Boatmen's Bank of Butler v. Berwald

• Decision Date: 12 April 1988
• Docket Number: No. WD39167,WD39167
• Parties: BOATMEN'S BANK OF BUTLER, Appellant, v. Allen B. BERWALD and Shirley A. Berwald, Respondents.
• Court: Missouri Court of Appeals

Page 829

752 S.W.2d 829

BOATMEN'S BANK OF BUTLER, Appellant, v. Allen B. BERWALD and Shirley A. Berwald, Respondents.

No. WD39167.

Missouri Court of Appeals,

Western District.

April 12, 1988.

Motion for Rehearing and/or Transfer to Supreme Court Denied

May 31, 1988.

Application to Transfer Denied July 26, 1988.

Lewis & Rice, Allen S. Boston, Joseph E. Martineau, St. Louis, McNabb & Pursley, H.H. McNabb, Jr., Butler, for appellant.

Harold A. Kyser, Butler, for respondents.

Before COVINGTON, J. Presiding, and SHANGLER and TURNAGE, JJ.

COVINGTON, Judge.

This is an appeal by Boatmen's Bank of Butler from a judgment entered in favor of Allen B. and Shirley A. Berwald for $50,000 actual and $100,000 punitive damages on a counterclaim for prima facie tort in response to Boatmen's action to recover the unpaid principal balance on a promissory note. In addition to the verdict in favor of the Berwalds, the jury returned a verdict in favor of the Bank for the unpaid principal balance of the note. The Bank also appeals from the trial court's refusal to amend the judgment in favor of the Bank to include interest and attorney's fees.

Mr. and Mrs. Berwald were owners and operators of a Holstein dairy farm and herd located near Butler, Missouri. Mr. and Mrs. Berwald borrowed money from the Butler State Bank, which became Boatmen's Bank of Butler, for the purpose of financing the operation of their dairy farm. The credit arrangements commenced in February of 1984 and included various promissory notes secured by deeds of trust and other collateral security agreements.

The Berwalds experienced problems with stray electricity from their milking equipment which caused a decline in milk production and consequent financial problems. Early in 1985, Mr. Edward Ratliff, president and chief executive officer of the Bank, told the Berwalds that the Bank would not extend further credit and recommended that Mr. and Mrs. Berwald investigate selling their cattle.

Because of their financial problems, Mr. and Mrs. Berwald filed for bankruptcy in February, 1985, pursuant to the provisions of Chapter 11 of the United States Bankruptcy Code. At that time the Berwalds were indebted to the Bank in an amount of approximately $500,000, $200,000 of which, although secured, would have been treated as unsecured under the bankruptcy proceedings.

The Bank urged the Berwalds to dismiss their bankruptcy case. Mr. Ratliff drafted an agreement under which the Bank would advance an additional $70,000 to Mr. and Mrs. Berwald for the purpose of paying some of the Berwalds' existing creditors, creating an aggregate loan balance not to exceed $570,000 for a period of one year. Principal and interest payments on the current loan structure were to be continued as scheduled on a prompt basis. Advances on the $70,000 were to be furnished upon the Berwalds' request subject to approval by the Bank. Although Mr. Berwald initially expressed concern about entering into the agreement because of a change of ownership in the Butler State Bank, the Berwalds ultimately signed the agreement on April 17, 1985, after assurances from a bank officer that the local management would remain the same after the Bank became Boatmen's. The Berwalds dismissed their bankruptcy petition four months after having entered into the agreement. The Bank thereafter advanced additional funds in a total amount of at least $62,000.

On November 29, 1985, the Bank informed Mr. and Mrs. Berwald that the Bank would extend no further credit. The parties dispute whether or not Boatmen's fulfilled its obligations to extend funds under the agreement. Prior to execution of the agreement, Earl Van Slyke, an officer of Boatmen's, had indicated to the Berwalds that he believed the agreement contemplated a commitment to loan up to $570,000 on a revolving line of credit. The Bank, however, later took the position that the agreement did not provide for a revolving line of credit.

Mr. and Mr. Berwald continued to make monthly payments on their indebtedness as required under terms of various notes executed in favor of the Bank.

Because of the financial problems, Mr. Berwald began to investigate the possibility of submitting a bid under a program administered by the United States Department of Agriculture called the dairy buy-out program. Under the program, a dairy producer could submit a bid, which, if accepted, required the farmer to sell his dairy herd for slaughter and to terminate milk production for five years in exchange for proceeds designed to compensate the farmer for the lost income from the cessation of milk production.

The Bank had a security interest in the cattle which the Berwalds were offering for slaughter under the buy-out program. The Bank had no objection to the participation of the Berwalds in the program but informed the Berwalds that their promissory notes should be paid in full.

On February 20, 1986, Mr. Berwald met with bank officials. At that time, the Bank presented Mr. Berwald with two new promissory notes. One was for $334,478.09 and was secured by livestock, farm machinery, commodities, milk equipment, computer feed system, vehicles, trailers, and a real estate deed of trust. The other was for $100,000 and was secured by a second deed of trust on the real estate. The purpose of the larger note was to renew an existing promissory note that had just matured. The purpose of the $100,000 note secured by the second deed of trust was to obtain additional collateral for the Bank because of the prospective loss of the cattle. Mr. Berwald indicated that he would not sign the notes until he learned whether or not he had been accepted in the buy-out program.

Mr. and Mrs. Berwald's bid was accepted on March 31, 1986, under which Mr. and Mrs. Berwald would cease milk production for five years, receive proceeds from the slaughter of the cattle, and receive $384,901.98 the first year and $24,056.37 each of the remaining four years. On April 1, Mr. and Mrs. Berwald signed the two notes previously presented by the Bank in February.

Early in April, the Bank informed the Berwalds that the Bank required an assignment under which, in addition to the proceeds from the sale of the cattle, the first buy-out payment would be used to reduce the Berwalds' outstanding indebtedness of approximately $545,000. Under the Bank's proposal, the remaining indebtedness would be amortized over the following four years. The Bank reiterated the demand on April 16. Mr. Berwald refused to give the Bank the assignment, but proposed an arrangement under which Boatmen's would receive $100,000, which the Berwalds expected to receive from the sale of the cattle for slaughter, and an assignment of $159,000 of the buy-out proceeds. Mr. Berwald based the $159,000 on the difference between what he believed the cattle to be worth and the $259,000 indebtedness which he alleged was specifically secured by the cattle. At that time indebtedness in excess of $334,000 existed on the note secured by the cattle, vehicles, machinery and equipment. The Bank found Berwald's proposal unacceptable.

On April 15, 1986, the Berwalds paid an installment of $7,556.65 to the Bank.

On April 17, 1986, the Berwald's outstanding indebtedness to the Bank totaled $545,263.91. On that date, the Bank again requested an assignment and Mr. and Mrs. Berwald refused. The Bank then demanded payment of the outstanding indebtedness under the note secured by the cattle, vehicles, and equipment and told the Berwalds that the Bank would be filing an action to replevy the cattle and other security. In addition to demanding payoff, the Bank, under its contractual right, set off $3,300 from the Berwald's bank account against some of the indebtedness under one of the promissory notes. The setoff left the Berwald's bank account with a balance of $548.26.

The Bank's anticipated replevin action was based upon the promissory note dated February 20, 1986, executed by Mr. and Mrs. Berwald on April 1, 1986, in the original principal amount of $334,487.09. The note was secured by a collateral security agreement in which the Berwalds agreed to provide additional collateral satisfactory to the Bank, within twenty-four hours, if, in the Bank's reasonable opinion, the collateral became insufficient to insure payment of the note. Under the agreement, failure to comply with this provision was an act of default.

On April 21, 1986, the Bank filed the replevin action against the Berwalds. On April 25, 1986, a hearing was held on the prejudgment replevin and the petition was dismissed because the verified petition was filed without a supporting affidavit. After the hearing and dismissal, the Bank filed an amended petition in replevin. On April 25, the Bank also sent out written notification to Mr. and Mrs. Berwald that, because of the Berwalds failure to pay an installment due on April 20, 1985, on the note secured by real estate, the Bank was demanding payment in full of all outstanding indebtedness under the real estate note and commencing foreclosure proceedings under the deed of trust.

Late in the afternoon of April 25, Mr. and Mrs. Berwald went to the Bank with a check for approximately $8,000 to make monthly payments under their promissory notes. The Bank refused to accept the installments because demand on all notes had already been made.

On the weekend of April 26 and 27, 1986, the Berwald cattle were sold by the Berwalds for slaughter.

On April 28, 1986, the court, after hearing, found insufficient evidence to justify prejudgment seizure.

On May 7, 1986, the Berwalds paid $486,927.74 to the Bank by three checks drawn on the Bates County National Bank. The money paid by the Berwalds was applied...