Hawthorn Bank & Hawthorn Real Estate, LLC v. F.A.L. Invs., LLC
| Decision Date | 16 September 2014 |
| Docket Number | Nos. WD 77057,WD 77145.,s. WD 77057 |
| Parties | HAWTHORN BANK AND HAWTHORN REAL ESTATE, LLC., Respondents, v. F.A.L. INVESTMENTS, LLC, (Successor to Green and Samson, LLC), Jerry Green, Melody Green, Richard L. Samson, Individually and as Trustee of the Richard L. Samson Revocable Living Trust U/AD and Janet Samson, Appellants. |
| Court | Missouri Court of Appeals |
Michael Berry, Jefferson City, MO, Counsel for Appellants.
Marshall Wilson, Jefferson City, MO, Co–Counsel for Appellants.
James Gallaher, III, Jefferson City, MO, Counsel for Respondents.
Jason Call, Jefferson City, MO, Co–Counsel for Respondents.
Before Division Two: VICTOR C. HOWARD, P.J., JAMES EDWARD WELSH, and ANTHONY REX GABBERT, JJ.
Appellants Jerry and Melody Green and F.A.L. Investments, LLC, appeal the circuit court's judgment in favor of Hawthorn Bank and Hawthorn Real Estate, LLC (collectively, “Hawthorn”) on Hawthorn's petition for declaratory judgment. Finding no error in the circuit court's judgment, we affirm.
The circumstances underlying this lawsuit began in 2008 when Jerry Green and Richard Samson1 each held a fifty-percent interest in Green and Samson, LLC, a real estate development company. The company's sole asset consisted of seventy-eight acres of undeveloped property along Highway 179 in Cole County (the “Highway 179 Property”).
A deed of trust on the Highway 179 Property secured four promissory notes owed to Hawthorn Bank2 by Green and Samson, LLC, and Hazel Hills Development (also jointly owned by Green and Samson). Those four notes, totaling $1.78 million, each had a maturity date of November 30, 2008. In late 2008, Green began to negotiate with Hawthorn about an agreement to extend the maturity date of those notes.
During this time, Samson was experiencing financial difficulties with his own business, FAB Building Center, Inc. (“FAB”). Among other things, FAB owed Hawthorn $2,211,450 (the “FAB Debt”) on seven notes that were past due and in collection status. Concerned about the effect that Samson's financial difficulties might have on their jointly held companies, Green thought it “imperative” that Samson transfer his interest in the companies to him.
On April 27, 2009, Green and Samson entered into a Membership Interest and Stock Purchase Agreement (the “Purchase Agreement”), which provided for the immediate transfer to Green of Samson's one-half interest in both Hazel Hills and Green and Samson, LLC (which Green renamed F.A.L. Investments, LLC (“FAL”)). The consideration received by Samson included a waiver of over $108,000 in past-due capital contributions that he owed the companies and Green's agreement to secure payment of FAB's $2.21 million debt to Hawthorn.
Four days later, on May 1, 2009, Melody and Jerry Green, individually, and Jerry Green, on behalf of FAL and Hazel Hills, entered into a “Loan Agreement” with Hawthorn Bank. Loan Officer James Vossen executed the agreement on behalf of Hawthorn. The Loan Agreement incorporated twenty separate promissory notes owed to Hawthorn. These included the notes of FAL, Hazel Hills, and FAB (in accordance with the terms of the Purchase Agreement), the notes of the Greens themselves, and a new note on a $470,000 line of credit. The Loan Agreement further provided that Green would grant Hawthorn an “additional deed of trust” on the Highway 179 Property to secure the $2.21 million of FAB Debt, and neither FAL nor the Greens would have personal liability for repayment of the FAB Debt. Paragraph 7 of the Loan Agreement established that the proceeds from any sale of the Highway 179 Property would first be applied to the debts of FAL and Hazel Hills and then half of “any remaining proceeds” would be applied toward payment of the FAB Debt. The Loan Agreement extended the date for payment of the principal on all the notes to May 1, 2012. During that time, only interest on the notes would be due and payable. The Agreement also provided that Hawthorn would not “under any circumstance extend the date for full payment of all Obligations beyond May 1, 2012.”
As agreed, on May 1, 2009, Green executed a “Deed of Trust” in favor of Hawthorn, pledging the Highway 179 Property as security on all twenty promissory notes. The Deed of Trust contained a “due on sale” clause permitting Hawthorn, “at its option, [to] declare the entire balance of the Secured Debt [$6,579,937] to be immediately due and payable upon ... sale of the Property” and which “shall remain in effect until the Secured Debt is paid in full and this Security Instrument is released.”
In October 2011, Green met with Vossen and another Hawthorn Bank official. The bank officers advised Green that Hawthorn would not renew the Loan Agreement after May 1, 2012, and would not refinance any of the notes secured by the Deed of Trust. In order to avoid default and foreclosure, Green resolved to sell the Highway 179 Property. In late March 2012, Green executed a contract on behalf of FAL to sell the property to an “undisclosed buyer.” That buyer turned out to be a limited liability company that Green and two other investors had recently formed, named “The Commons on 179, LLC.” Green was the majority owner (owning 60% of the company) and the Managing Member.3
On March 30th, the title company contacted Hawthorn for the payoff amount on the Highway 179 Property, and Hawthorn provided the amount required to pay off the entire debt secured by the Deed of Trust (about $4.5 million). Five days later, on April 4th, the title company informed Hawthorn that $2,273,570 had been placed in escrow and would be transmitted to it upon the full release of the Deed of Trust. The amount that Green sought to tender was the amount needed to pay off all the notes secured by the Deed of Trust, except for the $2.21 million FAB Debt. Hawthorn told the title company that the amount tendered was less than the payoff amount it had earlier provided and that it would not release the Deed of Trust.
Hawthorn thereafter filed suit against the Greens, FAL, and the Samsons seeking a declaration that the contract for sale of the Highway 179 Property did not require Hawthorn to execute and deliver a full deed of release and that it was entitled to enforce its rights under the notes, obligations, deeds of trust, and security interests. Hawthorn claimed that the contract for sale triggered its right under the Deed of Trust to accelerate the $2.21 million FAB Debt, making that amount immediately due and payable. Hawthorn also alleged that Green violated the implied covenant of good faith and fair dealing by selling the Highway 179 Property for less than fair market value and by selling it to an entity controlled by Green. The defendants responded by filing various counterclaims and cross-claims.
After a two-day bench trial, the circuit court entered judgment in favor of Hawthorn. The court ruled that the Deed of Trust continues to secure “past due principal of $4,462,724.75 ($2,211,451 of such debt being the [FAB Debt] ).” The court held: (1) that the “due on sale” clause required FAL to pay the $2.21 million FAB Debt, in addition to the amounts owed by the Greens and FAL; (2) that the sale of the secured property for considerably less than its fair market value to a company primarily owned by Green violated the implied covenant of “good faith and fair dealing”; and (3) that Hawthorn is entitled to foreclose on the Deed of Trust. The court dismissed all of the counterclaims and cross-claims as moot.
As with any court-tried case, we will affirm the circuit court's decision in a declaratory judgment action unless it is against the weight of the evidence, there is insufficient evidence to support it, or it erroneously declares or applies the law. Weber v. Moerschel, 313 S.W.3d 220, 223 (Mo.App.2010). We will reverse a judgment as against the weight of the evidence only if we firmly believe that it is wrong. Murphy v. Carron, 536 S.W.2d 30, 32 (Mo. banc 1976).
The Appellants raise five points on appeal. We find Point II to be dispositive. In it, the Appellants assert that the circuit court erred in ruling that FAL's sale of the Highway 179 Property violated the “implied covenant of good faith” by failing to sell the property for “fair market value” in an “arm's length transaction.” The Appellants contend that Paragraph 7 of the Loan Agreement establishes the amount to which Hawthorn is entitled upon sale (i.e., the amount needed to satisfy the debts of FAL and the Greens) and imposes no additional conditions or limitations on the sale. The Appellants argue, alternatively, that the evidence establishes that they acted in good faith in selling the property for $1.78 million.
The circuit court determined that the Loan Agreement and the Deed of Trust are part of the same credit agreement, are not inconsistent or ambiguous, and must be construed together to enforce the rights and obligations of the parties. See, e.g., Wilson v. Reed, 270 Mo. 400, 193 S.W. 819, 820 (1917) (). The court concluded that upon sale of the Highway 179 Property, the Deed of Trust's “due on sale” clause accelerated the due date of all unpaid secured debt in the Loan Agreement. The court also determined that the Appellants had breached the implied duty of good faith and fair dealing.
Under Missouri law, an implied covenant of good faith and fair dealing exists in every contract, including contracts for the sale of real estate. See, e.g., Swartz v. Mann, 160 S.W.3d 411, 414 (Mo.App.2005) ; Howard v. Youngman, 81 S.W.3d 101, 110 (Mo.App.2002) ; Wooten v. DeMean, 788 S.W.2d 522, 527 (Mo.App.1990). For example, Missouri imposes a “duty of reasonable diligence and good faith” upon a buyer who enters into a...
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Hawthorn Bank & Hawthorn Real Estate, LLC. v. , s. WD 77057
...449 S.W.3d 61HAWTHORN BANK AND HAWTHORN REAL ESTATE, LLC., Respondents,v.F.A.L. INVESTMENTS, LLC, (Successor to Green and Samson, LLC), Jerry Green, Melody Green, Richard L. Samson, Individually and as Trustee of the Richard L. Samson Revocable Living Trust U/AD and Janet Samson, Appellants......