MAGELSSEN v MOUAT

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No. 12965 I N T E SUPREME COURT O THE STATE O M N A A H F F OTN 1975 WILLIAM C. MAGELSSEN and CHARLOTTE T. MAGELSEEN, -VS P l a i n t i f f s and Respondents, - WILLIAM G. MOUAT, T r u s t e e , and WESTERN B N S O AK F BILLINGS, B i l l i n g s , Montana, a Montana Corporation, Defendants and Appellant. F WESTERN BANK O BILLINGS, Third-Party P l a i n t i f f , -VS - HARRISON FAGG, Third-Party Defendant. Appeal from: D i s t r i c t Court of t h e T h i r t e e n t h J u d i c i a l D i s t r i c t , Honorable E. G3rdner Brownlee, Judge p r e s i d i n g . Counsel of Record: For Appellant : Davidson, Veeder, Roberts & Baugh, B i l l i n g s , Montana John R. Davidson argued, B i l l i n g s , Montana William G, Mouat appeared, B i l l i n g s , Montana For Respondents : Moses, Kampfe, T o l l i v e r and Wright, B i l l i n g s , Montana D, Frank Kampfe argued, B i l l i n g s , Montana Crowley, Kilbourne, Haughey, Hanson and Gallagher, B i l l i n g s , Montana - Submitted: Filed : June 16, 1975 J u s t i c e John Conway H a r r i s o n d e l i v e r e d t h e Opinion of t h e Court. Mr. T h i s i s a n a p p e a l from a judgment o f t h e d i s t r i c Yellowstone County, o r d e r i n g d e f e n d a n t s William G . Mouat 1 I court, Trustee, and Western Banksof B i l l i n g s , t o d e l i v e r t o p l a i n t i f f s a deed conveying them any r i g h t , t i t l e and i n t e r e s t o f t h e bank c e r t a i n r e a l property. William C . Magelssen and C h a r l o t t e T . Magelssen b in rought t h i s a c t i o n t o r e c o v e r t h e sum of $55,000 p a i d t o d e f e n d a n t banks by t h e f i d e l i t y i n s u r e r of t h e b a n k s ' employees, and t o T equire t h e banks t o reconvey r e a l p r o p e r t y conveyed t o t h e bankb under a t r u s t indenture foreclosure s a l e . I The banks c o u n t e r c l imed, a s k i n g t h e d i s t r i c t c o u r t to: (1) r a t i f y and a f f i r m t h e f o r e c l o s u r e p r o d e e d i n g s ; ( 2 ) o r d e r t h e payment by Magelssens of t h e banks l o s s e s ($14,500) t o g e t h e r w i t h i n t e r e s t , r e p r e s e n t i n g t h e d i f f e r e n c e between t h e i n s u r a n c e payment t o t h e banks ( $ 5 5 , 0 0 0 ) , and t h e a c t u a l l o s s t o t h e banks ( $ 6 9 , 5 0 0 ) , o c c a s i o n e d by Loans made by W i l l i a m Magelssen t o one George Manuel. Two i s s u e s a r e r a i s e d on a p p e a l . 1. Whether t h e e v i d e n c e s u p p o r t s t h e d i s t r i c t c o u r t ' s d e c i s i o n o r d e r i n g t h e banks t o d e l i v e r t o Magelssens a deed conveyi n g t o them a l l t h e r i g h t , t i t l e and i n t e r e s t of t h e banks e v i denced by t h e t r u s t i n d e n t u r e d a t e d September 9, 1971, and a l l r i g h t , t i t l e o r i n t e r e s t o b t a i n e d by t h e banksupon t h e t r u s t i n d e n t u r e f o r e c l o s u r e proceedings. 2. Whether t h e c o u r t e r r e d i n f a i l i n g t o award t h e banks t h e sum of $14,500 t o g e t h e r w i t h i n t e r e s t and a t t o r n e y f e e s and c o s t s i n foreclosing t h e t r u s t indenture. I t i s n e c e s s a r y t o s e t o u t i n some d e t a i l t h e f a c t u a l s i t - uation i n order t o d i s t i l l the rather limited legal questions involved i n t h e case. The f i s c a l maneuvering of William C . Magelssen s e r v e s a s t h e background t o a s s e s s who owes whom--the by t h e i s s u e s . problem p r e s e n t e d For some t w e n t y y e a r s a f t e r g r a d u a t i n g from c o l l e g e p l a i n t i f f Magelssen worked i n v a r i o u s banks i n t h i s s t a t e h o l d i n g v a r i o u s p o s i t i o n s from t e l l e r and bookkeeper, t o t h e head of t h e mortgage and r e a l e s t a t e d e p a r t m e n t of h i s l a s t employer. H e became a n a s s i s t a n t t o t h e v i c e - p r e s i d e n t and l a t e r v i c e - p r e s - i d e n t of t h e S e c u r i t y Bank o f B i l l i n g s , Montana. These twenty y e a r s of banking e x p e r i e n c e r e s u l t e d i n h i s d e c i s i o n , i n 1970, t o o r g a n i z e h i s own banking empire and d u r i n g t h a t y e a r he organi z e d two banks, t h e Western S t a t e Bank and t h e Western Bank of B i l l i n g s , e a c h c a p i t a l i z e d a t $500,000. To have a c o n t r o l l i n g i n - t e r e s t i n t h e banks he purchased 3,210 s h a r e s , 6 6 . 4 % of t h e s h a r e s i s s u e d , a t $105 p e r s h a r e , f o r a t o t a l c o s t o f $674,100. To f i n a n c e t h i s p u r c h a s e he e n t e r e d i n t o t h e s e f i s c a l d e a l i n g s : $40,000 from h i s s a v i n g s . $40,000 borrowed from t h e F i r s t N a t i o n a l Bank i n G l e n d i v e , Montana, and t h e Midland Bank i n B i l l i n g s , Montana. $300,000 borrowed from h i s f a t h e r . $50,000 borrowed from t h e Western Banks w i t h W. B. Van F l e e t a s accomodation p a r t y . $100,000 borrowed from Western Banks, w i t h Lloyd H o s t e t l e r a s accomodation p a r t y . $100,000 borrowed from Western Banks t o pay Voegele on a loan. $30,000 borrowed from Western Banks w i t h Mardaus a s accomodation p a r t y . $25,000 borrowed from Western Banks w i t h H a r r i s o n Fagg a s accomodation p a r t y . Total - $685,000. To s e c u r e t h e accomodation p a r t i e s t o h i s borrowing from h i s own banks Magelssen gave t h e p a r t i e s h i s own p e r s o n a l n o t e s . To s e c u r e t h e $300,000 l o a n from h i s f a t h e r h e gave h i s common s h a r e s i n b o t h banks a s s e c u r i t y . A l l of t h i s was i n J u l y , 1970. On October 1 9 , 1970 h i s f a t h e r c a l l e d up h i s l o a n . A t t h i s point t h i n g s went from bad t o worse. To g e t money t o c o v e r t h e f a t h e r ' s l o a n of $300,000 p l u s i n t e r e s t , Magelssen c o n t a c t e d a money b r o k e r from Ohio named George Manuel i n a n e f f o r t t o s e c u r e a t e r m c a p i t a l l o a n f o r t h e two Western Banks of B i l l i n g s , and a proposed bank i n Bozeman, f o r some $900,000. Manuel came t o B i l l i n g s and Magelssen a g r e e d t o pay him a f e e of from 3% t o 5% f o r o b t a i n i n g such a l o a n . o b t a i n e d a 90 day l o a n from a F l o r i d a company, Fred Brown Manuel & Co., which was used t o c o v e r t h e $300,000 p l u s i n t e r e s t l o a n of h i s father. He t h e n gave Manuel $7,475 a s a n i n i t i a l f e e f o r o b t a i n - i n g t h e l o a n and o b t a i n e d promises from Manuel f o r f u r t h e r f i n a n c i n g from S w i t z e r l a n d s o u r c e s . On October 2 0 , 1970, t h e two Western Banks o f B i l l i n g s , t h r o u g h Magelssen, e a c h l o a n e d Manuel, $35,000. Manuel gave a s s e c u r i t y t o e a c h bank h i s p e r s o n a l p r o m i s s o r y n o t e . A t t h e same t i m e Manuel d e p o s i t e d t h e $35,000 o b t a i n e d from t h e Western S t a t e Bank i n M a g e l s s e n ' s p e r s o n a l a c c o u n t . In addition, a s "collateral" f o r t h e two n o t e s f o r $35,000 e a c h , Manuel gave Magelssen, f o r t h e banks, c e r t a i n s t o c k i n F i r s t United T r u s t C o . , investment t r u s t . a real estate Manuel t o l d Magelssen t h a t t h e s t o c k was l i s t e d on t h e N e w York exchange, b u t on i n v e s t i g a t i o n t h e s t o c k was worthless. Manuel ended up i n p r i s o n b u t n o t f o r h i s o p e r a t i o n s i n Montana. From t h e p r o c e e d s of t h e o t h e r $35,000 l o a n t o Manuel by t h e Western S t a t e Bank, Manuel took $5,000 i n c a s h and d e p o s i t e d $30,000 i n h i s p e r s o n a l c h e c k i n g a c c o u n t . From t h e above abw-viated background of f i s c a l o p e r a t i o n s of the two Western Banks, it was no surprise that various banking officials became alarmed and early in 1971 both state bank examiner officials and the F.D.I.C. told plaintiff Magelssen and his board that either a purchaser would have to be found for the banks or they would be closed. As a result of the problems raised by the banking officials, Magelssen was ousted from his position as president of the two Western Banks and the Board of Directors hired one George E. "Bud" Hansen, one of its directors, to secure a purchaser. Hansen had two purchasers, one deal fell through, but in August a sale was consumnated with one John Vucurevich to purchase the capital stock of the banks. fused. sale. The original offer was $1,000,000, which was re- Subsequently, it went to $1,025,000 which resulted in the That amount was some $25,000 short of paying off all the obligations of the banksand Hansen testified that Vucurevich and one of his officials, a Jack Dano, offered to take a second mortgage on Magelssen's home in the amount of $25,000, which was agreed upon and done by Magelssen and his wife. It is this amount issue one on appeal is directed to. As part of the Vucurevich purchase, Magelssen received as consideration for selling his stock the complete payment of his father's obligation (he had reborrowed $300,000) plus the payment of all the accomodation loans with interest. In addition, he testified he was promised the Manuel notes which by that time had ' V been written off by the b n ' but were still in the banks' possesak. sion. Magelssen was paid $103.97 per share for his stock while all other stockholders received $110. The stock had been purchased for $105 per share. On January 8, 1971, the Insurance Company of North America commenced a file on the Western Banks of Billings that ultimately resulted in the payment to those banks, on February 11, 1972, an amount of $55,000. This was a compromise amount-for the banks c l a i m e d $70,000, which was t h e amount w r i t t e n o f f by t h e banks o f t h e two Manuel n o t e s . A t t h e t i m e of t h e p u r c h a s e Magelssen a r r a n g e d t h a t t h e accomodation n o t e s of Mardaus, Van F l e e t and Fagg were p a i d o f f . However, Magelssen a r g u e s t h a t a s t o t h e Fagg n o t e , t h e banks t r i e d t o g e t p a i d t w i c e on it. Once t h r o u g h t h e f o r e c l o s u r e on h i s t r u s t i n d e n t u r e , and t h e second t i m e t h r o u g h a law s u i t f i l e d a g a i n s t Fagg, which w a s f i n a l l y dropped. Magelssen a r g u e s t h a t t h e Manuel n o t e s were l i k e w i s e t o have been c a r e d f o r and t h e n o t e s r e t u r n e d t o him as f u l l y s a t i s f i e d . Further, t h a t the b a n k s ' l a t e r a c t i o n i n o b t a i n i n g a $55,000 s e t t l e m e n t from t h e i n s u r a n c e companies s h o u l d have e i t h e r been r e t u r n e d t o him o r a t l e a s t a p p l i e d a g a i n s t h i s $25,000 n o t e . The banks a r g u e t h a t a l t h o u g h t h e y p a i d no s e p a r a t e c o n s i d e r a t i o n f o r t h e Manuel n o t e s t h e y a r e t h e owners of t h e n o t e s by v i r t u e of t h e p u r c h a s e of t h e c a p i t a l s t o c k and a r e a c c o r d i n g l y e n t i t l e d t o t h e s e t t l e m e n t . The t r i a l c o u r t a f t e r a f u l l h e a r i n g and a f t e r c o n s i d e r i n g a l l t h e e v i d e n c e s u b m i t t e d by t h e v a r i o u s d e p o s i t i o n s , e n t e r e d i t s own f i n d i n g s o f f a c t , c o n c l u s i o n s of law and judgment, p r o v i d ing i n pertinent part: " ' T h a t $55,000.00 i s what i s now c a u s i n g t h e t r o u b l e . The banks c l a i m t h e money a l l e g i n g t h a t t h e Manuel n o t e s a r e t h e p r o p e r t y o f t h e banks and t h e r e f o r e t h e money b e l o n g s t o t h e banks. The P l a i n t i f f s c l a i m t h e money a l l e g i n g t h a t had t h e Manuel n o t e s been l i q u i d a s s e t s a t t h e t i m e of t h e s a l e t o Vucurevich t h e c a s h t h e P l a i n t i f f s would have r e c e i v e d would have been $70,000 g r e a t e r , t h e r e f o r e t h e money b e l o n g s t o t h e P l a i n tiffs. The P l a i n t i f f s a l s o a l l e g e t h a t t h e a g r e e ment w i t h M r . Vucurevich was t h a t t h e Manuel n o t e s were t o be t h e p r o p e r t y of t h e P l a i n t i f f s and t h e r e f o r e any money b r o u g h t i n based on t h o s e n o t e s belongs t o t h e P l a i n t i f f s . ' "Without d o u b t a t t h e t i m e o f t h e bank s a l e n e i t h e r P l a i n t i f f s nor Mr. Vucurevich b e l i e v e d t h e Manuel n o t e s had any v a l u e . The n e g o t i a t i o n s undoubtedly r e s u l t e d i n t h e p a r t i e s understanding t h a t M r . Vucurevich would n o t pay one c e n t f o r t h o s e n o t e s , and t h e r e f o r e P l a i n t i f f s w e r e s t u c k w i t h t h a t l o s s . There i s some c o n f l i c t i n t h e t e s t i m o n y a s t o p h y s i c a l d e l i v e r y of t h e n o t e s : t h e P l a i n t i f f s a l l e g e t h e y were t o r e c e i v e t h e a c t u a l n o t e s . The c o u r t f i n d s some b a s i s f o r t h i s b e l i e f , e s p e c i a l l y from t h e t e s t i m o n y of M r . J a c k P. Dano r e g a r d i n g n o n - d e l i v e r y of t h e notes. "The c o u r t h a s l i t t l e t r o u b l e f i n d i n g t h a t M r . Vucurevich d i d n o t pay any c o n s i d e r a t i o n f o r t h e n o t e s because he and t h e P l a i n t i f f f e l t t h e y were w o r t h l e s s . N e i t h e r d o e s t h e c o u r t have any t r o u b l e f i n d i n g t h a t M r . Vucurevich would have p a i d a c o n s i d e r a t i o n f o r t h e n o t e s had t h e y been v a l i d o b l i g a t i o n s . I t was n o t proved t o t h e s a t i s f a c t i o n of t h e Court t h a t M r . Vucurevich a c t u a l l y bought t h e two Manuel n o t e s from t h e P l a i n t i f f s ( i n effect). "The c o u r t would have l i t t l e t r o u b l e f i n d i n g t h a t n e i t h e r p a r t y i s e n t i t l e d t o t h e $55,000, b u t i t i s on hand, and t h e c o u r t c o n c l u d e s it s h o u l d be d i v i d e d i n some manner between t h e p a r t i e s . "Therefore, "IT I S ORDERED: "1. That H a r r i s o n Fagg i s n o t o b l i g a t e d t o any of the parties herein; That a l l c l a i m s , c r o s s c l a i m s o r c o u n t e r c l a i m s o f any p a r t y i s d i s p o s e d o f by t h i s judgment, whether s p e c i f i c a l l y r e f e r r e d t o o r n o t . "2. " 3 . That t h e banks keep t h e $55,000.00, b u t t h e y a r e o r d e r e d t o d e l i v e r t o t h e P l a i n t i f f s a deed conveying t o t h e P l a i n t i f f s any r i g h t , t i t l e o r i n t e r e s t t h e banks have and t o t h e p r o p e r t y c o v e r e d by t h e n o t e and t r u s t I n d e n t u r e d a t e d September 9 , 1971, i n c l u d i n g any r i g h t , t i t l e o r i n t e r e s t o b t a i n e d by f o r e c l o s u r e p r o c e e d i n g s ; "4. A l l p a r t i e s a r e t o pay t h e i r own c o s t s . " To d e t e r m i n e whether t h e r e i s s u f f i c i e n t e v i d e n c e t o s u p p o r t t h e t r i a l c o u r t ' s f i n d i n g s and c o n c l u s i o n s , we f i r s t examine t h e p u r p o s e of t h e p u r c h a s e of t h e bonds o f t h e I n s u r a n c e Company of America by t h e two Western Banks of B i l l i n g s , r e f e r r e d t o a s a b a n k e r s ' b l a n k e t bond. The bond was p u r c h a s e d by e a c h bank, n o t by Magelssen, and one of i t s p r o v i s i o n s was t o c o v e r " D i s h o n e s t y " : "A l o s s t h r o u g h any d i s h o n e s t a c t o f any of t h e employees committed anywhere and whether committed alone o r i n collusion with o t h e r s , including l o s s , t h r o u g h any s u c h a c t of any of t h e employees, of P r o p e r t y h e l d by t h e I n s u r e d f o r any purpose o r i n any capacity and whether so held gratuitously or not, and whether or not the Insured is liable therefor. 'I From the testimony of Mr. Veeder, Claims Supervisor of the Insurance Company of North America, who finally negotiated the settlement of $55,000 with the two banks, and all of the documentary evidence introduced concerning that settlement, it is obvious that the settlement was made under the quoted "Dishonesty" acts clause of the policy. TOO, from the same source of evidence, it is clear the acts referred to were the acts of Magelssen when he was an officer of the two banks in his dealings with Manuel. To now argue Magelssen can personally benefit from those acts through insurance he had purchased to protect the banks is untenable. The policies were to protect the banks and not Magelssen and to argue that he sold his stock at a lower price than the other stockholders, or that all the new owners had declared the Manuel notes of no value, just begs the issue. Magelssen cannot, and should not, benefit from his own wrongdoing. His note and those of Manuel became the property of the two banks at the time of the sale. Plaintiff Magelssen cites Gilmore v. Gilmore, , Mont . 530 P.2d 480, 32 St.Rep. 23, 26; Stromberg and Brown v. Seaton Ranch Co., 160 Mont. 293, 306, 502 P.2d 41, to support his proposition on appeal that: "We must indulge the presumption that the judgment of the district court is correct and wiil not be disturbed unless there is a clear preponderance of evidence against it when viewed in the light most favorable to the prevailing party." We have no argument with the case authority cited but there is like authority for this Court to set aside a trial court's findings where there was no substantial evidence as a basis for its findings. If a clear and satisfactory showing is not made in s u p p o r t oi t h e f i n d i n g s , t h i s C o u r t , i n p r o p e r c a s e s , w i l l s e t Gray v . G r a n t , 62 Mont. 452, 206 P.2d 410; K a s a l a v . them a s i d e . K a l i s p e l l Pee Wee B a s e b a l l League, 1 5 1 Mont. 1 0 9 , 439 P.2d 6 5 ; J u d s o n v . Anderson, 118 Mont. 1 0 6 , 165 P.2d 1 9 8 . W e f i n d t h e t r i a l c o u r t e r r e d i n f a i l i n g t o award t h e banks t h e sum of $ 1 4 , 5 0 0 , t o g e t h e r w i t h i n t e r e s t , a t t o r n e y f e e s and c o s t s i n f o r e c l o s i n g t h e t r u s t i n d e n t u r e . The f i n d i n g s o f f a c t , c o n c l u s i o n s o f l a w , and judgment a r e set a s i d e . The c a u s e i s r e t u r n e d t o t h e t r i a l c o u r t w i t h d i r e c t i o n s t o e n t e r judgment W e qoncur: . Chief ~ u s t i c e Justices appellant-defendants.

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