No. 84-226
I N THE SUPREME COURT OF THE STATE OF MONTANA
1985
CENTFAL BANK OF MONTANA,
P l a i n t i f f and R e s p o n d e n t ,
-vs-
DEAN A. EYSTAD and MARCIA L . EYSTAD,
D e f e n d a n t s and A p p e l l a n t s .
APPEAL FROM: D i s t r i c t C o u r t of t h e E i g h t h J u d i c i a l D i s t r i c t ,
I n and f o r t h e C o u n t y o f C a s c a d e ,
T h e H o n o r a b l e J o e l G . R o t h , Judge p r e s i d i n g .
COUNSEL OF RECORD:
For Appellant:
C h u r c h , H a r r i s , Johnson 6 W i l l i a m s ; W i l l i a m A. Reid,
Great F a l l s , Nontana
For Respondent:
Alexander c Baucus; Ward E . T a l e f f , G r e a t F a l l s ,
Montana
S u b m i t t e d on B r i e f s : J u l y 2 5 , 1985
Decided: December 13, 1985
Mr. Justice L. C. Gulbrandson delivered the Opinion of the
Court.
Dean and Marcia Eystad appeal a judgment of the Cascade
County District Court permitting Central Bank of Montana
(Central Bank) to foreclose on certain parcels of Eystads'
real property and denying Eystads' counterclaims. The issue
on appeal is whether there was substantial credible evidence
to support the District Court's judgment. We hold that there
was such evidence and, accordingly, we affirm.
Appellants set forth three specific issues:
(1) Did the District Court err in ruling that Central
Bank could foreclose on Eystads' real property without
liability for damages to their business?
(2) Did the District Court err in denying Eystads'
counterclaim against Central Bank for an alleged breach of
the covenant of good faith?
(3) Did the District Court err in denying Eystads'
motion to stay judgment?
Eystads have been customers of Central Bank for many
years. They own and operate a business engaged in the manu-
facture and sale of building trusses. Beginning as early as
1963, Eystads obtained loans from Cental Bank and secured the
loans with mortgages on their home and business property. In
1977, Central Bank made the first "operating loan" to
Eystads. Eystads obtained this loan to provide funds for the
operation of their business. Eystads gave Central Bank a
mortgage on real property in Great Falls, Montana to secure a
second operating loan obtained by Eystads in 1977. This
mortgage contained a future advance clause to secure future
advances from the Bank up to the amount of $60,000. In later
years, Central Rank made frequent operating loans to Eystads.
Most of the loans were intended to be secured by the 1977
mortgage, under the future advance clause. These loans were
evidenced by promissory notes generally providing for a lump
sum payment due in six months. In some instances, Eystads
would pay only the interest due on the due date and would
renew the loan with a new promissory note. Often they would
also borrow additional funds, with the new promissory note
reflecting the new advances as well as the unpaid principal
from the prior note.
In February 1982, Central Bank renewed an existing
$50,000 loan of Eystads for six additional months. On
February 2, 1982, prior to the loan renewal, a Central Bank
officer wrote to Eystads indicating that in connection with
the renewal Eystads would be expected to substantially reduce
the amount they owed. On February 4, Eystads executed a new
note evidencing the renewal. Central Bank drew up and
Eystads signed a new mortgage on business property to secure
this loan. This is the mortgage at issue in the instant
case. Central Bank required the new mortgage because the
bank may have been unsecured as a result of loans to Eystads
(which loans were intended to be secured by the first
mortgage) possibly in excess of the $60,000 future advance
clause of the first mortgage.
The February 4 note was due on August 4, 1982. On
August 4, 1982, Eystads met with two bank officers. Eystads
wanted to pay the interest accrued on the note and requested
a six month extension of the note. Central Bank agreed to a
ninety day extension of the note, setting the new due date at
November 2, 1982.
Jeffrey Mortensen, an assistant vice-president of
Central Bank, was at the August 4th meeting with Eystads. He
testified that Eystads were informed at the meeting that
their loan would not be renewed after November 2, 1982,
without a s i g n i f i c a n t reduction i n t h e outstanding p r i n c i p a l .
Mortensen a l s o t e s t i f i e d t h a t t h e bank o f f i c e r s t o l d E y s t a d s
that the amount of reduction shou1.d approximate $25,000.
Mrs. Eystad t a l k e d w i t h a bank o f f i c e r , S c o t t Rubie, on
October 28, 1982. She t e s t i f i e d t h a t t h a t day Rubie t o l d h e r
t h e r e was a p o s s i b i l i t y t h a t t h e Bank would n o t a g a i n e x t e n d
t h e loan.
O November
n 9, 1982, Eystads a g a i n met w i t h Central
Rank o f f i c e r s . E y s t a d s r e q u e s t e d t h a t t h e n o t e due on Novem-
ber 2 be a g a i n e x t e n d e d f o r s i x months. J e f f Mortensen o f
t h e Bank was a l s o a t t h a t meeting. He testified that the
bank o f f i c i a l s d e c i d e d on November 9 t o n o t t a k e any a c t i o n
on t h e n o t e , now d u e , f o r a c o u p l e o f weeks. He s t a t e d t h a t
they made this decision so that Eystads could pursue
r e f i n a n c i n g from a n o t h e r s o u r c e f o r t h e b a l a n c e o f t h e d e b t
and so that Eystads could obtain funds owed to them.
Mortensen testified that he urged Eystads to pursue this
course of action and that he told Eystads that another
e x t e n s i o n o f t h e l o a n would n o t be g r a n t e d .
Mrs. Eystad also testified as to the import of the
November 9 meeting. She stated that James Hopkins, the
president of Central Bank, indicated to her that Eystads
would be r e q u i r e d t o make a s u b s t e n t i a l payment on t h e p r i n -
c i p a l o f t h e l o a n , which had become due on November 2 , b e f o r e
t h e Bank would e x t e n d t h e l o a n . She f u r t h e r t e s t i f i e d t h a t
Hopkins stated that a substantial payment sufficient to
e x t e n d t h e l o a n would b e "around" $4,000 on t h e p r i n c i p a l .
On December 7, 1982, Mr. Eystad spoke with Jeff
Mortensen and offered to pay approximately $6,300 on the
operating loan due November 2. There apparently was a misun-
derstanding as to whether the total $6,300 would be applied
on the principal of the debt. Mr. Eystad requested a six
month extension of the note. The Rank, through Mortensen,
refused to extend the note and later demanded payment in
full. Mr. Eystad made no payment on the operating loan and
instead applied approximately $6,000 to pay off a different
loan secured by a mortgage on other property.
The bank officers handling the Eystads' loans kept
comment sheets relating to those loans. A comment sheet
reflects generally the history and circumstances of the loan.
The comment sheets relating to Eystads' loans were introduced
at trial. These sheets, and the February 1982 letter to
Eystads, support Central Bank's contentions that (1) the
Bank informed Eystads that their operating loan would not be
further renewed or extended without a substantial reduction
in the outstanding balance of the loan; and (2) the Bank
contemplated, and informed Eystads, that the reduction should
be approximately $25,000.
Central Bank, unwilling to grant Eystads a further
extension on the loan, filed a complaint against Eystads in
January 1983. Central Bank sought to foreclose the mortgage
on real property which secured the loan due on November 2.
Eystads filed an answer and counterclaim in response to
Central Bank. As their principal defense to the action,
Eystads asserted that Central Bank was estopped from fore-
closing the mortgage. The estoppel defense was based on the
contention that Central Bank hzd for years engaged in the
"practice and course of conduct" of renewing and/or extending
Eystads' loans without demanding from Eystads a payment on
the principal of the loan. Eystads further asserted that
they relied on this practice and course of conduct to their
detriment and that Central Bank changed this business
practice without any advance warning to Eystads.
Consequently, Eystads counterclaimed against Central Rank for
the premature and wrongful foreclosure of the mortgage.
Eystads also counterclaimed against Central Bank alleg-
ing the tort of bad faith and praying for punitive damages.
Under this theory, Eystads alleged that the Bank intentional-
ly and maliciously acted to injure Eystads.
The case went to trial in November 1 9 8 3 and the Dis-
trict Court issued its findings of fact, conclusions of law
and judgment in January 1 9 8 4 . Eystads make oblique objec-
tions alleging that the trial court adopted Central Bank's
proposed findings and conclusj.ons verbatim. However, they
have not raised this as an issue on appeal. In any case, we
find the trial court's findings of fact and conclusions of
law to be detailed and complete.
The District Court held that the Bank was not estopped
and could properly foreclose on the property. The court
found that Eystads were bound by their promissory note and
the Bank had no duty to renew or extend the note
indefinitely. The counterclaims were rejected as without
merit. Eystads appeal.
The first issue is whether the District Court erred in
finding that Central Bank could properly foreclose the
mortgage, without liability for damages to Eystads' business.
The standard for review is set forth in Rule 52(a), Montana
Rules of Civil Procedure, which provides that this Court may
not set aside findings of fact unless they are clearly
erroneous. Expanding on this standard, we have stated:
When reviewing findings of fact and
conclusions of law of a district court,
sitting without a jury, this Court has
repeatedly held such findings and conclu-
sions will not be disturbed if supported
by substantial evidence and by the law.
(Citation omitted. )
When reviewing evidence it will be viewed
in the light most favorable to the pre-
vailing party in the district court, and
the credibility of witnesses and the
weight assigned to their testimony is for
the determination of the district court
in a nonjury trial.
Kartes v. Kartes (1977), 175 Mont. 210, 217, 573 P.2d 191,
1.95; citing Luppold v. Lewis 11977), 172 Mont. 280, 284, 563
The lower court made findings that, (1) the Bank was
not estopped from foreclosing the mortgage; (2) the Bank's
renewals and extensions of Eystads' loans were discretionary
acts and did not imply an obligation to further renew or
extend the loans; (3) the Bank gave Eystads adequa-te notice
that a reduction in the principal of the loan was required;
(4) the Bank gave Eystads adequate notice that further
renewals or extensions would possibly not be granted;
(5) the Bank was entitled to repayment of the loan which was
past due; (6) Eystads' offer, in December 1982, to repay
$3,000 of the loan principal was not a "substantial
reduction" of the outstanding principal of $50,000; and
(7) Eystads were not entitled to an extension under the
Bank's assurance that an extension would be forthcoming if
Eystads made a substantial reduction in the amount owed.
Substantial credible evidence supports these findings
of fact. The testimony of the bank officers, parts of which
have been cited and which the trial court found credible,
support the finding that the Bank was acting in good faith
and with justifiable business judgment in foreclosing the
mortgage. The bank's comment sheets, which were introduced
into evidence, also support this view. The sheets show the
Bank's legitimate concern with the loan and the Bank's
efforts to communicate this concern to Eystads. The February
1982 letter from the Bank to Eystads also shows the Bank's
forthright communications to Eystads. We uphold the District
Court as to the first issue.
Similarly, we uphold the District Court's decision as
to the second issue; i.e., the denial of Eystads' counter-
claim for an alleged breach of the covenant of good faith and
fair dea,-inq. Counsel for Eystads have referred to their
counterclaim as a claim for the tort of bad faith. The claim
is more properly referred to a s an alleged breach of the
.
covenant of good faith and fair dealing. We do not concede
that there was imposed upon Central Bank a covenant of good
faith and fair dealing (as opposed to the obligation of good
faith, defined as honesty in fact, imposed upon every
contract or duty within the Uniform Commercial Code under
fj 30-1-203, MCA). However, even assuminq arguendo such a
covenant, there is substantial evidence, in the form of the
testimony of three bank officers, the comment sheets, and the
February 1982 letter, that Central Bank did not breach any
covenant of good faith and fair dealing. This evidence,
which the District Court was free to believe, portrays the
bank representatives as candid and reasonable in their
dealings with Eystads. Furthermore, a breach of the
obligation of good faith imposed by § 30-1-203, MCA, is not,
in and of itself, sufficient to support the award of punitive
damages which Eystads requested. There must be some
oppressive, malicious, or fraudulent conduct, above and
beyond a breach of the statutory good faith obligation, to
support an award of punitive damages. See First National
Bank of Libby v. Twombly (Mont. 1984), 689 P.2d 1226, 41
St.Rep. 1948. There is substantial evidence to support the
trial court1s denial of Eystads' counterclaim for breach of
the covenant of good fa-ith and fair dealing.
The third issue is whether the District Court erred in
denying Eystadsl motion to stay judgment. Eystads cite no
authority for the proposition that judgment should have been
stayed.
Rule 7 of the Montana Rules of Appellate Civil Proce-
dure provides for a stay of judgment or order pending an
appeal. Rule 7 states that, upon application, a District
Court may in its discretion grant a stay of judgment. After
reviewing the record of the hearing on the motion to stay
judgment, we find that the District Court acted within its
discretion in denying the motion to stay judgment. Further,
Eystads did not post a supersedeas bond to stay Ijudqment.
The District Court judgment is affirmed. ,4
We concur: