No. 89-08
IN THE SUPREME COURT OF THE STATE OF MONTANA
1989
PHIL-CO FEEDS, INC.,
a Montana corporation,
Plaintiff and Respondent,
-vs-
FIRST NATIONAL BANK IN HAVRE,
a National Banking corp.,
Defendant and Appellant.
APPEAL FROM: District Court of the Twelfth ~udicial~istrict,
In and for the County of Hill,
The Honorable Chan ~ttien,Judge presiding.
COUNSEL OF RECORD:
For Appellant:
Theodore K. Thompson; Thompson & Swenson, Havre,
Montana
For Respondent:
Laura Christofferson; Gallagher, Archambeault and
~nierim, Wolf point, Montana
t -
Submitted on ~riefs: May 18, 1989
August 15, 1989
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L.
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Filed:
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.-
s" Clerk
Mr. Justice John C. Sheehy delivered the Opinion of the
Court.
The ~ i r s t
~ationalBank in Havre appeals from a judgment
rendered against it after jury verdict in the District Court
of the Twelfth ~udicial~istrict,Hill County. The verdict
was for the principal sum of $44,787.91, and judgment was
entered by the ~istrict Court in favor of Phil-co Feeds, Inc.
on September 12, 1988, for the sum of $63,219.75 which
includes prejudgment interest.
We affirm the judgment of the District Court.
We will state the facts generally from the viewpoint of
the plaintiff and additional facts as may be necessary for
the discussion of each issue.
~hil-Co Feeds, Inc. (Phil-CO) is a Montana corporation
located in Malta, Montana, engaged in the business of selling
grain and feed supplement, and other animal health care
products for use in animal feeding and feedlot operations.
Raymond J. Shape, with his wife, Mary Jane Shape,
insofar as pertinent here, fed livestock in feedlots located
on Shape's ranches at Harlem and Roy, Montana. Shape
financed his feedlot operations through ~ i r s tNational Bank
of Havre by means of various loans for the feedlot
operations. It appears that ~ i r s tNational was the sole
provider of operating funds for Shape.
In September of 1981, Shape approached ~ i c Lefdahl,
manager of Phil-Co about the purchase of feed for the feedlot
operations at Harlem and Roy. An agreement was made between
Phil-Co and Shape at that time that Shape would be allowed to
charge feed on a monthly basis and then Shape would be billed
by Phil-Co on the first of each successive month and that all
statements would be paid in full by Shape by the tenth of
each month. Shape advised Phil-co that all his financing was
being handled by First National Bank.
In November of 1981, Phil-Co sent Shape the October bill
which required payment through the first few days of
November. Shape paid the bill but later complained that he
had been required by Phil-Co to pay for feed bills that were
not yet due, that is, for the days in November. Shape asked
that he be refunded the monies that he had paid beyond his
October bill and Phil-Co complied. The feed bills from
Phil-co to Shape were averaging $2,000 per day, or $60,000
per month. It was the opinion of ~ i c Lefdahl that Shape
"over-reacted" about the amount of the bill related to the
November charges. Lefdahl decided to inquire with First
~ationalBank about Shape's financial ability to handle the
feed bills.
On November 19, 1981, Lefdahl telephoned Randy smith, an
officer of ~ i r s tNational Bank, and inquired as to Shape's
financial ability to pay for the feed that was being
furnished to Shape. Randy smith advised Lefdahl that Shape
could handle the feed bills under his credit line with First
National Bank and also that Phil-Co had no reason for concern
about the amount of the feed bill, because ~hil-Cowould be
paid first out of the proceeds of the sale of the livestock
even before the Bank, saying that ~hil-Cohad an "automatic
first lien" for payment of the feed bill on the cattle being
fed.
On December 11, 1981, Shape delivered a post-dated check
to Phil-Co for payment on the November feed bill in the sum
of $40,000. The actual balance due was $53,447.74. The
post-dated check bore the date of December 16, 1981. Lefdahl
called Randy Smith at the Bank to determine whether the check
was good and whether it would be honored by the Bank. Randy
Smith told Lefdahl that Shape was in "tough shape," that the
check would not be honored, and that Lefdahl should get out
of his deal with Shape as quickly as possible.
I.
Should the District Court have Dismissed the Complaint
- - Amended complaint - - Grounds - - ~udicata?
and the on the of Res
In March of 1982, Shape filed a petition for protection
in the United States Bankruptcy Court, Great Falls Division.
In the bankruptcy action Phil-Co filed a complaint in the
Bankruptcy Court against First National Bank. The Bank in
that action filed a motion to dismiss Phil-CO'S complaint and
eventually the Bankruptcy Judge, Honorable Orville Gray,
issued his order granting Bank's motion to dismiss.
Phil-Co appealed Judge Gray's decision to the United
States ~istrict Court, Great Falls Division. On May 11,
1983, the U.S. District Court Judge, Honorable Paul at field
affirmed the decision of Judge Orville Gray.
The Bank contends on appeal here that the decision in
the Bankruptcy Court is res judicata as to the issues raised
in the present cause before this Court. However, ~hil-co
contends that res judicata does not apply because the action
in Bankruptcy Court was only for the purpose of determining
the priority of right to proceeds left in bankruptcy estate
as between the Bank and ~hil-Co. ~hil-Co contends that the
Bankruptcy Court decided only the issue of equitable
subordination, and that under 11 U.S.C., Section 349, the
effect of the dismissal in the Bankruptcy Court was to
restore in effect all parties to the status quo before the
bankruptcy petition was filed.
Judge Orville Gray's order granting the motion to
dismiss was on these grounds:
1. That the motion to dismiss filed by defendants
be and the same is hereby granted.
2. That for clarification, the court also ruled
that even if plaintiff should plead the alleged
statements of Mr. Randy Smith, the court would
still rule that such statements are not a legal
basis for recovery under the principle of equitable
subordination.
Judge Hatfield's order on appeal to the Bankruptcy Court
indicated that "the order of the Bankruptcy Judge dismissing
the plaintiff's claim for equitable subordination under 11
U.S.C. Section 510 (c) be accepted in whole by this Court."
As counsel for ~ i r s t Bank correctly points out, res
judicata applies when the following criteria are met:
(1) The parties or their privies are the same;
(2) The subject matter of the action is the same;
(3) The issues related to the subject matter are
the same; and
(4) The capacities of the person are the same in
reference to the subject matter and the issues
between them.
See Fox v. 7L Bar Ranch Company (19821, 1 9 8 Mont 201,
206, 645 P.2d 929, 931; Federal Land Bank of Spokane v.
Heidema (Mont. 1986), 727 P,2d 1336, 1337; Phelan v. Lee
Blaine Enterprises (1986), 220 Mont. 296, 299, 716 P.2d 601,
603.
On June 22, 1983, the Bankruptcy Court dismissed Shape's
bankruptcy proceedings under Chapter 11 with prejudice upon
the grounds that no plan had been filed, that no assets
remained in the estate, that the costs of administration
exceeded the assets and there was no chance of reorganization
under Chapter 11. The dismissal was with prejudice,
including all adversary matters pending in relation to the
Chapter 11 proceedings.
~hil-Co's complaint and amended complaint in the state
court set forth theories of liability based on
misrepresentation, equitable estoppel, fraud and bad faith.
The issues in the Bankruptcy Court were related to the narrow
issue of equitable subordination between competing interests
of two creditors of the alleged bankrupt. Thus the claim of
res judicata fails with respect to two of the criteria set
forth above: the subject matter of the actions are not the
same, and the issues relating to them are not the same. We
hold therefore the res judicata does not apply in this action
based upon the proceedings taken in the Bankruptcy Court, and
the appeal to the Federal District Court.
~hil-Cofurther contends on this issue that under the 11
U.S.C., Section 349, the dismissal with prejudice of the
bankruptcy proceedings restores all parties involved in the
bankruptcy to status quo. That may well be the effect of the
federal statute, but in light of our holding as to res
judicata it is not necessary for us to reach any conclusion
with respect to the federal statute at this point.
11.
Was First National Bank prejudiced by the Filinq of an
Amended Complaint by the Plaintiff Three Weeks prior -
- to
Trial?
rial of this cause in ~istrictCourt had been set for
August 9, 1988, when, on July 15, 1988, Phil-Co moved the
~istrict Court for permission to amend its complaint.
Phil-Co stated that it had "learned of additional facts
through the discovery process and justice requires that the
amendment be allowed." First National Bank argues that
Phil-Co could not have discovered any additional information
from discovery that it did not have prior to the original
complaint and that the amended complaint dramatically changed
factual pleading and theories. One of its reasons was that
the complaint had been filed four and one half years earlier.
First National points to United Methodist Church v. D. A.
Davidson (Mont. 1987), 741 P.2d 794, 797, and McGuire v.
Nelson (1973), 162 Mont. 37, 42, 508 P.2d 558, 560, for cases
finding an abuse of discretion when the district court grants
an amendment to pleading on the eve of trial.
First National contends that the original complaint
alleged theories amounting to bad faith, breach of fiduciary
duty, breach of the implied covenant of good faith and fair
dealing, and fraud. It contends that the amended complaint
changed the theories to equitable estoppel, fraud, and bad
faith. prior to settling instructions, the ~istrictCourt on
its own motion dismissed plaintiff's claims of equitable
estoppel, fraud, bad faith, and punitive damages. The court
permitted the case to go forward to the jury on theories of
constructive fraud and negligent misrepresentation. First
National now contends that the Court injected theories into
the case which were not pleaded.
The general concept of the Montana Rules of Civil
Procedure is to allow a party to obtain such relief as he or
she may be entitled to under the testimony and proof. Thus
Rule 8(a) allows the plaintiff to set forth a short and plain
statement of his claim showing that he is entitled to relief,
and a demand for the judgment to which he deems himself
entitled. Relief in the alternative or several different
types may be demanded. Rule 8 (e) is specific that when two
or more statements of a claim or defense are alleged, if any
one of them made independently would be sufficient, the
pleading is not made insufficient by the insufficiency of one
or more of the alternative statements. Rule 15(a) states
that amendments to pleadings may be given freely "when
justice requires." In actions involving multiple claims or
involving multiple parties, Rule 54(b) permits the court to
revise at any time before the entry of judgment a decision
adjudicating all the claims and rights and liabilities of the
parties. Especially notable is the last sentence of Rule
54(c) which provides that except in cases of judgment by
default, "every final judgment shall grant the relief to
which a party in whose favor it is rendered is entitled, even
if the party has not demanded such relief in his pleadings."
In this case, the action of the District Judge in
limiting through instructions the theories of recovery to
constructive fraud and negligent misrepresentation had the
effect of removing much of the Bank's claimed prejudice
through the allowance of the amended complaint. The facts
upon which the theories of constructive fraud, negligence and
misrepresentation are based were quite well known to the
plaintiff and at all times to the court during the
litigation, so that First National is unable to demonstrate
any prejudice that resulted from the permitted amendments.
We therefore hold against ~ i r s tNational on this issue.
id the
- - Statute - Frauds ~equire-
of a is missal - -
of the
complaint --- case?
in this
First National Bank contends that since ~hil-Coalleged
both in its complaint and amended complaint that the Bank had
failed to honor the check which paid Shape's debt to Phil-Co
that pursuant to S 28-2-903, MCA, the cause should have been
dismissed.
Section 28-2-903 (1)(b), MCA, provides:
The following agreements are invalid unless the
same or some note or memorandum thereof is in
writing and subscribed by the party to be charged
or his agent:
(b) A special promise to answer for a debt,
default, or miscarriage of another . ..
First ~ationalthen points to several instances in the
testimony when one or another of the witnesses stated that
the Bank had "agreed" that it would see to it that Ray
Shape's bill was paid. Additionally, Phil-co did not respond
to two requests for admission which would therefore be deemed
admitted:
Request No. 21: ~ d m i tthat Phil-Co Feeds, Inc.,
never received a written agreement from the First
~ationalBank in Havre agreeing to pay Ray Shape's
feed bill.
Request No. 22: ~ d m i t that no representative of
Phil-Co Feeds, Inc., ever requested Raymond Shape
to secure an agreement with the First ~ationalBank
in Havre to pay his feed bill owed to Phil-Co
Feeds, Inc.
The Statute of Frauds applies to liabilities based on
contract, and not to theories of liabilities based on fraud
or negligent misrepresentation.
Under the evidence here, Lefdahl called Randy smith and
requested information regarding Ray Shape's ability to pay
any statement on his extremely large feed bill. Randy smith,
a banker, chose to divulge information regarding Ray Shape to
~ i cLefdahl and did make certain affirmative statements
indicating that Shape could pay and that it did not matter if
Shape did not pay as Phil-co had an automatic feed lien which
would be paid first. Phil-Co relied on this information and
extended credit to Ray Shape from November, 1981 to December
11, 1981 when ~ i Lefdahl again called Randy smith to confirm
c
that the check to Phil-co drawn by Ray Shape on ~ i r s t
~ational Bank was good. At that time, he was advised the
check would not be honored and Lefdahl took action to protect
Phil-Cots interests.
The requests for admission in this case are not
pertinent because they relate to written agreements, and
plaintiff's case in tort is not based on a written agreement.
Therefore the Statute of Frauds does not apply.
We uphold the District Court on this issue.
IV.
Was First National Bank Prejudiced by the District
Court's Refusal - Permit Certain Evidence & Testimony?
to
On the cross examination of Donald Cole, an attorney
representing Phil-Co at the time Shape was doing business
with him, and who is also representing one of its officers
and directors, Lee Robinson, the Bank attempted to elicit
testimony from Cole regarding his representation of Lee
~obinson. When objection was sustained, the Bank made an
offer of proof which would have shown that Cole had
represented Lee Robinson with respect to a claim against
Shape for the purchase by Shape from Robinson of a certain
Versatile Tractor. Because of his trouble in collecting the
debt from Shape, Bank wanted to establish that Lee ~obinson
knew prior to the time that ~hil-Co became involved with
Shape that Shape did not pay his debts as they became due.
Bank contends that this would have shown that ~obinson,as a
director of Phil-Co, knew or should have known before Phil-Co
began giving credit to Shape that he was a poor credit risk.
The court denied the offer of proof upon the ground that any
knowledge that Lee Robinson might have had as to the credit
record of Shape could not be imputed to the corporation in
this case. Plainly the District Court was correct.
Bank further raises the issue of the refusal by the
District Court to admit the deposition of Sid Boe as evidence
in the cause. Bank asserts that the testimony of Sid Boe
would have demonstrated that Phil-Co had knowledge that the
Bank was not providing operating credit or monies to pay for
feed to Ray Shape. This information, however, would be
irrelevant to the present action. Under the testimony here,
Lefdahl called the Bank and was assured that even if Shape
did not receive money from the Bank for feed that
nevertheless Phil-Co had an "automatic feed lien," and would
be paid before the Bank. Evidence in the cause indicated
that there was no such automatic feed lien. The District
Court correctly refused this testimony.
The ~istrict Court also refused as irrelevant the
admission of two security agreements offered by the Bank.
The evidence indicated that the agreements were signed in
January of 1982, but were back dated to December 8, 1981 and
were security agreements which related to arrangements made
through the owner of the cattle for payment for the feed
after December 11, 1981, when the Bank informed Phil-Co that
it would not honor Shape's last check for $40,000.
Unless the offered evidence naturally and logically
tends to establish a fact in issue, it is not admissible.
Britton v. Farmers Insurance Group (Mont. 1986), 721 P.2d
303. The test of relevancy is whether an item of evidence
will have any value, as determined by logic and experience in
proving the proposition for which it is offered.
McConnell-Cherewick v. herew wick (1983), 205 Mont. 75, 666
P.2d 742. The evidence in this case, offered by the
defendant and refused by the District Court, had no relation
to the representations made by the bank's officer, upon which
Phil-Co relied. We find no error on these issues.
v.
- - ~istrictCourt prejudice First National Bank %
Did the
Requiring - - Produce Randy Smith for Examination - ~ r i a l ?
it to at
In the course of the trial before the District Court,
counsel for Phil-Co announced that the plaintiff would rest.
Immediately thereafter, a colloquy between court and counsel
for the Bank ensued as follows:
MR. KNIERIM: We will rest.
MR. THOMPSON: I know the jury has been like a
jumping jack back and forth, but now we are going
to put our case on, I wonder if I can have a ten
minute break. I anticipated that they would have
more witnesses than what they did, and I would like
to have about a ten minute recess.
THE COURT: I understand that Mr. Smith is present
in the court.
MR. THOMPSON: No, he is not.
THE COURT: In the courthouse?
MR. THOMPSON: No. he is not.
THE COURT: He is here in Havre.
MR. THOMPSON: I would be able to have Mr. Smith
available for testimony in a few minutes.
THE COURT: I think in the interest of judicial
economy, you better have him in here subject to
examination by the plaintiff as a possible witness.
MR. THOMPSON: Your Honor, we will call him in our
case.
THE COURT: The court has ordered him called now,
Mr. Thompson, and I want to get this case settled
out so that there is some understanding by the jury
of what is going on. And I want you--we will have
a recess. You get a hold of Mr. smith and get him
up here so he can be examined by the plaintiff.
MR. THOMPSON: Okay. Perhaps we can have a recess
for ten or fifteen minutes.
THE COURT: ~ i n e . We are in recess for 15 minutes.
WHEREUPON, the court took its recess at 2:05 p.m.
Randy Smith appeared in court at 2:20 p.m., and the
trial resumed, with Randy Smith being examined by the
plaintiff as an adverse witness as part of the plaintiff's
case in chief.
Counsel for the Bank now contend that the record does
not show the "volcanic anger" of the District Judge at the
time and his demeanor in the course of the discussion. Bank
contends that the jury may have been prejudiced by the court
in directing the production of Randy Smith for examination.
Immediately before the colloquy above reported, there was a
conference before the bench, off the record. Because the
conference off the record is not reported, this Court can not
indulge in speculation as to what the District Court learned
at that time.
Insofar as the contention of the Bank is now raised, no
objection was made by Bank's counsel at the time of the
action by the judge nor was there any motion for mistrial.
Therefore there was no preservation of any issue of judicial
misconduct for appeal. ~vangeline v. ~illingsCycle Center
(Mont. 1981), 6 2 6 P.2d 841. We do not find error on this
point.
VI .
Conclusion
The foregoing are the issues raised by the appellant in
this cause, and our disposition of the same. Because we find
no error on the part of the ~istrict Court on the issues
raised, we affirm the judgment.
n
PVL 42.
Justlce
au;/7:
Chief Justlce