Cheyenne Western Bank v. Young, 14139
| Decision Date | 30 November 1978 |
| Docket Number | No. 14139,14139 |
| Citation | 587 P.2d 401,35 St.Rep. 1806,179 Mont. 492 |
| Parties | CHEYENNE WESTERN BANK, a Montana Corporation, Plaintiff and Respondent, v. William R. YOUNG et al., Defendants and Appellants. William R. YOUNG et al., Third Party Plaintiffs, v. Philip ZASTROW, Third Party Defendant. |
| Court | Montana Supreme Court |
Clarence T. Belue (argued), Hardin, Longan & Holmstrom, Billings, for defendants and appellants.
William Meisburger (argued), Forsyth, for plaintiff and respondent.
Plaintiff bank brought suit in the District Court, Rosebud County, on several promissory notes and a mortgage on which defendants were in default. Defendants counterclaimed alleging that they had been fraudulently induced into assuming these obligations. The District Court granted plaintiff's motion for summary judgment on the counterclaim and ordered foreclosure sale of the property securing the notes. Defendants appeal.
Defendants Young were buying a restaurant in Ashland, Montana, on contract. The restaurant was destroyed by fire. Defendants applied to plaintiff bank for a loan to rebuild it. Various sums were loaned by the bank to defendants at various times during the period of January 1, 1976 to July 28, 1976, while the restaurant was under construction.
Ultimately, the Youngs incurred indebtedness to the bank totaling $81,000. For the purposes of this appeal, the significant events in the accumulation of that indebtedness are:
(1) On June 2, 1976, defendants borrowed $10,000 from plaintiff, executing a note requiring repayment in full on July 10, 1976. In the space on the note marked "collateral" the notation "Adv. to SBA" was written.
(2) On June 28, 1976, defendants executed another note to the bank, this time in the sum of $5,038.63, for a loan of $5,000. The note was payable on July 28, 1976. Under "collateral" this note said "Adv. on SBA."
(3) On July 27, 1976, defendants signed a note on an SBA form, said note promising to pay to plaintiff bank the sum of $66,000 at 91/2 percent interest payable in monthly installments over a twenty year period. The note was secured by a mortgage to the bank of the restaurant real property. The reason that the SBA form was used was that defendants had asked the Small Business Administration to participate in the loan. Defendants' application to the SBA had requested a loan of $88,000 but the SBA would only make a commitment of $66,000. (Even the $66,000 commitment was later withdrawn, but that fact is not significant to the issues on this appeal.)
No payments have ever been made by defendants on any of the notes.
On December 22, 1976, the bank filed two complaints in the District Court, Rosebud County. One complaint was based on the default on the notes and mortgage, and the other complaint was on a separate note for $40,000 which covered another loan defendants had obtained to purchase a service station adjacent to the restaurant. The two cases were later consolidated. The briefs on this appeal refer primarily to the notes regarding the restaurant loans but the service station loan is also contested. In any event, the complaints requested the court to order a foreclosure sale of the property pledged as collateral in those instruments.
On February 14, 1977, defendants filed an answer, counterclaim, and third party complaint, alleging fraud on the part of the bank's officers. The third party complaint named Philip Zastrow, a bank executive, as third party defendant. The original negotiations on the loans as well as some of the original disbursements of funds had been handled by Zastrow's predecessor, but Zastrow was the bank officer involved in the execution of the three notes and the mortgage involved here. The counterclaim sought damages for various items, including loss of credit rating, interference with family relationships, and costs incurred when defendants attempted unsuccessfully to sell the property to satisfy the debts. The counterclaim also demanded a jury trial on the issues raised therein.
Defendants alleged breach of contract and promissory estoppel as defenses. The District Court subsequently ruled that the defenses of breach of contract and promissory estoppel had been abandoned by defendants. Defendants have not objected to that ruling and the case comes to this Court on the fraud theory alone.
The substance of defendants' fraud defense is the allegation that the $10,000 and $5,000 notes were to be amortized over 20 years just as the $66,000 SBA loan. The notes themselves provide for repayment in full on dates certain. Defendants allege, however, that the bank officers told them that the $15,000 total of those two notes would be amortized over 20 years along with the SBA loan. They claim they never would have executed the mortgage on the $66,000 loan if they had known otherwise, but that the bank officers told them they could come back later and sign papers to amortize the entire $81,000.
After discovery during which depositions were taken of all parties, plaintiff bank moved for summary judgment on the counterclaim and third party complaint of defendants. Hearing was held, briefs were submitted, and subsequently the District Court granted the bank's motion. The order also provided that "Young's motion for jury trial be denied." Summary judgment was decreed on November 10, 1977. Findings of fact, conclusions of law, and order were issued on the same day, resolving all issues in favor of plaintiff and directing that a foreclosure sale take place. Defendants filed notice of appeal from the summary judgment.
We note that the District Court in granting the summary judgment found that the bank, after defendants had become in default but before foreclosure proceedings were initiated, offered to restructure the financing agreement to carry the entire $81,000 total, plus an additional $4,000, as a bank loan amortized over twenty years at 91/2 percent interest. Defendants declined that offer.
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