Federal Land Bank of Spokane v. Snider, 90-351

• Docket Nº: No. 90-351
• Citation: 247 Mont. 508, 808 P.2d 475
• Case Date: April 18, 1991
• Court: United States State Supreme Court of Montana

Page 475

808 P.2d 475 247 Mont. 508 The FEDERAL LAND BANK OF SPOKANE, a Corporation, Plaintiff
and Respondent,
v.
Roger SNIDER and Penny Snider, Husband and Wife, Elmer
Snider and Florence Snider, Husband and Wife, United States
of America, Acting Through the Farmers Home Administration,
Western Bank of Chinook, N.A., and Interstate Federal Land
Bank Association, a Corporation, Defendants and Appellants,
and
Federal Intermediate Credit Bank of Spokane, a Federal
Corporation and Farm Credit System Capital
Corporation, a Federal Corporation,
Additional Parties Defendant
on Counterclaim. No. 90-351. Supreme Court of Montana. Submitted on Briefs Jan. 31, 1991.
Decided March 21, 1991.
Rehearing Denied April 18, 1991.

Page 476

[247 Mont. 510] Leo Graybill, Jr., Graybill, Ostrem, Warner & Crotty, Great Falls, for defendants and appellants.

Kevin C. Meek, Alexander, Baucus & Linnell, Great Falls, for plaintiff and respondent.

TRIEWEILER, Justice.

Plaintiff, the Federal Land Bank of Spokane, ("the Bank") commenced this suit in District Court to foreclose a mortgage on property owned by the defendants Roger and Penny Snider (Sniders). The Bank also sought a deficiency judgment for the difference between the amount due under a note executed by the Sniders and that amount recovered by the Bank at the foreclosure sale. Following trial before the Blaine County District Court in the Seventeenth Judicial District of Montana, without

Page 477

a jury, judgment was entered for the plaintiff awarding it the sum of $856,560.71, plus interest, attorney fees and costs. In addition, the judgment foreclosed defendants' mortgage and ordered that defendants' property, described in that mortgage be sold at foreclosure sale. Sniders were awarded possession of the mortgaged lands during the one-year statutory redemption period. However, they were ordered to pay rents or profits received or earned during the period of redemption to the person who purchased the property at the foreclosure sale. From that judgment, defendants appeal. We affirm in part and reverse in part.

Sniders raise the following issues on appeal:

1. Did the District Court err in refusing the defendants a trial by jury on their legal defenses?

2. Did the District Court err in concluding the plaintiff had no duty to reamortize defendants' loan under the facts proven at trial?

3. Did the District Court err in finding that defendants are "tenants" during the redemption period, and, therefore, liable for rents and profits to the purchaser at foreclosure?

247 Mont. 511] FACTUAL BACKGROUND

In 1974, Sniders purchased a 1,500-acre ranch north of Harlem from Mr. Snider's parents. They entered into a contract for deed pursuant to which annual payments were made to his parents.

Periodically, Sniders picked up additional pieces of agricultural land to combine with their original ranching operation.

In 1980, defendants learned that the Wilson Ranch, which consisted of 4,000 acres, was available for purchase. They decided that because of its proximity to their land it would fit in well with their existing operation and increase their income disproportionately to the increase in their expenses.

Defendants intended to purchase the Wilson property on contract but needed financing for the down payment. They sought that financing from the plaintiff through Federal Land Bank in Havre. They offered to secure the loan from the Bank by providing a mortgage on their home and original 1,500-acre ranch. In order to give the Bank's mortgage priority, Mr. Snider's parents agreed to subordinate their interest as sellers on the contract for deed and the loan was increased sufficiently to pay off a previous loan to the Farm Home Administration which was secured by the same property.

On December 22, 1980, Sniders borrowed $487,000 from the Bank and signed a promissory note agreeing to repay the loan by making thirty-five annual payments in the amount of $52,736.14. An interest payment was due on January 1, 1981; however, the first full annual payment was not due until January 1, 1982. As security for repayment of the loan, Sniders mortgaged their original ranch to the Bank.

Defendants made the payments which were due in 1981, 1982, and 1983.

In 1984, the defendants' farm income was adversely affected by drought, grasshoppers and poor prices for their cattle. They were unable to make their 1984 loan payment when due. However, they qualified for a disaster loan from the Farm Home Administration in the amount of $85,200. From that amount, they used $63,306.76 to make their 1984 payment to the Bank on July 2, 1985.

Conditions did not improve in 1985. In addition, defendants' wheat crop was poor, and the income that was realized from the wheat crop had to be paid to the Western Bank in Chinook to repay a portion of the operating loan that that bank had extended. Defendants were unable to make their 1985 payment. They requested that the Bank reamortize the payments due pursuant to their loan agreement. [247 Mont. 512] However, after analyzing the defendants' ability to repay a reamortized loan, the Bank declined to do so and notified Sniders that they would begin foreclosure proceedings on May 1, 1986, if the 1985 payment was not forthcoming prior to that date. Defendants did not make the 1985 payment. Neither have they made payments for 1986,

Page 478

1987, 1988, 1989, or 1990. As a result, this action was commenced on November 22, 1986, and judgment was entered for the plaintiff as set forth above on June 6, 1990

In their contentions as set forth in the final pretrial order, Sniders denied that they were in default and raised the affirmative defense that their loan agreement with the Bank included unwritten terms which had been breached by the Bank.

At trial, Sniders testified that prior to entering into the loan agreement with the Bank, they became concerned about their ability to make payments during a "disaster year." They communicated that concern to Jerome Daly, the manager of the Bank in Havre, and testified that he reassured them that in the event of a "disaster year" they could reamortize their payments. Their understanding of reamortization was that they could either pay the delinquent payment at the end of the pay-back period or blend it into their other payments. Defendants testified that when they were unable to make payments in 1985 and 1986, they requested an opportunity to reamortize their loan but, contrary to the Bank's earlier verbal assurances, they were denied the opportunity to do so. They testified that because of the Bank's refusal to do so, they were unable to use the amount borrowed from the Farm Home Administration in 1985 to expand their cattle herd and for that reason have been unable to make further payments on their loan since that date.

Jerome Daly acknowledged that reamortization was discussed prior to finalization of the Sniders' loan, but stated that he did not commit the Bank to reamortization at that time because he did not have the authority to do so. He furthermore testified that before reamortization could be agreed to, the Bank would have to re-evaluate a customer's financial situation to determine whether there was any reasonable prospect for making payments under a...