State Ex Rel. Department of Agriculture v. A.B.N. Ranch

No. 87-463
IN THE SUPREME COURT OF THE STATE OF MONTANA
1988
STATE OF MONTANA, acting by and through
the DEPARTMENT OF AGRICULTURE,
Plaintiff and Respondent,
-vs-
A.B.N. RANCH, et al.,
Defendant and Appellant.
APPEAL FROM: The District Court of the First Judicial District,
In and for the County of Lewis & Clark,
The Honorable Thomas Honzel, Judge presiding.
COUNSEL OF RECORD:
For Appellant:
Lilly, Andriolo & Schraudner; Michael J. Lilly,
Bozeman, Montana
For Respondents:
Timothy J. Meloy, Dept. of Agriculture, Helena,
Montana
Rae V. Kalbfleisch, Shelby, Montana
Hugh Brown, Chester, Montana
Thomas Budewitz, Townsend, Montana
Kenneth Frazier, Billings, Montana
Donald Hamilton, Great Falls, Montana
R. W. Heineman, Wibaux, Montana
Steve Johnson, Great Falls, Montana
Dale Keil, Conrad, Montana
Keith Maristuen, Havre, Montana
Joseph Mudd, Bridger, Montana
L.D. Nybo, Great Falls, Montana
Rodney Peterson, Cut Bank, Montana
Submitted on Briefs: Jan. 14, 1988
Decided: FEB 2 g 1988
Filed: FEB 2 9 1988
Clerk
Mr. Justice L. C. Gulbrandson delivered the Opinion of the
Court.
This is an appeal of an order distributing bond
proceeds made by the First Judicial District Court, Lewis and
Clark County, Montana, in its memorandum and order of August
6, 1987. Originally, the State of Montana Department of
Agriculture (State), filed an interpleader action after
receiving bond proceeds from the surety of Coast Trading
Company, Inc. (Coast) after Coast declared bankruptcy.
The District Court determined that there were two
categories of numerous defendants entitled to receive the
proceeds. One category is a group of independent grain
dealers (Dealers) who contracted with Coast at its Portland,
Oregon, office, through an agent located in Great Falls,
Montana. The other category is comprised of a number of
farmers (Farmers) who dealt directly with twelve grain
elevators located throughout the state of Montana. The court
determined that the Farmers were secured under a $195,000
grain dealer and public warehouseman bond and the Dealers
were secured under a $20,000 grain merchandiser-track buyer
bond. It is from this determination that the Dealers appeal.
We affirm.
The only issue we have before us is whether the
District Court properly allocated the bond proceeds held by
the State among the various defendants after granting summary
judgment. Both parties agree that there is no material issue
of fact and therefore this appeal is only to consider whether
the District Court erred in adopting the distribution plan
suggested by the State.
In 1980, the State determined Coast was conducting two
separate and independent grain purchasing businesses. Coast
originally applied for two separate licenses in compliance
with Montana law.
In July, 1981, Coast renewed its grain purchasing
licenses for the 1981-1982 grain year and it was required to
execute two bonds. One bond was entitled a grain
merchandiser-track buyer bond in the amount of $20,000. The
other was entitled a grain dealer-public warehouseman bond in
the amount of $195,000.
The grain dealer-public warehouseman bond expressly
stated that Coast operated twelve public local warehouses at
Agawan, Bainville, Brady, Galata, Geraldine, Great Falls,
Lothair, Missoula, Plains, Power, Square Butte, and Tiber,
Montana. Farmers sold grain to these twelve elevators
pursuant to contracts entered into with Kenneth Branvold,
manager for the Montana and North Dakota elevators of Coast.
Each elevator manager purchased grain from the Farmers under
a grain purchase agreement. Generally, the Farmers would
deliver the grain to one of the twelve grain elevators
without any freight charge to Coast. Occasionally, Coast
would send a tractor-trailer unit to the Farmers to pick up
the grain. The local elevator manager would issue a grain
sale ticket. If stored at the local elevator a warehouse
receipt would be exchanged for the ticket.
Under the grain dealer-public warehouseman transaction,
all grain purchased by the Coast elevators was paid for by
the local elevator manager with a check drawn upon a Montana
bank. Branvold stated in his deposition that he purchased
grain out of the Great Falls office under the grain
dealer-public warehouseman license and did not purchase grain
for the Portland office. He further stated that the local
manager was responsible for any lost or spoiled grain at any
of the twelve elevators.
As to the grain merchandiser-track buyer transaction,
the grain merchandiser-track buyer bond stated that Coast.
carried out the business of track buyer in Portland. Kirk
Smith, agent and buyer for the Portland office of Coast, also
operated out of the same Coast office as Branvold in Great
Falls. Smith, however, purchased grain in bulk quantities
from commercial grain elevators, Dealers, under what Branvold
stated was the track buyer's license. Smith never purchased
grain from any of the Farmers. He never used the grain
purchase contracts, scale tickets, settlement sheets or
checks drawn on the Montana bank. The grain was delivered
outside of Montana, either to Coast in Portland or to
Lewiston, Idaho. Coast's Portland office paid the freight on
this grain to out-of-state destinations and also took
responsibility for any losses or spoilage. The contract and
settlement sheets for Smith's purchases were all printed and
prepared by the Portland office. The Dealers, additionally,
received approximately 1 per bushel more than what the
Farmers received. The Dealers were paid by checks drawn on a
Portland bank. None of the Dealer's grain was stored in any
of the twelve Montana warehouses.
Between 1981-1982, Coast declared bankruptcy. The
State then brought an action against United Pacific Insurance
Co., the surety, to recover on the bonds. In February 1985,
the State settled the lawsuit for $180,000. It was this
money which was distributed pro-rata to the Farmers and
Dealers. The Farmers received $163,225 plus accrued interest
and the Dealers received $16,745 plus accrued interest.
According to the District Court, the grain
dealer-public warehouseman bond was issued in accordance with
the Department of Agriculture's bond schedule for public
warehouses. Schedule A, M0nt.Admin.R. 4.12.1009 (1980). The
qrain merchandiser-track buyer bond was issued pursuant to
the same regulation. The District Court further held that a
contingency fund be established for a number of farmers
involved in a separate lawsuit to recover under prior year
bonds submitted by the surety companies. The attorneys were
also awarded fees and costs to be paid out of the accrued
interest.
Dealers argue that the Department of Agriculture
originally was in error in issuing the licenses because Coast
could not be a "track buyer" under the statutes in place at
the time. They argue that the Department of Agriculture
should not have treated Coast as a single entity operating in
two separate capacities. Dealers claim that the District
Court therefore should have combined the entire recovery
amount and not made a distinction between the Dealers and the
Farmers.
Dealers argue that the following definitions apply to
this case and show that Coast should have only executed one
bond. Section 80-4-201, MCA (1981), provides the following
definitions for "agent", "broker", "commission man", "grain
dealer," and "track buyer":
Unless the context requires otherwise, as
used in this part, the following
definitions apply:
(1) The terms "agent", "broker", and
"commission man" include every person,
association, firm, and corporation which
engages in the business of negotiating
sales or contracts for grain or of making
sales or purchases for a commission.
(4) The term "grain dealer" includes
every person, firm, association, and
corporation owning, controlling, or
operating a truck, tractor-trailer unit,
or c\rarehouse, other than a pub1 ic
warehouse, and engaged in the business of
buying grain for shipment or milling.
(8) The term "track buyer" includes
every person, firm, association, and
corporation which engages in the
business of buying grain for shipment or
milling and which does not own, control,
or operate a warehouse or public
warehouse.
Further, Dealers argue that although "warehouseman" is
not defined in the Montana Code Annotated, the State did
promulgate a definition of public warehouse and public
warehouseman in M0nt.Admin.R. 4.12.1008 (b), (1980):
Public Warehouse: Includes any elevator,
mill, warehouse, or structure in which
grain is received from the public for
storage, milling, shipment or handling.
The term "Public Warehouseman" shall be
held to mean and include every person,
association, firm and corporation owning,
controlling, or operating any public
warehouse in which grain is stored or
handled in such a manner that the grain
of various owners is mixed together, and
the identity of the different lots or
parcels is not preserved . . .
Dealers argue that S 80-4-201(4) and (8), MCA (1981),
both disallow Coast from being classified as a grain dealer
or track buyer because Coast owns and operates the twelve
public warehouses in Montana. Therefore, Dealers contend,
had the Department of Agriculture acted correctly, all
parties in this case would be claiming under the same bond in
a pro-rata manner. They cite Fidelity Deposit Co. v. State
of Montana (9th Cir. 1937) , 92 F. 2d 693, for the proposition
that the statutes of the state should be incorporated into
the terms of the bond. By so doing, the Dealers claim, we
should conclude that the bonds were issued erroneously and
combine all proceeds to be issued pro-rata.
Dealers claim this Court should ignore the labels
placed on the bonds and follow Fidelity Deposit Co., supra,
and conclude the bond proceeds were to "protect all
individuals dealing with" Coast.
Farmers argue, and we agree, that Coast was operating
two distinct grain merchandising businesses at the time the
licenses and bonds were issued. We have previously
recognized that the Department of Agriculture can require
different bonds for the same legal entity. Kohles v. St.
Paul Fire & Marine Insurance Co. (1964), 144 Mont. 395, 396
P.2d 724.
We recognize the general rule that " [i]f a bond is
executed in accordance with a statutory requirement, then
such a statute constitutes a part of the bond as if
incorporated in it, and the bond must be construed in
connection with the statute." Kohles, 144 Mont. at 398-399,
396 P.2d at 726; see also, General Electric Credit
Corporation v. Wolverine Insurance Co. (Mich. 1984) , 362
N.W.2d 595, 602; American Surety Co. of New York v. Butler
(1930), 86 Mont. 584, 591, 284 P. 1011, 1014. However, this
rule is not without exception. The statement in subsection
(4) and (8) of S 80-4-201, MCA (1981), that a grain dealer
and track buyer may not own, control or operate a warehouse
or public warehouse, should be read with consideration that
this section begins "[ulnless the context requires otherwise
Coast purchased the bonds on the same day, from the
same agent, to be issued by the same surety. It is clear
that the intention of Coast and the Department of Agriculture
was, as the District Court noted, to have the grain
dealer-public warehouseman bond protect losses by farmers
selling grain to one of the twelve public warehouses and have
the grain merchandiser-track buyer bond cover losses suffered
by commercial dealers selling grain to the Portland office of
Coast.
The agent issuing the license for the State may have
failed to determine if Coast specifically fit into the
definitions under the statute. The bonds do not have an
express specific reference to any statute. However, the
facts support the decision of the State to require Coast to
have two separate surety bonds. By looking at the facts of
how Coast was operating, it is clear that they had two
separate grain businesses.
We find therefore, under the facts of this case, that
the District Court correctly interpreted these bonds under
the ambiguous statutes governing grain merchandising and
storage, S 80-4-201 et seq., MCA (1981), and accompanying
regulations, by determining the intention of the parties when
the bonds were purchased. Those intentions were that the
grain merchandiser-track buyer bond in the amount of $20,000
was to cover losses of the Dealers, the grain dealer-public
warehouseman bond in the amount of $195,000 was to cover
losses of the Farmers.
We further note that the statutes referred to by the
Dealers were repealed by the Legislature in 1983. The
statement made by the Legislature is as follows:
WHEREAS, the existing statutes regulating
certain aspects of the agricultural
industry have become antiquated, as well
as being contradictory and illogical in
their organization.
THEREFORE, it is necessary to extensively
revise those statutes and adopt them as
new sections.
The statutes were originally drafted in 1921 and
amended numerous times thereafter. They were indeed
illogical and antiquated and as a result, this case has
arisen. Due to the technical nature of this confusing
legislation we will not disregard the intentions of the
parties who originally entered into the surety bond
relationship.
FJe affirm.
We concur:
&E-
Justices