NO. 94-045
IN THE SUPREME COURT OF THE STATE OF MONTANA
1994
RICHARD A. WELDON and MONICA A. WELDON,
Plaintiffs and Appellants,
v.
MONTANA BANK, Successor to MONTANA BANK
OF BILLINGS, a Montana corporation,
Defendant and Respondent.
APPEAL FROM: District Court of the Thirteenth Judicial District,
In and for the County of Yellowstone,
The Honorable Robert W. Holmstrom, Judge presiding.
COUNSEL OF RECORD:
For Appellants:
David A. Klibaner, Attorney at Law,
Denver, Colorado
Gilbert U. Burdett, Burdett Law Firm,
Billings, Montana
For Respondents:
Kenneth S. Frazier and Michael K. Rapkoch,
Felt, Martin & Frazier, Billings, Montana
Submitted on Briefs: September 15, 1994
Decided: November 22, 1994
Justice William E. Hunt, Sr., delivered the opinion of the Court.
Plaintiffs Richard and Monica Weldon appeal the order of the
Thirteenth Judicial District Court, Yellowstone County, granting
summary judgment in favor of Montana Bank. We affirm.
We state the issues on appeal as follows:
1. Does the language of the mortgage provision at issue in
this case create contract-based obligations in the Bank from which
the Weldons can state a claim for breach of contract?
2. Did the Weldons suffer a deprivation of contractual
benefit from which they may claim a breach of the implied covenant
of good faith and fair dealing?
The Weldons owned a 2375 acre ranch on Blue Creek outside of
Billings. They claim that in early 1983 they were solicited by
Ralph Skaggs of Kreitzberg Associates, Inc., a real estate firm.
Skaggs presented them with a plan for purchasing a ranch in Carbon
County on contract, providing that the Weldons allow the Kreitzberg
firm to offer for sale about 1500 acres of the Blue Creek Ranch.
Neither Skaggs nor the Kreitzberg firm is a party to this suit.
According to the Weldons, on or about June 1, 1983, Skaggs
arranged a meeting between the Weldons and Montana Bank to discuss
obtaining a loan for the down payment on the Carbon County ranch.
During this meeting, the Weldons claim that the Bank "was informed
of the necessity of Kreitzberg Associates, Inc. selling the [Blue
Creek] Ranch to repay the loan for the down payment and to make the
contract payments on the [Carbon County] ranch." On June 29, 1983,
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the Bank and the Weldons executed Note No. 827 in the amount of
$160,000. To secure the note, the Weldons mortgaged to the Bank
approximately 1280 acres of the Blue Creek ranch.
On August 2, 1983, the Weldons entered into a written listing
agreement with the Kreitzberg firm for the sale of 1500 acres of
the Blue Creek ranch at $1000 per acre. They claim that in
November 1983, Skaggs informed them that the firm could find no
purchasers at $1000 per acre: however, Skaggs stated that his own
partnership, Double S Investors, would purchase the property at
$600 per acre. The Weldons accepted this offer.
Because 1280 of the 1500 acres were under mortgage, the
Weldons claim that the Bank took financial statements from Double S
Investors, approved the purchase, and placed the purchase agreement
"in its file as further security for the repayment of loans made to
the Weldons." The Weldons claim that the Bank
knew the Agreement between the Weldons and Double S
Investors required the property to be surveyed into
20 acre parcels: required executed warranty deeds to each
20 acre parcel be placed in escrow: and required payment
by Double S Investors to Weldons of $l,OOO.OO per acre
for release of such deeds.
The Bank admits it was aware of the agreement's provisions.
The Weldons claim that sometime after October 31, 1984, Skaggs
met with the Bank and requested that it execute a partial release
on 260 of the 1280 acres encumbered by the Weldon's mortgage. They
additionally claim that Skaggs presented the Bank with a deed which
contained the forged or fraudulently obtained signatures of the
Weldons and which purported to transfer ownership of the 260 acres
to Double S Investors.
The Bank executed a partial release of the mortgage on
November 14, 1984. The Bank did not communicate with or notify the
Weldons before executing the release, nor did it request or receive
any funds from the Weldons or reduce their indebtedness under the
outstanding note.
On November 13, 1992, seven years and 364 days after the
partial release, Weldons brought suit alleging that the Bank was
aware of the agreement between the Weldons and Double S Investors,
that Double S Investors failed to comply with the agreement, and
that by executing the partial release, the Bank breached its
fiduciary and contractual duties and breached the covenant of good
faith and fair dealing.
The Bank moved for summary judgment on April 5, 1993, arguing
that the claims raised by the Weldons, notwithstanding
that they may be labeled "breach of contract" claims, are
subject to Section 27-2-204, MCA which provides a three
year limitations period. The Bank's argument is that the
claims made by the Plaintiffs are tort claims regardless
of how they are labeled, are thus barred by the three
year limitations period, and the Bank is entitled to
judgment as a matter of law.
On July 30, 1993, the District Court ordered the parties to submit
additional briefs regarding the meaning of the mortgage provision
on which the Weldons base their claims. Both parties submitted
additional briefs, and the District Court granted summary judgment
in favor of the Bank on October 13, 1993.
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ISSUE 1
Does the language of the mortgage provision at issue in this
case create contract-based obligations in the Bank from which the
Weldons can state a claim for breach of contract?
"In reviewing a grant of summary judgment, our standard of
review is identical to that of the trial court." Kuhns v. Koessler
(Mont. 1994), 880 P.2d 1293, 1295, 51 St. Rep. 800, 801. We
examine the record to determine whether genuine issues of material
fact exist and whether the moving party is entitled to judgment as
a matter of law. Kuhns, 51 St. Rep. at 801; Rule 56(c), M.R.Civ.P.
"When a motion for summary judgment is made and supported, the
nonmoving party cannot rest on allegations or the denials of its
pleadings, but must set forth specific facts showing that there is
a genuine issue for the trial court." Hennen v. Omega Enterprises,
Inc. (1994), 264 Mont. 505, 508, 872 P.2d 797, 799. In reviewing
conclusions of law, we will determine whether the district court
correctly interpreted the law. Steer, Inc. v. Dept. of Revenue
(1990), 245 Mont. 460, 474, 803 P.2d 601, 603.
The disposition of this appeal turns on the meaning of the
following provision contained in the mortgage contract between the
Weldons and Montana Bank:
A release of this mortgage is to be made at the expense
of the Mortgagors, on full payment of indebtedness
secured thereby.
The Weldons argue that the language of the provision "requires
the Bank to maintain the mortgage in full effect until final
5
payment of their indebtedness," or that "[aIt the least the
language is ambiguous and allowed Weldons to believe the Bank would
notify them of an intended release prior to full payment.*' The
Bank counters that the language is not ambiguous and creates only
a narrow obligation in the Bank to release the mortgage at the
Weldons' expense upon payment of the underlying indebtedness. The
Bank argues that
[alttempts by the plaintiffs to create what amount to
tort-type duties on the basis of this contractual
language, and thereby escape the three year statute of
limitations which governs in this case, should be
rejected since there is nothing in this provision which
even suggests that the Bank owed contractual duties of
the type asserted by the plaintiffs.
Promissory notes and mortgages are contracts and are examined
under the rules of construction applicable to contracts. First
National Bank and Trust Co. v. Lygrisse (Kan. 1982), 647 P.2d 1268;
U.S. Bldg. and Loan Ass'n v. Gardiner (1930), 87 Mont. 586, 289 P.
555; Union Central Life Insurance Co. v. Jensen (1925) 74 Mont. 70,
237 P. 518. "AS a general rule, the construction and
interpretation of written agreements, including contracts, is a
question of law for the court to decide." First Security Bank v.
Vander Pas (1991), 250 Mont. 148, 152-53, 818 P.2d 384, 387: Monte
Vista Co. v. Anaconda Co. (1988), 231 Mont. 522, 528, 755 P.2d
1358, 1362. It is a question of law for the court to determine
whether ambiguity exists sufficient to submit the question of the
parties' intent to the jury. Vander Pas, 818 P.2d at 387; Monte
Vista Co., 755 P.2d at 1362. "When the language of the contract is
6
clear and unambiguous on its face, then it is the duty of the court
to enforce the contract as the parties intended. Vander Pas, 818
P.2d at 387; Monte Vista Co., 755 P.2d at 1362.
The District Court in this case concluded that the language of
the provision is unambiguous and simply requires the mortgagors to
bear the expense of a release. The District Court further
concluded that a creditor may cancel or release a mortgage at any
time without consideration and without the consent of the
mortgagor.
The Weldons contend on appeal that a genuine issue of material
fact exists regarding the interpretation of the provision.
However, the initial determination whether an ambiguity exists in
a contract is a question of law. Monte Vista Co., 755 P.2d at
1362. We hold that the District Court properly rejected the
Weldons proffered interpretation which sought to impose a duty upon
the Bank to maintain the mortgage in full effect until final
payment of the indebtedness.
Sections 71-1-211 and -212, MCA, which enumerate the statutory
duties of a bank regarding the release of a mortgage, do not
require a bank to maintain a mortgage in the manner asserted by the
Weldons. Moreover, this Court has held that, because a mortgage is
a lien executed for the benefit of the lender, the lender may
cancel or release the mortgage at any time with or without
consideration from or the consent of the mortgagor. Mueller v.
Renkes (1904), 31Mont. 100, 77 P. 512. We reaffirm this principle
7
as set forth in Mueller. As a matter of law, the District Court
properly determined the language of the provision to be unambiguous
and correctly interpreted it to create a narrow obligation in the
Bank to release the mortgage, at the Weldons' expense, upon full
payment. Because the mortgage provision did not create a
contractual obligation in the Bank to maintain the mortgage in the
manner asserted by the Weldons, a breach of contract claim based on
the provision cannot be sustained.
ISSUE 2
Did the Weldons suffer a deprivation of a contractual benefit
from which they may claim a breach of the implied covenant of good
faith and fair dealing?
The Weldons argue that a breach of the covenant of good faith
and fair dealing occurs "when the discretion conferred by the
contract has been misused to deprive the other party of the benefit
of the bargain." They assert that they have provided sufficient
"factual inferences" to demonstrate that the Bank acted
arbitrarily, capriciously, or in violation of reasonable commercial
standards, and therefore, breached the implied covenant. The
District Court, however, concluded that the implied covenant was
not breached because the Bank's partial release did not deprive the
Weldons of the benefit of the contract.
In Story v. City of Bozeman (1990), 242 Mont. 436, 450, 791
P.2d 767, 775, we set forth the following framework for breach of
implied covenant claims: (1) every contract contains an implied
8
covenant of good faith and fair dealing: (2) a breach of the
covenant is a breach of the contract: (3) a breach of an express
term of the contract is not a prerequisite to a breach of the
implied covenant; (4) the conduct required by the implied covenant
is honesty in fact and the observance of reasonable commercial
standards of fair dealing in the trade; and (5) 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.
The Weldons claim thatII [t ] he District Court never engaged in
the analysis which is required under the law of the covenant" to
determine whether the Bank's "conduct was within reasonable
commercial practices or was arbitrary or capricious." This is
incorrect. As discussed under Issue 1, the District Court properly
concluded that the Bank was under no contractual obligation to
maintain the mortgage until full payment was received.
While it is true that the covenant of good faith and fair
dealing is implied in every contract, the claims asserted by the
Weldons do not implicate the mortgage contract between them and the
Bank: instead, their claims focus on peripheral aspects of their
relationship with the Bank. As the United Stated District Court of
Montana stated in addressing the implied covenant:
Without some attempt by one party to "[use] discretion
conferred by the contract to act dishonestly or to act
outside the accepted commercial practices to deprive the
other party of the benefit of the contract," it is
questionable whether any breach of the covenant occurred,
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even if the conduct amounts to breaches of other common
law obligations.
Shupak v. New York Life Ins. Co. (D. Mont. 1991), 780 F. Supp.
1328, 1342 (alteration in original) (citing Story, 791 P.2d at
775); Richland Nat'1 Bank and Trust v. Swenson (1991), 249 Mont.
410, 420, 816 P.2d 1045, 1051-52. Because the Bank did not owe a
duty to the Weldons to maintain the contract until full payment, we
agree with the conclusion of the District Court that the Weldons
were not deprived of a contractual benefit when the Bank partially
released the mortgage, and therefore, cannot state a claim for
breach of the implied covenant.
Affirmed.
CA/&
Justice
We concur:
November 22, 1994
CERTIFICATE OF SERVICE
I hereby certify that the following certified order was sent by United States mail, prepaid, to the
following named:
Gilbert U. Burdett, Esq.
Burdett Law Firm, P.C.
P.O. Box 1777
Billings, MT 59103-1777
David A. Klibaner
2401 Fifteenth St., Ste. 290
Denver, CO 80202
Kenneth S. Frazier, Esq. & Michael K. Rapkoch, Esq.
Felt, Martin & Frazier, P.C.
P.O. Box 2558
Billings, MT 59103-2558
ED SMITH
CLERK OF THE SUPREME COURT
STATE OF MONTANA