Eastern Idaho Production Credit Ass'n v. Placerton, Inc.

• Decision Date: 12 February 1980
• Docket Number: No. 12710,12710
• Citation: 100 Idaho 863,606 P.2d 967
• Parties: EASTERN IDAHO PRODUCTION CREDIT ASSOCIATION, a corporation, Plaintiff-Respondent, v. PLACERTON, INC., a corporation, and Charles W. Beeler, Defendants-Appellants, v. Darwin L. YOUNG, O. W. Robinson, Adolph Mauch, Lafe Holbrook, and Larry L. Smith, Defendants-Respondents.
• Court: Idaho Supreme Court

Page 967

606 P.2d 967

100 Idaho 863

EASTERN IDAHO PRODUCTION CREDIT ASSOCIATION, a corporation, Plaintiff-Respondent, v. PLACERTON, INC., a corporation, and Charles W. Beeler, Defendants-Appellants, v. Darwin L. YOUNG, O. W. Robinson, Adolph Mauch, Lafe Holbrook, and Larry L. Smith, Defendants-Respondents.

No. 12710.

Supreme Court of Idaho.

Feb. 12, 1980.

Callis A. Caldwell of Johnson & Olson, Pocatello, for defendants-appellants.

Louis F. Racine, Jr., of Racine, Huntley & Olson, Chartered, Pocatello, John D. Hansen of Hansen & Boyle, Idaho Falls, for defendants-respondents.

McFADDEN, Justice.

Plaintiff-respondent Eastern Idaho Production Credit Association (hereafter EIPCA) is a corporation organized and chartered under the Federal Farm Credit Act with a principal place of business in Pocatello, Idaho. Defendant-appellant Placerton, Inc. is a California corporation engaged in the cattle and agriculture business and authorized to do business in Idaho. Defendant-appellant Charles W. Beeler is secretary and chairman of the Board of Directors of Placerton, Inc. Appellants appeal from a judgment for EIPCA on six promissory notes executed by Placerton and co-signed by Beeler.

The parties first became acquainted in 1971 as a result of their mutual interest in certain Idaho property referred to in these proceedings as the Houtman property. EIPCA had made loans to Houtman which were in default in the sum of $1,241,930 plus interest. The notes were secured by real property mortgages and personal property security interests held by EIPCA. The mortgaged real property was desired by Placerton for use as a cattle ranch. Negotiations between EIPCA and Placerton for the transfer of EIPCA's mortgagees interest in this property ensued.

Meanwhile, on January 12, 1972, Placerton had entered into two agreements with one Ben Shrier, a resident of California, concerning two parcels of property owned by Placerton located in Suisun City, California. The agreements in effect provided for the development of the property by Shrier, contingent upon obtaining interim and permanent financing. These agreements recited initial payments by Shrier to Placerton of $200,000 and $350,000, and acknowledged Placerton's receipt of these sums. Additional payments of $250,000 and $850,000 were provided for in the agreements, contingent upon obtaining sufficient financing for the development.

On April 22, 1972, EIPCA, Placerton and Beeler arrived at an agreement. Placerton assigned to EIPCA all rights under the two contracts with Ben Shrier concerning the California property. EIPCA assigned to Placerton all notes, mortgages and security interests related to the Houtman indebtedness. Placerton agreed to foreclose on the mortgage and acquire title to the Houtman property subject to Houtman's rights of redemption. EIPCA agreed to advance Placerton sufficient sums to (1) pay principal and interest charges owing on the mortgage which had priority over EIPCA on the Houtman property (estimated at $145,000); (2) pay real property and personal property taxes on the property (estimated at $22,000); (3) pay past due interest owing to EIPCA on the Houtman property (estimated at $80,000); and (4) pay up to $65,000 to fence in the property for raising cattle. EIPCA also agreed to advance Placerton $500,000 as working capital to commence the cattle operations, and to accept all Placerton's drafts up to $1,000,000 for the purchase of cattle. These loans were to be evidenced by promissory notes executed by Placerton and personally guaranteed by Beeler. The notes were to be secured by the cattle to be purchased and by Placerton's mortgage of the Houtman property once it had acquired title by foreclosure.

The April 22, 1972, agreement also contained an option, whereby EIPCA could require Placerton to re-purchase the Shrier contracts for $500,000 in the event EIPCA had not received from Placerton the value of the Houtman indebtedness ($1,241,930) and interest thereon by December 31, 1972. As events turned out, Placerton failed to make the required payment on the Houtman indebtedness. And on January 17, 1973, in an addendum agreement EIPCA exercised its option. Placerton thereby agreed to repurchase the Shrier contracts for $500,000, payable on or before April 17, 1973. The addendum agreement further provides that EIPCA would advance $3,500,000 for the purchase of additional cattle, and $516,118.01 plus accrued interest on the Houtman indebtedness so that Placerton could liquidate the indebtedness. These notes were also secured by the cattle to be purchased, and were co-signed by Beeler in his individual capacity.

By April 17, 1973, Placerton had not paid the $500,000 required by EIPCA's option. Thus a second addendum agreement was executed by the parties on July 17, 1973. The past-due $500,000 option payment was to be evidenced by a promissory note executed by Placerton and co-signed by Beeler. EIPCA was to retain title to the Suisan City property (the subject of the Shrier contracts) until the note was paid. EIPCA further agreed to subordinate its first mortgage position on the Placerton ranch property (Houtman property) to Metropolitan Life Insurance Company to allow Placerton to negotiate a $2,000,000 loan to refinance the cattle operations.

Pursuant to the original April 22, 1972, agreement and the two addendum agreements, Placerton and Beeler executed six promissory notes to EIPCA totaling $6,771,371. EIPCA held mortgages on Placerton's real property and personal property security interests in Placerton's cattle and equipment securing the notes. In addition, on July 6, 1973, Beeler executed and delivered to EIPCA a continuing personal guarantee to pay all indebtedness up to $7,000,000. As of March 1, 1974, Placerton and Beeler had defaulted on both interest and principal payments on all notes.

This action was filed on March 25, 1974 by EIPCA to foreclose on the real property mortgages and security interests securing the notes. The amount in default at the time of the amended complaint was $3,643,885.12 principal and $171,911.05 interest, with additional interest accruing at the rate of $962.31 per day. The complaint sought a deficiency judgment against Placerton and Beeler in the event the proceeds from the foreclosure sale should be insufficient to discharge the debt.

Appellants' answer admitted the execution of the April 22, 1972, agreement by Beeler, but denied that this instrument constituted the parties' actual agreement. Appellants alleged that this agreement was procured by fraud and that EIPCA fraudulently placed camouflaged provisions in the agreement contrary to the parties' negotiations. Appellants admitted executing the six promissory notes, but alleged that the notes did not give the correct date or amount of monies actually loaned. Appellants admitted executing the real property mortgage, but alleged that EIPCA fraudulently added properties to the legal description which appellants did not intend to mortgage. The answer also alleges unfair and deceptive accounting practices, overreaching, economic duress, and unconscionability on the part of EIPCA. Appellants also counterclaimed against EIPCA and its board of directors on grounds of usury, fraud, and unconscionability and sought recovery for upwards of $7,000,000 in damages.

Prior to the date set for trial, Metropolitan Life Ins. Co. filed a separate action against Placerton to foreclose its senior mortgage on property also subordinately mortgaged to EIPCA. Placerton did not redeem the property, but EIPCA did redeem from the Metropolitan foreclosure for $2,623,180.94. EIPCA also redeemed from judgments of foreclosure of a mortgage of Mutual of New York Life Insurance Company for $247,466.15, and purchased at sheriff's sale for $51,020.71 mortgaged property foreclosed by Kansas City Life Insurance Company. These three mortgages were each prior to EIPCA's mortgage.

EIPCA changed its theory of recovery in this case, claiming that because it had acquired title to the mortgaged property, this action was now one to recover on the debt, not for foreclosure of the security. ¹ This change in theory by EIPCA gave rise to appellants' filing on December 1976 a "supplemental counterclaim" which alleged that EIPCA had acquired title for less than the property's fair market value. The pleading prayed that the court give appellants a credit against their debt in an amount equal to the difference between the fair market value and price EIPCA paid, and that in the event the amount owing is less than the present market value minus costs and expenses incurred by EIPCA in redeeming, they ask for a lien on the property to secure payment of the difference.

The case was tried to the court sitting without a jury. After a four day trial, the court entered its memorandum opinion, findings of fact, conclusions of law and judgment for EIPCA. The court found, Inter alia : (1) that appellants wholly failed to prove any elements of fraud, usury, duress or unconscionability on the part of EIPCA or on the part of EIPCA's board of directors in these transactions; (2) that all agreements were supported by adequate consideration and fully performed by EIPCA; (3) that Charles Beeler was an experienced, capable, and competent businessman who understood and agreed to all provisions of the agreements; (4) that the agreements were clear and unambiguous and freely entered into; (5) that the promissory notes were correct as to dates and amounts of funds advanced; (6) that EIPCA's accounting procedures were commercially reasonable and did not confuse or deceive appellants; (7) that EIPCA did not exceed the rate of interest permitted under either the Farm Credit Act or the statutes of Idaho. Because EIPCA had already acquired title to the property which was the subject matter of this action, the court concluded that the action was no longer one to foreclose, but had become one to recover on the notes. Judgment was entered...