First Wyoming Bank, Casper v. Mudge

In July 1981, Robert M. Mudge, Sybil A. Mudge, Edward W. Mudge, and Edna F. Mudge (defendants) agreed to sell their family corporate welding business named M & M Welding, Inc. (M&M Welding) to Redding. The purchase agreement provided for the Mudges to transfer their corporate stock, inventory, equipment, and M&M Welding’s business-site real property to Redding. The purchase agreement also included a negative-pledge clause prohibiting Redding from mortgaging M&M Welding’s assets without the Mudges’ consent until the total purchase price had been paid. The stock was placed in escrow until Redding paid the total purchase price. Redding could operate the business while making the payments. The deal closed in September 1981 and Redding began operating the business. Shortly after, Redding applied to First Wyoming Bank, Casper (the Bank) (plaintiff) for a $100,000 loan to cover unrelated investment obligations. At some point, the Bank received an unsigned copy of the purchase agreement between the Mudges and Redding. Notwithstanding, the Bank took a priority security interest in M&M Welding’s inventory and equipment to secure the loan to Redding. Neither Redding nor the Bank obtained the Mudges’ consent. Redding subsequently failed to pay the Mudges under the purchase agreement. Accordingly, the Mudges canceled the purchase agreement. The Mudges learned of Redding’s security agreement with the Bank when the Bank brought a foreclosure action regarding the inventory and equipment, which halted M&M Welding’s business operations. This forced the Mudges to individually put up a letter of credit to access the inventory and equipment, which they needed to continue business operations. The Bank drew down the letter of credit. The Mudges filed a third-party complaint against the Bank in the Bank’s foreclosure action, alleging intentional interference with their purchase agreement with Redding. A jury ruled in the Mudges’ favor. The Bank appealed.