No. 88-336
IN THE SUPREME COURT OF THE STATE OF MONTANA
1989
ED H. BLOME and SHIRLEY A. BLOME,
Plaintiffs and Appellants,
-vs-
FIRST NATIONAL BANK OF MILES CITY,
Defendant and Respondent.
APPEAL FROM: District Court of the Sixteenth Judicial District
In and for the County of Custer,
The Honorable Alfred B. Coate, Judge presiding.
COUNSEL OF RECORD:
For Appellant:
Michael P. Sand; Bozeman, Montana
For Respondent:
Thomas M. Monaghan, Lucas & Monaghan; Miles City, MT
I I
Submitted on Briefs: January 26, I989
Decided: July 18, 1989
Filed:
c-' !
9 -
Clerk
Mr. Justice John C. Sheehy delivered the Opinion of the
Court.
E. H. Blome and Shirley A. Blome appeal from a summary
judgment granted against them in the District Court,
Sixteenth Judicial District, Custer County, and in favor of
~ i r s tNational Bank in Miles City. We determine that the
record discloses no genuine issue of material fact so as
preclude summary judgment and so affirm the District Court.
The issues on appeal as stated in the Blornes' brief are
as follows:
1. Whether summary judgment is proper where the record
discloses genuine issues of material fact and that the moving
party is not entitled to judgment as a matter of law.
2. Whether the trier-of-fact could find that the Bank
acted arbitrarily, unreasonably or capriciously and in
violation of the Blomes' justifiable expectations that the
Bank would loan them money for the purchase of feeder cattle
and to pay on their Contract for Deed with Charles McRae and
Jack Ross in December of 1982.
3. Whether the trier-of-fact could find that the Bank
acted arbitrarily, unreasonably or capriciously and in
violation of the Blornes' justifiable expectations by failing
to give the Blomes reasonable notice that their credit was in
jeopardy prior to December 23, 1982.
4. Whether the court could find that the Bank breached
a contract with the Blomes when it refused to loan them money
for the purchase of feeder cattle and to pay on the
McRaeIRoss contract in December of 1982.
5. Whether the trier-of-fact could find, assuming an
absence of tortious.bad faith or breach of contract, that the
Blomes relied, to their detriment, on a justifiable belief
that the Bank had agreed to loan money for the purchase of
feeder cattle and to pay on the McRae/Ross contract in
December of 1982.
The Blomes, who had been successful farmers near Dillon,
Montana, for a number of years, in 1981 sold their farm for
$360,000. That summer the Blomes approached Charles McRae,
co-owner of a farming and feedlot operation near Hysham,
Montana, as interested buyers. Eventually the Blomes entered
into a contract for deed to purchase for $1,100,000 from
Charles McRae and Jack Ross, the ranching and feedlot
operation at Hysham. The Blomes agreed to make and did make
payments totalling $300,000 on the contract, and agreed to
make annual payments of $77,872 beginning in January of 1983
until the amortized debt was paid.
Charles McRae was a director of the First National Bank
in Miles City. He suggested to the Blomes that they deal
with the Bank for their financing. ~eginningon October 6,
1981, and ending on December 23, 1982, the Bank loaned the
Blomes money on 27 occasions, each time evidencing the loans
through promissory notes.
The memoranda appearing on the Bank records indicate the
progress of the loan and the Blomes' new ranching operation.
On March 17, 1982, the Bank learned that Ed Blome had made a
crop sharing agreement on 330 acres of land with a
neighboring owner. The Bank officers expressed some dismay
that the agreement was made without their knowledge.
Nonetheless, on July 21, 1982, their inspection report showed
an excellent crop of corn being raised, with excess silage
also on hand. On November 5, 1982, the Bank noted the
purchase by the Blomes of a 1970 ~eterbilttruck and a 1966
Wilson grain hopper at a total cost of $14,500. At this
point the Bank expressed to Shirley Blome the displeasure of
the officers that these purchases had been made without
consultation with the Bank.
The notation for December 23, 1982, showed that Ed Blome
had approached the officers with a proposal to purchase 1,200
head of calves to utilize his existing silage. Since the
finances would have to come from the Bank, the officers had
presented the proposal to the Bank's loan committee. The
loan committee had decided not to allow the loan request and
to decline renewal of loans for the entire upcoming year. So
it was that on November 23, 1982, the Blomes were advised
orally that the Bank would no longer be financing Blomes'
operations. At that time their outstanding debt to the Bank
amounted to $372,131.24.
Because of the Bank's withdrawal of support, the Blomes
were unable to meet the January, 1983, payment on their
contract for purchase with Charles McRae and Jack Ross. The
default resulted in a complete loss of the Blomes' investment
in the ranch operation.
The Bank did not commence foreclosure until after the
1983 harvest, apparently with the consent and cooperation of
the Blomes who aided the Bank in disposing of the various
items of property and crops so that the debt as of the time
of foreclosure had been reduced to $64,899.45 on November 29,
1983. There is a notation in the Bank records that the
cooperation of the Blomes helped Charles McRae, the Bank
director, who would otherwise have had to farm the unit and
who was in no position to do the farming.
The Blomes filed their complaint against the Bank in the
Yellowstone County District Court on October 15, 1986. A
change of venue to the ~istrict Court of the Sixteenth
Judicial District for Custer County was eventually granted.
On December 23, 1987, First Bank moved for summary judgment
which the District Court granted on May 12, 1988. his
appeal followed.
This case is similar to, and in many respects controlled
by our decision in Shiplet v. ~ i r s t security Bank of
,
Livingston (1988), - Mont. - 762 P.2d 242. There, with
respect to the appropriate standard of review we stated:
In order for summary judgment to issue, the moving
party must show there is no genuine issue as to
facts that are material in the light of the
substantive principles entitling that party to
judgment as a matter of law. If the moving party
meets this burden, the non-moving party then has
the burden of showing a genuine issue of material
fact. These standards also apply to this Court
when reviewing the grant or denial of summary
.
judgment. Frigon v. orriso on ~aierle,Inc (Mont .
1988), 760 P.2d 57, 45 St.Rep. 1344, and cases
cited therein.
762 P.2d at 244.
The issues presented for review by the Blomes which we
have quoted above, can be boiled down to these essential
questions:
(1) Was there ever an expressed or implied contract on
the part of the Bank to continue to loan the Blomes money for
their ranching operation, and to pay on their contract for
deed with Charles McRae and Jack Ross?
(2) Was there an implied covenant of good faith and
fair dealing between the Blomes and the Bank which the Bank
breached?
(3) Did the Bank give reasonable notice of intention
not to renew credit for the Blomes after December 23, 1982.
(Arbitrary and capricious issue)?
DID AN
- - EXPRESS - IMPLIED CONTRACT EXIST?
OR
This caption subsumes issues 4 and 5 first above noted
as presented by the Blomes for review.
Blomes contended there was an agreement by the Bank to
provide the Blomes financing for their operation - long as
as
they needed - with repayment to be made when they --
it were able
- with respect to the operation of the ranch and the
to
payments on the contract for deed.
Totally lacking before the District Court and here is
any evidence of facts upon which an express contract could be
based. The loans by the Bank were evidenced by promissory
notes signed by the Blomes; the memoranda in the Bank records
are simply journal reports of the progress of the ranching
operations and the prospects of payment for the loans; no
oral representations by any bank officers may be found which
would bind the Bank to perform as the Blomes contend. In
other words in this case there can be no express contract
upon which the Blomes can base a cause of action.
The same problem attends the contention of the Blomes
that there was an implied contract between them and the Bank.
Under 5 28-2-103, MCA, an implied contract is one the
existence and terms of which are manifested by conduct. The
evidence here is that from the time the Blomes entered into
financing arrangements with the Bank, until the arrangements
were terminated on December 23, 1982, their relationship was
one of an ordinary bank-customer . Each time the Blomes
needed financing, the Bank reviewed their progress,
determined their financing needs, and in accordance therewith
issued loans based on promissory notes on a short term basis.
Nothing in the evidence suggests anything more than a day-to-
day or month-to-month financing arrangement, based upon a
review of the financial condition of the borrowers at the
time the notes were executed and delivered. Particularly,
there is no indication in the Bank memoranda or any oral
evidence that the Bank did not expect the notes to be paid
when due nor any agreement outside the notes for loans to the
Blomes when they needed them, and without regard to the
necessity of repayment.
Moreover, the claimed existence of an implied contract
between the parties runs into legal questions which cannot be
answered here on the facts. First, an implied contract the
performance of which exceeded one year would run afoul of the
statute of frauds, 5 28-2-903, MCA. Secondly, the language
of the notes in each case is clear and explicit as to due
dates and payment. The claimed implied contract would have
the effect of varying the terms of written instruments. So
we said in Shiplet, supra:
As to any oral representations by the Bank that the
application was in fact a contract, the District
Court quoted language from our decision in ~ i r s t
National Montana Bank of Missoula v. McGuiness
(Mont. 1985), 705 P.2d 579, 42 St.Rep. 288:
[Elvidence of prior oral agreements is not
admissible for the purpose of altering
subsequent written agreements dealing with the
same subjects, and that the prior oral
agreements and the written agreement will
merge into the subsequent written agreement
unless they are distinct and can stand
independently of one another. 705 P.2d at
584.
Under the doctrine of merger as enunciated in
McGuiness, any oral representations made by the
Bank merged wlth the terms of the note, which then
represented the contract reached between these two
parties.
As a matter of law therefore, neither an express nor
implied contract, nor evidence tending to support the same,
was presented to the ~istrict Court so as to preclude summary
judgment. We find no error on these issues.
DID THE BANK BREACH AN IMPLIED COVENANT
OF GOOD FAITH AND FAIR DEALING?
Under the Uniform Commercial Code, every contract or
duty within the code imposes an obligation of good faith in
its performance or enforcement. Section 30-1-203, MCA.
"Good faith" is defined in the code as "honesty in fact in
the conduct or transaction concerned." Section 30-1-201(19),
MCA.
The duty of good faith may not be disclaimed by
agreement between the parties, though their agreement may
determine the standards by which good faith is to be measured
if the standards are not manifestly unreasonable. Section
30-1-102 (3), MCA.
We may assume then that there did exist between the
parties, mutually, and to each other, because the instruments
involved here were related to the uniform commercial Code, a
duty of good faith in their conduct or performance. This
leads us to the next issue raised by the Blomes.
DID THE BANK GIVE REASONABLE NOTICE OF ITS INTENTION NOT
TO RENEW ITS FINANCING TO THE BLOMES OR OTHERWISE ACT
ARBITRARILY OR CAPRICIOUSLY?
his caption subsumes issues 2 and 3 first noted above
by the Blomes as proper for review.
Essentially, the Blomes are claiming that the conduct of
the Bank gave rise to their justifiable expectations that the
Bank would continue to loan them money for the purchase of
feeder cattle, and to pay on their contract for deed. Blomes
further contend that they were entitled to reasonable notice
that their credit was in jeopardy prior to December 23, 1982.
In Nicholson v. United pacific Insurance Company (1985),
- Mont. ,
- 710 P.2d 1342, this Court took pains to "more
fully articulate our conception of what has been termed
loosely as 'bad faith,' but has termed more accurately as the
tort of breach of the implied covenant of good faith and fair
dealing." There this Court stated:
.
. . [wle agree with the statement in Quigley,
supra, [Quigley v. Pet, Inc. (1984) 162 Cal.App.3rd
223, 208 Cal.Reptr. 3941 that the tort resulting
from this breach depends on some impermissible
activity. The Montana cases discussed above focus
on the action of the breaching party in the
relationship to find a breach of the implied
covenant, not just the existence of a breach of
contract.
.. . But whether performing or breaching, each
party has a justifiable expectation that the other
party will act as a reasonable person (citing a
case). The nature and extent of an implied
covenant of good faith and fair dealing is measured
in a particular contract by the justifiable
expectations of the parties. Where one party acts
arbitrarily, capriciously or unreasonably, that
conduct exceeds the justifiable expectation of the
second party. The second party then should be
compensated for damages resulting from the other's
culpable conduct.
Nicholson, 710 P.2d at 1348.
Clearly, under Nicholson, a breach of implied covenant
of good faith and fair dealing requires the breaching party
to conduct itself in an impermissible activity, and in so
doing, to act arbitrarily or capriciously. In the case now
before us, evidence of such a breach of implied covenant is
totally lacking. Certainly the Bank here, analyzing the
financial situation of the Blomes, had a right to terminate
its financing as long as it did so reasonably and not
capriciously. The Bank, from the evidence here, did act
reasonably and not capriciously or arbitrarily. As to notice
of its intention not to renew the financing, there is no
common law or statutory duty to give notice. It further
appears here that the Bank gave notice to the Blomes when
they applied to the Bank for additional financing to purchase
a large herd of feeder cattle. The Bank officials decided
that they had gone as far as they could and it was time to
call a halt to their financing of the operation. That was a
business decision made by the Bank which it fully had a right
to make. Again, this point was covered in Shiplet, supra:
The Shiplets' fourth count alleged breach of the
implied covenant of good faith and fair dealing.
The ~istrict Court's ruling cited authority from
this Court requiring that a breach of contract must
be a result of some "impermissible activity" before
the breaching party can be held to have breached
the implied covenant of good faith and fair
dealing. (Citing cases. )
The Shiplets seek to distinguish this authority by
noting in Nicholson, we held a breach of contract
was not a prerequisite to'a breach of the covenant,
because the implied covenant of good faith is not
an oblisation arisins from the contract itself.
~ i c h o l s o ~7 1 0 P.2d at 1 3 4 8 .
, while this is true,
we also stated the obligation imposed by the
covenant is to act reasonably. Under this
standard, we have held the 'minimal requirement'
for breach of the covenant is action by the
defendant that is 'arbitrary, capricious or
unreasonable, and exceeded plaintiffs' justifiable
expectation [that the defendant act reasonably].'
Noonan, 7 4 0 P.2d at 6 3 5 .
In this case the Shiplets had a justifiable
expectation that the Bank would act reasonably by
lending money on the terms agreed upon in the
notes. As we found above, this was done. The
evidence induced by the Shiplets fails to show
arbitrary or unreasonable conduct by the Bank. The
District Court was correct in granting summary
judgment.
CONCLUSION
The first issue presented by the Blomes for review is
that summary judgment is not proper where the record
discloses genuine issues of material fact. There simply is
no evidence adduced by the Blomes here that would indicate
either an express or an implied contract, or a breach of the
implied covenant of good faith imposed on transactions under
the Uniform Commericial Code. The plight of the Blomes in
this case, who lost the entire proceeds of their former
farming operation in Dillon, is regrettable, but it cannot be
said in this case that the Bank is legally responsible for
any of the losses sustained by the Blomes. There is no
genuine issue of material fact presented in this case, and
the decision of the District Court to grant summary judgment
in favor of the Bank is herebv affirmed.
Mr. Justice L. C. Gulbrandson specially concurring.
I concur with the result of the foregoing opinion but not
with all that is expressed therein.
//
/& Justice I