No. 88-326
IN THE SUPREME COURT OF THE STATE OF MONTANA
MONTANA RANK OF CIRCLE, N.A., a corporation,
Plaintiff and Counterdefendant and Respondent,
VS.
RALPH MEYERS & SON, INC., a corporation, and
KEITH MEYERS,
Defendants, Counterplaintiffs and Third-Party
PI-aintiffs, and Appellants.
APPEAL FROM: The District Court of the Seventh Judicial District,
In and for the County of McCone,
The Honorab1.e Dale Cox, Judge presiding.
COIJNSEL OF RECORD :
For Appellant:
Zames A Patten; Patten Law Firm, Billings, Montana
For Respondent:
Kyle A Gray; Holland & Hart, Billings, Montana
James M. Ragain; Holland & Hart, Billings, Montana
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Submitted: February 3, 1989
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c1 LtJ Decided : February 23, 1989
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Mr. Chief Justice J. A. Turnage delivered the Opinion of the
Court.
This lawsuit is a debt collection and foreclosure
action against the principal Ralph Meyers and Sons (Corpora-
tion) and its surety and guarantor, Keith Meyers (Meyers)
individually, with additional counts by plaintiff Montana
Bank of Circle (Bank) alleging fraud, wrongful conversion and
controlling stockholder individual liability (piercing the
corporate veil). Defendants counterclaimed against the Bank
and filed a third-party suit against the bank holding compa-
ny, Montana Banksystem, Inc. (MBI), for breach of the implied
covenant of good faith and fair dealing.
The District Court, Seventh Judicial District, McCone
County, sitting without a jurv, granted summary judgment in
favor of the plaintiff Bank on Counts I (default), XI (fore-
closure of security interest), and VIX (individual liability)
of its complaint, establishing both defendants' liability on
the underlying note and dismissing all other claims. The
summary judgment dismissed the counterclaim and third-party
action as well.
The District Court based its summary judgment on the
surety and guaranty documents which were signed by Meyers and
which the court ruled were in effect at the time the corpora-
tion defaulted on its note. Defendants appeal.
The issue on appeal is whether there is any genuine
issue of material fact precluding summary judgment on Meyers'
contentions that he is not personally liable for the default
of his corporation and that the Rank acted in bad faith
toward him individually.
We affirm.
I. THE SURETY AND GTJARANTY AGREEMENTS
Corporation borrowed $293,000 from the Bank on Septem-
her 30, 1986, and signed a promissory note and security
agreement evidencing the debt. Prior to this occasion, the
course of dealing between the parties is outlined below:
7-25-83 Loan with $200,000 Guaranty
6-11-84 Loan with Securitv &
$500,000 Surety Agreements
10-30-84 $100,000 Surety Agreement
11-20-84 $150,000 Surety Agreement
6-06-85 $120,000 Loan with Surety Agreement
10-07-85 $300,000 Loan with Security Agreement
9-30-86 $293,000 Loan in Question
All of the above loans were repaid prior to the Septem-
ber 1986 loan in question.
The October 7, 1985, loan was repaid in September 1986
with proceeds from the loan in question. No surety or guar-
anty documents were executed contemporaneously with the
October 1985 loan or the September 1986 loan. Bank argues
that none were necessary because the surety documents that
had previously been executed between the parties all express-
ly stated that they were "open and continuing" in nature,
covering all indebtedness of the principal whenever or howev-
er incurred.
Meyers contends that each surety was attached to a
specific note and should be exonerated as a matter of law
when each note was repaid; since no surety agreement was
executed at the time of the September 1986 loan, he argues
that he is not personally liable for the corporate default.
Thus, the legal question becomes, what exonerates a surety
under this contract?
The specific language relied on by Rank is as follows:
SURETY AGREEMENTS
For a valuable consideration, Borrower
[the corporation] and surety [Keith
Meyers'Jiointly, severally, and-uncondi-
tionally are bound - paqr - - -
to to the Bank,
its successors or assigns, on demand, in
lawful money of the United States of
America, - -- - of
any and - indebtedness - the
all
Borrower - -
to Bank, as follows:
3. Nature of Surety's Undertaking. - The
liability - Surety -
of shall - open -
- be and
continuous - - long - -
for so as this --surety
-
agreement - - force.
is in Surety intends
to be responsible at all times for the
performance of all obligations of Bor--
rower to Rank within the limits of
Section 1. Thus, no payments made upon
Borrower's indebtedness will discharge
- diminish the liabilitv of Suretv for
or ' - - -
any and allremaining -and -
- succeeding
indebtedness of Borrower - -
to Rank. The
liability of Surety will be enforceable
against both the separate and community
property of Suretv whether now owned or
hereafter acquired.
5. Duration of Suretv Aareement. This
surety agreement wilf tLke effect when
received by Bank, without the necessity
of anv acce~tanke bv Bank. and will
in Lfull forGe until - -
contike - - such time
as Surety notifies - -in writing, a .
- Bank t
the branch or office of Rank to which
this surety agreement is delivered in
the first. instance, - Surety's election
of -
to terminate - -
- the same. [Emphasis
added.1
GUARANTY
. . . The undersigned hereby absolutely
and unconditionally guarantees prompt
-
payment when due and at all times there-
after of any and all existing and future
indebtedness and-liahi-lity
- of every
kind, nature and character (includinq
all renewals, extensions and modifica-
tions thereof) - - Borrower - -
from the to the
Bank, howsoever and whensoever created,
- arising, or evidenced, or acquired;
or
and the underxgned waives nFtice of the
acceptance of this Guaranty and of a!n7
and all such indebtedness and liability.
This Guaranty is made and shall continue
as to anv and all such indebtedness --
--L---
and
liability of the Borrower to the Bank
incurred - arising prior - receipt -
or to by
the Bank of written notice of the termi-
---
nation hereof from the undersisned . . .
[Emphasis added.]
Meyers relies on 5 28-11-413, MCA, which reads:
Effect of performance or offer - per-
of
formanceon surety's liability. Perfor-
mance of t h e principal obligation or an
offer of such performance, duly made as
provided in this code, exonerates a
surety.
Meyers argues that "performance of the principal obli-
gation" means payment of each note. Thus, he argues that
each surety obligation was exonerated as he repaid each
outstanding loan, contrary to the express lanquage in the
contract.
Bank argues that when the contract is silent as to
termination, the statute will apply to terminate the surety-
ship for the debts of the principal which have been repaid.
Howe~rer,the statute would not supply the date - method of
or
termination when the unambiguous written contract expresses
that termination may only be effected by written notice.
We affirm the lower court's finding that the sureties
were not exonerated by operation of law under S 28-11-413,
MCA .
Meyers raises exoneration as defined under 28-11-413,
MCA, as his third affirmative defense in his amended answer
and counterclaim dated February 18, 1988. However, the
contracts which he signed expressly waive his right to exon-
eration in that manner: Paragraph #3 ". .. Thus, - payments
no
made upon Borrower's indebtedness will discharge surety's
obligation . . ." (Emphasis added.)
We conclude that this is a valid waiver of rights.
Because it is not a constitutional right, nor a waiver in
violation of public policy, Meyers was entirely free to
contract away his right to the statutory exoneration of his
suretyship, which he did. See, Kelly v. Lovejoy (19771, 172
Mont. 516, 565 P.2d 321 (waiver may he proved by a course of
acts or conduct so as to induce the belief that the intention
and purpose was to waive); and Thiel v. Johnson (Mont. 1985),
711 P.2c? 129, 42 St.Rep. 2010 (waiver may be express or
implied).
A similar waiver under a guaranty contract occurred in
Riverside Nat. Bank v. Manolakis (Okla. 1980), 613 P.2d 438.
We find the analysis in Manolakis persuasive. In that case,
the guarantor argued that his obligations were satisfied by
operation of law because the creditor bank had failed to seek
a deficiency judgment against the principal within ninety
days as per Oklahoma statutory law. Such failure released
the principal. However, the court concluded that the quaran-
tor bras still liable, saying:
What defenses remain available to a
quarantor under [the statute1 . . . must
be determined by the terms of the guar-
anty contract, i.e. , by the breadth of
the guarantor's promise. In the case
before us, the guarantor, by the clear
provisions of his promise, expressly
waived all of the available [statutory]
defenses.
Manolakis, 613 P.2d at 439.
Meyers likewise waived his statutory defenses available
to him as a surety and no exoneration is effected in t h ..js
case under § 28-11-413, MCA.
However, this Court finds the central question here is
not merely one of exoneration, but more realistically, what
was the nature of the relationship between the parties.
Meyers, Corporation and Bank began a course of dealing, based
on a series of written contracts, to establish a Line of
credit for the benefit of Corporation. As is st-andard bank-
ing practice in Montana, Bank would not loan such large
amounts of money to a closely-held family corporation without
a personal guaranty or surety from the major individual
stockholder. The intent of the parties to aid corporation by
lending money but to protect Rank with personal guaranties is
entirely clear from the written documents which establish
thj s relationship.
Based on this relationship, we find no alternative but
to affirm the lower court's findings that the surety agree-
ments are in effect and Meyers is in fact personally liable
for the default of Corporation. We affirm that the sureties
dated Octoher 30, 1984 for $100,000; November 20, 1984 for
$150,000; and June 6, 1985 for $120,000 were in effect and
cumulatively cover the $293,000 default. However, the surety
dated June 11, 1984, for $500,000 fails as a matter of law
because Meyers d i d not sign it in his individual capacity on
the line designated for the surety. It was not duly
executed. Thus, that contract fails.
As noted above, Paragraph 3 of the agreement outlining
the nature of surety's undertaking states, "The liability of
--
surety shall be oPen and continuous for so long as this
agreement is in force . . .Thus, no payments upon Borrower's
indebtedness will discharge the liability of surety for any
and - remaining and succeeding indebtedness of Borrower to
-- all
Bank." This express language must be given effect. until
terminated. Paragraph # 5 states termination is only effected
when surety notifies Bank in writing. Additionally telling
is the fact that in triple size, bold face, capital letters
directly above Meyers' signature it reads, "EFFECTIVE UNTIL
TERMINATED IN THE MANNER SET FORTH ... ABOVE," negating
any possibility that the termination clause was merely adhe-
sive language. Meyers admits he gave no such written termi-
nation to Bank. To have Meyers be individually liable for
the line of credit established by Corporation and evidenced
by the guaranty and four sureties is the obvious and ex-
pressed intent of the parties.
Meyers sought to introduce parol evidence as to his
contrary intent to have each surety agreement be "note spe-
cific," i.e., for the suretyship to be released and start
anew as each debt was repaid. Although his counsel admitted
at. the hearing on sum mar:^ judgment that each document is
clear and unambiguous on its own, he argued that when taken
as a series of transactions, they create an ambiguity as to
Meyers' intent regarding the continuing nature of his liabil-
ity. Thus, he argues that ambiguity should either be re-
solved against the Bank as makers of the documents, or by
allowing him to introduce parol evidence.
The lower court found no ambiguity in the documents,
the same was ad-mitted by both counsel., and refused all parol.
evidence of contrary intent. We agree. The rule has long
been that where no ambiguity exists in the written documents,
no par01 evidence may be taken, Nordlund v. School District
(Mont. 1987), 738 P.2d 1299, 44 St.Rep. 1183, and the duty of
the court is simply to apply the language as written.
The lower court also enforced the express language of
the guaranty which held Meyers individually liable to the
extent of $200,000. We agree. The operative language is
substantially the same as the sureties discussed above.
A guarantor differs from a surety in that a surety
holds primary liability equal with that of the original
borrower. However, a guarantor does not become liable until
an intervening act occurs, such as a default of the original
borrower. Compare § § 28-11-401 and 28-11-101, MCA; see also,
Stensvad v. Miners & Merchants Bank of Roundup (1979), 183
Mont. 160, 598 P.2d 1083.
In the instant case, Bank exhausted its remedies
against Corporation and the collateral. Thus, it was ripe to
proceed against Meyers as both a surety and a guarantor.
We note here that had the above-mentioned surety docu-
ments failed legally as per Meyers' argument that they were
exonerated, their language still would have effected a guar-
anty against Meyers individually under the facts of this
case. Because Montana has no comparable exoneration statute
for guaranties as it does for sureties, and because Bank had
already sought recovery against the Corporation, and the
collateral after a default, at the very least Meyers would be
a guarantor under all of the duly-executed documents. In its
broadest sense, every suretyship includes a guaranty. Sure-
tyship, Simpson (1977) . Thus, the operative language in
these surety agreements also effectuated a guaranty. The
District Court is affirmed on that issue.
11. BAD FAITH
The District Court summarily dismissed defendants' bad
faith claims against both the Rank and MBI. We affirm.
Defendants' contentions fail both as a matter of factu-
al proof and as a matter of law. Meyers named certain live-
stock and equipment as collateral for his loans in the
security agreements he executed. However, immediately after
procuring the loan in question, Meyers sold the collateral to
pay off a debt to Saul Stone, a new York stockbroker, for
losses he incurred in the futures market. Additionally,
Meyers applied the proceeds from the corporate loan to the
same debt. It is undisputed that Meyers took these actions
without advising the Bank of his intent to do so and, in
fact, did not advise the Bank of his actions until the Corpo-
ration was about to default.
In his deposition, Mevers testified that the facts
amounting to the Bank's had faith (and MBL as being "inextri-
cably intertwined" to the Bank) were (1) failing to renegoti-
ate the defaulted note with the Corporation, (2) publishing
slanderous statements about Meyers in the District Court
complaint, and (3) spreading rumors about Meyers' financial
inability in order to "shut him down" in his
ranching/business community.
This Court has never held that a Montana bank is under
a duty to renegotiate a defaulted loan and Meyers is unable
to point to case law anywhere which so holds. That argument
is without merit. Because there is no evidence that a duty
exists, Rank is entitled to summary judgment. First Trust
Co. of Montana v. McKenna (1980), 188 Mont. 534, 614 P.2d
1027. See also, Central Bank of Montana v. Eystad (Mont.
1385), 710 P.2d 710, 42 St.Rep. 1850 (the bank has no duty to
renew or extend the note indefinitely); S 20-1-211, MCA (bank
need only act in a commercially reasonable manner) ; First
Nat'l Montana Bank of Missoula v. McGuiness (Mont. 1985), 705
P.2d 579, 42 St.Rep. 1288 (the exercise of good business
sense does not constitute bad faith).
Likewise, Meyers' second argument pertaining to the
"bad faith filing of fictitious and slanderous claims" print-
ed by Bank in its complaint is also without merit. It has
long been held that statements made in a iudicial proceedinq
are absolutely immune and a cause of action for defamation
cannot be predicated thereon. Section 27-1-804 (2), MCA; see
Bollinger v. ~Tarrett (1965), 146 Mont. 355, 406 P.2d 834
("[Tlhere is no libel because any publication made in a
judicial proceeding is privileged" ) . Rank and MRI were
entitled to summary judgment on that issue.
Lastly, is the question of certain rumors which Meyers
alleges that Bank instigated against him in order to put him
out of business. This allegation fails both factually and
legally. Because of the long and involved facts, we choose
to discuss the legal aspects of this issue instead.
The relationship between the parties was defined by
their underlying commercial contracts. Based on those under-
lying contracts, two crucial facts come to light: (1) Bank
did not breach the contracts; (2) Mevers breached the
contracts.
It can be said fairly that the underlying contracts
subsumed the entirety of the relationship between Rank and
Meyers. They had no course of dealing or external relation-
ship, absent their commercial contract. Thus, Montana lab7
requires an initial finding that Bank breached that contract
to have liability for bad faith conduct attach.
Since the Rank had not breached the underlying contract
(promissory note and security agreement), it cannot be said
that Rank acted unreasonably and in bad faith. Nordlund v.
School Dist. No. 14 (Mont. 1987), 738 P . 2 d 1299, 44 St.Rep.
1183, and Maxwell v. Sisters of Charity of Providence (D.
Mont. 1986), 645 F.Supp. 937.
Additionally, "it. is a well-settled rule of contract
law that a party who commits the initial breach cannot com-
plain of a subsequent breach." Malloy v. Judge's Foster Home
(Mont. 1987), 746 P.2d 1073, 44 St.Rep. 1996. Meyers commit-
ted the initial breach when he secretly sold the Bank's
collateral and is barred from subsequently claiming the Bank
treated him unfairly and in bad faith on their contract.
Based on the conduct of the parties with regard to the
underlying contracts, no liability can attach for bad faith.
Summary judgment in favor of the Bank was proper.
Meyers' attempt to hold MBI, the bank holding company,
liable for bad faith is baseless. He admitted at hearing
that he and his corporation had no independent relationship
with MBI into which the covenant could be implied. But, he
argued that the Bank owed. him a duty of good faith as its
customer and that MBI was likewise bound by this duty because
it is "inextricably intertwined" with the Bank.
Meyers was unable to put forth any Montana law to
support his contention that an affiliation between two par-
ties may transfer one party's duty of good faith onto another
party. Likewise, Meyers brought forth no evidence by way of
affidavit or deposition testimony, or otherwise, to prove a
relationship between MBI, the Bank and himself.
MBI argues that summary judgment for them was proper on
this count because of Meyers' failure of proof. The summary
iudqment hearing was the time for Meyers to put forth the
evidence of these relationships, if any existed. We agree.
Meyers and his corporation had a bank-customer rela-
tjonship with Bank. However, no evidence was presented which
suggested this was a special. or fiduciary relationship onto
which the covenant is applied under Tribby v. Northwestern
Bank of Great Falls (Mont. 1985), ?04 P.2d 409, 42 St.Rep.
1133.
There was no evidence that Bank encouraged the loans,
advised Meyers or acted as his confidant. To the contrary,
Meyers admitted he deliberately did not tell the Bank of his
corporate conduct until it was over. MBI cannot be held
liable for had faith under these facts. Summary judgment was
proper.
The appellate standard of review of a summary judgment
is the same as that used hy the trial court. In order for
summary judgment to issue, the movant must show that there is
no genuine issue as to all material facts. Rindrim v. Uni-
versity of Montana (Mont. 1988), P.2d , 45 St.Rep.
2316. Based on the foregoing credible evidence, Rank and MFT
have met their burden. We conclude that no genuine issues of
material fact exist.
Judqment af fi-rmed.
We concur:
V
Justices