Western Industries, Inc. v. Chicago Mining Corp.

NO. 96-157
IN THE SUPREME COURT OF THE STATE OF MONTANA
1996

WESTERN INDUSTRIES, INC.,

CHICAGO MINING CORP., a corporation, and l'dl!!~ l~L/ / ,
1 1 l$c3
a, c~
T

BYRON H. WEIS, ROBERT L. GREINER, and
ROBERT THOMLINSON, individually, jointly
and severally,
Defendants and Appellants

APPEAL FROM: District Court of the Fifth Judicial District,
In and for the County of Madison,
The Honorable Frank M. Davis, Judge presiding.

COUNSEL OF RECORD:
For Appellants:
Edmund F. Sheehy, Jr., Cannon & Sheehy,
Helena, Montana
For Respondent:
Patrick D. Vellone and Curtis L. Clay,
Vinton Nissler Allen & Vellone, P.C.,
Denver, Colorado
George W. Huss, Brown & Huss, P.C.,
Miles City, Montana

Submitted on Briefs: August 22, 1996
Decided: November 7, 1996
Filed:
Justice Terry N. Trieweiler delivered the opinion of the Court.
The respondent, Western Industries, Inc. ("Western"),filed an
action against the appellants, Byron H. Weis, Robert L. Greiner,
and Robert Thomlinson (collectively, "Guarantors"),in the District
Court for the Fifth Judicial District in Madison County. The
District Court: (1) granted summary judgment in favor of Western;
(2) entered a judgment for Western in the principal amount of

$232,730.04; and (3) awarded Western pre- and post-judgment
interest from February 1, 1991. The Guarantors appeal the order of
the District Court. We affirm and modify the judgment of the
District Court, and remand the case for entry of judgment in the
principal amount of $196,849.72, plus pre- and post-judgment
interest from February 1, 1991.
The issues on appeal are:
1. Did the District Court err when it granted summary
judgment in favor of Western?
2. Did the District Court err when it entered judgment for
Western in the principal amount of $232,730.04?
3. Did the District Court err when it awarded Western
pre-judgment interest from February 1, 1991?
FACTUAL BACKGROUND

Based on a contract executed in 1990, Western supplied
materials and labor for Chicago Mining Corporation's ("CMC")
tailings pond in Pony, Montana. CMC, however, failed to make
payments when due, and in November 1990, Western filed a
construction lien against CMC's property in Madison County to
enforce collection of the amount of $232,730.04.
Subsequently, in January 1991, the Guarantors individually
executed personal guaranties, which included the following
language :
[Western] is hereby authorized to collect [$232,730.041
individually from me, jointly, with any other guarantor
of such debt, with the necessity of first proceeding
against [CMC] .
In return, Western promised that it would not institute foreclosure
proceedings to enforce its construction lien until February 1,
1991.
In October 1991, Western filed an action in the District Court
against CMC and the Guarantors.' Specifically, Western sought the
following: (1) the foreclosure of its construction lien;
(2) recovery of damages for breach of contract by CMC;
( 3 ) recovery of damages for unjust enrichment by CMC; and
(4) recovery from the Guarantors based on their personal
guaranties.
In August 1994, Western and CMC stipulated to an entry of
judgment against CMC. Pursuant to that stipulation, the District
Court entered a final judgment against CMC in the principal amount
of $196,849.72. Western arranged for a sheriff's sale in aid of

lpursuant to the parties' original contract, CMC owed Western
$232,730.04. Western's complaint against CMC and the Guarantors,
however, sought only $203,999.50. The reduced amount reflects the
fact that Western had been paid some of the money owed to it prior
to the time it filed its complaint in the District Court.
execution to enforce its judgment. However, in April 1995, CMC
filed a petition for relief, pursuant to Chapter 11 of the
Bankruptcy Code, in the U.S. Bankruptcy Court for the Northern
District of Illinois.
In June 1995, Western filed a motion for summary judgment
against the Guarantors. The District Court denied Western's motion
and scheduled its claims for trial during March 1996. Prior to
trial, however, the U.S. Bankruptcy Court rejected CMC's Chapter 11
plan, and converted its petition to a Chapter 7 proceeding. On
that basis, Western filed a renewed motion for summary judgment,
which the District Court granted in February 1996. The District
Court entered judgment for Western in the principal amount of
$232,730.04, plus pre-judgment interest from February 1, 1991, to
February 22, 1996.
ISSUE 1
Did the District Court err when it granted summary judgment in
favor of Western?
Summary judgment is governed by Rule 56 (c), M.R.Civ.P., which
provides, in relevant part:
The judgment sought shall be rendered forthwith if the
pleadings, depositions, answers to interrogatories, and
admissions on file, together with the affidavits, if any,
show that there is no genuine issue as to any material
fact and that the moving party is entitled to a judgment
as a matter of law . . . .
The purpose of summary judgment is to encourage judicial
economy through the elimination of any unnecessary trial. However,
summary judgment is not a substitute for trial if a genuine factual
controversy exists. Reavesv.Reinbold (l98O), 189 Mont. 284, 2 8 8 , 615

It is well established that the moving party must prove that

it is entitled to judgment as a matter of law. To do this, it is

required to show a complete absence of any genuine factual issues.

D.4guslinuv.Swunson (1990), 240 Mont. 435, 442, 784 P.2d 919, 924. To

defeat the motion, the nonmoving party must set forth facts which

demonstrate that a genuine factual issue exists. O'Bagl~ First Interstate
v.

Bank of' Missoula (1990), 241 Mont. 44, 46, 785 P.2d 190, 191.

Additionally, if there is any doubt with regard to the propriety of

summary judgment, it should be denied. ,
Whitehawk v. Clark (1989) 238

Mont. 14, 18, 776 P.2d 484, 486-87.

In their brief, the Guarantors concede that there are no

genuine issues of material fact; however, they claim that, based on
the law of guaranties in Montana, Western is not entitled to

judgment as a matter of law. Specifically, they assert the

following argument:

[Als provided by the express terms of the guarantee
[sicl, which says that the guarantee [sic] is governed by
Montana law, Western must first proceed against CMC and,
only upon the default of CMC, can it collect on the
guarantees [sic]. The bankruptcy proceeding . . . does
not constitute a "default" of CMC . . . . A default . . .
only occurs if the collateral upon which the debt is
secured, the land upon which [the construction] lien is
sought to be foreclosed, fails to satisfy the amount of
the debt.
In Sherwood & Roberts, Inc. v. First Security Bank of Missozda ( 1984) , 209 Mont .

402, 408, 682 P.2d 149, 152, we recognized that whether a guaranty
is absolute or conditional depends upon the terms of the guaranty,
and that those terms also determine the specific condition
precedent to the liability of the guarantor. In this case, the
guaranties contained the following provision:
[Western] is hereby authorized to collect [$232,730.041
individually from me, jointly, with any other guarantor
of such debt, with the necessitv of first proceedinq
aqainst [CMC].
(Emphasis added.l
The express terms of the guaranties require Western to first
proceed aqainst CMC, and it is undisputed that this language
establishes a condition precedent to the Guarantors' liability.
Although the guaranties do not specify what steps Western must take
to satisfy the condition precedent, we conclude that, contrary to
the Guarantors' assertions, they do not require Western to proceed
against CMC1s collateral, nor do they require a "default" by CMC.
Rather, we conclude that the guaranties require Western to first
diligently pursue a recovery against CMC. We base our conclusion
on the following well-established principles of guaranty law:

The extent to which the creditor must pursue the debtor
depends primarily upon the terms of the contract of
guaranty. If the contract specifically details the
action which the creditor may or must take, then the
contract is controlling. When a conditional contract is
not specific in its details, the liability of the
guarantor [is] conditioned upon the exercise of diligence
by the creditor to promote payment by the debtor.
38 Am. Jur. 2d 1114 Guaranty, 5 108 (1968)

Western claims that it has diligently pursued a recovery from
CMC, and that, therefore, it is entitled to judgment as a matter of
law. In support of its claim, it asserts the following facts:

(1) it filed a complaint in the District Court against CMC in 1991;

(2) it obtained a stipulated judgment against CMC, which was
entered by the District Court in 1995; ( 3 ) it attempted to enforce
its judgment through a sheriff's sale of CMC1s property; ( 4 ) in

response to CMC1spetition for Chapter 11 relief, it filed a proof
of claim in bankruptcy, actively participated in the demand for
disclosures, and contacted the U.S. Trustee's office with regard to
its interest in the bankruptcy proceedings; ( 5 ) it appeared, in
Chicago, at CMC's bankruptcy hearing; ( 6 ) it filed a brief in
support of the U.S. Trustee's motion for conversion of CMC's case
from a Chapter 11 to a Chapter 7 proceeding; (7) it appeared in
Chicago at the hearing to consider the motion for conversion, which
was eventually granted; (8) it took depositions of two of CMC's
principals and two of the Guarantors; and (9) it has been in
contact with the U.S. Bankruptcy Trustee in Chicago.
The Guarantors, on the other hand, have not offered evidence
or even attempted to establish that Western has failed to
diligently pursue a recovery from CMC.
Based on the uncontroverted evidence, we conclude that Western
has sufficiently satisfied the condition precedent of "first
proceeding against [CMC]. "
We conclude that there are no genuine issues of material fact,
and that Western is entitled to judgment as a matter of law.
Accordingly, we hold that the District Court did not err when it
granted summary judgment in favor of Western.

ISSUE 2 and ISSUE 3

Did the District Court err when it entered judgment for
Western in the principal amount of $232,730.04?

Did the District Court err when it awarded Western
pre-judgment interest from February 1, 1991?

When we review a district court's conclusions of law, the

standard of review is whether those conclusions are correct. Carbon

Cozmtyv. UnionReserveCoalCo. (1995), 271 Mont. 459, 469, 898 P.2d 680,

686.

When the District Court granted Western's renewed motion for

summary judgment, it entered a final judgment "in the principal sum

of $232,730.04 plus pre- and post-judgment interest . . . as of
February 1, 1991 to February 22, 1996 . . . . " The Guarantors

contend that the District Court erred when it entered this

judgment, and that, therefore, it must be vacated. Specifically,

they assert that the judgment should be reduced to the principal

amount of $196,849.72, and that pre-judgment interest should be

calculated only from August 31, 1994. The Guarantors guaranteed

payment as of February 1, 1991. However, the stipulated judgment

was not entered until August 31, 1994.
THE PRINCIPAL AMOUNT OF $232,730.04

Section 28-11-201, MCA, states:
Obligation of guarantor not to exceed that of principal.
The obligation of a guarantor must be neither larger in
 amount nor in other respects more burdensome than that of
the principal, and if in its terms it exceeds it, it is
reducible in proportion to the principal obligation.
CMC (the principal debtor) and Western entered into a
stipulated judgment in the amount of $196,849.72. This stipulated
judgment conclusively established CMC's obligation. Therefore,
pursuant to § 28-11-201, MCA, the Guarantors' obligation cannot
exceed the amount to which CMC and Western stipulated.
Accordingly, we hold that the District Court erred when it
entered judgment for Western in the principal amount of
$232,730.04.
PRE-JUDGMENT INTEREST FROM FEBRUARY 1, 1991
Section 27-1-211, MCA, states, in relevant part:
Right to Interest. Every person who is entitled to
recover damages certain or capable of being made certain
by calculation and the right to recover which is vested
in him upon a particular day is entitled also to recover
interest thereon from that day . . . .
Pursuant to the express terms of the guaranties, Western's
right to recover from the Guarantors vested on February 1, 1991,
the date on which CMC failed to make the payment that was then due,
and the date by which the Guarantors guaranteed payment. The
amount was also capable of being made certain by calculation on
that date. It was simply the difference between the amount set
forth in the written guaranties, and any amount paid.
Accordingly, we hold that the District Court did not err when
it awarded Western pre-judgment interest from February 1, 1991.
 We affirm and modify the judgment of the District Court, and
remand the case for entry of judgment in the principal amount of
$196,849.72, plus pre-judgment interest from February 1, 1991, and
post-judgment interest to the date on which the judgment is

satisfied.

We concur:

4-f-
r r i c ~Justice