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

• Decision Date: 18 April 1991
• Docket Number: No. 90-351,90-351
• Parties: 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.
• Court: Montana Supreme Court

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.

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 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?

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. 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 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 reamortized schedule. He stated that reamortization would have a net effect of increasing the annual payment due from the borrower.

Prior to trial the defendants took the position that their affirmative defense constituted a breach of contract claim and that they were entitled to a jury trial. The District Court concluded that this was an action to foreclose a mortgage which was equitable in nature, and that based on the defendants' contentions in the pretrial order there were no counterclaims. Defendants' jury demand was denied.

I

In asserting their right to have had their case tried before a jury, Sniders rely on this Court's decision in Gray v. City of Billings (1984), 213 Mont. 6, 689 P.2d 268. In Gray, we held that when a plaintiff combines a legal claim for breach of contract with an equitable action he is entitled to a jury trial of his legal claims. We also referred to authority from the United States Supreme Court which has held that the Seventh Amendment protects a defendant's right to jury trial on a legal counterclaim. Beacon Theatres, Inc. v. Westover (1959), 359 U.S. 500, 79 S.Ct. 948, 3 L.Ed.2d 988.

Plaintiff argues that this case does not involve a legal claim nor a legal counterclaim and that Gray does not apply to an affirmative defense.

We need not decide whether the Gray rationale applies in this case.

Before Sniders were entitled to a jury trial, there had to be issues of fact for a jury to decide. Under Montana law, juries decide only issues of fact. Section 25-7-103, MCA. The court decides issues of law. Section 25-7-102, MCA.

Whether or not there is sufficient evidence to raise an issue of fact is a question of law for the court and is not an issue of fact. Mang v. Eliasson (1969), 153 Mont. 431, 458 P.2d 777, and Flansberg v. Montana Power Co. (1969), 154 Mont. 53, 460 P.2d 263. That standard is the same for an appellate court as it is for the trial court. Rhoades v. DeRosier (1976), 14 Wash.App. 946, 546 P.2d 930, 932.

... The right of jury trial on any issue of fact presented by the pleadings is provisional, and if the evidence fails to form such issue of fact, the right of jury trial disappears.

Loucks v. Albuquerque National Bank (1966), 76 N.M. 735, 418 P.2d 191, 194.

As we stated in Smith v. Polish (1967), 150 Mont. 340, 349, 435 P.2d 776, 780:

... Whether there is any substantial evidence in the case made by party upon whom the burden rests is always a question of law.

While the fact situation differs here from the case of West v. Wilson, 90 Mont. 522, 4 P.2d 469, the principle here controlling is set down in citing Chief Justice Brantly's opinion in Escallier v. Great Northern Ry. Co., 46 Mont. 238, 127 P. 458. The principle is the same: "The old rule that a case must go to the jury if there is a...