First Bank (N.A.)-Billings v. Clark
| Decision Date | 03 April 1989 |
| Docket Number | No. 87-514,87-514 |
| Citation | 236 Mont. 195,771 P.2d 84,45 St.Rep. 2294 |
| Parties | FIRST BANK (N.A.)-BILLINGS, Plaintiff and Appellant, v. Russell C. CLARK, Defendant, Respondent and Cross-Appellant. |
| Court | Montana Supreme Court |
Moulton, Bellingham, Longo & Mather, Brad H. Anderson argued and W.H. Bellingham argued, Billings, for plaintiff and appellant.
Herndon, Harper & Munro, Rodney T. Hartman argued, Billings, for defendant, respondent and cross-appellant.
Plaintiff First Bank-Billings appeals from a jury verdict and subsequent judgment entered October 1, 1987 in the Thirteenth Judicial District Court, Yellowstone County, awarding defendant Clark $16,398.95 for costs and reasonable attorney's fees and $100,000 compensatory damages on his counterclaim for damages resulting from the Bank's breach of the covenant of good faith and fair dealing and commission of constructive fraud. The Bank does not appeal the jury's determination that defendant was not liable under a personal guaranty for the Parker-Montana Company debts remaining after its liquidation.
This Court entered a decision on December 16, 1988. First Bank-Billings v. Clark (Mont.1988), 45 St.Rep. 2294. The Bank filed a timely Petition for Rehearing, pursuant to Rule 34, M.R.App.P., following this decision. Having considered the briefs filed by the parties on the petition, we now withdraw the original opinion and issue this opinion in its place.
Respondent raises the following issue on cross appeal:
1. Did the District Court err in refusing to submit Clark's actual fraud claim to the jury?
Appellant raises the following issues on appeal:
1. Did the District Court erroneously allow attorneys Everson and Ragain to testify that an oral agreement between First Bank and Clark, releasing Clark from a guaranty agreement, had been reached and breached?
2. Did the District Court erroneously admit lay witness testimony as to the reason Clark signed a peaceful repossession document?
3. Did the District Court erroneously instruct the jury as to damages for lost income, damage to reputation, and emotional distress?
4. Did the District Court err in instructing the jury on the issue of a fiduciary duty owed?
5. Did substantial, credible evidence support the jury verdict:
a. that First Bank breached the implied covenant of good faith and fair dealing; and
b. that First Bank committed constructive fraud?
Russell Clark (Clark) was the president and majority shareholder in the Parker-Montana Company (Company), a farm equipment wholesale business, from 1970 until the liquidation of the company in 1983. The Company maintained a good relationship with First Bank Billings (Bank), the Company's chief bank affiliation, up until 1982 when the Company began experiencing severe financial difficulties.
In late 1982, both parties agreed that the Company was in dire financial straits and that either a reorganization or dissolution of the Company was necessary. The Bank recommended liquidation and the parties commenced liquidation negotiations. Clark was primarily concerned during these negotiations with obtaining a release from a personal guaranty agreement that both he and his wife had executed on July 23, 1979 to secure Bank loans made to the Company.
Dennis Hove, the Company Vice President, approached Clark in the first week of February of 1983 and stated his interest in purchasing the Company. Hove subsequently submitted a written buy-out proposal to the Bank, for implementation upon the sale of Company assets for debts outstanding. In this proposal, Hove offered to purchase all Company assets and to assume all Company liabilities, and in turn, Clark would be released from his personal guaranty. This purchase proposal hinged upon an agreement between the Bank and Company on the details of the intended liquidation. Consequently, a meeting was held on February 24, 1983, at which time the Bank set forth its proposal for liquidation of the Company.
The following people were present at this meeting: Russell Clark, James Ragain and Gary Everson (attorneys for the Company), Doug Aden (head of the Bank's commercial loan department), Bob Waller (Bank president and personal friend to Clark), Gerald Murphy (attorney for the Bank), and Jack Carpenter (Small Business Association representative). The Bank at that time proposed to release the Clarks from their personal guaranty if they would deed to the Bank all real property used by the business in Billings, but owned by the Clarks and the Clark Children's Trust, and if the Company would grant First Bank peaceful possession of all the Company's inventory and accounts receivable. Clark rejected this proposal because he felt the collateral to be turned over to the Bank exceeded the debts owed and because he did not want to convey real estate held in trust for the benefit of his children.
Another meeting with Murphy, Waller, Ragain, and Clark was held on February 28, 1983. At this meeting, Waller stated that the Bank would take a trust indenture, rather than a deed, on all the above-mentioned property and in return release the Clarks from their personal guaranty. The parties differ as to whether Clark accepted this offer and reached an agreement with the Bank.
Appellant contended that Clark did not accept this offer for the same reasons previously outlined. Appellant alternatively contended that if there was an agreement, that Clark breached it when he failed to convey trust indentures to all the property; respondent did not give the Bank a trust indenture to lots 15, 16, 17 and 18.
Respondent, on the other hand, contended that he accepted the modified offer, shook hands with Waller and "congratulated him on getting the job done." This agreement, however, was not reduced to writing. Yet, Hove testified that he struck a final deal with the Bank to purchase the Company after he was notified that an agreement had been reached between Clark and the Bank. Respondent further alleged that he fulfilled this agreement by giving a trust indenture to all the required lots. He was not required to give the Bank a trust indenture to lots 15, 16, 17 and 18, since Hove had secured an option to purchase these lots and had arranged financing. Hove later decided against purchasing these four lots, although his company did purchase and give the Bank a trust indenture to lots 2, 3, 4, 5, 6, 19, 20, 21, 22 and 23.
Both parties agree that the Bank decided to finance Hove's purchase of the Company's inventory and accounts receivable. The Bank arranged an April 7, 1983 auction of this Company property, less $100,000 worth of inventory to which Borg-Warner had a superior security interest. The auction followed Clark's execution of a peaceful repossession agreement in favor of the Bank on March 4, 1983.
Hove bought all remaining inventory and accounts receivable at the auction with a high bulk bid of $1 million. Respondent alleged that this bid of $1 million was $100,000 less than that amount originally proposed and agreed upon by the Bank. An attorney for the respondent testified, however, that Doug Aden assured him over the phone just prior to the auction that the Bank would treat the actual bid as a $1.1 million bid for purposes of eliminating Clark's debt to the Bank.
The Salvation Army subsequently purchased lots 7, 8, 9 and 10 from the Clarks in April of 1984. Pursuant to an agreement that Clark had with the Bank, Clark placed the net proceeds from this sale ($62,000) in an interest bearing account with the Bank. Clark later voluntarily awarded these funds to the involuntary bankruptcy trustee pursuant to a settlement agreement. (Borg-Warner and other creditors, not including the Bank, had filed an involuntary bankruptcy action against the Company on March 24, 1983.)
On November 8, 1984, the Bank filed suit against Clark on his personal guaranty in order to collect on the alleged Company debt of approximately $233,000 remaining after the auction. Clark was asked to resign from his position on the board of directors of First Interstate Bank in December of 1984. The decision to request Clark to resign was reached after discussion, continuing over several months, of the value of Clark's continued representation on the board given his Company's severe financial problems. Each year he had served as a director, Clark earned $5,000-$6,000.
A jury trial was held July 6 through July 11, 1987. The jury determined that Clark was not obligated, under his personal guaranty, for any Company debts. The jury awarded Clark $100,000 on his counterclaim for damages due to the Bank's bad faith and constructive fraud. However, the court refused Clark's request to submit instructions on actual fraud to the jury, and consequently, the jury determined that Clark was not entitled to punitive damages.
This appeal and cross appeal followed.
For purposes of convenience, we have chosen to discuss the issue raised on cross appeal first. Respondent alleges by way of a cross appeal that the court erred in refusing to instruct the jury on the issue of actual fraud. Yet, a jury instruction on actual fraud is warranted only if defendant raised a question of fact by presenting some evidence of each of the following nine elements of actual fraud:
1. A representation;
2. Falsity of the representation;
3. Materiality of the representation;
4. Speaker's knowledge of the falsity of the representation or ignorance of its truth;
5. Speaker's intent that it be relied upon;
6. The hearer's ignorance of the falsity of the representation;
7. The hearer's reliance on the representation;
8. The hearer's right to rely on the representation; and
9. Consequent and proximate injury caused by the reliance on the representation.
McGregor v. Mommer (Mont.1986), 714 P.2d 536, 540, 43 St.Rep. 206, 211, citing Van Ettinger v. Pappin (1978), 180 Mont. 1, 10, 588 P.2d 988,...
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