Union State Bank v. Woell

Decision Date09 January 1989
Docket NumberNo. 880096,880096
Citation434 N.W.2d 712
Parties8 UCC Rep.Serv.2d 6 UNION STATE BANK, Plaintiff and Appellee, v. William WOELL, individually and d/b/a Turning Point Manufacturing and Turning Point Manufacturing, Inc., a corporation; Defendant and Appellant, and G.L. Ness Agency, Defendant. Civ.
CourtNorth Dakota Supreme Court

DeMars, Turman & Johnson, Ltd., Fargo, for plaintiff and appellee; argued by Joseph A. Turman. Appearance by Timothy P. Hill.

Wheeler, Wolf, Peterson, Schmitz, McDonald & Johnson, Bismarck, for defendant and appellant; argued by David L. Peterson.

Keith C. Magnusson, Bismarck, for amicus curiae ND Bankers Ass'n. Submitted on briefs.

LEVINE, Justice.

William Woell and Turning Point Manufacturing, Inc. [TPMI] appeal from a judgment awarding Union State Bank [Bank] $78,055.19 on two overdue promissory notes and dismissing TPMI and Woell's counterclaim against the Bank. We affirm.

TPMI was involved in the development and design of various products. In July 1979, Woell, the company President, approached the Bank to seek financing for the development and production of "The Supportable," which is a portable table designed to be used with various power tools. Woell asserts that the Bank assured him that long-term financing would be available if the product could be marketed nationally. The Bank asserts that it only agreed to make "certain advances to Woell on a short-term basis, which were from time to time renewed."

By November 11, 1982, Woell and TPMI were indebted to the Bank in the amount of $39,617. At that time, the notes were consolidated by the Bank into one note which was secured by various items of machinery and a $100,000 purchase order from Shopsmith, Inc. Woell had also executed an unrelated promissory note in the amount of $4,673.49 on November 4, 1982.

On March 11, 1983, TPMI, as principal obligor, with Woell as personal guarantor, entered into a "memorandum agreement" with the Bank to execute a new note in the amount of $39,753.65, representing the amount previously consolidated. This note was to be payable on September 15, 1983. The agreement further provided that if the note was not paid by that date Woell would sell the secured property at an auction "in a manner to pay in full the outstanding principal and interest to the [Bank] not later than October 15, 1983."

On September 10, 1983, Woell held an auction and sold some of the collateral. Woell asserts that other items of personal property, which were not pledged as security, were also sold at the auction. Ben Clapp, a representative of the Bank, appeared at the auction and informed the auctioneer's clerk that the Bank had a security interest in the sale items and asked that the proceeds check be made payable to Woell and the Bank, jointly. The auctioneer ultimately deposited the proceeds of the sale with the district court.

The Bank brought this action against Woell and TPMI seeking judgment on the November 1982 and March 1983 promissory notes and payment of the auction proceeds on deposit with the court. Woell and TPMI answered and counterclaimed, seeking damages from the Bank under various theories of liability for the Bank's alleged wrongful conduct in its dealings with them.

On February 29, 1984, the district court entered summary judgment in favor of the Bank on its complaint, declined to rule on the counterclaim, and granted a Rule 54(b), N.D.R.Civ.P., certification. The court also ordered that the Bank be allowed to withdraw the auction proceeds. TPMI and Woell appealed, and in Union State Bank v. Woell, 357 N.W.2d 234 (N.D.1984), we dismissed the appeal, concluding that the Rule 54(b) certification had been improvidently granted. The district court subsequently vacated its summary judgment and ordered that the auction proceeds be redeposited with the court.

On January 8, 1988, the Bank again moved for summary judgment, and moved to dismiss the counterclaim in part for failure to state a claim upon which relief can be granted under Rule 12(b)(5), N.D.R.Civ.P. The district court granted the motions, 1

                1 awarded the Bank judgment against Woell and TPMI for $67,806.34, against Woell individually for $8,581.89, and awarded $1,666.96 in costs and disbursements against both defendants.  The court interpreted the counterclaim as "attempt[ing] to raise the claims of tort of bad faith in a debtor-creditor relationship;  breach of fiduciary duty on the part of the bank;  fraud;  and conversion."   The court dismissed the claims of breach of the good faith obligation and breach of fiduciary duty for failing to state claims upon which relief can be granted.  The court granted summary judgment on the conversion and fraud claims, concluding that there were no genuine issues of material fact and that the Bank was entitled to judgment as a matter of law.  Woell and TPMI [hereinafter collectively referred to as Woell] appealed

Woell asserts that the trial court erred in dismissing his tort claim for "breach of a good faith obligation." The trial court ruled that a tort action for breach of the obligation of good faith is not recognized in North Dakota and dismissed this portion of the complaint for failure to state a claim upon which relief can be granted under Rule 12(b)(5), N.D.R.Civ.P.

If, on a motion to dismiss for failure to state a claim upon which relief can be granted, matters outside the pleadings are presented to and not excluded by the court, the motion should be treated as one for summary judgment and disposed of as provided in Rule 56, N.D.R.Civ.P. Rule 12(b), N.D.R.Civ.P.; Eck v. City of Bismarck, 283 N.W.2d 193, 196-197 (N.D.1979). In this case, depositions, affidavits and documentary evidence were presented and were not excluded by the court, and the court allowed each party a reasonable opportunity to present material pertinent to the motion in compliance with Rule 56. The parties, in addition to addressing the legal issue involved, alternatively argued to the trial court whether summary judgment on this claim was appropriate. Under these circumstances, even if the trial court incorrectly holds that the pleadings do not state a claim upon which relief can be granted, a reviewing court may uphold the dismissal of the claim under Rule 12 if summary judgment would have been proper at the trial court level. Lurie v. State of California, 633 F.2d 786, 788 (9th Cir.1980), cert. denied, 451 U.S. 987, 101 S.Ct. 2321, 68 L.Ed.2d 844 (1981); Experimental Engineering v. United Technologies, 614 F.2d 1244, 1247 (9th Cir.1980); Thompson v. New York Central Railroad Company, 361 F.2d 137, 144 (2d Cir.1966).

We have not ruled whether a tort action exists in this jurisdiction for breach of the obligation of good faith in a commercial Summary judgment is appropriate when there is no dispute as to material facts, or when, although factual disputes exist between the parties, 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). On appeal we determine whether the information provided to the trial court, when viewed in the light most favorable to the losing party, precludes the existence of a genuine issue of material fact and entitles the moving party to judgment as a matter of law. Binstock v. Tschider, 374 N.W.2d 81, 83 (N.D.1985). The movant must establish that no genuine issue of material fact exists [Northwestern Equipment, Inc. v. Badinger, 403 N.W.2d 8, 9 (N.D.1987) ], but, when a movant does so, the adverse party must respond by setting forth specific facts showing that there is a genuine issue for trial as to any defense or counterclaim. Gress v. Kocourek, 427 N.W.2d 815, 816 (N.D.1988).

context, 2 and decline to do so today, because even if we were to recognize such a tort, summary judgment against Woell on this claim would nevertheless have been proper.

Woell's claim is premised on § 41-01-13 (1-203), N.D.C.C., which provides that "[e]very contract or duty within this title imposes an obligation of good faith in its performance or enforcement." "Good faith" is defined as "honesty in fact in the conduct or transaction concerned." § 41-01-11(19) (1-201), N.D.C.C.

The obligation to exercise good faith extends to "[e]very contract or duty" within the Uniform Commercial Code. Thus, in order for the good faith requirement of § 41-01-13 to apply, a contract or duty owing under the U.C.C., to which the good faith obligation can attach, must first be established. Brown v. Indiana Nat'l Bank, 476 N.E.2d 888, 894 (Ind.Ct.App.1985); see also State Bank of Hartland v. Arndt, 129 Wis.2d 411, 385 N.W.2d 219, 223 (Ct.App.1986) ["Good faith cannot stand alone. The obligation of good faith must attach to some other conduct."] This requirement, although not always explicitly stated, is evident in the cases relied upon by Woell in urging us to recognize a tort action for breach of the good faith obligation. See Commercial Cotton Co. v. United Cal. Bank, 163 Cal.App.3d 511, 209 Cal.Rptr. 551, 554 (1985) [bank's duty under the code to not make payment on a customer's checks which contained unauthorized signatures]; Tribby v. Northwestern Bank of Great Falls, 704 P.2d 409 (Mont.1985) [bank's wrongful honor of a check that did not contain the customer's signature]; First Nat'l Bank in Libby v. Twombly, 213 Mont. 66, 689 P.2d 1226 (1984) [bank's performance of its contractual right to accelerate the maturity date of a promissory note]; Sahadi v. Continental Ill. Nat'l Bank & Trust Co., 706 F.2d 193 (7th Cir.1983) [bank's calling of a loan agreement without notice]; Alaska Statebank v. Fairco, 674 P.2d 288 (Alaska 1983) [bank's exercise of rights upon default under a security agreement]; Kleiner v. First Nat'l Bank of Atlanta, 581 F.Supp. 955 (N.D.Ga.1984) [bank's setting of interest rates under the terms of promissory notes]; and K.M.C. Co., Inc. v. Irving Trust Co., 757 F.2d 752 (6th...

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