Sun River Cattle Co., Inc. v. Miners Bank of Montana N.A.
| Decision Date | 07 May 1974 |
| Docket Number | No. 12511,12511 |
| Citation | 164 Mont. 237,14 UCC Rep. 1004,521 P.2d 679 |
| Parties | , 14 UCC Rep.Serv. 1004 SUN RIVER CATTLE CO., INC., a Corporation, et al., Plaintiffs and Appellants, v. MINERS BANK OF MONTANA N.A., a Banking Corporation, Defendant and Respondent. |
| Court | Montana Supreme Court |
Corette, Smith & Dean, Kendrick Smith (argued), Butte, for appellants.
Alexander, Kuenning & Miller, Paul D. Miller (argued), Great Falls, Henningsen, Purcell & Genzberger, Butte, for respondent.
Wesley W. Wertz, Helena, Turnage & McNeil, Polson, Luxan, Murfitt & Davis, Helena, amicus curiae.
This appeal was originally heard on November 27, 1973; an opinion issued January 14, 1974; a rehearing was granted and argued. This opinion replaces that appearing in 31 St.Rep. 44.
This is a case involving three separate plaintiffs and six separate checks. The plaintiffs are cattle raisers and brought this action to recover $74,868.02, plus interest which represents the total of the six checks drawn by Schumacher's New Butte Butchering, hereinafter referred to as New Butte, on its account at Miners Bank of Montana, hereinafter referred to as Miners. One check was payable to Bruce Beck & Son, two to Louis Skaar & Sons, and three to Sun River Cattle Co., who will be referred to hereinafter, respectively, as Beck, Skaar and Sun River individually and as plaintiffs collectively. Each of the checks was accepted by the plaintiff payees in payment for cattle sold and delivered to New Butte. A summary of the history of all six checks is as follows:
The Beck check dated April 28, 1970, was for the amount of $12,478.63. This check was sent by Beck's bank to Miners, stamped 'Paid, run through New Butte's checking account and deducted from the balance on May 11, 1970, (a Monday). The check was reversed and added to the balance on May 13, 1970, and returned to Beck's bank for insufficient funds. The check was sent back to Miners, stamped 'Paid', run through New Butte's checking account, deducted from the balance on May 20, 1970, reversed on May 21, 1970, and returned to Beck's bank for insufficient funds. It was then returned to Miners 'for collection' June 4, 1970, received by Miners on June 8, 1970, and retained by Miners until July 7, 1970, when it was returned to Beck's bank.
The first Skaar check, dated April 14, 1970, was for the amount of $11,514.74. This check was sent by Skaar's bank to Miners, stamped 'Paid', run through New Butte's checking account, deducted from the balance on April 27, 1970, reversed April 28, 1970, and added to the balance and returned to Skaar's bank for insufficient funds on April 28, 1970. The check was sent back to Miners, run through New Butte's checking account and deducted from the balance on May 11, 1970, reversed and added to balance May 13, 1970, and returned to Skaar's bank for insufficient funds. It was returned by Skaar's bank 'for collection' on May 15, 1970, received by Miners on May 18, 1970, and retained by Miners until July 27, 1970, when it was returned to Skaar's bank.
The second Skaar check, dated May 4, 1970, was for the amount of $12,434.26. This check was sent by Skaar's bank to Miners, stamped 'Paid', run through New Butte's checking account, deducted from the balance on May 12, 1970, reversed on May 13, 1970, and added to the balance and returned to Skaar's bank for insufficient funds. The check was returned by Skaar's bank to Miners 'for collection' received by Miners on May 20, 1970, and retained by Miners until July 27, 1970, when it was returned to Skaar's bank.
The first Sun River check, dated April 27, 1970, was for the amount of $12,882.57. This check was deposited in the First National Bank of Great Falls on April 28, 1970, and sent to Miners. It was stamped 'Paid May 1, 1970', run through New Butte's checking account and deducted May 1, 1970, (a Friday). The check was reversed and added to the balance on May 4, 1970, (a Monday) and returned to First National Bank of Great Falls. The check was sent back to Miners 'for collection' on May, 8, 1970, received by Miners on May 11, 1970, and has never been returned.
The second Sun River check, dated May 4, 1970, in the amount of $13,114.23, and the third Sun River check, dated April 1, 1970, (although the invoice for this load of cattle is dated April 28, 1970) in the amount of $12,443.59, were both sent to Miners directly 'for collection'. The second check was sent on May 6, 1970, and received by Miners on May 7, 1970, and the third was sent on May 12, 1970, and received by Miners May 13, 1970. These checks have never been returned. None of the checks have been paid.
In 1962 the original transaction between Miners and New Butte took place when Miners loaned New Butte some $289,500. In 1968 refinancing of New Butte became necessary in an amount in excess of Minters' lending capacity.
Refinancing was carried out with two separate loans. One was for $200,000 with Miners having a 30% participation and the remaining 70% spread among seven sister banks. The other was for $100,000, 90% of which was guaranteed by the Small Business Administration (hereinafter referred to as SBA). The loans were made to provide working capital, and to comply with federal regulations as to slaughter-houses.
Miners filed financing statements with the county clerk of Silver Bow County and the secretary of state. A list of equipment was attached to the statement filed with the secretary of state; no such list was attached to the one filed with the county clerk and recorder. No amounts being secured are shown on the statements but Mr. Pitts, Miners' president at the time, stated that they were designed to cover both loans. Witness Pitts testified that the lien of the $200,000 loan was first as to all equipment but that the $100,000 loan was first as to the accounts receivable and inventory.
Miners also took mortgages securing the $200,000 loan as follows: mortgage on New Butte's plant and a mortgage from Harold F. Schumacher and Loretta Schumacher covering their home and personal property. Securing the $100,000 loan Miners took a mortgage from New Butte to Miners covering the plant and equipment and a mortgage from the Schumachers covering their home and personal property.
In each instance the mortgage securing the $200,000 loan was filed first. None of these mortgage has been foreclosed.
Miners also filed a security agreement with the registrar of motor vehicles securing the $200,000 loan and also took an assignment on Schumacher's life insurance as security for the $200,000 loan. The policies were cashed for the cash value.
In December of 1969, New Butte closed down its operation for financial reasons. Operations were resumed in January 1970. At this time a financing firm, Douglas Guardian, with its program of warehousing receipts and accounts receivable financing became involved in cooperation with Miners and New Butte. Advance by Miners under the warehouse receipts plan approximated.$390,000. The amounts advanced by Miners under the accounts receivable financing exceeded $400,000. The warehouse receipts program started January 15, 1970, and ended May 22, 1970; the accounts receivable financing covered a period from January 30, 1970, to May 11, 1970.
During the first seven months of 1970, the New Butte checking account was overdrawn in amounts ranging from nominal to as much as $55,000 for all but 87 of those days.
As of May 18, 1970, the $100,000 loan was current in payments. All payments on the $200,000 were made currently through May 28, 1970. On June 2, 1970, the SBA took over the assets of the business. Neither loan was in default at that time. On May 29, and June 1, 1970, Miners' president, Pitts, debited the New Butte account for $12,000 and $9,000 and credited those amounts to the $100,000 SBA loan.
Pitts admitted that he was looking carefully to the account on May 29, 1970, so that he could put in the withdrawal slip for $12,000 and be sure that Miners got ahead of anybody else. He stated that he personally handled the withdrawal.
As to the $9,000 withdrawal, Pitts testified that he kept strict watch of the account and when there was enough deposited, he personally put in a withdrawal slip. On June 18, 1970, Miners credited the $200,000 loan with $4,602, which represented 30% of the total of $15,342 as the result of a sale of equipment by New Butte. The proceeds were not deposited in New Butte's account but were applied directly to the $200,000 loan and that credit was enough to discharge in advance the principal and interest for six months. There was no foreclosure of the security interests nor were the proceeds of the sales placed into New Butte's account.
The bank in this instance knew of the condition of the account of New Butte, it had intimate knowledge of the transactions, it was the 'on the ground' representative of the sister banks who shared in the loan and it had more than the usual normal interest in the activities of New Butte.
Plaintiffs brought this action against New Butte and Miners to recover the amounts of the checks plus interest and damages. After a trial without a jury in the second judicial district, Judge James D. Freebourn presiding, found for the plaintiffs against New Butte and found against the plaintiffs and for defendant Miners. Plaintiffs appeal that part of the judgment which exculpated Miners.
Plaintiffs present five issues for review, which are summarized as follows: (1) Whether Miners is liable for holding the Beck check and the first Skaar check past the midnight deadline provided for in section 87A-4-302, R.C.M.1947, and (2) whether Miners is liable for holding all six of the checks past the midnight deadline as provided for in the statute. Plaintiffs' remaining issues involve the question of good faith, which the district court specifically found was exercised by Miners in its dealings with plaintiffs. The question of good...
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