Crystal Springs Trout Co. v. First State Bank

732 P.2d 819, 225 Mont. 122, 1987 Mont. LEXIS 750
CourtMontana Supreme Court
DecidedJanuary 15, 1987
Docket85-342
StatusPublished
Cited by21 cases

This text of 732 P.2d 819 (Crystal Springs Trout Co. v. First State Bank) is published on Counsel Stack Legal Research, covering Montana Supreme Court primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Crystal Springs Trout Co. v. First State Bank, 732 P.2d 819, 225 Mont. 122, 1987 Mont. LEXIS 750 (Mo. 1987).

Opinions

MR. JUSTICE SHEEHY

delivered the Opinion of the Court.

The First State Bank of Froid (Bank) appeals the judgment of the District Court, First Judicial District, County of Broadwater, awarding compensatory and punitive damages to plaintiffs Crystal Springs Trout Company (CSTC) and its shareholders for breach of an oral contract to loan money and for negligent misrepresentation. Plaintiffs have cross-appealed on two issues concerning the terms of the final judgment. We affirm in part and reverse in part.

The Bank raises eight issues:

1. Whether the District Court erred when it found Froid Bank liable for the tortious acts of its agent, Jerry B. Wallander, but concluded that Wallander had no personal liability?

2. Whether the District Court’s damage award was erroneous because the District Court failed to determine that plaintiffs’ damages were proximately caused by any of Froid Bank’s acts?

3. Whether the District Court applied an incorrect measure of damages when it awarded the individual shareholders their entire initial investment plus interest for Froid Bank’s breach of commitment to provide financing to CSTC?

4. Whether the District Court erred when it awarded damages to the individual shareholders for losses suffered by the corporation?

5. Whether the District Court erred in refusing to permit comparison of Jerry Wallander’s misconduct with that of the CSTC principals?

6. Whether Jerry Wallander’s conduct was sufficiently culpable to support punitive damages?

7. Whether the District Court erred in awarding defendant Froid Bank all of plaintiffs’ assets and concomitant liabilities as an offset to damages awarded against both CSTC and the individual plaintiffs where CSTC’s liabilities exceeded the value of its assets?

8.. Whether the District Court erred in awarding the individual [126]*126shareholders interest on their loss of investment at the rate of ten percent for periods prior to July 1, 1979?

The plaintiffs raise two issues on cross-appeal:

1. Whether Jerry B. Wallander is jointly liable for the judgment against the Bank?

2. Whether the damage award received by CSTC and its shareholders was inadequate?

FACTUAL BACKGROUND

Plaintiff CSTC is a Montana corporation, incorporated in 1977 for the purpose of raising trout for commercial sale. It was initially capitalized through the sale of common stock to Ron Preston, Tom Nyquist, and other members of the Nyquist family.

The other plaintiffs in this case are the shareholders of CSTC: 1) Tom and Virginia Nyquist; 2) Ken and Kathleen Nyquist, Tom’s father and mother; 3) Robert and Peggy Moore, Tom’s sister and brother-in-law; 4) Earl and Alice Bradford, Tom’s wife’s parents; 5) Ron Preston, Tom’s business school friend and associate.

Defendants are the First State Bank of Froid and Jerry Wallander, former Bank president. Wallander succeeded his father as Bank president in 1969, and held that position until 1982 when he was asked to resign by the family. The Froid Bank is essentially a family-owned Bank, with the Wallanders owning over 90% of the stock in the Bank corporation. Jerry Wallander and Ken Nyquist grew up together in Froid, and Wallander was also Ken’s lawyer and business advisor.

CSTC was incorporated in May, 1977, and was the brain child of Tom Nyquist and Ron Preston, two 1973 University of Montana business school graduates. Its operations were located at Big Springs, a series of natural springs downstream from the dam at Toston, Montana. In the summer of 1977, Tom Nyquist began acquiring water and land leases for the trout farm. By the fall of 1977, construction was underway. Plaintiffs built a hatchery building and several dirt raceways. They continued to expand through the winter months, and by spring of 1978 had approximately 825,000 young fish in the raceways and 200,000 fingerlings in the hatchery.

On May 20, 1978, an earthen ditch which carried water to the project area breached. Approximately 700,000 fish in the raceways were destroyed. Prior to this washout, plaintiffs had planned to line the ditch with gunnite to strengthen it. As there had been no previous record of a washout on this ditch, they had planned to line the ditch [127]*127after the upcoming 1978 season, financing the project with money from sales made during 1978.

CSTC was initially capitalized at $167,283. In February, 1978, Ken Nyquist bought $100,002 worth of stock bringing total shareholders’ equity to $267,285. In addition, Tom Nyquist sought a Small Business Administration (SBA) loan from the Montana Bank of Missoula in the fall of 1977. A loan guaranty of $260,000 was issued in March, 1978. The loan package was then transferred to the Montana Bank of Helena, but was never drawn upon due to the circumstances surrounding the washout. The loan guaranty was then allowed to lapse.

After the washout, the shareholders regrouped to determine a course of action. They ultimately decided to sell the project and simultaneously refinance it on a larger scale. Refinancing was sought through the Farmers Home Administration (FmHA) which had higher lending limits than the SBA. The attempted sale of CSTC was abandoned after an FmHA official reprimanded the principals for placing CSTC on the market and representing that a $950,000 loan commitment had been made by FmHA. (FmHA loans are contingent on the applicant’s ongoing commitment to the proposed business.)

CSTC sought a $900,000 loan from FmHA for long term financing. Interim financing for construction and operating capital had to be raised by the borrower. However, in order to obtain interim financing, the borrower must obtain a “conditional Commitment for Guarantee” from the FmHA, which is issued only if certain FmHA requirements are met. Thus, until the permanent loan guaranty is issued, the borrower and his banker are liable for the entire investment. This means the borrower’s bank must be willing and able to provide interim money, risking that all will go well until the conditional and finally the permanent loan guarantees issue.

Both plaintiffs and defendants were aware of these requirements. By August, 1978, Froid Bank was identified as the prospective lender for CSTC. Wallander, in his capacity as Ken Nyquist’s lawyer, had first been contacted by Ken in February, 1978, when Ken asked his advice on buying stock in CSTC. In May, 1978, Ron Preston wrote to Wallander urging him to become involved with CSTC, saying the Bank’s involvement would be mutually beneficial to them both. In August, 1978, Wallander became involved by reviewing the FmHA application papers and indicating the Bank would act as the interim financier.

[128]*128The FmHA application was partially completed by the CSTC principals and delivered to Wallander for completion and signing on October 19, 1978. The application was kept by him until after January 5, 1979, despite Wallander’s claim to CSTC that he had filed the application with the FmHA office in Bozeman. On January 5, Wallander and the CSTC principals met to discuss interim financing and the 1979 construction season. At the meeting, Wallander stated that there would be “no problem” in getting financing from another overlining bank. The first cash advance was issued, secured by a promissory note signed by CSTC, and co-signed by Ken, Tom and Ron.

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Crystal Springs Trout Co. v. First State Bank
732 P.2d 819 (Montana Supreme Court, 1987)

Cite This Page — Counsel Stack

Bluebook (online)
732 P.2d 819, 225 Mont. 122, 1987 Mont. LEXIS 750, Counsel Stack Legal Research, https://law.counselstack.com/opinion/crystal-springs-trout-co-v-first-state-bank-mont-1987.