Wayment, as president of the cooperative, assigned those notes to plaintiff. Under date of July 26, 1975, defendant Harvey Higley executed an installment promissory note. That note also was subsequently assigned to plaintiff.

The amount of the notes signed by the farmers was apportioned among them according to the amount of their "milk base," or license to deliver milk to Dairymen for marketing. Each of the notes, signed by defendants and sued upon here, contains the following language:

This note is made and delivered to the payee, Dairymen Associates, Inc., for the sole and limited purpose of collateralizing and guaranteeing a term loan up to the face amount hereof, (amount of individual note), evidenced by that certain promissory note, bearing even date herewith, from Dairymen Associates, Inc., to the Berkeley Bank for Cooperatives as payee, in the sum of Three Hundred Eighty Thousand Dollars ($380,000) . . . .

Following the signature of the defendant, each note contains this language:

ENDORSEMENT:

This note, as additional collateral and guarantee of the payment of that certain collaterized promissory note from Dairymen Associates, Inc., as maker, and Berkeley Bank for Cooperatives as payee, is endorsed to the Berkeley Bank for Cooperatives, said note being in the face amount of $380,000, and bearing even date herewith.

Dairymen defaulted on its notes to plaintiff and filed a voluntary petition in bankruptcy in December 1975. The evidence in this case shows that plaintiff realized $185,000 from the sale of the assets of Dairymen at the sheriff's sales following the bankruptcy and was pursuing collection of one of Dairymen's accounts receivable in the amount of $30,000 at the time of the trial. Plaintiff brought action against these nine defendants on the individual promissory notes the only remaining collateral available to satisfy plaintiff's claims against Dairymen.

The representations which defendants contend in their defense were fraudulent are:

1. That as a standard procedure the plaintiff required personal promissory notes from the members of all of the cooperatives to which it made loans.

2. That the notes were not "money notes," but would be used to guarantee that the defendants would continue to ship milk to Dairymen so that Dairymen would stay in business and be able to repay the large loans.

3. That plaintiff would never collect on these notes.

The case was submitted to the jury on special interrogatories, and the jury found each of the nine elements of fraud ² against plaintiff and in favor of each of the nine defendants.

We are obliged on appeal to view the evidence in the light most supportive of the findings of the trier of fact, Rodgers v. Hansen, Utah, 580 P.2d 233 (1978). The issue of actual reliance and the reasonableness of the reliance is, of course, for the jury to determine, Stuck v. Delta Land & Water Co., 63 Utah 495, 227 P. 791 (1924); Equitable Life Ins. Co. of Iowa v. Halsey, Stuart & Co., 312 U.S. 410, 61 S.Ct. 623, 85 L.Ed. 920 (1941); 37 C.J.S. Fraud § 129. It is also for the jury to determine whether the representations were of such a character and made under such circumstances that they were likely to deceive, Lewis v. White, 2 Utah 2d 101, 269 P.2d 865 (1954).

Plaintiff contends that the evidence of fraud was not sufficient as a matter of law to present the question of fraud to the jury, because it did not rise to the standard of being clear and convincing, ³ and that the district court erred in denying plaintiff's motions (1) for directed verdicts at the conclusion of defendants' evidence and (2) for judgments notwithstanding the verdicts, or in the alternative for a new trial.

The record in the present case is replete with evidence that a number of representations were made by plaintiff, or by plaintiff through Finney, to the defendants for the purpose of inducing them to sign the promissory notes in favor of their cooperative, Dairymen Associates, Inc. The jury heard testimony from all of the defendants supporting their contentions that they were induced to sign the promissory notes only by plaintiff's representations and assurances as to the "real" nature of the notes.

The dissent implies that the record does not support a finding that the plaintiff bank represented to defendants that it would not collect on the notes. The fact is there is ample evidence in the record from which a jury could find that representation to have indeed been made. Several of the individual defendants testified that they were in no position to assume additional financial obligations because they were already in debt up to their limits. Those who questioned the financial condition of the co-op were assured that its situation had improved and there was sufficient collateral to carry the mortgage. Each testified that he had been told the purpose of the notes was to keep the members tied to the co-op and that the notes were "just a formality." The notes, it was explained, just represented a "shipping right" evidencing the member's commitment to the co-op. The defendants stated they would have continued to refuse to sign the notes if they had not been repeatedly assured that the notes were required as a standard procedure of all co-ops getting loans from plaintiff, that they were solely for the purpose of assuring Dairymen with a source of milk, and that they would not be collected.

Plaintiff's vice-president, Robert Rathbone, testified that he possibly had made representations to the farmers that the notes were not "money notes" and would be used only to guarantee a delivery of milk by the farmers to the co-op which borrowed the money. He also indicated that the bank nevertheless considered the notes to be subject to collection by the bank. Rathbone stated that his communications...