Production Credit Ass'n of Fargo v. Ista

• Decision Date: 25 January 1990
• Docket Number: No. 890101,890101
• Citation: 451 N.W.2d 118
• Parties: PRODUCTION CREDIT ASSOCIATION OF FARGO, North Dakota, Plaintiff and Appellee, v. Allen E. ISTA and DeAnn M. Ista, Defendants and Appellants. Civ.
• Court: North Dakota Supreme Court

Page 118

451 N.W.2d 118

PRODUCTION CREDIT ASSOCIATION OF FARGO, North Dakota, Plaintiff and Appellee, v. Allen E. ISTA and DeAnn M. Ista, Defendants and Appellants.

Civ. No. 890101.

Supreme Court of North Dakota.

Jan. 25, 1990.

Serkland, Lundberg, Erickson, Marcil & McLean, Ltd., Brad A. Sinclair (argued), Fargo, for plaintiff and appellee.

Craft, Thompson & Boechler, David C. Thompson (argued), Fargo, for defendants and appellants.

LEVINE, Justice.

Allen and DeAnn Ista appeal from a district court judgment granting Production Credit Association of Fargo ["PCA"] judgment in the amount of $508,507.71 and dismissing the Istas' counterclaim. We affirm in part and reverse in part.

The Istas have farmed in Richland County for over thirty years. During most of that time they received financing from PCA and Federal Land Bank. In 1984 and 1985, the Istas sustained serious crop losses and experienced a negative cash flow, allegedly due to unusual flooding.

In January 1986, the Istas advised PCA that they would require $150,000 in operating funds for the 1986 season. PCA told the Istas that it would loan additional funds only if they restructured their debt. Several months of negotiations followed and on April 24, 1986, PCA formally advised the Istas that it was denying the loan. The Istas were able to assemble enough money to plant a crop but they did not purchase hail insurance. Hail caused extensive damage to the 1986 crop and the Istas again suffered considerable losses.

In July 1987, PCA commenced this action seeking a money judgment and foreclosure of its security interests in the Istas' equipment, grain on hand, crops, and deficiency and diversion payments. The Istas filed an answer and counterclaim, asserting that PCA had acted in bad faith and was negligent in servicing their loans, and challenging the validity of PCA's claimed security interest in crops grown after 1985.

PCA moved for dismissal of the Istas' counterclaim and for partial summary judgment on its complaint. ¹ The trial court entered partial summary judgment dismissing the Istas' counterclaim and striking various defenses raised in their answer. The Istas subsequently abandoned their remaining defenses and the court entered judgment for PCA in the amount of $508,507.71, granting foreclosure of PCA's security interests, and incorporating the provisions of the prior summary judgment. The Istas have appealed.

The following issues are dispositive on appeal:

I. Did PCA owe a fiduciary duty to the Istas?

II. Are the Istas entitled to recover in tort for PCA's alleged bad faith?

III. Did PCA have a duty to ensure that the Istas' 1986 crop was covered by hail insurance?

IV. Did PCA have a valid lien on the Istas' crops grown after 1985?

Summary judgment is a procedural device available for the prompt and expeditious disposition of controversies without trial when, after viewing the evidence in a light most favorable to the opposing party and giving that party the benefit of all favorable inferences, there is no genuine dispute as to either the material facts or the inferences to be drawn from undisputed facts. Hillesland v. Federal Land Bank Association of Grand Forks, 407 N.W.2d 206, 210 (N.D.1987). Although the party seeking summary judgment has the burden of showing that there is no genuine issue of material fact, the party resisting the motion may not simply rely upon the pleadings but must present competent evidence by affidavit or other comparable means which raises an issue of material fact. Eckmann v. Northwestern Federal Savings & Loan Association, 436 N.W.2d 258, 260 (N.D.1989). Although factual disputes may exist, summary judgment is nevertheless appropriate where the law is such that resolution of the factual disputes will not change the result. Russell v. Bank of Kirkwood Plaza, 386 N.W.2d 892, 897 (N.D.1986).

I. FIDUCIARY DUTY

The Istas assert that their status as shareholders in PCA creates a fiduciary relationship and that, consequently, PCA owed them a special duty in their loan transactions. Although the Istas have not pleaded a separate cause of action based upon breach of fiduciary duty, this asserted fiduciary relationship serves as an underlying theme in their arguments on the various issues raised on appeal.

The Istas do not point to any evidence in the record which suggests that they were in a subservient position, that PCA exercised dominion and control over their farming operation, or that their relationship with PCA was different than PCA's relationship with its other borrowers. See Union State Bank v. Woell, 434 N.W.2d 712, 721-722 (N.D.1989). The Istas assert that the fiduciary relationship arises solely from their status as shareholders in PCA. Because all PCA borrowers are statutorily required to purchase stock in the association, see 12 U.S.C. 2094(f), the import of the Istas' argument is that PCA would, in every loan transaction, owe a fiduciary duty to the borrower.

The Istas have cited no authorities imposing such a broad-based fiduciary obligation on any farm credit entity, nor have we been able to find any support for their novel argument. Under federal common law, there is no fiduciary duty between a production credit association and farmers. Boyster v. Roden, 628 F.2d 1121, 1125 (8th Cir.1980). The question becomes whether state law establishes such a duty.

We have previously noted the possibility that a fiduciary relationship may exist between a farm borrower and a production credit association under appropriate circumstances. See Production Credit Association of Grafton v. Davidson, 444 N.W.2d 339, 347 (N.D.1989); Federal Land Bank of St. Paul v. Asbridge, 414 N.W.2d 596, 600-601 (N.D.1987); Federal Land Bank of St. Paul v. Lillehaugen, 404 N.W.2d 452, 459-460 (N.D.1987). Those cases do not, however, support the Istas' theory that PCA, as a matter of law, owes a fiduciary duty in loan transactions with each of its borrowers. Whether a fiduciary relationship exists is generally a question of fact, dependent upon a showing of special circumstances. See Production Credit Association of Grafton v. Davidson, supra, 444 N.W.2d at 347; Kurth v. Van Horn, 380 N.W.2d 693, 695-696 (Iowa 1986). Similarly, in those cases from other jurisdictions discussing fiduciary relationships in the context of Farm Credit Act lenders, a showing of special circumstances demonstrating a departure from the ordinary lender-borrower relationship has been required. See, e.g., Federal Land Bank of Spokane v. Stiles, 700 F.Supp. 1060, 1066 (D.Mont.1988); Kolb v. Naylor, 658 F.Supp. 520, 526 (N.D.Iowa 1987); Mantooth v. Federal Land Bank of Louisville, 528 N.E.2d 1132, 1138-1139 (Ind.Ct.App.1988); Production Credit Association of Lancaster v. Croft, 143 Wis.2d 746, 423 N.W.2d 544, 546-548 (Ct.App.1988).

We note that an officer or director of a corporation owes a fiduciary duty to the corporation and its stockholders. See generally 3 Fletcher, Corporations §§ 838, 848 (1986). This duty, however, extends only to the stockholders collectively. See In re Black, 787 F.2d 503, 506 (10th Cir.1986); American General Insurance Co. v. Equitable General Corp., 493 F.Supp. 721, 740-741 (E.D.Va.1980); Dawson v. Dawson, 645 S.W.2d 120, 125 (Mo.Ct.App.1982); Richardson v. Arizona Fuels Corp., 614 P.2d 636, 639 (Utah 1980). As noted in 3 Fletcher, Corporations, supra, § 838 at 178, "as a fiduciary in this sense, a director's first duty is to act in all things of trust wholly for the benefit of the corporation." See also Section 10-19.1-50, N.D.C.C. (a director shall act "in a manner the director reasonably believes to be in the best interests of the corporation"). The fiduciary obligations of a corporate director to stockholders does not extend to business transactions between the corporation and individual stockholders. St. Louis Union Trust Co. v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 562 F.2d 1040, 1055 (8th Cir.1977), cert. denied, 435 U.S. 925, 98 S.Ct. 1490, 55 L.Ed.2d 519 (1978); 18B Am.Jur.2d, Corporations § 1692 (1985).

We decline to adopt the Istas' novel proposition that PCA, in all of its loan transactions, owes a fiduciary duty to its borrowers arising solely out of their status as stockholders in PCA.

II. BAD FAITH

The Istas assert that the trial court erred in granting summary judgment dismissing their tort claim based upon PCA's alleged bad faith.

Much of the Istas' argument on this issue is premised upon their assertion that PCA accelerated their debt in bad faith. The Istas rely upon Section 41-01-18, N.D.C.C. [U.C.C. § 1-208], which provides:

"Option to accelerate at will. A term providing that one party or his successor in interest may accelerate payment or performance or require collateral or additional collateral 'at will' or 'when he deems himself insecure' or in words of similar import shall be construed to mean that he shall have power to do so only if he in good faith believes that the prospect of payment or performance is impaired. The burden of establishing lack of good faith is on the party against whom the power has been exercised."

A review of the record on appeal, however, demonstrates that no acceleration occurred. A "Supplementary Loan Agreement," executed by the Istas on April 22, 1985, provides that their entire loan balance became due on March 1, 1986, unless the parties prior to that date agreed in writing to other repayment terms. The Istas do not challenge the validity of that agreement.

"Acceleration" requires a change in the date of maturity from the future to the present. General Motors Acceptance Corp. v. Uresti, 553 S.W.2d 660, 663 (Tex.Civ.App.1977); see also Grubbs v. Houston First American Savings Association, 718 F.2d 694, 697 n. 2 (5th Cir.1983); In re Williams, 11 B.R. 504, 506 (Bankr.S.D.Tex.1981). The Istas' entire debt became due on March 1, 1986, through the terms of the 1985 agreement. Because there was no change in the date of maturity from the future to the present,...