Peoples Nat. Bank v. Purina Mills
| Decision Date | 20 June 1996 |
| Docket Number | No. 95-4077-SAC.,95-4077-SAC. |
| Parties | The PEOPLES NATIONAL BANK, CLAY CENTER, KANSAS, Plaintiff, v. PURINA MILLS, INC., Defendant. |
| Court | U.S. District Court — District of Kansas |
COPYRIGHT MATERIAL OMITTED
Gary H. Hanson, Stumbo, Hanson & Hendricks, Topeka, KS, Tim W. Ryan, Ryan & Ryan, P.A., Clay Center, KS, for plaintiff.
Kathryn Gardner, Terry L. Malone, Richard K. Thompson, Martin, Pringle, Oliver, Wallace & Swartz, Wichita, KS, for defendant.
The case comes before the court on the plaintiff's motion for partial summary judgment (Dk. 34) and the defendant's motion for summary judgment (Dk. 36). The Peoples National Bank ("Bank") sued Purina Mills, Inc. ("Purina") alleging breach of a "Non-Funded Participation Agreement" ("NFPA"), in which Purina agreed to fund a percentage of the Bank's line of credit to Douglas and Maureen Toll ("Tolls") in the event that the Tolls defaulted on the loans. The Tolls defaulted on the loans and filed for bankruptcy. Purina has refused to fund the loan taking the position that it is excused from performance due to the Bank's breaches of the NFPA.
The Bank moves for partial summary judgment on Purina's contentions that the Bank materially breached the NFPA thus relieving Purina from performance under it. Purina moves for summary judgment arguing it is not liable because the Bank materially altered Purina's obligations as guarantor, because the Bank substantially impaired the collateral, or because the NFPA expired by its own terms. Purina requests oral argument on its motion. The court denies the request as oral argument would not materially assist the court.
A court grants a motion for summary judgment under Rule 56 of the Federal Rules of Civil Procedure if a genuine issue of material fact does not exist and if the movant is entitled to judgment as a matter of law. The court is to determine "whether there is the need for a trial — whether, in other words, there are any genuine factual issues that properly can be resolved only by a finder of fact because they may reasonably be resolved in favor of either party." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 250, 106 S.Ct. 2505, 2511, 91 L.Ed.2d 202 (1986). "Only disputes over facts that might affect the outcome of the suit under the governing law will ... preclude summary judgment." Id. There are no genuine issues for trial if the record taken as a whole would not persuade a rational trier of fact to find for the nonmoving party. Matsushita Elec. Indust. Co. v. Zenith Radio Corp., 475 U.S. 574, 587, 106 S.Ct. 1348, 1356, 89 L.Ed.2d 538 (1986). "There are cases where the evidence is so weak that the case does not raise a genuine issue of fact." Burnette v. Dow Chemical Co., 849 F.2d 1269, 1273 (10th Cir.1988).
The initial burden is with the movant to "point to those portions of the record that demonstrate an absence of a genuine issue of material fact given the relevant substantive law." Thomas v. Wichita Coca-Cola Bottling Co., 968 F.2d 1022, 1024 (10th Cir.), cert. denied, 506 U.S. 1013, 113 S.Ct. 635, 121 L.Ed.2d 566 (1992). If this burden is met, the nonmovant must "come forward with specific facts showing that there is a genuine issue for trial as to elements essential to" the nonmovant's claim or position. Martin v. Nannie and Newborns, Inc., 3 F.3d 1410, 1414 (10th Cir.1993) (citations omitted). The nonmovant's burden is more than a simple showing of "some metaphysical doubt as to the material facts," Matsushita, 475 U.S. at 586, 106 S.Ct. at 1356; it requires "`presenting sufficient evidence in specific, factual form for a jury to return a verdict in that party's favor.'" Thomas v. International Business Machines, 48 F.3d 478, 484 (10th Cir.1995) (quoting Bacchus Industries, Inc. v. Arvin Indus., Inc., 939 F.2d 887, 891 (10th Cir.1991)). The court views the evidence of record and draws all reasonable inferences in the light most favorable to the nonmovant. Id. A party relying on only conclusory allegations cannot defeat a properly supported motion for summary judgment. White v. York Intern. Corp., 45 F.3d 357, 363 (10th Cir.1995).
More than a "disfavored procedural shortcut," summary judgment is an important procedure Celotex Corp. v. Catrett, 477 U.S. 317, 327, 106 S.Ct. 2548, 2555, 91 L.Ed.2d 265 (1986). At the same time, a summary judgment motion does not empower a court to act as the jury and determine witness credibility, weigh the evidence, or choose between competing inferences. Windon Third Oil and Gas v. Federal Deposit Ins., 805 F.2d 342, 346 (10th Cir. 1986), cert. denied, 480 U.S. 947, 107 S.Ct. 1605, 94 L.Ed.2d 791 (1987).
For purposes of deciding the pending motions, the court accepts the following as the statement of uncontroverted facts:
1. When their primary agricultural lender decided to end business relations with them, Doug and Maureen Toll ("Tolls") approached the Peoples National Bank in Clay Center, Kansas ("Bank"). Purina assisted the Tolls in making their credit proposal.
2. In July of 1991, the Bank agreed to extend a revolving line of credit to the Tolls in the amount of $360,000. As part of the financing arrangement, the Bank entered into a Non-Funded Participation Agreement ("NFPA") with Purina, dated August 2, 1991. The form used for the NFPA came from Purina's credit manual.
3. The NFPA was an incentive for the Bank to finance the Tolls' hog operation, and it enabled Purina to continue its profitable cash sales of feed to the Tolls.
4. The NFPA provided that Purina would fund 41.7% of the loan in the event that the Tolls defaulted. The NFPA had a one-year term and was not automatically renewable. In fact, it was contemplated that Purina would participate in the financing arrangement for only one year. Despite this understanding, Purina entered into a second NFPA dated October 21, 1992.
5. Purina entered into a third NFPA dated January 20, 1994. It covered the same $360,000 revolving line of credit that was maintained as two separate line-of-credit promissory notes in the principal amounts of $240,000 and $120,000, respectively. The NFPA also provided as before that in the event of default and upon the Bank's request Purina would "promptly fund its share of the loan in the amount of 41.7% of the loan advanced, not to exceed a total advancement, in the aggregate by Purina of $150,000."
6. The third NFPA further provided that the Bank and Purina agreed that "the terms and conditions of this Loan are set forth in the following ... security documents ... (b) Security Agreement dated December 30, 1993 covering all livestock, machinery and equipment and crops."
7. In the security agreement, the Tolls gave the Bank a security interest that secured "payment of all ... their present and future obligations of any type to the ... Bank, including without limitation, future advances,...." This cross-collateralization provision applied to all of the Tolls' debt held by the Bank.
8. At the time of the third NFPA, the Bank also told Purina that it had approved an increase in the Tolls' credit line to $510,000. The Bank informed Purina that it had loaned the Tolls an additional $150,000 in a term loan that was not covered by the NFPA. The Bank did not provide Purina with copies of the term promissory note, and Purina did not know any of the specific terms and conditions of the separate term note.
9. The two line-of-credit promissory notes covered by the NFPA and the term promissory note not covered by the NFPA contained the same description of collateral: "Security for the loan is a separate security agreement dated December 30, 1993, listing all crops, machinery and equipment and livestock."
10. Purina disclaims any knowledge prior to signing the NFPA that the Bank would claim in the event of default that the non-NFPA term loan gave the Bank superior or equal priority to collateral otherwise covered by and listed on the NFPA.
11. Brian Bilyeu, Purina's representative at the time of the first NFPA, testified he understood that Bank had a separate loan which was not covered by the NFPA and which was secured by machinery and equipment. He further understood that the NFPA loans were secured by livestock and that in the event of default the respective collateral proceeds would be applied to the corresponding loans. Bilyeu did not remember any discussion with the Bank's representative that all collateral proceeds would be applied first to the NFPA loans.
12. In the latter part of 1994, the hog market suffered serious price declines. In November, the Bank determined that it was not adequately secured.
13. By letter dated November 7, 1994, the Bank wrote Purina the following:
(Dk. 35, App. F).1
14. Purina and the Bank agreed to advance the Tolls additional sums for finishing the hogs to market weight. Thus, the Bank continued advancing the Tolls money, some of which may have been made for purposes other than purchasing hog feed. Purina did not agree to extensions or advances of loans for any other purposes.
15. Following the Bank's demand for funding in November of 1994, Purina submitted a "Post-Funded Agreement" drafted by its attorneys. This agreement provided in part that all...
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