Buehner v. Hoeven

• Decision Date: 24 April 1975
• Docket Number: No. 9063,9063
• Citation: 228 N.W.2d 893
• Parties: James BUEHNER, Plaintiff-Appellant, v. John HOEVEN, Jr. and First Western State Bank of Minot, Defendants-Appellees. Civ.
• Court: North Dakota Supreme Court

Page 893

228 N.W.2d 893

James BUEHNER, Plaintiff-Appellant, v. John HOEVEN, Jr. and First Western State Bank of Minot Defendants-Appellees.

Civ. No. 9063.

Supreme Court of North Dakota.

April 24, 1975.

Syllabus by the Court

1 Fraud is never presumed but must be proved by evidence that is clear, satisfactory, and convincing.

2. Actual fraud is always a question of fact to be decided by the trier of the facts.

3. Appellate review of questions of fact is limited to a consideration of whether or not there is substantial evidence to sustain the verdict; if there is such evidence, we are bound by the verdict.

4. To constitute actionable fraud, the injured party must demonstrate that he relied upon the alleged false and fraudulent representations and that he suffered actual damages.

Farhart, Rasmuson, Olson & Lian, Minot, for appellant, argued by Steven C. Lian, Minot.

McGee, Hankla, Backes & Wheeler, Minot, for appellees, argued by Robert A. Wheeler, Minot.

PEDERSON, Judge.

CASE SUMMARY

This is an appeal by plaintiff Buehner from a judgment on a jury verdict in favor of defendants Hoeven and First Western, entered by the district court of Ward County, dismissing Buehner's claim for actual and punitive damages arising out of an alleged fraud, and from an order of the district court denying Buehner's motion for a new trial.

Judgment and Order affirmed.

FACTS

Prior to August 9, 1969, Buehner was the owner of eighteen shares of common stock in First Western State Bank of Minot (hereinafter First Western). In May 1969 the North Dakota Banking Board ordered First Western to implement a recapitalization plan and, on August 7, 1969, the Federal Deposit Insurance Corporation (hereinafter FDIC) ordered First Western to (1) undertake a recapitalization program, (2) provide a new board of directors, and (3) provide new management. Accordingly, the First Western shareholders voted to reduce the existing outstanding common stock by a six-to-one stock reduction. This reduced Buehner's holding to three shares of common stock. The plan also provided for the issuance of additional common stock and convertible debentures to be sold in units of five shares of common stock, one ten-year capital debenture, and one convertible debenture maturing September 1, 1971.

Buehner purchased three units and thus became the owner of eighteen shares of common stock, three ten-year capital debentures, and three convertible debentures.

Prior to implementation of the recapitalization plan, Hayden Thompson had been the owner of 72% Of the common stock and was chairman of the board of directors of First Western. In December 1969 Thompson sold 10,000 shares of his common stock to Hoeven, giving Hoeven an option to purchase additional shares to bring his ownership to 51% And authorizing Hoeven to select a majority of the directors for a period of ten years. Thompson retained ownership of a large block of convertible debentures.

Hoeven became president of First Western and a new board of directors took over management of the bank. Evidence in the record indicates that First Western thrived under the new management.

This case arises out of an allegedly fraudulent retirement of the convertible debentures. The face of the convertible debenture reads, in part, as follows:

'FIRST WESTERN STATE BANK OF MINOT, North Dakota, herein called Bank, for value received, hereby promises to pay the registered holder hereof, the sum of _ _, in cash or in capital stock of the Bank on or before September 1, 1971, and to pay interest in cash on the principal amount from time to time remaining unpaid hereon, from September 1, 1969, at the rate of six percent (6%) per annum, payable semi-annually, on the first day of March and September of each year, until this Debenture is paid. The principal hereof and the interest hereon shall be payable at the principal office of the Bank in Minot, North Dakota. To the extent that this Debenture is not paid or retired in cash, At the option of the Bank, acting by and with the approval of the Commissioner of Banking and Financial Institutions of the State of North Dakota and of the Federal Deposit Insurance Corporation, the Bank has the right, At its option, to repay the principal amount of all of the Debentures in this series by the issuance of shares of capital 'This Debenture is one of an issue of Registered Capital Debentures, Subordinate Convertible Series, duly authorized in the aggregate principal amount of Five Hundred Ten Thousand Dollars ($510,000.00), and issued in deniminations (sic) of $100.00 and multiples and fractions thereof, all of like date, tenor, and terms, except the variations necessary to express the number and the principal amount of each debenture.

stock at the time and at the rates provided for in Paragraph 3 on the reverse side hereof.

'All of the Provisions on the reverse side hereof are a part of this Debenture Bond.' (Emphasis added.)

Pertinent paragraphs from the reverse side of the convertible debenture provide as follows:

'3. Payment: The principal amount of all of the Debentures in this series is payable on or before September 1, 1971, in cash or in capital stock of the Bank, As the Bank may elect, at its option, acting by and with the approval of the Commissioner of Banking and Financial Institutions of the State of North Dakota and of the Federal Deposit Insurance Corporation. Notice of any payment shall be given by mailing a notice not less than fifteen (15) days prior to the date fixed for such payment to each registered holder. Payment of these Debentures, whether in cash or in capital stock of the Bank, shall be made proportionately on all outstanding Debentures in this series, Unless a registered holder elects to convert as hereinafter provided. All payments made in capital stock of the Bank shall be at the rate of one share of capital stock of ten dollar par value for each twenty dollars in principal amount of these Debentures (which rate of payment in capital stock is herein called the conversion price). Any balance in the principal amount of these Debentures which remains unpaid on September 1, 1971, shall thereupon be paid in capital stock of the Bank at the conversion price provided herein. Notwithstanding the options of the Bank in making payment on these Debentures, any registered holder may:

'(1) By giving the Bank at least 30 days written notice prior to any interest payment date of these Debentures, Elect to convert (as of such interest payment date) the Debentures registered to such holder into capital stock of the Bank at the conversion price provided herein. In that event, interest shall nevertheless be paid in cash by then Bank to the interest payment date.

'(2) Upon receipt from the Bank of notice of any payment upon principal in cash by the Bank, Elect to receive (as of the date of such payment) Capital stock of the Bank for such cash payment on principal at the conversion price provided herein.

'In the event that the Bank shall at any time after the date hereof and prior to full payment of these Debentures, issue or sell any shares of capital stock or other securities convertible into capital stock in excess of present authorized capital stock, without consideration or for a nominal consideration or upon any reclassification, exchange, split-up, combination, adjustment, distribution, stock dividend, or otherwise, the number of shares of capital stock to be converted hereunder shall be proportionately increased or decreased, as the case may be, and the conversion prices referred to herein shall be correspondingly decreased or increased, as the case may be, to effect the requisite adjustment therein.

'10. Consent Required for Payment: Notwithstanding any other provisions contained in this Debenture, no Debenture shall be paid on demand, retired, called for redemption, purchased, or converted into capital stock by the Bank, whether in whole or in part, unless such The offering circular prepared and distributed by First Western also indicates that the convertible debenture owner would have an overriding option to convert his debentures into capital stock upon any interest payment date or in lieu of any cash payment on the principal.

payment, redemption, retirement, call, purchase, or conversion shall have the Prior written approval of the Commissioner of Banking and Financial Institutions of the State of North Dakota. Notwithstanding any other provision, this Debenture is subject to the provisions of Section 18(i)(1) of the Federal Deposit Insurance Act, 12 U.S.C. No. 1828(i)(1), which state that no insured State non-member bank shall, without the Prior consent of the Federal Deposit Insurance Corporation, retire any part of its capital notes or debentures.' (Emphasis added.)

On June 9, 1971, on the advice of counsel that the bank had the option of retiring the convertible debentures in cash, the First Western board of directors adopted a resolution to retire such debentures for cash prior to September 1, 1971, and directed the secretary of the bank to transmit copies of such resolution to the Commissioner of Banking and Financial Institutions of the State of North Dakota (hereinafter Commissioner) and the FDIC.

Hoeven wrote a letter to FDIC on June 18, 1971, which stated, in part:

'Our Board of Directors has passed a resolution to pay off completely the $510,000.00 of convertible debentures which mature September 1, 1971, a copy of which is enclosed. We propose to do this by applying $360,000.00 from recoveries and the balance will be made up from the 7 year debenture. We formally request your approval of this transaction.'

In a reply dated July 9, 1971, entitled 'Order,' consent of FDIC was given '* * * to the retirement, by payment in cash. * * *'

Also, on June 18, 1971, Hoeven wrote to the Commissioner, enclosing a copy of his letter of June 18, 1971, to FDIC. The letter included the statement, 'We would appreciate a letter from you granting this...