Haberer v. Rice

• Decision Date: 11 January 1993
• Docket Number: No. 17947,17947
• Parties: Merle HABERER, Florence Haberer, and Haberer Dairy and Farm Equipment, Inc., and Carney Haberer, Plaintiffs and Appellants, v. George J. RICE, Defendant and Appellee. . Considered on Briefs on
• Court: South Dakota Supreme Court

Page 279

511 N.W.2d 279

Merle HABERER, Florence Haberer, and Haberer Dairy and Farm Equipment, Inc., and Carney Haberer, Plaintiffs and Appellants, v. George J. RICE, Defendant and Appellee.

No. 17947.

Supreme Court of South Dakota.

Considered on Briefs on Jan. 11, 1993.

Decided Jan. 26, 1994.

Rick Johnson of Johnson, Eklund & Abourezk, Gregory, for plaintiffs and appellants.

Rory King of Siegel, Barnett & Schutz, Aberdeen, for defendant and appellee.

McMURCHIE, Circuit Judge.

This appeal is one of a continuing saga: Haberer v. First Bank of South Dakota, 429 N.W.2d 62 (S.D.1988) and Haberer v. Rice, 476 N.W.2d 276 (S.D.1991).

In Haberer v. First Bank, supra, this Court held that when the bank had earlier sued Haberer to foreclose on a note executed by Haberer and the bank, Haberer's action against the bank for allegedly breaching an agreement to lend Haberer $150,000 was a compulsory counterclaim to the bank's original action and could not be separately pursued. Summary judgment for the bank was affirmed because Haberer failed to raise his compulsory counterclaim in the prior action.

In Haberer v. Rice, supra, the issues were tried before the court without a jury and we held that Haberers were entitled to a jury trial on their legal malpractice claims.

On remand for the jury trial, the trial court directed a verdict for Rice, as to First Bank's liability in the underlying cause of action. The trial court held that Haberers, in the counterclaim, failed to introduce competent evidence that they suffered any damages proximately caused by First Bank. The trial court also directed a verdict for Rice on the primary cause of action, holding that Haberers failed to introduce competent evidence that they suffered any damages proximately caused by Rice's alleged negligence and that the business would have been successful.

BACKGROUND

From the evidence Haberer's version of the facts are:

Merle and Florence Haberer operated a hardware and dairy equipment business in Bowdle, South Dakota. Merle got involved with reconditioning and reselling used milk tanks. Over the years he developed a washing system for tanks for which he received a U.S. patent. Ultimately, Merle sought to open his own plant for manufacturing milk bulk tanks. This was going to be a family venture consisting of Merle and Florence, their three sons and a son-in-law.

Merle found a large building owned by John Evelo that he could purchase in Aberdeen (Evelo building). He could acquire the building without any down payment and would only have to take over the Small Business Administration (SBA) loan on it. Haberer was able to put his equipment in the building while he arranged financing.

In early February 1983 Haberer began negotiating with First Bank of Aberdeen (First Bank) to obtain financing for establishing the manufacturing plant. He had set his estimated needs at $250,000. First Bank suggested he apply for an SBA loan. Haberer consulted some local Certified Public Accountants who helped him prepare income and expense projections for the business. These projections and the SBA application were submitted to First Bank on or about February 11, 1983. First Bank rejected the loan in-house and the application was not submitted to SBA.

In the meantime, Haberer borrowed $100,000 against his interest in the family farm through Bob DeVaan, John Evelo's realtor. Haberer then attended an equipment auction in Kansas City and was able to purchase nearly all of the major equipment needed to start the plant for less than $50,000. Since he did not need the entire loan amount, he applied $40,000 to a loan at Sunrise Branch of First Bank in Aberdeen.

First Bank later told Haberer they would not go along with the $250,000 SBA loan. Haberer alleges that First Bank said they would be willing to loan $150,000 to get the plant going if Haberer would sell some other property and reduce his existing indebtedness to the bank. He did as he was told.

Haberer returned to First Bank ready to finalize the $150,000 loan. In order to complete the loan, First Bank further requested that Haberer obtain other guarantors or co-signers on the note. Haberer was able to get a friend, Ed Van Meter of Gypsum, Kansas, to pledge approximately $45,000 in certificates of deposit to secure the loan if he could have the Kansas dealership for Haberer's milk tanks.

On May 9, 1983, Haberer and Van Meter met with First Bank. At this meeting Haberer claims that First Bank committed to loan him $150,000 at thirteen percent for a seven year period. First Bank told Haberer that once the paperwork came back from Kansas, he could have his money. Haberer and Van Meter then went to attorney George Rice's office and related this. Rice wrote a letter to Van Meter summarizing his guaranty (the CDs) and referring to First Bank's $150,000 loan commitment.

After the May 9 meeting, First Bank attached the lender's application to Haberer's February 1983 SBA loan application. Haberers were not aware that this was being done. SBA received this on May 16, 1983. On the front of this application was a certification by First Bank that they were not willing to give Haberer the loan despite the earlier commitment. SBA denied this application.

Relying upon the loan, Haberer prepared the plant to get it running:

1. He finalized buying the Evelo building for $190,000 with $2,150 monthly payments, first payment due on July 15, 1983.

2. On May 23, 1983, he borrowed $5,000 from Sunrise Branch to pay the electricity deposit for 440 volt power hookups.

3. He and Florence moved from their Bowdle home to the Evelo building.

4. He and his family began to remodel the Evelo building. They hired electricians, plumbers and sales people.

Around the end of May, Haberer went to First Bank on a number of occasions to get the money. He was told the paperwork was not done. He was consistently told that the paperwork was not completed. Rice told Haberer that these things take time. Finally First Bank authorized Haberer to go to the Sunrise Branch of First Bank and get an advance of $20,920.02.

By the end of July, Haberer was in default on the Evelo building payments. The plumbers and electricians left the job.

On July 22, 1983, Rice explained that First Bank had not done the paperwork for the Van Meter guarantees, so he prepared the documents and sent it to Van Meter in Kansas. On or about August 10, 1983, Van Meter sent the signed $150,000 guarantee along with the CDs to First Bank.

On August 11, 1983, First Bank informed Haberer that it was not going to loan the $150,000 at thirteen percent for a long term. The bank told Haberer that it would loan $125,000 at fourteen percent, for a term of 111 days. Rice advised Haberer that he had no other choice except to take First Bank's offer. Rice never advised Haberer of any other options.

First Bank held the funds for distribution purposes. Without telling Haberer, the bank also paid off the $20,920.02 Sunrise Branch loan and interest from the $125,000 loan proceeds.

Haberers further allege an additional loan agreement from First Bank in November of 1983.

The $125,000 note was due on December 1, 1983. By now, Haberer was in default with all of the creditors and in serious default on the Evelo building payments. First Bank made demand for payment of its loan which Haberer was unable to comply with despite attempts to seek refinancing. Merle Haberer's dream of producing stainless steel milk tanks had become a nightmare.

On May 7, 1984, First Bank served a packet of papers on the Haberers and their guarantor, Van Meter. Haberer delivered these papers to Rice who told him he would take care of it. Rice further told Haberer that he would not have to appear at the May 14, 1984 order to show cause hearing. Rice notified Van Meter's attorney that he would also represent them at this hearing. Rice did not submit any answering affidavits. He did not receive a complaint until the day of the hearing and then never discussed it with any of the plaintiffs. The trial court ordered that First Bank had the right to liquidate the CDs and apply the amount to the Haberers' debt. It further ordered that Haberers were restrained from removing any personal property from the Evelo building.

In early June 1984, Haberers allege that Rice called them to quickly come to his office. Bob DeVaan and Melvin Lehr were there wanting to buy the balance of his Bowdle property. The Haberers went to Rice's office and met with the parties who offered $20,000. The Haberers counter-offered with an alleged agreement resulting on $30,000 for the property.

Haberers allege that Rice advised them to give the deed to the Bowdle property upon Lehr and his realtor's oral representation that payment would be forthcoming. The Haberers refused. At the insistence of Rice they finally relented. They signed the prepared deed and delivered it in the office that day. An unsigned written realtor's closing statement was made containing the $20,000 offer. No other written memorandum of the sale was made. No payment was forthcoming. Haberers have never received any payment for this transaction. Haberers talked to Rice about suing to collect, but nothing ever came of it.

On June 19, 1984, Rice executed a stipulation on behalf of Haberers with First Bank. He did this without their knowledge or authorization. At no time did Rice discuss the terms of the stipulation with them. The stipulation bound the Haberers to give First Bank everything that they owned and bound them not to pursue any defenses or claims against First Bank in the event they did not pay completely by July 2, 1984.

On July 19, 1984, First Bank received a default judgment against Haberers and Van Meter for $141,555.33. The court ruled First Bank was entitled to immediate possession of all Haberer Dairy properties listed in the security agreement and to dispose of the property. Rice did not appear at the hearing even though he promised Haberer he would take...