No. 90-016
IN THE SUPREME COURT OF THE STATE OF MONTANA
AARON and STELLA LACHENMAIER,
husband and wife,
Plaintiffs and Appellants,
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FIRST BANK SYSTEMS, INC,; FBS CREDIT
SERVICES, member First Bank System,
and FIRST STATE BANK OF FORSYTH,
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Defendants and Respondents.
APPEAL FROM: District Court of the Sixteenth Judicial District,
In and for the County of Rosebud,
The Honorable Joe L. Hegel, Judge presiding.
COUNSEL OF RECORD:
For Appellant:
A. Cliff Edwards and David R. Paoli, Billings,
Montana
For Respondent:
Stephen D. Bell; Dorsey & Whitney; Billings, Montana
David A. Ranheim, Minneapolis, Minnesota
Submitted on Briefs: August 7, 1990
Decided: December 12, 1990
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Filed:
Justice R. C. McDonough delivered the Opinion of the Court.
The appellants Aaron and Stella Lachenmaier initiated this
suit against the defendants alleging commercial bad faith and other
breaches of contract and tort obligations. The Lachenmaiers appeal
the order of the Sixteenth Judicial District Court, Rosebud County,
granting the defendants1, First Bank Systems, Inc., FBS Credit
Services, Inc., and First State Bank of Forsyth, joint motion for
summary judgment on the plaintiffs I claims of breach of the implied
covenant of good faith and fair dealing, breach of fiduciary duty
and tortious interference with contract. The District Court also
granted the defendants1 motion for summary judgment on their
counterclaim to foreclose on the Lachenmaierls mortgage and
promissory notes. We affirm.
The Lachenmaierlsraise five issues on appeal:
1) Did the District Court err in ruling the defendants did
not breach the implied covenant of good faith and fair dealing?
2) Did the District Court err in ruling the defendants owed
no fiduciary duty to the plaintiffs?
3) Did the District Court err in ruling as a matter of law
that there was no tortious or intentional interference of contract
by CSI and First Bank System in regard to the contract between
First State Bank of Forsyth and the Lachenmaiers?
4) Did the District Court err in granting summary judgment
on the plaintiffs1 claims of intentional infliction of emotional
distress?
5) Did the District Court err in granting defendants1 motion
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for summary judgment on the counter-claim to foreclose mortgages
and promissory notes?
The Lachenmaiers owned and operated a farming and ranching
business operation near Hathaway in Rosebud County, Montana for
approximately twenty years. During this period the Lachenmaiers
did their banking exclusively with defendant First State Bank of
Forsyth (Bank). The Bank was owned by defendant First Bank
Systems, Inc. (FBS) as a wholly-owned subsidiary, until 1986 when
it was sold to local investors.
From 1964 to 1971 the Lachenmaiers were consistently
satisfactory sugar beet and grain producers. In 1971 the
Lachenmaiers lost their sugar beet contract when the Hardin sugar
beet factory closed. The Lachenmaiers then focused on raising
crops for sale and ran a small cow-calf operation from 1972 through
1978. Also, in the early 1970's the Lachenmaiers bought some
additional 800 plus acres of land, borrowing $40,000 from the Bank.
In 1978, allegedly upon the recommendation of the Bank
president at the time, Mr. Thiesen, the Lachenmaiers switched to
a feeder cattle operation to make better use of the feed raised on
the farm. The Bank basically provided operating funds to the
Lachenmaiers on an annual basis. The cattle operation sustained
substantial operating losses nearly every year until 1986 when this
action was commenced. The losses were a combined result of
drought, grasshoppers, poor commodity prices, failure of the cattle
to achieve projected weight gains, and increased operating and
equipment expenses.
In 1985, as a condition of further financing, the Bank
required the Lachenmaiers to apply for a Farmers1 Home
Administration (FmHA) guarantee. The FmHA agreed to guarantee to
the Bank 90% of the Lachenmaierls already accrued operating
expenses on the $275,000.00 face amount of the loan. The guarantee
provided for a twenty year amortization rate with a balloon payment
in seven years, with the Bank to provide annual operating funds in
accordance with attached budgets.
In the 1985-86 cattle year, as a result of low weight gains
and the federal dairy cow buy-out, the Lachenmaiers sustained a
$79,000 operating loss and failed to pay their operating loan, due
on April 25, 1986. Shortly thereafter, in May, the Bank advised
the Lachenmaiers that their loans were being transferred to the
other defendant, FBS Credit Services, Inc. (CSI) . CSI is also a
wholly-owned subsidiary of FBS. The Lachenmaiersl loans were
assigned to CSI as I1problem loansw in conjunction with FBS1s
divestiture of the Bank in Forsyth. After reviewing a proposed
budget provided by the Lachenmaiers--which did not show a positive
cash flow--CSI advised the Lachenmaiers that they would only extend
additional credit in the amount of $69,000 for a period of six
months and any further extension of credit would depend upon the
ability of the Lachenmaiers to provide a realistic budget which
would provide for a pay-down of the debt.
After negotiations between the Lachenmaiers and CSI through
the summer and fall of 1986, the Lachenmaiers referred all further
contact and correspondence to their attorney. They filed suit in
November, 1986, alleging various breaches of duties sounding in
both tort and contract. Following extensive discovery, the
District Court entertained defendants1 motions for summary
judgment, defendants1 motions in limine and plaintiffs1 motion in
limine. The trial court issued a memorandum and order granting the
defendants1 joint motion for summary judgment, dismissing the
plaintiffs1 complaint with prejudice, and granting the Bank's
motion for summary judgment on its counterclaim for foreclosure.
From this order the Lachenmaiers now appeal.
STANDARD OF REVIEW
In order for summary judgment to issue, the movant must
demonstrate that there is no genuine issue as to all facts deemed
material in light of the substantive principles entitling the
movant to judgment as a matter of law. Rule 56(c), M.R.Civ.P;
Cecil v. Cardinal Drilling Co. (Mont. 1990), 797 P.2d 232, 234, 47
St.Rep. 1673, 1676. Cereck v. Albertsonls,Inc. (1981), 195 Mont.
409, 411, 637 P.2d 509, 511. If the movant meets this burden, it
then shifts to the non-moving party to demonstrate a genuine issue
of material fact. Cecil, 797 P.2d at 235, Thelen v. City of
Billings (1989), 238 Mont. 82, 85, 776 P.2d 520, 522; Gamble
Robinson Co. v. Carousel Properties (1984), 212 Mont. 305, 312, 688
P.2d 283, 287. As our forthcoming discussion will indicate, the
Lachenmaiers fail to meet this shifted burden.
BREACH OF THE IMPLIED COVENANT OF
GOOD FAITH AND FAIR DEALING
In its memorandum opinion accompanying the order granting
summary judgment, the District Court relied heavily on the case of
Montana Bank of Circle, N.A. v. Ralph Meyers and Son, Inc. (1989),
236 Mont. 236, 245, 769 P.2d 1208, 1214, for the proposition that
breach of the implied covenant of good faith and fair dealing can
only occur in a commercial setting after a breach of an express
term of the underlying contract. In an effort to provide more
workable guidelines this Court recently reassessed the implied
covenant of good faith and fair dealing. In Story v. City of
Bozeman (Mont. 1990), 791 P.2d 767, 775, 47 St.Rep. 850, 859, we
held that
[Elvery contract, regardless of type, contains an implied
covenant of good faith and fair dealing. A breach of the
covenant is a breach of the contract. Thus, breach of
an express contractual term is not a prerequisite to
breach of the implied covenant.
We also held that for every contract not covered by a more
specific provision, the standard of conduct required of contracting
parties is Ifhonesty in fact and the observance of reasonable
commercial standards of fair dealing in the trade. Section 28-
1-211, MCA; Story, 791 P.2d at 775. We then equated this standard
to the one applicable to merchants under the uniform commercial
code:
Each party to a contract has a justified expectation that
the other will act in a reasonable manner in its
performance or efficient breach. When one party uses
discretion conferred by the contract to act dishonestly
or to act outside of accepted commercial practices to
deprive the other party of the benefit of the contract,
the contract is breached.
Story, 791 P.2d at 775.
Here, no evidence was presented that the Bank breached the
I1honesty in factttstandard. Plaintiff claims that the evidence
indicates that the Bank in Forsyth continued to loan and encourage
them to borrow more money simultaneous with the regional office's
and CSI1s plans to liquidate their assets and foreclose on the
debt. At most, these allegations might indicate FBS1s corporate
right hand acting one way and its left hand--without knowing what
the right hand was doing--acting in another. It is not, however,
proof that the defendants, in particular the Bank, utilized
discretion conferred by the loan agreements to act dishonestly or
outside of accepted commercial practices to deprive the
Lachenmaiers of the benefit of the agreement. The Bank did not
stand to gain anything from its actions, it was simply exercising
sound business judgment as a creditor in acting to foreclose a
wproblemllloan. See e.s. Tresch v. Norwest Bank of Lewistown
(1989), 238 Mont. 511, 778 P.2d 874; Coles Department Store v.
First Bank Billings N.A. (1989), 240 Mont. 226, 783 P.2d 932,
Randolph v. Peterson Inc. (1989), 239 Mont. 1, 778 P.2d 879; Blome
v. First National Bank of Miles City (1989), 238 Mont. 181, 776
P.2d 525; Central Bank of Montana v. Eystad (1985), 219 Mont. 69,
710 P.2d 710; First National Montana Bank of Missoula v. McGuiness
(1985), 217 Mont. 409, 705 P.2d 579.
Furthermore, the parole evidence rule and the statute of
frauds, 5 28-2-903, MCA, preclude the Lachenmaiers from alleging
a course of dealing here amounting to an oral agreement for
continued financing. Under the doctrine of merger as enunciated
in McGuiness any such oral representations merged with the terms
of the note, which then became the final agreement between the
parties. Blome, 776 P.2d at 528, Shiplet v. First Security Bank
of Livingston, Inc. (1988), 234 Mont. 166, 171, 762 P.2d 242, 245.
Thus, the Bank is not precluded by any alleged prior oral
representations in exercising its good business judgment in
foreclosing on the notes in this case. Also, the Lachenmaierfs
reliance on Weinberg v. Farmer's State Bank of Worden (1988), 231
Mont. 10, 752 P.2d 719, as controlling on the issue of breach of
the implied covenant is misplaced. While the factual background
of Weinberq is similar, plaintiffsf attempt to construe the FmHA
agreement here as analogous to the one in Weinberq fails. In
Weinberq, the guarantee between the Lender and the FmHA was
incorporated on the face of the promissory note between the lender
and the borrower. See Shiplet, 762 P.2d at 244-245. Furthermore,
the bank in Weinberq was found in breach of that agreement when it
attempted to vary the interest rates set forth in the original
note. Here, there was no incorporation of the FmHA agreement into
the notes between the borrower and the lender, thus the borrowers
were not a party to the FmHA guarantee and cannot attempt to
enforce an alleged promise by the Bank based on the guarantee.
Shiplet, 762 P.2d at 245, 246.
Finally, the Lachenmaiers argue that the facts here fit under
the Ifspecial relationshipfftort criteria set forth in Storv. In
Story we noted that tort damages were only available in breach of
implied covenant cases involving "special relationships which are
not otherwise controlled by specific statutory provisions." Storv,
791 P.2d at 776. Regardless, for a plaintiff to maintain a cause
of action for breach of the implied covenant, whether it is based
in contract or based on the nlspecialrelationshipI1 criteria giving
rise to a tort, the plaintiff must first show a breach of the
honesty in fact standard. Kinniburgh v. Garrity (Mont. 1990), 798
P.2d 102, 105, 47 St.Rep. 1655, 1658; Story, 791 P.2d at 775.
Even if the Lachenmaiers could demonstrate breach of the honesty
in fact standard, they failed to set forth evidence of each and
every element of the special relationship criteria, particularly
the element requiring that the relationship between the parties
must be based on a non-profit motivation. See Story, 791 P.2d at
776.
FIDUCIARY DUTY
The Lachenmaiers contend that their fiduciary relationship
with the Bank is evidenced by the fact that Lachenmaiers banked
with First Bank Forsyth exclusively for over twenty-two years.
During this relationship the Lachenmaiers claim that they sought
and received the advice and counsel of First Bank Forsyth. The
Lachenmaiers also contend that the Bank instructed them to buy more
cattle and switch to a feeder operation, and that under Weinberq
these alleged facts are sufficient to indicate the existence of a
fiduciary relationship.
It is the law in Montana that I1[t]he relationship between a
bank and its customer is generally described as that of debtor and
creditor . . . and as such does not give rise to fiduciary
resp~nsibilities.~~
Deist v. Wacholz (1984), 208 Mont. 207, 216,
678 P.2d 188, 193 [citations omitted]. Shiplet 762 P.2d at 248;
Simmonds v. Jenkins (1988), 230 Mont. 429, 433, 750 P.2d 1067,
1070. A limited exception to this general rule has been recognized
upon proof of "special circumstances, as, for example, where a
bank is Ivthrustbeyond the role of a simple creditor into the role
of an advisor." Diest, 678 P.2d at 193; Simmons, 750 P.2d at 1070;
Pulse v. North American Land Title Co. of Montana (1985), 218
Mont. 275, 283, 707 P.2d 1105, 1110. This Court has recognized
that no fiduciary duty arises between a bank and its borrower where
the bank did not offer financial advice, its advice was not always
heeded, or where the borrower was advised by others, such as legal
counsel. Simmons, 750 P.2d at 1070; Shiplet, 762 P.2d at 248.
The District Court concluded there was no special relationship
beyond the normal debtor-creditor relationship between a bank and
its customer. While noting that the Bank and the Lachenmaiers
enjoyed a long and exclusive commercial relationship, the District
Court pointed out that neither was tied to the other and the
Lachenmaiers were free to transfer their loans to another financial
lending institution at any time.
A review of the Lachenmaiervs evidence in the light most
favorable to them may indicate the existence of disputed facts
regarding whether the Bank did in fact act as a financial advisor
during the course of its long relationship with the Lachenmaiers.
However, even assuming the defendant Bank owed a fiduciary duty,
the bank was under no obligation to loan the Lachenmaiers money
under the FmHA guarantee, and there was no breach of fiduciary duty
when the Bank acted for solid business reasons. See Tresch v.
Norwest Bank of Lewistown supra, 778 P.2d at 876. Thus, any
factual issues concerning the existence of a fiduciary relationship
here are immaterial for purposes of summary judgment.
INTERFERENCE WITH CONTRACT
The Lachenmaiers contend that both CSI and FBS tortiously
interfered with the contracts entered into between the Lachenmaiers
and their Bank. The District Court found that "the parties
defendant are in a parent-subsidiary relationship and the parent
FBS has a right to participate in the affairs of its subsidiary and
to make investment and loan decisions that are in the best
interests of its shareholders, so long as, in doing so, it does not
breach its contractual obligations with its borrowers."
We agree. In order to make out a claim for tortious
interference with the contractual relationship the complaint must
allege: (1) that a contract was entered into, (2) that its
performance was refused, (3) that such refusal was induced by
unlawful and malicious acts of the defendant, and (4) that damages
have resulted to the plaintiff. Phillips v. Montana Education
Association (1980), 187 Mont. 419, 423, 610 P.2d 154, 157. Here,
CSI was acting as a contractual servicing agent of the Bank. An
agent is privileged, when acting on behalf of its principal, to
interfere with a contract between its principal and a third party.
Cotton v. Otis Elevator (S.D. W.Va. 1986), 627 F.Supp. 519, aff'd
841 F.2d 1122 (4th Cir. 1988). An agent's acts, if motivated and
taken in furtherance of the purposes and interests of its
principal, will not give rise to a cause of action for tortious
interference of a contract between its principal and a third party.
Phillips, 610 P.2d at 158. The contractual interference claim
against CSI fails.
The Lachenmaiersl claim against FBS for interference with
contract must also fail. At all times relevant to this case First
Bank Forsyth and CSI were wholly owned subsidiaries of FBS. A
parent corporation is privileged to I1interferev1
in a contract
between its subsidiary and a third party to protect its own
legitimate economic interest and such interference will not give
rise to tort liability. Bendix Corp. v. Adams (Alaska 1980), 610
P.2d 24, 31-32.
EMOTIONAL DISTRESS
In denying the Lachenmaiersl claim for intentional infliction
of emotional distress the District Court noted that the
Lachenmaiers failed to produce evidence of outrageous, extreme,
unlawful or unreasonable acts by the defendants. We agree.
"Liability has been found only where the conduct has been so
outrageous in character, and so extreme in degree, as to go beyond
all possible bounds of decency, and to be regarded as atrocious
and utterly intolerable in a civilized comm~nity.~~
Restatement 2d
of Torts 1 46, comment d; Frigon v. Morrison-Maierle, Inc. (1988),
233 Mont. 113, 123-124, 760 P.2d 57, 63-64. Furthermore, the Bank
in this case cannot be said to have acted "beyond all possible
bounds of decency1*where it merely exercised a legal right to
foreclose on the mortgage and notes. I1The actor is never liable
. . . when he has done no more than to insist upon his legal rights
in a permissible way, even though he is well aware that such
insistence is certain to cause emotional distress.'I Restatement
2d of Torts, 46, comment g. See also, e.q. Led1 v. Quick Pick
Food Stores, Inc. (Mich. App. 1984), 349 N.W.2d 529, 533; Batchelor
v. Sears, Roebuck & Co. (E.D. Mich. 1983), 574 F. Supp. 1480, 1489.
The District Court correctly held there was no outrageous conduct.
DEFENDANTS' COUNTERCLAIM
The defendants filed a counterclaim seeking to collect from
the Lachenmaiers all amounts presently due and owing the Bank.
Finding the Lachenmaiers had defaulted, the District Court granted
the defendants1 motion for summary judgment on the counterclaim.
We agree with the District Courtlsholding. The Lachenmaiers
signed the credit agreement with the Bank dated November 15, 1985
and a promissory note dated November 4, 1985. Under the terms of
the November 4 note, the Lachenmaiers were obligated to make seven
annual payments of $35,990.69 payable on November 4 of each year.
On November 15, 1985, the Lachenmaiers executed a "Note for Funds
to be Advanced in the Future.I1 The line of credit note was
expressly made due and payable in full on April 25, 1986.
The Lachenmaiers defaulted on the line of credit note by
failing to make payment of $77,064.40 on April 25, 1986. The
Lachenmaiers admit their default. The Lachenmaiers also defaulted
on the November 4 note by failing to make payments due and owing
on November 4, 1986, November 4, 1987 and November 4, 1988. The
Lachenmaiers admit the default.
Because the Lachenmaiers defaulted on these written agreements
with the Bank the amounts due have been accelerated. The District
Court correctly granted summary judgment to the defendants on the
counterclaim.
We affirm.
@f%aA Justice
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~ofiorable H&SY Loble, District
Judge