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Stanley and Elwood Farms v. First Nat. Bank

Court of Appeals of Iowa
Feb 1, 2006
713 N.W.2d 247 (Iowa Ct. App. 2006)


No. 5-738 / 04-1381

Filed February 1, 2006

Appeal from the Iowa District Court for Chickasaw County, Stephen C. Clarke, Judge.

Plaintiffs appeal from a defendant's judgment on their claim for intentional interference with contracts. AFFIRMED.

Frank Burnette, Des Moines, and Robert W. Thompson of Thompson Law Office, Reinbeck, for appellant.

Christopher F. O'Dohohoe of Elwood, O'Donohoe, Stochl, Braun Churbuck, New Hampton, for appellee.

Heard by Zimmer, P.J., and Miller and Vaitheswaran, JJ.

Two farmers and their partnership sued a bank, alleging the bank intentionally interfered with their third-party contracts. In this second appeal, the farmers assert that the district court erred in dismissing their claim. We affirm.

I. Background Facts and Proceedings

A detailed rendition of the facts giving rise to this litigation is contained in our first opinion. See Fredericksburg Farmers Coop. v. Stanley Elwood Farms, No. 00-0278 (Iowa Ct.App. Dec. 12, 2001). In a nutshell, Stanley and Elwood Boe and their partnership Stanley and Elwood Farms financed their farm operations through First National Bank. They later learned that a bank employee embezzled more than $60,000 from their line of credit. The bank restored the embezzled funds, plus interest.

By this time, the borrowers required additional funds to pay their farm leases and suppliers. The bank offered to restructure their loan at a lower interest rate and with an enhanced line of credit. In return, the bank sought a release of liability for all claims relating to prior financing, other than any undiscovered embezzlements by the bank employee. Elwood elected not to sign the offer and the bank declared the borrowers' loan in default. As a result, the borrowers were unable to make payments on their farm leases or supplier accounts. This litigation ensued.

In the first trial, the parties' respective claims were resolved in favor of the bank. On appeal, our court affirmed the district court in all but one respect: we concluded the release of liability should not have been excluded from consideration on the question of whether the bank intentionally interfered with the borrowers' contracts and prospective contracts. Id., slip op. at 6-8. We reversed and remanded for a new trial.

Following retrial, the district court considered the release but found it unpersuasive on the issue of the bank's liability. The court stated:

In this case, before requesting the release, the bank made full restitution to the borrowers, including principal and interest for the embezzlement of their employee. The motive of the bank in insisting on the release was to protect its financial interests, which it had a right to do. The bank does not have a duty to continue to provide financing to a borrower. There is no evidence to support a finding or conclusion that the predominant purpose of the bank's actions was to financially harm or destroy the plaintiff's business. A party does not improperly interfere with another's contract by exercising its own legal rights in protection of its own financial interest.

(Citations omitted). The district court dismissed the borrowers' claim for intentional interference with contracts and prospective contracts. This appeal followed.

II. Scope of Review

As a preliminary matter, the parties disagree on our scope of review, with the borrowers' contending our review is de novo and the bank arguing for review on error. We agree with the bank that our review is for errors of law, with the fact findings binding on us if supported by substantial evidence. Iowa R. App. P. 6.4.

Although the case was filed as an equitable action, it was initially tried to a jury. On remand, the parties waived a jury. Moreover, the claims in this case are legal in nature. Finally, the court and counsel responded to evidentiary objections as if the case were tried at law and not in equity. For these reasons, we review for the correction of errors at law. Even if we were to review this matter de novo, however, our result would not change.

III. Analysis

The borrowers raise several interrelated arguments. We will address them together.

The law on intentional interference with contracts or prospective business relations is well-established. Both "require proof that the defendant intentionally and improperly interfered with the relationship." Compiano v. Hawkeye Bank Trust of Des Moines, 588 N.W.2d 462, 464 (Iowa 1999). The tort of intentional interference with prospective business relations also requires the plaintiff to prove that "the defendant acted with the sole or predominant purpose to injure or financially destroy the plaintiff." Id.

The borrowers argue that the district court improperly characterized their year-to-year farm leases as prospective business relationships rather than contracts. We agree that this characterization required the borrowers to prove more than an intentional and improper interference with the relationship. We disagree that if the farm leases had been characterized as contracts, the borrowers would have satisfied the lesser standard.

As noted, even the tort of intentional interference with contract requires proof of improper interference. Substantial evidence supports the district court's finding that the bank did not improperly interfere with the borrowers' leases. Specifically, a banker at First National Bank testified the bank's "main goal was to get the loan restructured." In his view, the bank needed to do so because

there were still unharvested crops, which harvest was in the process, that there were considerable amount of accounts payables that needed to be addressed. Also, that it was getting into the spring, which required decisions being made on planting, insurance and so forth.

To that end, the bank made "some concession on interest rate."

The banker readily agreed that the bank intended not to "honor the loan" if the borrowers did not sign the release of liability. This decision was based on his conversations with the borrowers, who, he perceived, were attempting to extract as much as possible from the situation. In particular, Elwood "raised the issue of the stress" that the embezzlement caused him, as well as the "damage to his credibility." Elwood also advised the banker that he had been told to "get himself a good attorney." When asked by the banker what would make him happy, Elwood responded that he would like to own his mother's house free and clear as well as a cattle lot south of town.

Elwood Boe did not dispute the substance of his conversations with the banker. He testified he told the banker "I would like that house of mother's bought from her so Stanley could have it and that feedlot down there, the rest of it paid for." He continued, "— like a kid at Christmas, you ask for all you can get."

This testimony suggests the bank had legitimate reasons for requiring a release of liability, as the district court found. Accordingly, the court did not err in concluding that the borrowers failed to prove the bank improperly interfered with their landlord-tenant relationships, whether they are characterized as contracts or prospective business relationships. See Wilkin Elevator v. Bennett State Bank, 522 N.W.2d 57, 62 (Iowa 1994) (stating "bank was only acting to protect its own financial interests").

Our conclusion disposes of the borrowers' second argument that the bank afforded them a Hobson choice: either "[r]efuse to sign the release and be foreclosed immediately" or "[s]ign the release and expose themselves to greatly expanded risk." The bank had a right to foreclose, based on the borrowers' default on their loan. And, as noted, there was substantial evidence to support a finding that the bank rather than the borrowers would expose themselves to greatly expanded risk without a release of liability.

The borrowers note that a notice of default was not given until after their conversations with the bank concerning restructuring of the loan. They point to this fact as further evidence of the bank's improper motive. They concede, however, that the bank may not have had a duty to give any notice of default.

The borrowers also urge that the district court erred in affording greater weight to the bank's expert witnesses then to theirs. It is axiomatic that the weighing of experts rests within the purview of the fact-finder. Estate of Hagedorn v. Peterson, 690 N.W.2d 84, 88 (Iowa 2004).

IV. Disposition

We find it unnecessary to address the parties' remaining arguments. We affirm the judgment of the district court dismissing the borrowers' claims for intentional interference with contracts and prospective contracts.


Summaries of

Stanley and Elwood Farms v. First Nat. Bank

Court of Appeals of Iowa
Feb 1, 2006
713 N.W.2d 247 (Iowa Ct. App. 2006)
Case details for

Stanley and Elwood Farms v. First Nat. Bank

Case Details

Full title:STANLEY and ELWOOD FARMS, a partnership, STANLEY BOE and ELWOOD BOE…

Court:Court of Appeals of Iowa

Date published: Feb 1, 2006


713 N.W.2d 247 (Iowa Ct. App. 2006)

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