Garrett v. BankWest, Inc.

• Decision Date: 01 August 1990
• Docket Number: No. 16691,16691
• Parties: Glen GARRETT and Elizabeth Garrett, husband and wife; and Michael Garrett, Brad Garrett and Jeff Garrett, Plaintiffs and Appellants, v. BANKWEST, INC., a South Dakota corporation (formerly, BankWest, N.A.), and Jack Lynass, individually and as an officer of BankWest, Inc., Defendants and Appellees.
• Court: South Dakota Supreme Court

Page 833

459 N.W.2d 833

Glen GARRETT and Elizabeth Garrett, husband and wife; and Michael Garrett, Brad Garrett and Jeff Garrett Plaintiffs and Appellants, v. BANKWEST, INC., a South Dakota corporation (formerly BankWest, N.A.), and Jack Lynass, individually and as an officer of BankWest, Inc. Defendants and Appellees.

No. 16691.

Supreme Court of South Dakota.

Argued Jan. 8, 1990.

Decided Aug. 1, 1990.

Ronald L. Brown, Fort Collins, Colo., William E. Gast of Gast & Peters, Omaha, Neb., Laurence J. Zastrow, Pierre, for plaintiffs and appellants.

John M. Costello, William G. Porter of Costello, Porter, Hill, Heisterkamp and Bushnell, Rapid City, for defendants and appellees.

KEAN, Circuit Judge.

This appeal involves a dispute between an agricultural debtor and a creditor bank. It has its basis in the debtor's inability to satisfy a large debt load while faced with the rural economic crisis of the 1980's.

Glen and Elizabeth Garrett (Garrett) owned and operated a 5400 acre farm and cattle ranch (ranch) in Sully County, South Dakota for many years prior to 1980. The other plaintiffs who assisted in this endeavor are their sons. In 1980 a family decision was made to expand the crop growing capabilities of the ranch and an irrigation system was planned. The purpose of this project was to expand the income producing ability of the operation so it could support Garrett and their sons' families. The sons were also purchasing a parcel of land adjacent to the Garrett home ranch.

The expansion decision would require a large infusion of new capital and a significant loan was required. Garrett went to BankWest, Inc. (BankWest) to discuss the plan. Garrett and BankWest (and its predecessor BankWest, N.A.) had a debtor-creditor relationship since 1978 although the operation loans Garrett received were much less in comparison to the scope of the irrigation project.

After a review of Garrett's plan, BankWest agreed to expand the limits of the operation financing to accommodate the partial irrigation of the ranch. However, the financing of the irrigation equipment was done through an agricultural subsidiary of John Hancock Life Insurance Company (Hancock). The loan from Hancock to Garrett was over one million dollars. The irrigation equipment was installed in 1981 at which time Hancock received a first mortgage on the Garrett ranch. BankWest, for its operation financing, had security in livestock, crops and machinery.

In 1982 the rural economy in the United States began to suffer. Farm prices for livestock and crops fell. Land values declined from record highs, inhibiting borrowing power. Garrett was not exempt from these financial deficiencies and began to experience significant cash problems. The immediate impact was his inability to meet the payment requirement on the Hancock loan.

The economic situation did not improve in 1983. In this year Garrett had problems, not only with the Hancock loan, but also with the operating loan at BankWest. On November 10, 1983, BankWest renewed Garrett's operating loan which had by then swollen to $1,085,000.00. BankWest took a second mortgage on the real estate as further security. This renewed loan was written as two separate "lines of credit," one for $300,000.00 and the other for $785,000.00. As part of this loan arrangement, Garrett signed a "Memorandum of Understanding and Loan Covenants" (memorandum) which required Garrett to adhere to a cash flow statement submitted and accepted by BankWest. Any deviation from the cash flow statement required BankWest's approval. The cash flow statement was prepared from anticipated revenue data that Garrett provided.

According to the memorandum, Garrett would repay the $300,000.00 line of credit by April 1, 1984 from a series of specified sales of grain and livestock. The other loan of $785,000.00 was to be reviewed on April 1, 1984. This loan was due November 1, 1984. The memorandum required BankWest's approval of any capital expenditures and instructed Garrett to pursue the sale of real estate to reduce the debt load.

The rural economy had not improved by early 1984 and the cash flow from the specified sales was significantly less than what had been projected in the memorandum. Further, other income was down and operation expenses were up. Garrett was unable to make the first 1984 loan payment to Hancock due May 1, 1984. When asked, BankWest refused to loan Garrett the money for the loan payment because it did not want to loan money to pay off a debt.

While the parties agree that BankWest refused to loan Garrett the money for the Hancock payment, there is a dispute whether Jack Lynass (Lynass) offered to ask Hancock to delay the payment. Regardless of the dispute, Hancock accelerated the loan and began foreclosure proceedings against the Garrett ranch.

After the foreclosure began, BankWest and Garrett met several times and discussed options to stave off the foreclosure. Eventually BankWest offered to buy out Hancock's loan at a figure $200,000.00 less than the principal and interest due. Hancock rejected the offer. Garrett also claims, however, that BankWest, through Lynass, contracted with him to buy out Hancock and then lease the ranch back to Garrett with an option to buy. BankWest claims that this arrangement was only discussed as an option provided it could be done at a value which would allow BankWest to protect its interests.

Hancock proceeded with its foreclosure action after it rejected BankWest's offer. With no chance to save the ranch, Garrett and BankWest, after the redemption period, entered into a liquidation agreement under which Garrett turned over his remaining property to BankWest to settle his outstanding indebtedness.

Garrett and his family then brought this action asserting a very wide variety of legal theories. Extensive discovery was completed. ¹ BankWest and Lynass then moved for summary judgment on all counts directed against each of them individually and jointly. The trial court granted summary judgment and Garrett appealed.

SUMMARY JUDGMENT

The standard of review of a grant or denial of summary judgment was recently summarized in Pickering v. Pickering, 434 N.W.2d 758, 760-61 (S.D.1989):

In reviewing a grant or a denial of summary judgment under SDCL 15-6-56(c), we must determine whether the moving party demonstrated the absence of any genuine issue of material fact and showed entitlement to judgment on the merits as a matter of law. Groseth Intern., Inc. v. Tenneco, Inc., 410 N.W.2d 159, 164 (S.D.1987). The evidence must be viewed most favorably to the non-moving party and reasonable doubts should be resolved against the moving party. Wilson v. Great Northern Ry. Co., 83 S.D. 207, 212, 157 N.W.2d 19, 21 (1968). The non-moving party, however, must present specific facts showing that a genuine, material issue for trial exists. Ruane v. Murray, 380 N.W.2d 362, 364 (S.D.1986). Our task on appeal is to determine only whether a genuine issue of material fact exists and whether the law was correctly applied. If there exists any basis which supports the ruling of the trial court, affirmance of a summary judgment is proper. Weatherwax v. Hiland Potato Chip Co., 372 N.W.2d 118, 120 (S.D.1985); Ruple v. Weinaug, 328 N.W.2d 857, 859-60 (S.D.1983).

ISSUES

Garrett originally raised ten legal issues. At oral argument two of these issues were abandoned. ² The remaining issues can be combined and reduced to five:

1) Did a fiduciary relationship exist between BankWest and Garrett; if so, was this fiduciary relationship breached by BankWest?

2) Was there sufficient evidence of a contract between Garrett and BankWest to purchase or redeem the Garrett property from Hancock and lease it back to the Garretts?

3) Does South Dakota recognize the tort of a breach of a "duty to deal honestly, fairly and in good faith"; if so, did BankWest and Lynass breach this duty?

4) Do the facts support the use of the doctrine of promissory estoppel to preclude BankWest from denying the existence of a contract to purchase and redeem then lease the property back to the Garretts?

5) Is there any evidence of fraud and deceit on BankWest's part regarding the alleged promise to buy out the Hancock loan?

FIDUCIARY DUTY

Garrett asserts that BankWest and Garrett had a fiduciary relationship which BankWest breached in an effort to improve its economic position without consideration of the effect its actions might have on Garrett.

This court has not addressed the issue of when a bank owes a fiduciary duty to a borrower. Many other courts have addressed this issue, however, and can be looked to for guidance. The Supreme Court of Kansas, in Denison State Bank v. Madeira, 230 Kan. 684, 230 Kan. 815, 640 P.2d 1235, 1241 (1982), a case involving an experienced businessman who established a line of credit at the bank when he bought a car dealership, described a fiduciary relationship:

A fiduciary relationship imparts a position of peculiar confidence placed by one individual in another. A fiduciary is a person with a duty to act primarily for the benefit of another. A fiduciary is in a position to have and exercise, and does have and exercise influence over another. A fiduciary relationship implies a condition of superiority of one of the parties over the other. Generally, in a fiduciary relationship, the property, interest or authority of the other is placed in the charge of the fiduciary. (emphasis original). (citations omitted).

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In an old Indiana Appellate Court case, we find some definitive elements which may be relevant in determining whether a fiduciary relationship exists.

'There is no invariable rule which determines the existence of a fiduciary relationship, but it is manifest in all the decisions that there must be not only confidence of the one in the other, but there must exist a certain inequality, dependence, weakness of age, of mental strength, business intelligence, knowledge of the facts involved, or other...