First Nat. Montana Bank of Missoula v. McGuinness

• Decision Date: 29 August 1985
• Docket Number: No. 84-489,84-489
• Citation: 705 P.2d 579,217 Mont. 409,42 St.Rep. 1288
• Parties: FIRST NATIONAL MONTANA BANK OF MISSOULA, Plaintiff and Respondent, v. Frank F. McGUINNESS and Dorothy F. McGuinness, Defendants and Appellants.
• Court: Montana Supreme Court

Page 579

705 P.2d 579

217 Mont. 409

FIRST NATIONAL MONTANA BANK OF MISSOULA, Plaintiff and Respondent, v. Frank F. McGUINNESS and Dorothy F. McGuinness, Defendants and Appellants.

No. 84-489.

Supreme Court of Montana.

Submitted on Briefs June 13, 1985.

Decided Aug. 29, 1985.

Earl M. Genzberger, Butte, Greg J. Skakles, Anaconda, for defendants and appellants.

Boone, Karlberg & Haddon, Missoula, John L. Peterson, Butte, for plaintiff and respondent.

SHEEHY, Justice.

Appeal by Frank F. and Dorothy F. McGuinness from a judgment of the District Court, Second Judicial District, Silver Bow County, granting judgment against the McGuinnesses in favor of the First National Montana, Bank of Missoula in the sum of $337,205.35, with interest thereon at 9 1/4 percent interest from August 13, 1984, and directing foreclosure by sheriff's sale of the interest of the McGuinnesses in real property in Silver Bow County.

On consideration, we affirm the judgment of the District Court.

The crucial issue in this case is one of fact. That issue involves the McGuinnesses' contention that the Bank had induced the McGuinnesses to subdivide and sell their real property in return for a promise by the Bank that the interest rate on their consolidated indebtedness to the Bank would be established at 9 1/4 percent, and that the Bank would look only to the proceeds and sales of the subdivision tracts for the payment of the consolidated indebtedness, without foreclosure.

The District Court found that the consolidation agreement executed by the parties on January 12, 1978 was for a valuable consideration, and represented the intentions of the parties. We determine that that finding must be sustained under the evidence here, and because of that finding, other issues raised by the McGuinnesses cannot prevail.

Frank and Dorothy McGuinness are Butte natives. After his discharge from the Army, they purchased 320 acres of land south of Butte in 1947. They used the property for their home and began to raise cattle. Frank was employed by the Anaconda Company as a ranch foreman after his discharge from the military until he went to work as a cattle broker. In 1966, he started his own cattle brokerage operation. In connection with his brokerage, he secured a line of credit through the Miner's Bank of Butte. By 1972, his credit line with Miner's was $225,000.00.

In 1972, Frank McGuinness acquired a one-half interest in the Missoula Livestock Auction by purchase from Delos Robbins, who was a director of First National Montana, Bank of Missoula. Upon that purchase, the McGuinnesses terminated their financing arrangement with the Miner's Bank and thereafter financed their operations with First National Montana (hereafter Bank). In 1973, they were advanced two substantial loans, one for $120,000 and another for $170,000.00. These funds were used by the McGuinnesses to satisfy their obligations to Miner's Bank and for their cattle operation. At the time the promissory notes were executed, the McGuinnesses mortgaged their Butte property to the Bank as security. Subsequent to 1973, additional funds were advanced by the Bank to the McGuinnesses and promissory notes were signed.

In 1974 and 1975, the cattle market fell dramatically, and at the Bank's insistence, the defendants sold their cattle at a loss of $250,000.00. The sale of the cattle, however, did not completely eliminate the total indebtedness to the Bank.

The Bank had sold a portion of the McGuinness loan to Seattle First National Bank, as the loans were over the Bank's lending limit. In 1976, the Seattle bank requested that action be taken on the McGuinness loan. The Bank concluded that the property had to be sold and so notified the defendants. Under pressure from Seattle First National Bank, Robert Burke, as president of the Bank, wrote Frank McGuinness in April 1977. The letter constituted an ultimatum to McGuinness that he should make a decision on whether to sell the property in total or make sales of individual tracts of the land. He was given 90 days to consummate either the ranch sale or sales of individual tracts totaling at least $200,000.00. If that sum was not realized by that date, the McGuinnesses would be required to transfer the real property to the Bank by warranty deed or suffer a foreclosure proceeding.

Orally, the Bank had suggested to the McGuinnesses several persons who might either buy the real property or be involved in the promotion of land sales out of the real property. One of the suggested persons was Bruce Dailey, a Missoula realtor who is the nephew of Clyde Wood, an officer and director of the Missoula Bank. It appears that someone in the Bank had notified Dailey of the availability of the McGuinness property and Dailey had made written and personal contacts with surveyors and others and had inspected the property before he met Frank McGuinness. Eventually Dailey prepared projections of revenue anticipated to be received from sales of the McGuinness property by lots, after the creation of a subdivision. McGuinness apparently met with Dailey, and there were some complications in the negotiations with Dailey, because on July 25, 1977, Burke wrote to the McGuinnesses:

As I described to you at our director's meeting of Friday, July 22, 1977 the directors were advised that you had committed preliminarily to the sale of the ranch on a parcel basis under the general plan outlined by Bruce Dailey. Based on that proposal I told the directors that I in turn told you that the bank would forego transfer of the property from you and your wife to us or foreclosure proceedings as long as the plan was being followed and sales activity continuing. We were not aware that there was any change in your negotiations with Dailey.

You have now advised me that there is a question whether you will be able to consummate a deal with Dailey and consequently sale of the parcels of land will be further delayed. This is not satisfactory with us and probably is a disappointment to you also.

The bank does not wish to be in a position of judgment on the costs inherent in Dailey's proposal. Neither do we want to be a determinant of any of the details of your contract with him. We know that he has successfully put together similar packages in this area and that he apparently has done his homework in preparing a proposal for you but his success or failure is dependent on his own ability and a cooperative attitude on your part as the seller ...

Dailey had prepared a projection of income expected to be received from the sales of parcels of the land, which indicated that it would take approximately 10 years for the McGuinnesses to satisfy their debt to the Bank. The Bank officers, however, testified that from their experience they would expect that because of construction, early payoffs and other reasons, they could expect to have the debt liquidated in three to four years.

The McGuinnesses agreed with Dailey to the development and sale of their property in August 1977. The property was broken down into 48 tracts. By the spring of 1978, all of the tracts were sold with the exception of 4 commercial tracts and 2 residential tracts. Those tracts were sold on contracts for sale which provided for interest at 8 percent of the unpaid balance.

On or about January 12, 1978, the Bank and the McGuinnesses executed a consolidation and extension agreement wherein the parties agreed that as of that date the total balance owing by the McGuinnesses to the Bank was the sum of $545,647.17. The agreement provided that the aggregate indebtedness would bear interest at the rate of 9 1/4 percent from the date of the agreement (the earlier notes had provided for an interest rate of 10 percent); that the maturity of the promissory notes consolidated into the one indebtedness "shall be extended to June 30, 1979, at which time any balance remaining shall become due and payable;" and that "the promissory notes shall continue to be secured by the existing collateral" and further secured by an assignment of the McGuinnesses' interest in the sales contracts.

In preparing the subdivision, the McGuinnesses incurred development and other costs in the amount of $74,655.00, of which $30,000.00 was paid to Dailey for a "developers fee." Monies for the payment of these sums were provided to the McGuinnesses under loan agreements with the Bank.

Two further extensions of the maturity date for the indebtedness were executed in writing by the parties. The first extension was to June 30, 1980, and the second to June 30, 1981.

On June 29, 1980, the Bank wrote to the McGuinnesses, notifying that the Bank would no longer carry the interest rate at the 9 1/4 percent rate beyond June 30, 1981, that it would expect the interest rate to be 12 1/4 percent, and that the entire debt be liquidated by December 30, 1982. The McGuinnesses refused to pay the increased interest rate and so no further extension of the consolidated obligation was agreed to by the parties. The Bank commenced its action for foreclosure after June 30, 1981.

The McGuinnesses filed an amended answer and counterclaim to the complaint for foreclosure. They admitted the execution of the written instruments but denied that the Bank was entitled to any relief. They set up as affirmative defenses that the Bank had made representations to them that it would look only to the proceeds for the subdivision sales for satisfaction of the indebtedness; that the representations were false; and that the falsity was not revealed to the McGuinnesses until the commencement of the foreclosure action. By way of counterclaim, the McGuinnesses alleged 1) false representations brought about the payment to Bruce Dailey, and the incurrence of development costs; 2) breach of contract by the Bank; 3) breach of fiduciary duties to the McGuinnesses; 4) negligence in the selection of Dailey as the development realtor for the project; 5) loss of value in their property; and 6) loss of...