Jackson v. State Bank of Wapello

• Decision Date: 17 June 1992
• Docket Number: No. 90-1912,90-1912
• Citation: 488 N.W.2d 151
• Parties: 19 UCC Rep.Serv.2d 965 J. Gene JACKSON and Ruth L. Jackson, Appellees, v. STATE BANK OF WAPELLO, Appellant.
• Court: Iowa Supreme Court

Page 151

488 N.W.2d 151

19 UCC Rep.Serv.2d 965

J. Gene JACKSON and Ruth L. Jackson, Appellees, v. STATE BANK OF WAPELLO, Appellant.

No. 90-1912.

Supreme Court of Iowa.

June 17, 1992.

Rehearing Denied July 29, 1992.

George A. Goebel and Bryan L. Sylvester of Goebel & Koury Law Offices, Davenport, for appellant.

William Scott Power and Patrick L. Woodward of Aspelmeier, Fisch, Power, Warner & Engberg, Burlington, for appellees.

Considered by SCHULTZ, P.J., and LAVORATO, NEUMAN, SNELL, and ANDREASEN, JJ.

LAVORATO, Justice.

This case concerns a farmer who was pitted in a six-year battle against the elements, and the elements won. The farmer's local bank appeals from an adverse jury verdict in the farmer's case against the bank. The bank raises a number of issues, but we need reach only two. The first issue is whether there was sufficient evidence to submit the farmer's breach of contract claim premised on the bank's alleged bad faith in failing to advance the balance of payments on a yearly operating loan. The second issue is closely tied to the first: whether there was sufficient evidence to submit the farmer's claim of intentional interference with contractual relations. This claim is premised on the theory that the bank's alleged improper action in terminating the loan caused the farmer to lose his farm.

Because we think there was insufficient evidence to submit either claim, we reverse.

In 1975 Jackson Farms, a family partnership, purchased a 568-acre Louisa county farm (the Jackson farm). At the time J. Gene Jackson and his wife, Ruth--plaintiffs in this action--were partners in Jackson Farms. The remaining partners were Gene's mother and stepfather.

The farm sat adjacent to the Iowa River and consisted primarily of heavy soiled river bottomland. When the farm was purchased, it had 270 tillable acres. Later improvements to the farm increased the number of tillable acres to 445 by 1986. Between 1975 and 1980, a third party ran the farm.

In 1977 Gene became a customer of the State Bank of Wapello (bank). At that time he borrowed $51,000 from the bank for a bulldozer. In September 1978 the bank loaned Gene $60,000 to construct a home on a five-acre tract of land not at issue in this appeal.

In 1980 the partnership paid off the real estate contract on the Jackson farm. It did so by borrowing $150,000 from Connecticut General Life Insurance Company. Under the note and mortgage, a yearly payment of $3000 was due each February 1.

That same year Gene gave up his career as a real estate broker in Wapello and began farming the Jackson farm himself. He put the land to row crops, raising corn and soybeans. He did not raise any livestock.

At this point Gene began borrowing money from the bank for yearly farm operating expenses. These loans were based on revenue and expense projections Gene prepared. The projections were quite detailed due to Gene's education and early work experience as an accountant.

In 1980 the bank loaned Gene $20,000. The loan was paid off at the end of the year.

In 1981 Gene borrowed operating funds from the bank and this loan was paid off early in 1982. Gene also borrowed $25,000 in 1981 from the bank to buy a used combine. The note for this loan was set up on a three-year annual repayment schedule. At the end of that period the outstanding balance was $18,000. This note was extended to 1984.

Gene borrowed some money from the bank in 1982. J & J Enterprises--a farm operating partnership between Gene and his uncle--borrowed $20,000 for operating expenses. The note evidencing this loan carried a $10,000 balance at the end of 1982 and was eventually paid off in early 1983.

Jackson Farms also borrowed money from the bank for operating expenses in 1982. The note for this loan had an outstanding balance at year's end of $40,000. This note was not paid off but extended.

At some point in 1982 J & J Enterprises was liquidated because of the uncle's health problems. So Gene borrowed $15,000 from the bank to purchase his uncle's half interest in the partnership's farm machinery. This loan was evidenced by a note calling for three annual payments. Gene was unable to make the first payment.

Revenues that year were not as Gene had projected. Successive floods in May, June, and July completely wiped out his thrice-planted crops.

At this point Gene's total farm indebtedness to the bank for principal and interest on the farm's outstanding notes stood at about $100,000. The bank consolidated these four notes into one note having a face value of $100,912, which all four partners in Jackson Farms signed in January 1983. The note was for one year, renewable annually. For security the bank took (1) a second mortgage on the Jackson farm, (2) a second mortgage on Gene's and Ruth's home, and (3) a lien on all of Gene's farm machinery and crops.

In 1983 Gene and Ruth became the sole proprietors of the Jackson farm when they purchased the other two parties' interests. No operating money was borrowed that year. Instead, the entire Jackson farm was put into the PIK program. (The PIK program is a federally funded program that pays farmers to set aside their land.) In retrospect this was a wise decision because 185 of the tillable acres were too wet to seed.

Gene applied part of the PIK participation check toward the consolidated note. He used the balance to live on in 1983 and 1984 and to plant the 1984 crops.

The record is unclear as to whether Gene borrowed any funds in 1984. In January 1984, Gene did pay $11,000 toward the consolidated note, leaving a balance of $90,000. Again revenues did not meet projections. The crops were planted late and an early frost cut down corn yields considerably. All 147 acres of beans were lost because of the early frost. So Gene was unable to pay in full the interest due on the consolidated note.

In February 1985 Gene paid the interest due on the consolidated note, renewing it for another year. In addition, Gene borrowed from the bank $105,491 for operating expenses. Under the terms of the note covering this loan, the bank agreed to advance funds on a monthly basis. The bank took a third mortgage on the Jacksons' home as security for this loan.

The projected yields did not materialize in 1985 because it was a dry year. Gene also incurred some unexpected tractor repairs that cost about $10,000. He paid the repairs out of his farm operating loan. At the end of the calendar year the unpaid balance including interest on the 1985 operating note was about $7500. This was in addition to the outstanding principal balance on the consolidated note which was about $90,000.

During the early 1980s, like other Iowa farms, the Jackson farm was experiencing a severe drop in land values. As a result, Gene's net worth fell substantially from a high of about $223,000 in 1981 to a low of about $53,000 in December 1985.

Concern about this decline in net worth caused A.T. Wollenhaupt--chairman of the board and assistant trust officer of the bank--to write Gene a letter in August 1985 about the need to discuss continuing financing. This letter led to a meeting between Gene and Ken Turner, an assistant vice president of the bank. Turner suggested that they jointly pursue FmHA loan guarantees on Gene's outstanding obligations and any operating loan Gene would need for 1986. (Such a loan guarantee assures a farm lender that, in the event of default, the FmHA will pay the lender ninety percent of the outstanding balance.)

With the guarantees in place, the bank would rewrite the existing notes at a lower interest rate and over a longer period of time. Gene filed an application with the FmHA for the guarantees, using his operating projections for 1986. Unbeknownst to Gene, the bank had the farm appraised in the application process. The appraised value of the farm as of December 1985 was $241,000.

In 1986 Gene undertook another farm operation. He cash rented a 260-acre farm known as the Schmeiser farm.

In February 1986 Gene was unable to pay either the principal or the interest due on the consolidated note. That same month Gene secured an operating loan for 1986 from the bank in the amount of $104,000.

The $104,000 loan was based on Gene's detailed projections of revenues, costs, and expenses for the 1986 crop year. Included in this projection were living expenses, two payments to Connecticut General on the Jackson farm first mortgage, and rent on the Schmeiser farm. All of these expenses were to be paid from the operating loan.

Gene estimated in this projection that he would plant 190 acres of corn and 210 acres of beans on the Jackson farm. He estimated corn revenue on the Jackson farm at $57,912 (190 acres X 120 bushels per acre X $2.54 market price per bushel). His bean revenue estimate on that farm was $33,600 (210 acres X 32 bushels per acre X$5 market price per bushel).

At the time Gene executed the note for the $104,000 loan, he reviewed it and understood its terms. He was also aware that the note contained the following provision:

Holder [of the note] may require any and all documentation and additional confirmations to authorization for any requested advance. Failure to provide said data in form(s) satisfactory to holder or a default on any note, obligation or agreement with holder or if holder deems itself insecure shall cause the holder, at its option, to refuse to honor the request for an advance of funds.

(Emphasis added.) This note was secured by all of Gene's equipment, tools, supplies, livestock, grain on hand, the growing crops on both the Jackson and Schmeiser farms, and the existing real estate mortgages with the bank.

The FmHA guarantees were secured on March 17, 1986. The bank then extended the $90,000 consolidated note and wrote a second note for $28,593.58. The second note covered the $7500 balance due on the 1985 operating loan and interest due on the consolidated note and the 1985 operating note.

Gene planted about 200 acres of corn in early May 1986....