Lachenmaier v. First Bank Systems, Inc.

• Decision Date: 12 December 1990
• Docket Number: No. 90-016,90-016
• Citation: 246 Mont. 26,47 St.Rep. 2244,803 P.2d 614
• Parties: Aaron and Stella LACHENMAIER, husband and wife, Plaintiffs and Appellants, v. FIRST BANK SYSTEMS, INC.; FBS Credit Services, member First Bank System, and First State Bank of Forsyth, Defendants and Respondents.
• Court: Montana Supreme Court

Page 614

803 P.2d 614

246 Mont. 26

Aaron and Stella LACHENMAIER, husband and wife, Plaintiffs and Appellants, v.FIRST BANK SYSTEMS, INC.; FBS Credit Services, memberFirst Bank System, and First State Bank of ForsythDefendants and Respondents.

No. 90-016.

Supreme Court of Montana.

Submitted on Briefs Aug. 7, 1990.

Decided Dec. 12, 1990.

A. Cliff Edwards and David R. Paoli, Billings, for plaintiffs and appellants.

Stephen D. Bell, Dorsey & Whitney, Billings, David A. Ranheim, Minneapolis, Minn., for defendants and respondents.

McDONOUGH, Justice.

The appellants Aaron and Stella Lachenmaier initiated this suit against the defendants alleging commercial bad faith and other breaches of contract and tort obligations.The Lachenmaiers appeal the order of the Sixteenth Judicial District Court, Rosebud County, granting the defendants', First Bank Systems, Inc., FBS Credit Services, Inc., and First State Bank of Forsyth, joint motion for summary judgment on the plaintiffs' claims of breach of the implied covenant of good faith and fair dealing, breach of fiduciary duty and tortious interference with contract.The District Court also granted the defendants' motion for summary judgment on their counterclaim to foreclose on the Lachenmaier's mortgage and promissory notes.We affirm.

The Lachenmaiers raise five issues on appeal:

1) Did the District Court err in ruling the defendants did not breach the implied covenant of good faith and fair dealing?

2) Did the District Court err in ruling the defendants owed no fiduciary duty to the plaintiffs?

3) Did the District Court err in ruling as a matter of law that there was no tortious or intentional interference of contract by CSI and First Bank System in regard to the contract between First State Bank of Forsyth and the Lachenmaiers?

4) Did the District Court err in granting summary judgment on the plaintiffs' claims of intentional infliction of emotional distress?

5) Did the District Court err in granting defendants' motion for summary judgment on the counter-claim to foreclose mortgages and promissory notes?

The Lachenmaiers owned and operated a farming and ranching business operation near Hathaway in Rosebud County, Montana for approximately twenty years.During this period the Lachenmaiers did their banking exclusively with defendantFirst State Bank of Forsyth(Bank).The Bank was owned by defendantFirst Bank Systems, Inc.(FBS) as a wholly-owned subsidiary, until 1986 when it was sold to local investors.

From 1964 to 1971 the Lachenmaiers were consistently satisfactory sugar beet and grain producers.In 1971 the Lachenmaiers lost their sugar beet contract when the Hardin sugar beet factory closed.The Lachenmaiers then focused on raising crops for sale and ran a small cow-calf operation from 1972 through 1978.Also, in the early 1970's the Lachenmaiers bought some additional 800 plus acres of land, borrowing $40,000 from the Bank.

In 1978, allegedly upon the recommendation of the Bank president at the time, Mr. Thiesen, the Lachenmaiers switched to a feeder cattle operation to make better use of the feed raised on the farm.The Bank basically provided operating funds to the Lachenmaiers on an annual basis.The cattle operation sustained substantial operating losses nearly every year until 1986 when this action was commenced.The losses were a combined result of drought, grasshoppers, poor commodity prices, failure of the cattle to achieve projected weight gains, and increased operating and equipment expenses.

In 1985, as a condition of further financing, the Bank required the Lachenmaiers to apply for a Farmers' Home Administration (FmHA) guarantee.The FmHA agreed to guarantee to the Bank 90% of the Lachenmaiers' already accrued operating expenses on the $275,000.00 face amount of the loan.The guarantee provided for a twenty year amortization rate with a balloon payment in seven years, with the Bank to provide annual operating funds in accordance with attached budgets.

In the 1985-86 cattle year, as a result of low weight gains and the federal dairy cow buy-out, the Lachenmaiers sustained a $79,000 operating loss and failed to pay their operating loan, due on April 25, 1986.Shortly thereafter, in May, the Bank advised the Lachenmaiers that their loans were being transferred to the other defendant, FBS Credit Services, Inc.(CSI).CSI is also a wholly-owned subsidiary of FBS.The Lachenmaiers' loans were assigned to CSI as "problem loans" in conjunction with FBS's divestiture of the Bank in Forsyth.After reviewing a proposed budget provided by the Lachenmaiers--which did not show a positive cash flow--CSI advised the Lachenmaiers that they would only extend additional credit in the amount of $69,000 for a period of six months and any further extension of credit would depend upon the ability of the Lachenmaiers to provide a realistic budget which would provide for a pay-down of the debt.

After negotiations between the Lachenmaiers and CSI through the summer and fall of 1986, the Lachenmaiers referred all further contact and correspondence to their attorney.They filed suit in November, 1986, alleging various breaches of duties sounding in both tort and contract.Following extensive discovery, the District Court entertained defendants' motions for summary judgment, defendants' motions in limine and plaintiffs' motion in limine.The trial court issued a memorandum and order granting the defendants' joint motion for summary judgment, dismissing the plaintiffs' complaint with prejudice, and granting the Bank's motion for summary judgment on its counterclaim for foreclosure.From this order the Lachenmaiers now appeal.

STANDARD OF REVIEW

In order for summary judgment to issue, the movant must demonstrate that there is no genuine issue as to all facts deemed material in light of the substantive principles entitling the movant to judgment as a matter of law.Rule 56(c), M.R.Civ.P;Cecil v. Cardinal Drilling Co.(Mont.1990), 797 P.2d 232, 234, 47 St.Rep. 1673, 1676.Cereck v. Albertson's, Inc.(1981), 195 Mont. 409, 411, 637 P.2d 509, 511.If the movant meets this burden, it then shifts to the non-moving party to demonstrate a genuine issue of material fact.Cecil, 797 P.2d at 235, Thelen v. City of Billings(1989), 238 Mont. 82, 85, 776 P.2d 520, 522;Gamble Robinson Co. v. Carousel Properties(1984), 212 Mont. 305, 312, 688 P.2d 283, 287.As our forthcoming discussion will indicate, the Lachenmaiers fail to meet this shifted burden.

BREACH OF THE IMPLIED COVENANT OF GOOD FAITH AND FAIR

DEALING

In its memorandum opinion accompanying the order granting summary judgment, the District Court relied heavily on the case of Montana Bank of Circle, N.A. v. Ralph Meyers and Son, Inc.(1989), 236 Mont. 236, 245, 769 P.2d 1208, 1214, for the proposition that breach of the implied covenant of good faith and fair dealing can only occur in a commercial setting after a breach of an express term of the underlying contract.In an effort to provide more workable guidelines this Court recently reassessed the implied covenant of good faith and fair dealing.In Story v. City of Bozeman(Mont.1990), 791 P.2d 767, 775, 47 St.Rep. 850, 859, we held that

[E]very contract, regardless of type, contains an implied covenant of good faith and fair dealing.A breach of the covenant is a breach of the contract.Thus, breach of an express contractual term is not a prerequisite to breach of the implied covenant.

We also held that for every contract not covered by a more specific provision, the standard of conduct required of contracting parties is "honesty in fact and the observance of reasonable commercial standards of fair dealing in the trade."Section 28-1-211, MCA;Story, 791 P.2d at 775.We then equated this standard to the one applicable to merchants under the uniform commercial code:

Each party to a contract has a justified expectation that the other will act in a reasonable manner in its performance or efficient breach.When one party uses discretion conferred by the contract to act dishonestly or to act outside of accepted commercial practices to deprive the other party of the benefit of the contract, the contract is breached.

Story, 791 P.2d at 775.

Here, no evidence was presented that the Bank breached the "honesty in fact" standard.Plaintiff claims that the evidence indicates that the Bank in Forsyth continued to loan and encourage them to borrow more money simultaneous with the regional office's and CSI's plans to liquidate their assets and foreclose on the debt.At most, these allegations might indicate FBS's corporate right hand acting one way and its left hand--without knowing what the right hand was doing--acting in another.It is not, however, proof that the defendants, in particular the Bank, utilized discretion conferred by the loan agreements to act dishonestly or outside of accepted commercial practices to deprive the Lachenmaiers of the benefit of the agreement.The Bank did not stand to gain anything from its actions, it was simply exercising sound business judgment as a creditor in acting to foreclose a "problem" loan.See e.g.Tresch v. Norwest Bank of Lewistown(1989), 238 Mont. 511, 778 P.2d 874;Coles Department Store v. First Bank Billings N.A.(1989), 240 Mont. 226, 783 P.2d 932, Randolph v. Peterson Inc.(1989), 239 Mont. 1, 778 P.2d 879;Blome v. First National Bank of Miles City(1989), 238 Mont. 181, 776 P.2d 525;Central Bank of Montana v. Eystad(1985), 219 Mont. 69, 710 P.2d 710;First National Montana Bank of Missoula v. McGuiness(1985), 217 Mont. 409, 705 P.2d 579.

Furthermore, the parole evidence rule and the statute of frauds, Sec. 28-2-903, MCA, preclude the Lachenmaiers from alleging a course of dealing here amounting to an oral agreement for continued financing.Under the doctrine of merger as enunciated in McGuiness any such oral representations merged with the terms of the note, which then became the final agreement...