En Banc. Durham, J. Dore, C.j., and Utter, Brachtenbach, Dolliver, Andersen, Smith, and Guy, JJ., concur. Johnson, J., did not participate in the disposition of this case.
Raymond and Audrey Badgett (the Badgetts) brought an action for damages against Security State Bank (the Bank) after the Bank refused to restructure their agricultural loans. The trial court granted summary judgment in favor of the Bank and dismissed the claims. It also granted the Bank summary judgment on its counterclaims for monies due and entered a decree of foreclosure. The Court of Appeals reversed and remanded for trial, holding that the Bank may have had a good faith duty to consider the Badgetts' proposals for restructuring the loan. We reverse the Court of Appeals and reinstate the trial court's dismissal of the damages claims and entry of the decree of foreclosure.
In 1981, the Badgetts borrowed $476,000 from the Bank for their dairy operation. $336,000 of this amount was an intermediate term loan, and the remaining $140,000 was for operating expenses. The contract for the term loan had a 1-year call or maturity date, but was amortized over 5 to 10 years. According to the Badgetts' first loan officer, it was a fairly typical practice for agricultural loans to be re-examined yearly to recap collateral positions, update financial statements, and make projections for the coming year.
In 1984, the Badgetts decided to quit the dairy business. They asked the Bank for assistance in restructuring their loans so they could liquidate their assets and participate in a government diversion program. After a series of negotiations, the parties agreed to a liquidation plan, evidenced by a new promissory note, a security agreement and general pledge, and a security agreement for crops, livestock, and farm products.
In May 1985, the Badgetts decided to re-enter the dairy business and they requested new financing. The Bank sent a letter to the Badgetts asking for additional financial information and indicating that, in the event new financing was agreed to, a written loan agreement would be required. On September 5, 1985, after a series of negotiations, the parties executed a loan agreement and new promissory note in the amount of $1,050,000. The loan agreement was secured by livestock, equipment, feed inventories, and junior liens on all real estate. It expressly provided that "[a]dditional advances or increased commitments for any purpose are not contemplated at this time" (italics ours), and that the written agreement "contains the entire loan agreement between Borrower and Security State Bank with respect to the loan transaction." Clerk's Papers, at 134-35.
In early 1986, the Badgetts again decided to retire from the dairy business and considered participating in the federal government's Dairy Termination Program (DTP). Under this program, participants were selected on the basis of bids, and they were required to keep their milk facilities out of production for 5 years. The Badgetts had considered entering a bid of $18 per hundredweight of milk production, for which they could have expected to receive $1,600,000.
On March 3, 1986, the Badgetts and their attorney, Rene Remund, met with their current loan officer, Joe Cooke, and the Bank's attorney, John Hall. The Badgetts initially proposed that the Bank accept $1,300,000, part of the amount they expected to receive through participation in the DTP, in satisfaction of the $1,500,000 debt and forgive the remaining $200,000. Cooke declined to accept this proposal. The parties then discussed the possibility of sale of the cattle at auction. They also discussed the possibility of deferring payment of $200,000, with the Bank releasing its existing collateral and accepting unspecified real estate to secure the remaining debt. No specific parcel was proposed, and neither terms of repayment nor interest rate were discussed. Cooke was to meet with the loan committee and get
back to the Badgetts with an answer. The Badgetts left the meeting knowing that an agreement had not been reached and further negotiations were necessary.
Cooke then met with the loan committee of the Bank. The Bank did not accept the Badgetts' proposal and did not make an offer. The Badgetts contend that Cooke misrepresented their offer by presenting it to the committee as non-negotiable. Gail Shaw, who was a member of the loan committee, stated that his impression, which he got from Cooke, although "[n]ot by specific words", was that the Badgetts' proposal was non-negotiable. His impression was based in part on the fact that the Badgetts were operating under a tight time frame because bids for participation in the DTP were due by March 7. Thus, there was not really time to negotiate about the $18 bid underlying the proposal. Shaw also stated that he was disappointed that the Badgetts had not made a formal proposal because the proposal was "not conveyed clearly to [Cooke]", and Shaw "ha[d] to admit [from reading the notes of the meeting] that it appears that [Cooke] didn't understand [the proposal]." On March 7, the Badgetts submitted a bid to the DTP of $25.89 per hundredweight.
On March 28, 1986, they learned that their bid to the DTP was not accepted. Prior to that time, the Badgetts had made their loan payments according to the terms of the note. However, on April 3, 1986, their loan payment was for less than the agreed amount and they stopped making payments thereafter. On April 14, 1986, the Badgetts and the Bank entered into a written agreement to auction certain collateral. The sale of the herd and machinery realized net proceeds of $374,447.85.
On September 11, 1986, the Badgetts filed a complaint against the Bank for $2 million in damages alleging, in part, that the Bank had unreasonably refused permission for the Badgetts to participate in the DTP. They also made a Consumer Protection Act (CPA) claim. The Bank filed a counterclaim for payment of ...