No. 80-210
IN THE SUPREME COURT OF THE STATE OF MONTANA
1981
L. D. STENSVAD, personally and as representative
of the investing shareholders of AGRI-SERVICES, et al.,
Plaintiffs and Respondents,
THE MINERS AND MERCHANTS BANK OF ROUNDUP, MONTANA,
Defendant and Appellant.
Appeal from: District Court of the Fourteenth Judicial District,
In and for the County of Mussellshell
Honorable R. D. McPhillips, Judge presiding.
Counsel of Record:
For Appellant:
Towe, Ball, Enright and Mackey, Billings, Montana
Thomas Towe argued, Billings, Montana
Gerald Neely argued, Billings, Montana
For Respondents:
Wright, Tolliver, Guthals and Prater, Billings, Montana
Kenneth Tolliver argued, Billings, Montana
Submitted: September 16, 1981
Decided: January 7, 1982
Filed: 7 - ,/ f f Z
Mr. Justice John C. Sheehy delivered the Opinion of the
Court.
Appeal is by Miners and Merchants Bank from a judgment
rendered against it on Stensvad's complaint in the District
Court, Fourteenth Judicial District, Musselshell County.
mhe bank had counterclaimed against Stensvad on unpaid
promissory notes.
The District Court found that the bank had breached an
agreement to finance Stensvad's corporations and after that
breach had converted or appropriated his property, resulting
in damages to Stensvad of $1,631,047, plus lost profits in
the sum of $511,695. The court granted a set-off of $1,750,234
as of January 31, 1979 by reason of the indebtedness of the
plaintiff to the bank. The court's net judgment of $392,508
against the bank was subsequently reduced nunc pro tunc by
deducting $117,904 on June 23, 1980. The resulting judgment
against the bank is $274,604.
The bank appealed from the judgment. There is no
cross-appeal.
This action arises from a cattle-feeding operation
located at Roundup and Melstsne, Montana. The banking
relationship between L. D. Stensvad and the Miners and
Merchants Bank of Roundup (hereinafter Stensvad and the
bank) commenced in 1965. The activities of the four corpora-
tions, all of which L. D. Stensvad represents in this case,
played intertwining roles in the operation. Originally L. D.
Stensvad Cattle Company would buy cattle and place them for
feed in feedlots operated by M & S Cattle Feeders and by M.
V. Enterprises, Inc. Agri-Services, Inc. purchased feed
which it sold to the cattle feed operators. In reality,
however, the four corporations for the purposes of this case
are L. D. Stensvad, personally, although there were other
investing stockholders not shown in the record.
During 1965 and subsequent years, the bank loaned to
Stensvad funds for the purchase and feeding of cattle for
his personal account. In November 1968, Stensvad purchased
feed mill facilities at Roundup, Montana, which substantially
expanded his capacity to feed cattle. In the spring of
1968, he acquired 300 acres of land near Roundup and completed
construction of a 3,500 animal feedlot. In the fall of 1969,
an opportunity arose to place investor-owned cattle in
Stensvad's feedlots. The investors desired financing to
allow them to purchase cattle on margin and to feed cattle
on margin. Arrangements were made between the bank and the
various investors whereby the bank loaned to the investors
funds for the purchase of feeding costs. The program was
popular with investors, and the feedlot at Roundup was
expanded with temporary facilities to accomodate additional
cattle.
In early 1970, the bank indicated an inability to
provide purchase money financing for the expanding investors-
feeders group. As a result, this portion of the financing
was placed with the Production Credit Association of Lewistown,
Montana, during the spring of 1970, with the bank continuing
to provide financing for the feeding costs of the cattle.
However, in order to simplify its recordkeeping, the
bank requested and obtained a change in procedure which
allowed the bank to loan the feeding cost funds directly to
one of the four plaintiff corporations which were created
for the purpose of conducting this business. During the
summer of 1970, the bank advanced funds for the construction
of additional feedlot capacity at Roundup, as well as for
feed. The PCA made loans to investors for the purchase of
cattle to be fed at the facilities.
As of March 9, 1970, the PCA participation was on the
following basis: the borrowers (the California investors)
advanced the sum of $100 per head in cash, or part in cash
and part by letter of credit so as to provide $50 per head
for feed to be supplied by Stensvad, and $50 toward the
purchase of the cattle. The PCA agreed to finance the
balance of the purchase price of the cattle.
Until such time as Stensvad completed his financing
with the PCA on each purchase, he obtained interim financing
from the bank. The monies advanced by the bank for the
construction of additional feedlot capacity were carried by
the bank on short-term notes, although the parties had in
mind that such indebtedness would eventually be placed on
long-term notes. As of June 1971, however, this had not
been done.
In June 1971, Edward Towe, a principal stockholder of
the bank, indicated to Stensvad his intention to withdraw as
a participant in the cattle-feeding program unless Stensvad
withdrew his efforts from the creation of a new bank in
Roundup. Meetings between the bank and Stensvad culminated
in a Stensvad agreement to withdraw from participation in
the founding of the new bank and the bank's agreement to
continue to provide financing as it had previously done for
the cattle-feeding operation, operated by Stensvad and the
plaintiff corporations. In furtherance of this renewed
commitment, the plaintiffs' furnished to the bank a complete
portfolio of security interests in the plaintiffs' assets,
as well as a guarantee from Otto Stensvad, the father of the
plaintiff.
The arrangement under the June meeting continued until
August or September 1971, when the bank found that it was
overextended on its loans to the Stensvad corporations. Its
officers went to Stensvad and asked that he arrange for the
PCA to take over the feeding costs which would be involved
in the fattening of the cattle with the bank to handle the
interim financing. On September 7, 1971, the PCA, through
its executive committee, changed its financing arrangement
to this extent:
1. The margin requirement from investors was kept at
$100 per head in cash or $50 per head in cash and $50 per
head letter of credit to be paid by the borrower to the PCA
prior to the disbursement of any loan funds.
2. PCA would finance the full purchase price of the
cattle and provide $80 per head for feed. Feed requirements
were to be budgeted by months, and PCA was not to advance
these funds until the feed was actually consumed. No advancement
of funds for stockpiling of feed was to be allowed. The
feeder was to be paid by PCA upon presentation of invoices
every two weeks.
On September 16, 1971, Stensvad wrote the bank setting
out his need for interim financing after the changed PCA
program. He said:
"This does not mean, however, that there will
be no need for any operating capital for our
feed yards because as each lot of cattle is
fed, there will be a 30 day delay between the
time said cattle are put on feed and any money
is received from the P.C.A., for we will be
on a 30 day billing program. Since we purchase
our feed and pay weekly, you can see that we will
need interim financing for this purpose. In
addition, of course, interim financing will be
necessary to pay for cattle purchased for custom
feeders between the time the cattle are contracted
for, or bought outright, and the time the P.C.A.
pays for the same. There is also a need for
interim financing for accounts receivable and
inventory for our regular retail trade at
Agri-Services ...
"The question may arise in your minds as to why
I still need $500,000 operating capital when I
have stated that I am having my feed financed
by the P.C.A. This is explained above and I will further
clarify it here. I will still need operating
interim financing for a 30 day period for feed
being fed to cattle owned by custom feeders. The
security therefor [sic] would be accounts receivable.
The inventory necessary for each company for
interim financing for cattle contracted for and
purchased by L. D. Stensvad Cattle Co., an expected
increase in accounts receivable and inventory at
Agri-Services . . ."
On Friday, September 17, 1971, another meeting was held
at the bank between representatives of the bank, and Stensvad
and Stensvad's attorney. In essence, the parties at that
time agreed:
During the transaction period from the old PCA program
to the new, there would be 4,000 or 5,000 head of cattle
under the old program, and as each pen was sold, Stensvad
would repay the Miners and Merchants Bank the amount of
money advanced by it when those cattle were put on feed.
Since new cattle were being purchased under the new program
to replace the cattle sold, and because of the proposal to
build up the number of cattle to as many as 13,000 to 15,000
head, the bank agreed "to immediately reloan the amount of
money repaid to the Miners and Merchants Bank when each pen
of cattle under the old program has been sold to enable me
to feed the cattle for the 30 days" before the PCA provided
the feed monies.
Stensvad confirmed the Friday, September 17, 1971
agreement in a letter of September 21, 1971, setting forth
substantially what is said above here, and in addition
stating:
"It was explained to the Miners and Merchants
Bank that under the old program, the operating
capital which had been extended to me amounted
to $502,000, That under the new program, the
total amount of operating capital which would
be necessary would still amount to a total amount
of $500,000, but that the operating capital would
be earmarked as follows: [setting out the
allocation between the 4 Stensvad corporations]."
On September 30, 1971, another meeting was held between
the representatives of the bank and Stensvad. The only
written evidence of the meeting is provided by Wally Otto,
the PCA representative, who prepared a memorandum of the
meeting. The bank apparently decided that the financial
condition of the Stensvad operation was deteriorating badly.
Otto reported that the current balance due to the bank was
$440,000, secured by 1,000 head of cattle, not assigned, and
2,000 head of cattle, contracted for but not delivered, feed
inventory of $90,000, accounts receivable of $180,000,
machinery at $35,000, and prepaid fees to ~tensvad.
The bank then requested the PCA to make all future
checks jointly payable to the bank and Stensvad to which all
parties agreed. The bank gave PCA a general release covering
the cattle purchased and the feed paid for under the new
program and the bank delivered also to the PCA manager an
assignment that it had received from Stensvad granting to
the bank all of L. D. Stensvad Cattle Company's rights to
monies after the investor loans had been paid.
The record is unclear as to what occurred between
September 30 and October 7, 1971. However, on October 7,
1971, the Board of Directors of the bank adopted the following
resolution with regard to the Stensvad operations:
"The motion was made and seconded that present
assigned income shall be received and applied
to present notes with regard to all Stensvad
Corporation loans and only the requested amount,
namely, $10.00 per head per 15 days for each
animal in the feed lot shall be advanced in
addition to the advances needed to finance
interm [sic] purchases of cattle for refinancing
through PCA.
"Motion was made and seconded that no funds shall
be advanced hereafter for interm [sic] financing of
cattle purchased or for costs of feed in the
Stensvad cattle operation (all corporation)
unless such cattle and the feed in question are
to be fed to cattle located in the feed lots at
Roundup and Melstone, only."
Stensvad was notified of the resolution by letter on
October 8, 1971.
In the time that elapsed between the June meeting and
September 1971, Stensvad, although requested, had not presented
the bank with financial statements. Sometime, the date is
unclear, the bank received statements reflecting the financial
condition of the corporations. L. D. Stensvad Cattle Company
was particularly in bad shape. The accountant's report
showed a negative balance of about $271,000. Of the assets
claimed by the corporation, approximately $150,000 represented
bounced checks, and one of the liabilities was for nearly
$385,000 for prepaid feed.
On October 11, 1971, by letter from Stensvad's attorney,
Stensvad notified the bank that he considered the directors'
resolution a breach of the agreements made between Stensvad's
corporations and the bank. The letter demanded that the
bank assume control of the physical plant and operations of
the company. Stensvad claimed he had no operating funds with
which to pay employees, purchase feed or pay other expenses
because of the Board of Directors decision of October 7.
By letter of October 14, 1971, the bank confirmed to
the PCA representative that it would corrtinue to finance the
interim funds necessary for operating money until permanent
financing was obtained from the PCA through its commitment
of October 11, 1971. On October 19, the PCA wrote to Stensvad's
corporations that it was notifying the investors in the
cattle feeding program of the assignment of the monies to
the bank. Apparently at this time Stensvad was "out of
trust" with the investors.
On November 16, 1971, the bank advised PCA that it
would continue its loan arrangements with the Stensvad
Cattle Company for the interim purchase of cattle and their
feeding subject to a limitation of $5 per head per week.
Also on November 16, 1971, the bank issued a letter stating
it was taking over all the assets of the Stensvad Corporations
and notified all that no cattle were to be removed from the
feedyards or sold without first making arrangements with the
bank.
Over the course of the next several months, the bank
sold the assets of the Stensvad corporations. The sale of
personal property resulted in the recoupment of $354,111.73.
The cattle were eventually sold for $520,000, The real
estate was foreclosed upon, and eventually sold to Faunco,
another company which thereafter hired Larry Stensvad to run
the cattle operation.
The District Court found that the commitment of the
bank to finance the Stensvad corporations in the manner
agreed to in June and in September 1971 was a binding
agreement upon the bank; that no "change of circumstances"
occurred between September 17 and October 7, 1971 when the
bank's board of directors adopted the resolution we have set
forth above; that the effect of the resolution was to eliminate
any financing for the cattle operation conducted by the
plaintiffs, to severely limit the corporation's ability to
do business and to cause the eventual withdrawal of the PCA
from financing the Stensvad operations.
The District Court, in reaching judgment, adopted
November 11, 1979, as the accounting date between the parties.
As of that date, the court found that Stensvad was indebted
to the bank for all borrowings in the amount of $1,022,325.71.
The District Court concluded that the bank was entitled to
interest, though it had found that the bank had breached the
agreement to finance. Based on valuations which the District
Court found the property to be worth at the time of the
foreclosures and sales, and its computation of lost profits,
the court entered a judgment based on the following elements:
DISTRICT COURT AWARD
A. STENSVAD CLAIM
1. Conversion of personal -- $354,111
property
2. Conversion of cattle ---- 382,000
3. Conversion of feedlot &
elevators --------------- 814,936
4. Mishandling of business - 80,000
5. Lost profits ------------ 511,695
$2,142,742
B. BANK COUNTERCLAIM
1. Principle --------------$1,022,325
2. Interest through
1/31/79 ----------------- 727,909
3. Interest from 2/1/79 to
judgment ---------------- 117I904
NET JUDGMENT TO STENSVAD -------------- $ 274,604
The issues argued by the bank in this appeal are
as follows:
1. Whether the bank agreed to finance the Stensvad
operation sufficient to keep the Stensvad companies in
operation and sufficient to complete the business on hand
or not less than the time required to complete the fattening
of two cycles of cattle?
2. Whether, if such an agreement is found to have
existed, it is unenforceable on grounds of indefiniteness,
lack of mutuality, or failure of consideration?
3. If such an agreement is found to be enforceable,
whether it was terminable at will or breached by the bank?
4. Whether, if such an agreement is enforceable and
not terminable at will and breached by the bank, the evidence
supports the awarding of any damages?
a. Whether any damages are limited to the agreed
interest rate and the interest rate required to obtain the
money elsewhere?
b. If not, whether the proper measure of damages is
at most the amount of lost profits plus mismanagement of
assets?
c. Whether lost profits, if any, were proximately
caused by the bank resolution of October 7, 1971?
d. Whether there is any reasonable certainty that
any lost profits would have in fact occurred?
e. If so, whether the District Court erred in allowing
testimony and exhibits showing gross profits per animal?
f. If not, whether the level of lost profits awarded
is appropriate?
g. Whether the damages awarded for mismanagement of
assets find support in the evidence, should have been admitted,
are a duplication of lost profits, and are excessive?
h. Whether the award of the cost of the fixed assets
in the amount of $814,936 is supported by the evidence,
excessive in amount, or even available in conversion?
5. Whether the District Court erred in vacating its
earlier order for a summary judgment in favor of the bank?
The respondent urges that the findings made by the
District Court were proper in all respects, and additionally,
although it has not cross-appealed, urges that the District
Court erred in allowing interest to the bank after the
bank's breach of contract, and in failing to credit the cash
funds received by the bank when liquidation of the Stensvad
property against the loan balance before calculating interest
due to the bank.
THE BANK'S CONTRACT TO LEND MONEY
The first issue we must determine is whether the
District Court erred in finding that a contract existed
between the bank and Stensvad to finance the feeder operation.
The District Court found that as of September 21, 1971,
agreements had been reached between the bank and Stensvad to
the effect that Stensvad would furnish or continue to furnish
the bank with security interests in all of the plaintiff's
assets; that the bank would continue to furnish financing
for the four to five thousand head of cattle then in the
plaintiff's feed lots, without modification; feed financing
sufficient to feed the cattle under the modified agreement
for 30 days; interim financing for the purchase of new
cattle; feed financing for newly purchased cattle prior to
their sale to PCA financed owners; feed financing for
rancher owned cattle, and inventory and accounts receivable
financing for Agri-Services, Inc.
In the absence of an express agreement as to the term
of the bank's contracts, the court determined that it was in
the contemplation of the parties that the term would be
related to the investor-feeding contracts, the time required
to fatten for sale two cycles of cattle.
Presumably the consideration moving to the bank was the
interest, at rates ranging from 8 1/2 percent to 10 percent
per annum on the unpaid balances, that would be collected
during the operation of the agreement. An extra element of
prejudice, however, was the agreement of Stensvad not to
engage in the formation of another bank in Roundup. Such
consideration meets the statutory definition of good con-
sideration, section 28-2-801, MCA, a benefit agreed to be
conferred upon a promissor to which the promissor is not
likely entitled, or a prejudice suffered or agreed to be
suffered by the promissee other than what he is at the time
lawfully bound to suffer.
The District Court also concluded that the PCA participa-
tion in the Stensvad operation was dependent upon the agreement
of the bank to furnish the necessary funds.
While the exact nature of the bank's agreement is
arguable, especially as to term, the findings of the court
must be supported on appeal where substantial evidence
supports such findings and may not be set aside by us unless
clearly erroneous. Rule 52 (a), M. R.Civ.P.
The intention of the parties to a contract may be
furnished by their conduct and declarations. Glantz v.
Gabel (1923), 66 Mont. 134, 212 P. 858; section 28-2-103,
MCA .
We conclude the District Court did not err in finding
an agreement on the part of the bank to finance the Stensvad
operation.
THE AWARD OF $511,695 FOR LOST PROFITS
To support this award, the District Court found and
concluded that the bank's wrongful breach of contract prevented
Stensvad from earning profits in his business; that Stensvad
had enough qualified investors to fill the lots to capacity;
that the term of the investment contracts with the investors
was the time required to fatten two cycles of cattle; that
the bank's contract, though not expressed definitely, would
reasonably require financing for two cycles of fattening;
that Stensvad would realize net profits on yardage services,
a 12 1/2 percent bonus from the investor's profits, and its
anticipated feed profits; that a reasonable estimate of such
profits was $511,695.
The bank objects to this item on the grounds that the
Stensvad operation was not shown to be profitable; that the
profits found by the court are gross, and not net profits,
and are duplicative of other damages allowed.
The proper objective of an award of damages for wrongful
breach of contract is to place the party wronged in as good
position as if the contract had been performed. Kirby v.
Kinyon-Noble Lumber Company (1976), 171 Mont. 329, 332, 558
P.2d 452, 454. The bank contends that the measure of damages
should be limited to the cost of obtaining money elsewhere,
when money is wrongfully withheld. See Miller v. Federal
Land Bank of Spokane (9th Cir. 1978), 587 F.2d 415, 424,
cert-den. 441 U.S. 962, 99 S.Ct. 2407, 60 L.Ed.2d 1067.
Damages for loss of profits may be awarded if not speculative.
Silfvast v. Asplund (1935), 99 Mont. 152, 161, 42 P.2d 452,
456. The rule that prohibits speculative profits does not
apply to uncertainty as to the amount of such profits but to
uncertainty or speculation as to whether the loss of profits
is the result of the wrong and whether such profit would
have been derived at all. Tri-Tron Intern. v. Velto (9th
Cir. 1975), 525 F.2d 432, 437. Once liability is shown,
that is the certainty that the damages are caused by the
breach, then loss of profits on a reasonable basis for
computation and the best evidence available under the
circumstances will support a reasonably close estimate of
the loss by a District Court. Smith v. Zepp (1977), 173
Mont. 358, 370, 567 P.2d 923, 930. But no damages are
recoverable which are not clearly ascertainable both in
nature and origin, and only profits which are reasonably
certain may be awarded. Smith v. Fergus County (1934), 98
Mont. 377, 386, 39 P.2d 193, 195.
The award of lost profits in this case may be sustained
only if we can say that the profits are not based on speculation,
since no profit record of the Stensvad enterprises was shown
prior to the breach. We find here clearly that the damages
for lost profits are speculative. There is no reasonable
certainty in the record that Stensvad lost profits as the
result of the wrong, or that a profit would have been derived
at all. Tri-Tron Intern., supra.
In reaching our decision on this phase of the case, we
have looked at evidence presented during the main trial, and
in supplemental hearings. The procedural situation came
about because the court ordered that the bank's claims of
set off would be heard subsequent to the trial. The court
made findings on all of the issues, except loss of profits
by its order of December 14, 1978, and provided for supplemental
hearings in that order respecting the loss of profits and
additional evidence to be offered by the parties on the
remaining claims.
A supplementary hearing was held before the District
Court on January 22, 1979, and at that time, the parties
entered into certain stipulations of fact, offered to enter
into other stipulations of fact, and eventually agreed that
affidavits or other forms of evidence would be offered to
the court for its consideration.
Thereafter, on February 20, 1979, an affidavit of Larry
D. Stensvad was filed setting forth his claimed valuation of
certain items, including cost of assets, proceeds from the
sale of personal property by the bank and other items. On
March 27, 1979, the bank filed a motion asking the court to
adopt as facts certain proposed stipulations of fact which
were attached to the motion, to take judicial notice of the
accuracy of certain calculations, and to strike the affidavit
of Larry Stensvad earlier mentioned. We find no record of
how the court ruled on these motions, except that we find
that some of the proposed facts were used in the court's
final judgment from the affidavit of Stensvad.
Inasmuch as all relevant evidence is admissible (Rule
402, Mont.R.Evid.), we will advert to certain of the proferred
evidence, as well as the record of the trial, in explaining
why we determine that there is no reasonable certainty in
the record or otherwise that Stensvad lost profits as the
result of the claimed wrong of the bank, or that a profit
would have been derived at all.
The financial statements for Agri-Services, Inc., show
that on June 30, 1971, on total assets of $426,228.80, the
corporation had retained earnings of $1,739.89. Included in
the liabilities was an overdraft to the bank of $65,692.67.
Cash on hand was $2,793.36. The statement as of October 31,
1971, for the same corporation, showed retained earnings
totaling $4,368.15 on total assets of $401,871.10. In that
four month interim, however, the short-term notes payable to
the bank had increased to $198,999.99, from $187,000.00 on
June 30, 1971.
-16-
The financial statements for M & S Cattle Feeders,
Inc., show as of November 30, 1971, retained earnings of
$7,813.89 on total assets of $260,638.59. Claimed assets
include a stock subscription reserve of $17,499.57. The
notes payable to the bank increase from $82,500.00 on June
30, 1971, to $110,874.79 on November 30, 1971. On June 30,
1971, this corporation had no cash on hand, and an overdraft
to the bank of $241.22.
The financial statements for M. V. Enterprises, Inc.
show retained earnings before provision for income taxes of
$55,261.86, on total assets of $336,261.51. Notes payable
to the bank at that time are shown in the sum of $159,597.86.
The accountants noted with respect to the June 30, 1971
statement, that inasmuch as M. V. Enterprises, Inc. was part
of a "brother-sister" group of controlled corporations, and
the accountants not having been able to determine any inter-
corporate transactions, the income tax liability could not
be determined. We find no November 30, 1971 statement for
M. V. Enterprises.
The financial statement of L. D. Stensvad Cattle Co.
for June 30, 1971, is worthless. As it is, it reflects
total assets of $421,802.55, and total liability of $692,860.72,
for a negative net worth of $271,058.17. Even the claimed
assets are questionable. The accountant reports:
"NOTE 3. This amount of $76,500.00 is represented
by a check of $45,000.00 that did not clear Mr.
Wilson's bank and $31,500.00 that Mr. Wilson did
not remit to L. D. Stensvad Cattle Co. on
client's deposit. Collection probability not
ascertained as of now.
"NOTE 4. This $121,000.00 represents amounts
withheld by Mr. Jack Dean from California cattle
feeding clients as a commission. L. D. Stensvad
Cattle Co. believes this is an error and
steps to collect this are in process. Collection
probability not ascertained as of now."
The liabilities include an item of $383,568.26 owed to
Custom Feeding clients for advance payments on feed.
Most telling are the reports of the bank examiners who
investigated the bankability of the loans made by this bank
to the Stensvad corporations.
With respect to the Agri-Services, Inc. statement of
June 30, 1971, the examiners noted:
"The operating results mentioned above
indicate insufficient cash flow to service and
repay indebtedness over a reasonable period
of time, there is no evidence of control of
the proceeds of sales from inventory, and the
extent to which collateral is shared between
this loan and placed paper behind the SBA loan,
indicates questionable margin at best. Further-
more, the indicated 7 1/2% owner equity is too
small to be expected to protect against shrinkage in
value in the event it should be necessary to resort
to force liquidation."
With respect to M. V. Enterprises, Inc.:
"A review of the checking accounts of subject
and affiliated companies indicates frequent
transfers of funds in substantial amounts between
the various affiliates to cover checks being
presented for payment and which apparently were
issued without sufficient funds on deposit to
cover at the time of issue or when originally
presented here for payment. In view of these
intercompany transactions and the apparent common
controlling ownership vested in Larry D. Stensvad
the borrowings of the affiliated companies must
be considered together, and all of them appear
to have the common weaknesses of undercapitalization
and disproportionate total debt and short-term
debt and virtually no working capital which necessitates
reliance on credit to sustain operations."
With respect to M & S Cattle Feeders:
"Review by bank management subsequent to date of
examination and subsequent to 60 M [$60,000]
advance made by bank indicates current assets
regarded as a source of repayment funds are limited
to feed inventories aggregating 31.4 M [$31,400]."
With respect to L. D. Stensvad Cattle Co.:
"Checks on subject company have been issued in
substantial amounts at times when insufficient
funds were on deposit to cover them. In this
connection it is observed that the checking
account of this firm was overdrawn in the amount
of $83,907.10 on 3-22-71 and the firm was
indebted on loans here on that date in the amount
of 110 M so that the liabilities of that firm
were far in excess of subject banks lending limit
on that date. Overdrafts have been noted on
other occasions also.
"At the time of a return visit to the bank on 11-12-
71 a fiscal year end (6-30-71) P.S. [financial
statement] had not been received for the L.D.
Stensvad Cattle Company, Inc. Despite the nearly
3 1/2 months since the end of the fiscal year
reportedly the accountant for the firm has been
unable to compile a financial statement that will
balance or which he is prepared to certify and
it has been indicated that unresolved differences
are in excess of 200 MI an amount between 2 and 3
times the NW [net worth] of the corporation in
the 12-31-70 PS above. In the absence of the
statement for this firm a consolidated PS for
the affiliated corporations cannot be compiled,
thus, the overall financial condition of the
related firms cannot be determined. Furthermore
the PSs on hand for the other corporations do
not include information on intercompany receivables
and payables that also would be needed for meaningful
consolidation. Also, the bank is without information
as to any obligations to other creditors of the
L. D. Stensvad Cattle Company, Inc., and does not
have a PS of Patton-Stensvad Cattle Feeders in which
L. D. Stensvad has a minority (40%) stock interest
and which has dealings with the L. D. Stensvad
Cattle Company, Inc.
"It appears that the bank is providing virtually
all of the operating capital for the various
enterprises in addition to financing the fixed
assets of the corporations and conclusive evidence
of collateral coverage cannot be ascertained.
Assets sufficient to cover liabilities is suggested
but not definitely established and the bank is
making every effort to exercise control of cash
proceeds for application on debts here."
We turn now to examine the method used by the District
Court in arriving at the lost profits figure of $511,695.00.
In its findings of fact, the District Court found that L. D.
Stensvad Cattle Company derived net profits from fees charged
cattle owners for yarding services, and from 12 1/2% bonus
based upon the cattleowners' profit from the sale of cattle.
It found that the profit figure of $511,695.00 is the amount
the plaintiffs would reasonably have been expected to realize
from yardage fees and the 12 1/2 percent bonus payments
based upon the completion of existing business.
The District Court did not indicate what portion of the
profit figure it attributed to bonus payments. In order to
determine bonus payments, however, it must have utilized
plaintiffs' trial exhibit no. 49, which purported to establish
a net margin for investors based on a 600 pound steer when
purchased, and sold at 1,050 pounds for a gain of 450 pounds.
In that exhibit, figures are utilized from the United
States Department of Agriculture which showed the price that
feeder cattle would bring in Kansas City as compared to the
price that fat or fed cattle would bring in Omaha - -
on the
same day.
-- The difference was tabulated to find the gross
margin on that day for the cattle investor. Offset against
this margin was the cost of feed which the witness determined
from barley prices published by the Montana Crop Reporting
Service, plus 30 cents for freight and handling. From these
figures, based on the ratio of feed used to pound of weight
gained, the witness computed a cost of gain, (averaging 20.8
cents per pound in 1972) which when multiplied by the
theoretical 450 pound gain in the steer, produced the cost
of feed for the steer. The difference between the gross
margin and the cost of feed represented a net profit, on
exhibit no. 49, to the cattle investor. The witness testified
that irrespective of different prices that might prevail in
the Roundup market or other Montana markets for the purchaser's
sale of feeder cattle or fed cattle, the margin of profit
could nevertheless be determined in the manner set forth in
exhibit no. 49 because it would be the same nationwide.
Such figures were computed for each month from November 1971
until December 1974 on exhibit no. 49. The evidence does
not indicate the date of each month on which the computations
were made. It is strongly speculative whether such figures
had any relationship to the Stensvad feeder operation. Most
important, no computation for interest cost to the California
investor that would be charged by the bank or by the PCA for
the monies advanced by these institutions appears in exhibit
no. 49.
Likewise, plaintiffs' exhibit no. 52 purports to show
the income to be derived by Stensvad's operations, based
upon the numbers of cattle to be fed in the pens from the
business on hand on the date of the bank's alleged breach. A
number is given in that exhibit for the average number of
cattle per month, usually 13,000 head in the pens. Income
is determined by multiplying the average number of cattle
times 15 cents per day for 30 days. Offset against the
income thus generated are fixed costs and variable costs.
Fixed costs are shown as an unvarying $11,604.36. Variable
costs are determined by multiplying the average number of
cattle for that month by the figure of $1.44. The difference
between the income generated, and the sum of the fixed costs
and variable costs yields a profit to Stensvad on the exhibit.
When exhibit no. 52 was offered in evidence, it was
stated that the computation for fixed costs and variable
costs on that exhibit would be "connected up." However,
such connecting up was never done. The result is a very
speculative figure of profit used by the District Court in
computing lost profits.
Stensvad contends in brief that the net operating
profits of the Stensvad operation for the fiscal year ending
June 1972 would be $207,615.12 and for the 1973 fiscal year
$334,237.68. In addition, the bonus payments that would have
been received under the projections would equal $230,985.00
for 1971-1972, and $103,400.00 for 1972-1973. The total of
these figures is $876,237.80. The court's finding of lost
profits is approximately 59 percent of this total figure.
We are unable to determine, and no brief of the parties
delineates the basis for the award.
We cannot escape the conclusion that on the basis of
the record here presented and the underlying evidence, that
the award of the court for lost profits was based entirely
on speculation, and no reasonable certainty appears to us to
indicate that such profits were lost by the alleged wrong of
the bank in refusing to further finance the Stensvad operations.
This is not to say that in a proper case, damages for
lost profits are not recoverable, arising out of a breach by
a lender of a contract to loan money. The authorities agree
that such damages may be awarded, see Hunt v. United Bank
& Trust. Co. (Cal. 1930), 291 P. 184, especially when the
lender knows the intended use of the proceeds. In such case
the profits which would have been made, as contemplated by
the parties, are recoverable, Milbourn v. Buzzard (Okla. 1926),
252 P. 15, if they are established by factual data to a
reasonable certainty, even in the absence of a past history
of profitable operations. Welch v. U. S. Bancorp. Realty
and Mortg. (Ore. 1979), 596 P.2d 947, 963-964. The borrower
is not restricted in his damages to the cost of obtaining
money elsewhere, as the bank contends in this case. See
Welch, supra.
DAMAGES RECOVERABLE FOR BREACH OF CONTRACT
The District Court concluded, after finding that the
contract to lend money existed, that the bank had breached
its contract, and resultantly had taken over the property of
Stensvad wrongfully. The damages awarded by the District
Court are attacked from all directions by the bank. We have
already indicated that the lost profits awarded by the bank
are improper in this case. We turn now to examine the other
elements of damages awarded by the court in favor of Stensvad.
There can be little argument that the amount of $354,111.00
for the conversion of personal property awarded by the court
is proper. It is substantially supported in the evidence
and was the subject of a stipulation between the parties.
The item for conversion of cattle, $382,000.00, includes
a profit of $104,897.73 made by the bank in the difference
between what the bank would have received had the cattle
been sold in November 1971, and the amount actually received
at the later time of sale. The District Court, by awarding
the full amount received by the bank from the sale of the
cattle, $382,000.00, gave Stensvad the benefit of the profit
made by the bank in making the sale as it did.
The item of $80,000.00 for mishandling of business,
however, must be examined by us, and amended downward.
The District Court awarded Stensvad the sum of $80,000.00,
for the "losses sustained by the plaintiffs during the
process of the Bank's wrongful foreclosure, for loss of
downpayments on cattle, for loss of livestock through death,
and for losses sustained through the disruption in shipment
of the cattle."
The evidence sustains $58,000.00 of that award. Larry
Stensvad testified that at the time of the take-over by the
bank, his operations had paid out $58,000.00 on agreements
for the purchase of cattle, and that these sums were forfeited
to the prospective sellers when Stensvad was unable to
complete the contracts of purchase. Such an item of damages
is within the contemplation of section 27-1-311, MCA, with
respect to the measure of damages for the breach of contract,
because they were proximately caused by the take-over, and
in the ordinary course of things would be likely to result
therefrom.
The remaining part of the $80,000.00 award, that is the
sum of $22,000.00, is apparently based on this portion of
the record:
"Q. Mr. Stensvad, I would like to direct your
attention to the situation involving the cattle
that were moved from the lot in Roundup to the
lot at Melstone by the bank after the
bank took control of these cattle. Did you have
occasion to review the closeout figures produced
by the bank, with regard to these cattle? A. The
bank didn't produce the closeout figures on them.
I produced the closeout figures on them.
"Q. How did you obtain this information? A. Well,
I had the information on what the cattle weighed when
they went in down there, and then when the cattle
were shipped, in terms of weight and numbers. And
when the cattle were shipped out of the Melstone
yards in the spring of 1972, I was there and obtained
copies of the weights when the cattle went out, and
numbers, so that I could compare the weights going
out with the weights going in, as well as numbers.
And then I also--the bank used forms that we were
using at the time, before they took over, to keep
track of daily feed fed out to the cattle, while
they had it. And I had the opportunity to have those
records to prepare feed consumption and cost data
on the cattle while they had them in there. Then
I returned these documents to the yards down there,
when I completed my calculations.
"Q. From these documents that you had at this
point in time, did you prepare a calculation as
to the amount of money that was lost by reason of
the manner and means in which the cattle were
cared for and fed. A. Yes, I did.
"Q. And what was that amount? A. The amount
was a few dollars over $22,000.00."
Missing from the foregoing testimony is any basis upon
which it could be determined that the bank overspent for
feed, or underfed the cattle, or that the amounts spent by
the bank in caring for the cattle until they were sold were
unreasonable. Damages which are not clearly ascertainable
in both their nature and origin cannot be recovered for a
breach of contract. Section 27-1-311, MCA.
We next consider the award of $814,936.00 for the loss
of Stensvad's feedlots and elevators. The District Court in
its findings based this award upon the original cost of
construction and acquisition. Among the various values of
the feedlot and elevators appearing in the evidence, the
award is top dollar. On the books of three of the Stensvad
corporations (L. D. Stensvad Cattle Co. had no fixed assets)
the feedlots and elevators were carried at a depreciated
value of $430,944.81 in total.
At the request of Larry Stensvad, in April 1972, Hall
and Hall, appraisers from Billings, appraised the fair
market value of the Melstone feedlot, the Roundup feedlot,
the Roundup mill and rolling stock, and found a total market
value of $488,000.00. At the time of the sheriff's sale on
foreclosure, the bank bid in for the feedlot and elevators
the sum of $200,000.00, and was the successful bidder.
Later the bank contracted to sell the feedlots and elevators
to Roundup Feeders, Inc., a corporation formed by the owners
of the bank, for $350,000.00. Roundup Feeders, Inc. in turn
leased the properties to a corporation named Faunco, Inc.,
for cattle feeding operations under the management of Larry
Stensvad, which resulted in a payment of $176,731.00 lease
payments either to Roundup Feeders, Inc. or the bank, the
record is not clear. On March 27, 1979, the bank offered to
stipulate that as of June 30, 1971, the value of the fixed
assets of the Stensvad corporations was $696,968.00.
In Bos v. Dolajak (1975), 167 Mont. 1, 6, 534 P.2d
1258, 1260, we quoted with approval from Spackman v. Ralph
M. Parsons Company (1966), 147 Mont. 500, 506, 414 P.2d 918,
921, though it related to personal property, the following
quotation:
"As for the issue of compensatory damages,
the question is always a difficult one. In
tort actions, the wrongdoer is liable, in general,
for any injury which is the natural and probable
consequence of the wrong. These may include both
the direct and indirect, but reasonably probable,
results of the wrong. Where damage to the property
is concerned, the purpose of awarding damages is to
return the party injured to the same, or as nearly
possible the same, condition as he enjoyed before the
injury to his property. The injured party is to
be made as nearly whole as possible--but not to
realize a profit. Compensatory damages are designed
to compensate the injured party for actual loss or
injury--no more, no less. "
In - supra, we approved a measure of damages based on
Bos,
replacement cost of a silo, in an action for breach of
contract to erect a silo, but in that case it appeared that
the replacement item was a second-hand silo and its cost was
well within the actual market value of the silo that was
destroyed. The fairest value of the feedlots and elevators
in this case, found by a professional and untinged by any
personal bias of the parties, is the fair market value found
by Hall & Hall, the sum of $488,000.00. We find the District
Court should have used that figure in a determination of the
proper amount to be awarded to plaintiff for his ouster from
the feedlots and elevators. It should be noted however, that
Hall & Hall's appraisal included Stensvad's rolling stock.
The value of the rolling stock is already included in the
personal property award of $354,111.00. The auction receipts
from the sale of the rolling stock which were included in
that amount were $66,064.70. We should in fairness deduct
the value of the rolling stock from Hall & Hall's appraisal
of the feedlots and elevators, which leaves a net figure
rounded market value of $411,935.00 as the proper value of
the feedlots and elevators.
Accordingly, we amend the District Court's award of
damages to Stensvad as follows:
1. Conversion of personal property
2. Conversion of cattle
3. Value of feedlot and elevators
4. Mishandling of business
5. Lost profits
TOTAL
THE SET-OFF TO THE BANK
The District Court found, and the parties agree, that
the principal amount of the notes due and owing to the bank
as of November 11, 1971, was the sum of $1,022,325. The
District Court however, awarded interest on that amount to
the date of the judgment. In view of the fact that the
Stensvad property Iaken. by the bank and sold as,
collateral for the indebtedness due it, exceeded in value as
we have above shown the amount of the principle indebtedness,
it is improper in this case to award interest to the bank on
the note balances to the date of judgment. Once the value
of the collateral had been applied to the principle indebtedness
through means of foreclosure and other sales, Stensvad's
obligation for further interest on those notes to the extent
of collection was obviously terminated. The bank is entitled
to a set-off of no more than the amount of the principal
indebtedness as of the date of the breach found by the
District Court.
THE ISSUE OF SUMMARY JUDGMENT
When this action was first commenced, the then presiding
district judge granted summary judgment in favor of the
bank. Plaintiff filed a motion for reconsideration of the
summary judgment when a second judge was qualified to sit on
the cause. The second judge, considering the issues, reversed
the summary judgment and opened the cause for trial. In
spite of the bank's contentions to the contrary, it is clear
that material questions of fact existed from the inception
of this litigation and that the first entry of summary
judgment was improper. We find no merit therefore in the
bank's contention that the District Court improperly reversed
the stand on the summary judgment question.
CONCLUSION
The amount of the Stensvad claim, as we find it above,
is subject to a set-off to the bank in the sum of $1,022,325.
We therefore remand this cause to the District Court with
instructions to modify the judgment heretofore entered in
this cause, and to enter judgment in favor of Stensvad in
the sum of $183,721, which when paid, shall constitute full
and final settlement of all claims of L. D. Stensvad, personally,
and as representative of investing shareholders of the
corporations and of the corporations. Interest on the
amount of the judgment shall run from the date of its entry
after remittitur herein. Costs to Stensvad.
We Concur:
w e f Justice
...........................
Justice
Mr. J u s t i c e Fred J . Weber d i s s e n t s :
I commend J u s t i c e Sheehy f o r h i s c a r e f u l and competent
a n a l y s i s of t h e complex and c o n f u s i n g f a c t s i n t h i s c a s e .
He h a s done an e x c e l l e n t job i n p u t t i n g t o g e t h e r a n u n d e r s t a n d a b l e
opinion.
I a g r e e w i t h t h e c o n c l u s i o n of t h e m a j o r i t y t h a t t h e
bank d i d have a n agreement t o l o a n money t o t h e S t e n s v a d
interests. However, I f i n d t h e r e was a n ample f a c t u a l b a s i s
f o r t h e t e r m i n a t i o n by t h e bank o f t h a t agreement t o l o a n
money, and t h e s u b s e q u e n t t a k i n g of p o s s e s s i o n of t h e S t e n s v a d
properties. The m a j o r i t y o p i n i o n r e f e r s t o t h e r e p o r t s of
bank e x a m i n e r s , who examined t h e S t e n s v a d l o a n on November
1 2 , 1971, j u s t p r i o r t o t h e t a k i n g p o s s e s s i o n of t h e a s s e t s
by t h e bank. The examiners p o i n t o u t t h a t on November 1 2 ,
n e a r l y t h r e e and one-half months a f t e r t h e end of t h e f i s c a l
y e a r of S t e n s v a d C a t t l e Co. I n c . , t h e f i r m had been u n a b l e
t o compile a f i n a n c i a l s t a t e m e n t which would b a l a n c e and
which t h e a c c o u n t a n t was p r e p a r e d t o c e r t i f y . The examiners
n o t e d t h a t a s of J u n e 30, 1971, c h e c k s had been i s s u e d i n
s u b s t a n t i a l amounts when i n s u f f i c i e n t f u n d s w e r e a v a i l a b l e
t o cover. The m a j o r i t y o p i n i o n p o i n t s o u t t h a t a s of J u n e
30, 1971, L. D. S t e n s v a d C a t t l e Co. had a n e g a t i v e n e t worth
of $271,058.17 w i t h q u e s t i o n a b l e a s s e t s even on t h a t s t a t e m e n t .
I n a d d i t i o n , t h e r e i s e v i d e n c e t h a t d u r i n g t h e weeks p r i o r
t o t a k i n g of p o s s e s s i o n by t h e bank, S t e n s v a d f a i l e d t o
r e m i t s u b s t a n t i a l f u n d s t o t h e bank, S t e n s v a d had f a i l e d t o
make payments t o h i s i n v e s t o r s , and f u n d s were b e i n g d i v e r t e d
t o o t h e r f e e d l o t o p e r a t i o n s i n d i r e c t d i s r e g a r d of bank
instructions. A s pointed o u t i n the majority opinion,
d u r i n g a l l of 1971, S t e n s v a d was g r o s s l y under f i n a n c e d ,
which made h i s o p e r a t i o n s s u b j e c t t o any a d v e r s e t u r n s i n
t h e market. A l l of these f a c t s a r e a s u f f i c i e n t b a s i s f o r
t h e a c t i o n t a k e n by t h e bank. I would t h e r e f o r e h o l d t h a t
t h e bank p r o p e r l y t e r m i n a t e d t h e agreement t o l o a n money t o
S t e n s v a d , and r e f u s e d t o make a d d i t i o n a l l o a n s , and p r o p e r l y
took p o s s e s s i o n of t h e v a r i o u s a s s e t s which c o n s t i t u t e d
s e c u r i t y f o r the loans.
I do concur w i t h t h e m a j o r i t y o p i n i o n t h a t t h e award
of l o s t p r o f i t s a t t h e D i s t r i c t C o u r t l e v e l was s p e c u l a t i v e
and n o t s u s t a i n a b l e . I a l s o a g r e e t h a t t h e v a l u a t i o n of t h e
p e r s o n a l p r o p e r t y i n t h e amount of $354,111.00 and t h e v a l u e
of t h e f e e d l o t and e l e v a t o r s i n t h e amount of $411,935.00 i s
correct. I would r e d u c e t h e c a t t l e v a l u a t i o n of $382,000.00
by t h e p r o f i t of $104,897.73 made by t h e bank b e c a u s e I
would n o t f i n d a c o n v e r s i o n of t h e c a t t l e . I would a l s o
e l i m i n a t e t h e award of $58,000.00 f o r m i s h a n d l i n g of b u s i n e s s .
L a s t , I would award i n t e r e s t t o t h e bank a f t e r t h e a p p r o p r i a t e
r e d u c t i o n of i t s l o a n t o t a l s
I N THE SUPREME COURT O THE STATE O MONTANA
F F
No. 80-210
L. D. STENSVAD, p e r s o n a l l y and as
r e p r e s e n t a t i v e of t h e i n v e s t i n g
s h a r e h o l d e r s of AGRI-SERVICES, I N C . ,
M. V. ENTERPRISES, I N C . , M. & S.
CATTLE FEEDERS, and L. D. STENSVAD
CATTLE CO., a l l Montana C o r-p o r a t i o n s ,
plaintiffs,
FEB 25 7982
vs .
E,$ERK OF SUPREME cOuRT
THE MINERS AND M R H N S BANK OF
EC A T &*ATE PF MONTANA
ROUNDUP, MONTANA,
Defendants.
ORDER D E N Y I N G PETITION F R REHEARING
O
W e deny p e t i t i o n of d e f e n d a n t bank f o r r e h e a r i n g of o u r
opinion e n t e r e d January 7 , 1 9 8 2 w i t h t h e f o l l o w i n g comments:
1. P e t i t i o n e r bank contended it i s e n t i t l e d t o a s e t - o f f
f o r i n t e r e s t a c c r u e d on t h e p r i n c i p a l i n d e b t e d n e s s on t h e n o t e s
from t h e d a t e of b r e a c h u n t i l t h e monies r e c e i v e d on f o r e c l o s u r e s
by t h e bank w e r e a p p l i e d on t h e n o t e s . W e so indicated i n our
opinion. However, w e c a r e f u l l y s e a r c h e d t h e r e c o r d t o d e t e r m i n e
t h e a p p l i c a b l e amounts and d a t e s , and w e r e unable t o i d e n t i f y
e i t h e r i n any c a s e . T h i s Court i s bound by t h e r e c o r d b e f o r e
us. Therefore, w e held t h a t t h e set-off would be t h e amount of
p r i n c i p a l i n d e b t e d n e s s a s of t h e d a t e of t,he b r e a c h on f a c t s
found by t h e D i s t r i c t C o u r t .
2. P e t i t i o n e r contends r e s p o n d e n t i s n o t e n t i t l e d t o t h e
b e n e f i t of t h e p r o f i t r e a l i z e d by t h e bank a f t e r it had t a k e n
p o s s e s s i o n o f t h e c a t t l e and e v e n t u a l l y s o l d t h e same. W e do
n o t a g r e e , b u t p o i n t o u t t h a t i f w e d i d , i t would r e s u l t i n
a h i g h e r judgment a g a i n s t t h e bank i n t h e amount of t h e
profit.
3. P e t i t i o n e r c o n t e n d s t h a t i t s f o r e c l o s u r e of t h e
p r o p e r t i e s h a s been hampered by l i s pendens f i l e d by S t e n s v a d .
W e have no r e c o r d of t h a t b e f o r e u s , b u t i n any e v e n t , S t e n s v a d ,
w e assume, must d i s m i s s any l i s pendens which r e l a t e t o i s s u e s
s e t t l e d i n t h i s a p p e a l upon payment of judgment by r e s p o n d e n t .
According, t h e p e t i t i o n f o r r e h e a r i n g i s d e n i e d .
DATED t h i s 2 B y of February, 1982.
Chief J u s t i c e
/
------_'--L---LI
I /