First Nat. Bank of Beresford v. Nelson, 13410

• Decision Date: 01 September 1982
• Docket Number: No. 13410,13410
• Citation: 323 N.W.2d 879
• Parties: FIRST NATIONAL BANK OF BERESFORD, Plaintiff and Appellant, v. Elden NELSON, Defendant, and ERD, Inc., a Corporation, Defendant and Appellee.
• Court: South Dakota Supreme Court

Page 879

323 N.W.2d 879

FIRST NATIONAL BANK OF BERESFORD, Plaintiff and Appellant, v. Elden NELSON, Defendant, and ERD, Inc., a Corporation, Defendant and Appellee.

No. 13410.

Supreme Court of South Dakota.

Argued Nov. 20, 1981.

Decided Sept. 1, 1982.

Gale Fisher, Sioux Falls, for plaintiff and appellant.

John E. Burke, Sioux Falls, for defendant and appellee.

WOLLMAN, Chief Justice.

Elden Nelson is a Union County farmer. He and his sons Robert and David are the sole stockholders, directors, and officers in ERD, a family farming corporation. Elden Nelson's son Elwood Nelson (Woody Nelson) had an interest in an insurance agency in Sioux Falls during all times material to this lawsuit.

In March of 1978, Woody Nelson was indebted to Bank in the sum of $111,000, the indebtedness being represented by four separate promissory notes. Because of Woody Nelson's failure to make timely payments on these notes, Bank refused his request for additional loans on the strength of his own signature. Bank was willing, however, to make a loan of $125,000 to Elden Nelson, conditioned upon his furnishing adequate collateral. Accordingly, on March 29, 1978, Elden, Robert, and David, acting in their capacity as the directors of ERD, adopted a corporate resolution authorizing ERD to execute a guaranty of payment of a loan made by Bank to Elden Nelson in the amount of $125,000, and signed such a guaranty. Elden Nelson signed a promissory note in favor of Bank in the amount of $125,000, payable in ten equal annual installments, commencing March 29, 1979, and bearing interest at nine percent. Elden Nelson deposited the proceeds of the note in his checking account and gave Woody Nelson a check in that amount. Woody Nelson cashed the check and gave Elden Nelson a promissory note for $125,000, which Elden Nelson endorsed to Bank as additional collateral for his note of March 29.

The text of the corporate resolution authorizing the execution of the guaranty reads as follows:

RESOLVED: That the President be and he is hereby authorized to make and execute a certain guarantee to the First National Bank of Beresford, Beresford, South Dakota, guaranteeing payment of a loan made by the said First National Bank of Beresford to Elden Nelson in the sum of $125,000.00 due in ten years and bearing interest at 9 per cent per annum. The President is further authorized to make and execute a mortgage in favor of the First National Bank of Beresford mortgaging the real property owned by the corporation as security for such guarantee.

The pertinent portions of the guaranty read as follows:

IN CONSIDERATION, That The First National Bank of Beresford, S. Dak (herein called the "Bank") has heretofore and may hereafter, from time to time discount notes for, loan money to and furnish other banking accommodation to Elden Nelson, (herein called the "Debtor"), the undersigned, in consideration of the premises and other good and valuable consideration, hereby absolutely and unconditionally guarantee to the Bank the full and prompt payment at maturity of any and all indebtedness, liability or obligation (herein called "Indebtedness") of whatsoever kind and nature now or hereafter (until this guaranty be revoked as herein provide (sic)) due and owing from the Debtor, his or its personal representative, successor or assigns, to the Bank, whether such Indebtedness be direct or indirect, absolute or contingent, joint or several and howsoever created, evidenced, owned, held or acquired and whether the Debtor be liable as maker, acceptor, drawer, endorser, guarantor, surety or otherwise ....

The undersigned waive presentment, demand, protest, notice to the undersigned and all other persons of protest and dishonor as to each and all items of Indebtedness and the collateral thereto; waive notice of the acceptance hereof by the Bank of the creation and existence of said Indebtedness waive any and all acts or things by the Bank to be done to establish the liability of the undersigned in the premises; agree that no act or thing, except payment, which but for this provision might or could in law or in equity act as a release of the liabilities of the undersigned hereunder, shall in any way affect or impair this guaranty ; and agree that this shall be a continuing, absolute and unconditional guaranty and shall be in force and be binding upon the undersigned until the Indebtedness is fully paid and this guaranty is revoked as herein provided.

In addition to but not in limitation of the foregoing, the undersigned agree:

The liability hereunder shall in no wise be affected or impaired by (and said Bank is hereby expressly authorized to make from time to time without notice to any one and either before or after revocation of this guaranty) any sale, pledge, surrender, compromise, settlement, release, renewal, extension, indulgence, alteration, substitution, exchange, change in, modification or other disposition of the Indebtedness, any evidence thereof, or any security or collateral therefor ; by any acceptance by said Bank of security for or other guarantors of any Indebtedness ....

....

The liability of the undersigned hereon shall not, at any time, exceed the sum of $125,000.00 One Hundred Twenty Five Thousand and all expenses hereinbefore mentioned but the liability hereon shall be released or affected if at any time the Indebtedness exceeds that amount and the Bank may apply all sums received by it from the Debtor, from collateral (in case of the death, insolvency or bankruptcy of the Debtor) from claims against Debtor's estate and from any other source, first, in payment of such excess (emphasis added). ¹

The guaranty was signed by Robert Nelson, Elden Nelson, and David Nelson in their respective capacities as president, vice-president, and secretary-treasurer of ERD. The guaranty bore the corporate seal.

In addition to the foregoing documents, ERD also executed a security agreement, dated March 1, 1978, granting Bank a security interest in:

All equipment, all farm products including but not limited to crops, livestock, supplies, used or produced in farming and feeding operations, feeds kept or stored in connection therewith, contract rights, accounts, and all proceeds; all now owned or hereinafter acquired.

In September of 1978 Elden Nelson gave Bank a promissory note in the amount of $23,000; in October of 1978 he gave Bank another promissory note in the sum of $27,000. These notes were consolidated into a single $50,000 note on October 22, 1978, bearing a due date of December 15, 1978.

Woody Nelson made only nominal payments on his several promissory notes to the Bank, with the result that early in 1979 he had past due notes to the Bank in the amount of some $111,000. In addition, no payments had been made on the $50,000 note of October 22, 1978, executed by Elden Nelson.

On March 29, 1979, Woody Nelson, together with his certified public accountant, had a lengthy discussion with Robert Knopke, president of Bank. The parties finally reached an understanding whereby Woody Nelson agreed to pay Bank $141,548.17 in payment of his delinquent notes. In addition, $11,280.82 of the payment was to be applied to the interest due on Elden Nelson's $125,000 note of March 29, 1978, and $52,056.16 was to be applied in payment of interest and principal on Elden Nelson's note of October 22, 1978.

As a part of this agreement, Knopke agreed to renew Elwood Nelson's $40,000 note and to renew Elden Nelson's March 29, 1978, $125,000 note. Both of these notes were to be renewed for a period of 120 days in order to give Woody Nelson and Elden Nelson time in which to refinance the obligations or to obtain other financing. A new note in the amount of $125,000 was prepared, bearing interest at the rate of ten and one-half percent and due in 120 days. The note was given to Woody Nelson, who took it to Elden Nelson's home, where the latter signed it.

Woody Nelson's check for $141,548.17 given pursuant to the March 29, 1979, agreement was returned to Bank unpaid bearing the notation "payment stopped." Following further negotiations between Knopke and Woody Nelson, a wire transfer was made by Woody Nelson's California bank to Bank in the amount of $141,548.17 in payment of the check on which payment had been stopped. The proceeds of the wire transfer were applied in accordance with the agreement reached by the parties on March 29, 1979.

Other than the $11,280.82 interest payment that was made on Elden Nelson's $125,000 note of March 29, 1978, no payments were made either on that note or on the renewal note of March 29, 1979, which forms the basis for this lawsuit.

Bank brought suit against Elden Nelson and ERD in September of 1979, seeking judgment against Elden Nelson for the face amount of the March 30, 1979, note, together with interest thereon, and judgment foreclosing Bank's security interest in the collateral described in the security agreement executed by ERD. Defendants' answer alleged that the March 30, 1979, note had been executed under duress and through Bank's fraud and deceit and that no consideration had been given for the note. Elden Nelson filed a counterclaim for compensatory and punitive damages allegedly sustained as a result of Bank's fraud and duress and the malicious and oppressive behavior of Knopke.

The trial court directed a verdict in favor of Bank on its complaint and permitted the issues raised by the counterclaim to go to the jury, which found in favor of Bank. Judgment was entered against Elden Nelson in the amount of $148,517.12, which represented the amount due and owing on the March 29, 1979, note. The judgment provided that of this amount, $125,000 should be a joint and several judgment between both defendants. The judgment further ordered that the property described in the security agreement be sold. Finally, the judgment denied Elden Nelson any recovery on his counterclaim.

On January 27, 1981, ERD filed a motion for judgment...