First Western Bank, Sturgis v. Livestock Yards Co., 16509

• Decision Date: 26 April 1989
• Docket Number: No. 16509,16509
• Citation: 444 N.W.2d 387
• Parties: FIRST WESTERN BANK, STURGIS, Plaintiff and Appellee, v. LIVESTOCK YARDS COMPANY, a limited partnership, Defendant and Appellant, and Bank of Belle Fourche, Belle Fourche, South Dakota, a South Dakota banking corporation, Defendant and Appellee. . Considered on Briefs
• Court: South Dakota Supreme Court

Page 387

444 N.W.2d 387

FIRST WESTERN BANK, STURGIS, Plaintiff and Appellee, v. LIVESTOCK YARDS COMPANY, a limited partnership, Defendant and Appellant and Bank of Belle Fourche, Belle Fourche, South Dakota, a South Dakota banking corporation, Defendant and Appellee.

No. 16509.

Supreme Court of South Dakota.

Considered on Briefs April 26, 1989.

Decided Aug. 9, 1989.

Keith R. Smit of Morman Law Firm, Sturgis, for plaintiff and appellee, First Western Bank.

Harlan A. Schmidt, Spearfish, for defendant and appellant, Livestock Yards Co.

Max S. Main of Bennett & Main, Belle Fourche, for defendant and appellee, Bank of Belle Fourche.

MORGAN, Justice.

Livestock Yards Co. (Partnership) appeals from an order granting summary judgment in favor of First Western Bank (Bank) in its cause of action for reformation and foreclosure of a mortgage and dismissing Partnership's counterclaim for negligence. We reverse.

Madden's Livestock Market, Inc. (Corporation) originally owned and operated a sales barn at St. Onge, South Dakota, since 1961. Michael Madden (Madden) took over the operation in 1977 upon the death of his father. In 1983, Madden conceived a plan to split the ownership of the facilities and the operation of the sales barn. He and his wife formed a limited partnership to purchase the sales barn from Corporation. Madden sold limited partnership interests totaling 1.2 million dollars and was the sole general partner of this limited partnership. Pursuant to an operating agreement, Corporation, as the operating company, leased the sale barn from Partnership; as the holding company, Corporation operated the livestock market and held all licenses and permits.

In March or April 1987, Madden approached Bank for a loan. He testified that he told the banker John Johnson (Johnson) that the money was to be used for operations of Corporation and that the loan was to be repaid from the sale of the corporation. Johnson testified that Madden explained to him that various bills of Partnership had to be paid and that a sale of the property was pending. Johnson also testified that he knew the limited partnership consisted of passive investors, that Partnership owned the sales barn, and that Corporation held the marketing licenses and permits. Madden delivered a copy of the certificate of limited partnership, a subscribers' list, and a December 31, 1986, financial statement.

Johnson testified that he noticed that the financial statement showed Partnership to be solvent and well-capitalized, with a financial worth of $960,000, with no short-term payables on December 31, 1986. He also testified that it crossed his mind to wonder how Partnership built up $250,000 in bills payable in a four-and-one-half month period. He then asked for and received a list showing the proposed use of the loan proceeds. The heading on this list showed both the corporate and partnership entities. Johnson admitted that he never tried to distinguish the responsibilities between the two entities, and only inquired as to one of the expenditures on the list.

Bank prepared, and Madden, as general partner, executed a 30-day promissory note and mortgage on behalf of Partnership. He and his wife signed a personal guarantee and Bank completed the loan by issuing a certified check payable to Partnership on April 22, 1987. Immediately upon receipt of the funds, Madden diverted $100,000 by purchasing a cashier's check payable to Territorial Savings and Loan of Honolulu, Hawaii, and depositing $150,000 into an account held by Corporation. None of the proceeds were deposited to or received by Partnership. Apparently, the limited partners were not aware of the loan until after default.

After Madden defaulted, Bank brought an action for reformation of the legal description of the mortgage along with foreclosure of the mortgage given by Partnership through its general partner, Madden. Partnership counterclaimed, alleging that Bank was negligent in loaning Madden the money on behalf of the partnership. Both parties filed separate motions for summary judgment. The trial court granted Bank's motion, reforming the legal description of the mortgage, foreclosing the same, and dismissing Partnership's counterclaim.

The trial court determined the following:

1. Partnership was in the business "to purchase and operate a livestock commission sale barn and livestock feedlots."

2. Madden had express and exclusive authority to borrow money and encumber partnership property.

3. From the documents it received from Madden, Bank properly concluded that the debt incurred here was within the scope of partnership business.

Therefore, the trial court concluded, Partnership was bound to make good the loss pursuant to SDCL 48-2-2 ¹.

On appeal, Partnership contends that the certificate of limited partnership authorized Madden, as general partner, to conduct only the business of the partnership. It did not extend the same authority to nonpartnership business. Partnership argues that evidence was presented that showed Madden made the loan for corporate and personal purposes (nonpartnership business) of which Bank was or should have been aware. Furthermore, this disputed evidence raises a genuine issue of material fact precluding summary judgment.

Summary judgment is proper only when the moving party shows that he is entitled to judgment as a matter of law because there is no genuine issue as to any material fact. SDCL 15-6-56(c). Dahl v. Sittner, 429 N.W.2d 458 (S.D.1988). In Nizielski v. Tvinnereim, 429 N.W.2d 483, 485 (S.D.1988), we defined our scope of review from an order granting summary judgment as follows:

Our scope of review on appeal is not under the 'clearly erroneous' doctrine, but rather under the strict standards attendant upon entry of summary judgment as delineated in [Wilson v. Great Northern Railway Co., 83 S.D. 207, 157 N.W.2d 19 (1968) ]:

(1) Evidence must be viewed most favorable to the nonmoving party;

(2) The burden of proof is on the movant to show clearly that there is no genuine issue of material fact and that he is entitled to judgment as a matter of law;

(3) Summary judgment is not a substitute for a court trial or for trial by jury where any genuine issue of material facts exists;

(4) Surmise that a party will not prevail upon trial is not sufficient basis to grant summary judgment on issues which are not shown to be sham, frivolous or so unsubstantial that it is obvious that it would be futile to try them;

(5) Summary judgment is an extreme remedy which should be awarded only when the truth is clear and reasonable doubts touching the existence of a genuine issue as to material fact should be resolved against the...