Farm Credit Services of Michigan's Heartland, P.C.A. v. Weldon

• Decision Date: 24 November 1998
• Docket Number: Docket No. 183696
• Citation: 591 N.W.2d 438,232 Mich.App. 662
• Parties: FARM CREDIT SERVICES OF MICHIGAN'S HEARTLAND, P.C.A., Plaintiff/Cross-Defendant-Appellee/Cross-Appellant, v. Major K. WELDON and Crystal C. Weldon, Defendants/Cross-Plaintiffs-Appellants/Cross-Appellees.
• Court: Court of Appeal of Michigan — District of US

Page 438

591 N.W.2d 438

232 Mich.App. 662

FARM CREDIT SERVICES OF MICHIGAN'S HEARTLAND, P.C.A. Plaintiff/Cross-Defendant-Appellee/Cross-Appellant, v. Major K. WELDON and Crystal C. Weldon Defendants/Cross-Plaintiffs-Appellants/Cross-Appellees.

Docket No. 183696

Court of Appeals of Michigan.

Submitted Oct. 7, 1997, at Lansing.

Decided Nov. 24, 1998, at 9:00 a.m.

Released for Publication Feb. 23, 1999.

Learman, Peters, Sarow & McQuillan, P.L.C. by John J. McQuillan, Bay City, for Plaintiff.

Daniel L. Kraft, Lansing, for Defendants.

Before JANSEN, P.J., and DOCTOROFF and GAGE, JJ.

GAGE, J.

Defendants appeal as of right from a November 1994 trial court judgment awarding them $351,991.80. Defendants had filed a multiple-count counterclaim against plaintiff alleging misconduct relating to plaintiff's long-term relationship lending defendants money to support their farming operations. The jury found for defendants on several counts. Plaintiff cross appeals as of right from the November 1994 judgment.

Plaintiff is a federally created entity that makes loans to its borrowers/members for use in conducting agricultural activities. Defendants are farmers who, since the fall of 1980, have received numerous loans from plaintiff. From 1980 to 1990, plaintiff loaned defendants $839,805, of which defendants themselves received $460,000, with plaintiff, at defendants' direction, paying the difference to defendants' third-party suppliers and creditors. Although the parties agreed that their business relationship was initially very satisfactory, the relationship deteriorated from 1988 through 1990 because defendants became increasingly unable to repay their debt. Plaintiff eventually foreclosed on various mortgages and other security interests that it possessed in defendants' property and equipment.

Ultimately, plaintiff initiated the instant suit seeking a deficiency judgment against defendants and the recovery of plaintiff's remaining collateral. In response, defendants filed a ten-count counterclaim seeking recovery from plaintiff on theories ranging from bad-faith breach of contract and breach of fiduciary duty to tortious interference with contract and fraud.

Regarding plaintiff's complaint, the parties in July 1994 entered into a consent judgment for defendants' deficiency. The judgment awarded plaintiff $249,458.81 plus interest and ordered defendants to surrender various items of farm equipment pledged as collateral.

With respect to the counterclaim, the trial court granted plaintiff's motions for a directed verdict regarding several counts, including counts V (invalid foreclosure), VIII (tortious interference), and X (fraud). The remaining claims proceeded to verdict. The jury returned verdicts for defendants in the amounts of $315,000 on count I (bad-faith refusal to advance to defendants 1991 operating funds) and $500,000 on combined counts II and VI (plaintiff's bad-faith breach of contract and breach of fiduciary duty in refusing defendants' January 2, 1990, request that it apply a portion of a crop-proceeds check to a mortgage held by the Federal Land Bank [FLB], another creditor of defendants). The jury also found for defendants on count VII (plaintiff obtained May 1990 mortgage on a property known as the Partaka farm by duress), but awarded no damages on this count. However, the trial court set aside the jury's verdict for defendants with regard to this count as inconsistent with the jury's award of damages to defendants for the loss of the same real estate. Regarding the remaining counts III (bad-faith failure to lend funds for completion of grain-drying system), IV (bad-faith failure to lend funds for completion of grain storage barn), and IX (tortious interference), the jury found for plaintiff.

Pursuant to the parties' agreement, the trial court reduced defendants' award for loss of real estate by deducting from it the amount of outstanding liens and encumbrances on defendants' property. Specifically, the trial court subtracted from defendants' award $513,599.28 in liens, encumbrances, and taxes, resulting in a preinterest net judgment of $301,400.72 for defendants.

Defendants first contend that the trial court erred in granting plaintiff a directed verdict with regard to count V of defendants' countercomplaint, which alleged that plaintiff did not have a valid mortgage on a property known as the Hudson farm, and therefore improperly foreclosed on this property. We review de novo the trial court's grant of a directed verdict. Meagher v. Wayne State Univ., 222 Mich.App. 700, 708, 565 N.W.2d 401 (1997). In reviewing the trial court's ruling, we examine the testimony and all legitimate inferences that may be drawn in the light most favorable to the nonmoving party. Kubczak v. Chemical Bank & Trust Co., 456 Mich. 653, 663, 575 N.W.2d 745 (1998). Directed verdicts are appropriate only when no factual question exists with regard to which reasonable minds may differ. Meagher, supra.

Defendants argue that the trial court improperly granted plaintiff a directed verdict when a question of fact existed regarding the interpretation of a clause in the mortgage plaintiff held on the Hudson farm. The trial court concluded that the mortgage contained a clear and unambiguous future advance clause. Defendants insist that the trial court erred in refusing to entertain parol evidence, which, they allege, would have shown that the parties did not intend the mortgage document to represent the complete integration of their agreement, and which would have clarified that the parties intended the mortgage to secure repayment of only the original mortgage principal amount, not any future advances. Defendants alleged that they had satisfied the original mortgage principal amount and therefore plaintiff's foreclosure on the Hudson farm was invalid if the mortgage did not also cover its subsequent loans to defendants.

While the trial court erred in neglecting to consider the documents executed by the parties contemporaneously with the mortgage for the purpose of determining whether the mortgage represented a complete integration of the parties' agreement, this error was harmless. A finding that the parties intended a written instrument to be a complete expression of their agreement concerning the matters covered is a prerequisite to the application of the parol evidence rule. NAG Enterprises, Inc. v. All State Industries, Inc., 407 Mich. 407, 410, 285 N.W.2d 770 (1979). Extrinsic evidence of prior or contemporaneous agreements or negotiations is admissible as it bears on this threshold question whether the written instrument is such an integrated agreement. Id. In this case, the mortgage itself refers to supplementary documents evidencing plaintiff's September 1982 $15,000 loan to defendants:

IN CONSIDERATION of the loan(s) by [plaintiff] to [defendants], and to secure the repayment of the loan(s) made by [plaintiff] to [defendants] in the aggregate principal sum of $15,000.00, together with interest thereon, evidenced by a Basic Loan Agreement between the parties or Promissory Note dated 9-3-82 [ ¹] and any Supplementary Loan Agreements or Promissory Notes (the Basic Loan Agreement, the Supplementary Loan Agreements and Promissory Notes are hereinafter collectively called "Loan Agreement"), and any renewals, extensions or modifications thereof, together with all other additional or future loans, advances or readvances heretofore or hereafter made by [plaintiff] to [defendants], together with interest thereon, and to secure the performance and observance by [defendants] of each and every term, covenant, agreement and condition contained herein or in the Loan Agreement, [defendants] do[ ] hereby mortgage, warrant, grant, convey and assign unto [plaintiff] ... the following described real estate.... [Emphasis added.]

Defendants thus correctly suggest that the trial court erred to the extent that it declined to review a loan application, two supplementary loan agreements, and a notice of defendants' right of rescission of the mortgage, executed together with the mortgage, to determine to what extent the parties intended the mortgage's terms to govern their agreement.

However, the trial court did not err in granting plaintiff's motion for a directed verdict because none of the contemporaneously executed documents cited by defendants contradicted the mortgage's language regarding future advances. The supplementary loan agreements executed with the mortgage address only various loan disbursement and repayment terms and conditions. The notice of rescission acknowledges the mortgage transaction "dated September 3, 1982, in the amount of $15,050.00 between [plaintiff] and [defendants]," and informs defendants that they may rescind the mortgage within three business days. The loan application simply indicates that defendants wanted $15,000 in exchange for a mortgage, and proposes a repayment plan. While defendants claim that plaintiff's failure to check a box on the loan application marked "Open End" indicates that the parties did not intend the mortgage to secure future advances, absolutely nothing in either the loan application or the other contemporaneously executed documents referenced by defendants suggests the parties intended other than that the mortgage would secure future advances. The mortgage's language securing future advances is clear, unambiguous, and uncontradicted by these other documents. Therefore, we conclude that the trial court properly interpreted the language as a matter of law, Meagher, supra at 721, 565 N.W.2d 401, and properly granted plaintiff's motion for a directed verdict. Id. at 708, 565 N.W.2d 401 (directed verdict appropriate when no factual question exists).

Next, defendants raise several challenges to the trial court's setoffs against their damages awards. Plaintiff's cross appeal asserts that the trial court erred in denying its motions for judgment notwithstanding the verdict (JNOV)...