State ex rel. Farm Credit Bank of Spokane v. District Court of Third Judicial Dist. of State in and for County of Powell

• Decision Date: 20 October 1994
• Docket Number: No. 92-480,92-480
• Citation: 267 Mont. 1,881 P.2d 594
• Parties: STATE of Montana, ex rel., FARM CREDIT BANK OF SPOKANE, Relator, v. The DISTRICT COURT OF the THIRD JUDICIAL DISTRICT OF the STATE of Montana, in and for the COUNTY OF POWELL, and the Honorable Judge thereof, Ted L. Mizner, Respondents.
• Court: Montana Supreme Court

Page 594

881 P.2d 594

267 Mont. 1

STATE of Montana, ex rel., FARM CREDIT BANK OF SPOKANE, Relator, v. The DISTRICT COURT OF the THIRD JUDICIAL DISTRICT OF the STATE of Montana, in and for the COUNTY OF POWELL and the Honorable Judge thereof, Ted L Mizner, Respondents.

No. 92-480.

Supreme Court of Montana.

Submitted Nov. 5, 1993.

Decided Aug. 12, 1994.

Rehearing Denied Oct. 20, 1994.

Martin S. King, Worden, Thane & Haines, Missoula, MT (argued), W. Arthur Graham, Central Coast Farm Credit, Arroyo Grande, CA, for relator.

Allen Beck, Billings, MT (argued), Peter Pauly, Helena, MT, for Clifford and Patricia Graveley.

TRIEWEILER, Justice.

Plaintiffs Clifford E. Graveley and Patricia E. Graveley filed their complaint in the District Court for the Third Judicial District in Powell County claiming the right to damages from defendant Farm Credit Bank of Spokane (FCB) based on numerous allegations, including breach of contract and breach of the Bank's independent covenant to perform that contract in good faith. The Graveleys sought contract damages and specific performance of what they alleged were the Bank's obligations pursuant to the contract. The Bank denied the Graveleys' allegations and counterclaimed to foreclose the real estate mortgage that had been given by the Graveleys to the Bank as security for a promissory note executed by the Graveleys and the Bank on April 6, 1984. The FCB also sought a deficiency judgment in the event the land which secured the Graveleys loan was sold for less than the amount of the Bank's judgment. The FCB moved for summary judgment in its favor on its foreclosure action and to dismiss the claims in the Graveleys' complaint.

The District Court denied the FCB's motion because: (1) it concluded that there were genuine issues of fact raised by the Graveleys' affirmative defense based on equitable estoppel; and (2) it concluded that there were issues of fact raised by the Graveleys' affirmative defense based on the Bank's alleged failure to comply with the Agricultural Credit Act of 1987.

Since the issues decided by the court, pursuant to the FCB's motion for summary judgment, were issues of first impression in Montana, and in the interest of judicial economy, the District Court joined counsel for both parties in their request that we grant supervisory control to review the legal issues decided by the District Court.

The Supreme Court of this state is given general supervisory control over all of the state courts. Art. VII, § 2(2), Mont. Const. Our Rule 17(a), Montana Rules of Appellate Procedure, recognizes that the institution of original proceedings in the Supreme Court is sometimes justified by circumstances of an emergency nature, when supervision of a trial court other than by appeal is deemed necessary or proper.

State ex rel. Racicot v. District Court (1990), 244 Mont. 521, 524, 798 P.2d 1004, 1006.

In this case, final resolution of the legal issues presented is necessary in order to assure that any subsequent trial is based on the true legal merits of the complaint and counterclaim, and thereby, to avoid needless and expensive litigation based on uncertainty about the controlling law. We have, in the past, held that this is a sufficient basis for granting supervisory control, and therefore, accept supervisory control in this case. First Bank System v. District Court (1989), 240 Mont. 77, 782 P.2d 1260. After considering the arguments of the parties, we affirm in part and reverse in part.

The District Court's order, the petition for supervisory control, and the briefs of the parties present the following issues for our consideration:

1. When provisions of the Agricultural Credit Act of 1987 found at 12 U.S.C. § 2202a (1988) are included by reference as terms in a mortgage agreement, can a party to the agreement sue to enforce those provisions in district court?

2. Can an allegation that a Farm Credit Bank failed to comply with the restructure provisions of the Agricultural Credit Act of 1987 found at12 U.S.C. § 2202a (1988) provide 3. Can unilateral representations allegedly made by the lender and upon which a borrower relies to his detriment provide a basis for the affirmative defense of equitable estoppel to a foreclosure action when those representations are verbal and not included in the parties' written agreement?

an affirmative defense to a foreclosure action by that bank?

4. Are the plaintiffs entitled to a jury trial of the issues remaining after resolution of the three previous issues?

FACTUAL BACKGROUND

This factually complex litigation was commenced by the Graveleys' complaint filed on March 17, 1987. Since then, extensive discovery has been completed, numerous depositions taken, and several lengthy affidavits filed, both in support of and in opposition to the FCB's motion for summary judgment. The following summary necessarily omits many facts which may ultimately be important to the resolution of this claim on its merits. They are provided in summary form to illustrate the nature of the claim and counterclaim, and the basis for this opinion. Furthermore, since we are reviewing an opinion and order partly denying and partly granting summary judgment, we also review the facts most favorably to the Graveleys, who are the nonmoving parties. Where conflicts have been established, we will attempt to note them.

The Graveleys are cattle ranchers who have operated on a 4000 to 5000 acre piece of land known as the "Home Place" since 1934, and whose family has owned that piece of property since 1940. That land has never been encumbered and was not encumbered as part of the loan which is the subject of this lawsuit.

In 1963, the Graveleys added to their ranching operation by purchasing the "Garrison Place" which consisted of approximately 5000 acres and was located about 12 miles away from the "Home Place." By 1984, the balance due on the loan with which the Garrison Place was purchased was under $25,000, and the Graveleys estimated its value at $1,000,000.

The Graveleys have three sons and wanted to expand their ranching operation so that their sons could participate and so that it could support more than one family. That opportunity presented itself in 1983 when an area of pasture land known as the "Snowshoe Place," which consisted of 3240 acres came on the market. The price of the Snowshoe Place was $673,920.

In order to purchase the Snowshoe Place, the Graveleys approached Valerie Warehime, a loan officer at what was then the Federal Land Bank of Spokane and has since been reorganized and renamed Farm Credit Bank of Spokane.

The Graveleys requested a loan of $770,000 in order to purchase the Snowshoe Place, pay off the balance due on the Garrison Place, and pay for the lease of additional federal land. As part of its review of the loan application, the Bank appraised the Garrison Place at a value of $690,000, and the Snowshoe Place at a value of $600,000. Therefore, in order to secure a loan in the amount requested by the Graveleys, the FCB demanded a mortgage interest in both pieces of property. Up to this point, the parties are in agreement.

Both Mr. and Mrs. Graveley have testified by deposition or affidavit that they did not need to expand their ranching operation and did not wish to do so if the Home Place, which had been in their family for several generations, would in any way be jeopardized. They state that they requested and received assurances from Valerie Warehime that the loan was feasible without encumbering the Home Place, and that it would not otherwise be at risk, regardless of their ability to repay the loan. The Graveleys have testified that they were told by Warehime that in the event they were unable to make payments on the loan, they could simply give FCB deeds to the secured property in lieu of foreclosure proceedings, and that "that would be the end of it." They state that they were repeatedly advised by Warehime that the Garrison and Snowshoe Places were sufficient to secure the loan. In fact, based on the Bank's appraisal of the two secured properties Warehime acknowledges that at the time the loan negotiations were conducted, the Graveleys were concerned about neither encumbering nor endangering the Home Place and admits believing that the security provided by the other two parcels of land was sufficient in the event of default. However, she denies making any representations about the safety of the Home Place, or that the Bank would accept a deed in lieu of foreclosure in the event of default.

the loan at that time represented only 59 percent of the land's value.

On April 6, 1984, the Graveleys signed a promissory note in which they acknowledged borrowing, and agreed to repay, the amount of $770,000 to the FCB in 35 annual installments at a variable rate of interest. The installments were due on the first day of January of each year, beginning in 1985. The initial interest rate was 11.75 percent, but could vary based on the provisions of the Farm Credit Act of 1971 (12 U.S.C. §§ 2001, et seq.) and the regulations of the Farm Credit Administration. In the event of default, the FCB retained the right to accelerate the loan, declare the entire balance due, and increase the interest rate by an annual rate of two percentage points.

On that same date, the Graveleys executed a written mortgage agreement which gave the FCB a security interest in both the Snowshoe Place and the Garrison Place to secure performance of the promissory note. The mortgage agreement did not provide for a deed in lieu of foreclosure in the event of default. However, it did include the following term:

This mortgage and the note secured hereby are executed and delivered under and in accordance with the Farm Credit Act of 1971 and any Acts amendatory or supplementary thereto and the regulations of the Farm Credit Administration, and are subject to the terms, conditions and provisions thereof applicable to Federal Land Bank loans.

The...