Anchor Centre Partners, Ltd. v. Mercantile Bank, N.A.

• Decision Date: 09 January 1991
• Docket Number: No. 71974,71974
• Citation: 803 S.W.2d 23
• Parties: ANCHOR CENTRE PARTNERS, LTD., a Missouri limited partnership, Barton J. Cohen, A. Baron Cass III, Robert L. Swisher, Jr., Robert M. Freeman, Kroh Camelback Associates I Limited Partnership, Kroh Camelback Associates III Limited Partnership, Equity Partnerships Corp., E.A. Financial Corp., and Barton J. Cohen, Byron C. Cohen, Robert J. Shapiro, A. Baron Cass III, Robert L. Swisher, Jr., Patrick F. Healy and Charles M. Herman, as all of the partners of Equity Analysts, a Missouri general partnership, Respondents, v. MERCANTILE BANK, N.A., Appellant, and Merchants Bank, a Missouri state-chartered banking association, Respondent.
• Court: Missouri Supreme Court

Page 23

803 S.W.2d 23

ANCHOR CENTRE PARTNERS, LTD., a Missouri limited partnership, Barton J. Cohen, A. Baron Cass III, Robert L Swisher, Jr., Robert M. Freeman, Kroh Camelback Associates I Limited Partnership, Kroh Camelback Associates III Limited Partnership, Equity Partnerships Corp., E.A. Financial Corp., and Barton J. Cohen, Byron C. Cohen, Robert J Shapiro, A. Baron Cass III, Robert L. Swisher, Jr., Patrick F. Healy and Charles M. Herman, as all of the partners of Equity Analysts, a Missouri general partnership, Respondents, v. MERCANTILE BANK, N.A., Appellant and Merchants Bank, a Missouri state-chartered banking association, Respondent.

No. 71974.

Supreme Court of Missouri En Banc.

Jan. 9, 1991.

William G. Guerri, W. Stanley Walch, Robert H. Brownlee, Paul J. Puricelli, Peter S. Strassner, St. Louis, for appellant.

Leonard Rose, Susan Linden McGreevy, Martha A. Halvordson, Shelly L. Freeman, Kansas City, for respondents.

Jerome T. Wolf, Terry W. Schackmann, Lauri A. Newton, Kansas City, for amicus curiae Green River Assocs.

John Fox Arnold, Carolyn M. Kopsky, St. Louis, amicus curiae Mo. Bankers Ass'n.

HOLSTEIN, Judge.

The subject of this suit is the enforceability of eight notes payable to Kroh Camelback Associates I (KCA I) and Kroh Camelback Associates III (KCA III) dated November 15, 1984, and two irrevocable standby letters of credit issued by Merchants Bank on June 19, 1986. The notes and letters of credit were given as security for a loan made by Mercantile Bank to Kroh Brothers Development Company (KBDC) evidenced by two promissory notes dated June 20, 1986, and executed by a vice-president of KBDC. KBDC was general partner in KCA I and KCA III. KBDC, a Missouri corporation, is now in bankruptcy.

The plaintiffs include the obligors on the eight 1984 notes and the contingent obligors if the standby letters of credit are drawn upon. The plaintiffs filed suit to be absolved of liability on their notes that were given as part of their capital investment in the partnerships and to enjoin enforcement of the letters of credit. In addition, they sought money damages. Mercantile counterclaimed to enforce the notes and letters of credit and alternatively claimed the KCA I and KCA III partnerships were unjustly enriched. The trial court entered a declaratory judgment that Mercantile has no right or interest in the notes or letters of credit, and enjoined enforcement of the letters of credit or alternatively awarded the KCA I and KCA III partnerships a judgment of $2,850,000. Plaintiff Equity Analysts (EA) was given a judgment for $10,000 actual and $100,000 punitive damages for an alleged fraud. All other claims and counterclaims were denied.

Merchants appealed the adverse judgment. In an opinion authored by Judge Donald Clark, ¹ the Missouri Court of Appeals, Western District, reversed the money judgments for KCA I, KCA III and EA, but affirmed the judgment in all other respects. That opinion was filed June 6, 1989.

On August 1, 1989, this Court decided Audsley v. Allen, 774 S.W.2d 142 (Mo. banc 1989). On transfer here an order was entered to retransfer the case to the court of appeals to reconsider its opinion in light of Audsley. The court of appeals readopted its opinion and entered a per curiam order distinguishing Audsley from the present case. Thereafter, this Court again granted transfer. Rule 83.03. Affirmed in part and reversed in part.

I. THE ISSUES

The trial court filed extensive findings of fact and conclusions of law with its judgment. Strangely, the points relied on in the appellant's briefs fail to refer this Court to specific erroneous findings of fact or conclusions of law, or a specific aspect of the judgment sought to be reviewed that is unsupported by facts or law. It is indeed puzzling that the rules of briefing are so lightly regarded in a case of this magnitude. The author of the briefs is referred to Rule 84.04(d) and Thummel v. King, 570 S.W.2d 679 (Mo. banc 1978). Nevertheless, this Court, as did the court of appeals, will attempt to address what is perceived to be appellant's claims of error by the trial court.

The critical claims running throughout appellant's briefs are (1) the trial court erred in placing the burden on Mercantile to prove that KCA I or KCA III received consideration or a benefit when the 1984 and 1986 loans were made or, alternatively, such burden was met, (2) the trial court's judgment denying enforceability of the eight notes is erroneous because there is insufficient evidence to show Mercantile knew or should have known that KBDC violated a fiduciary duty to the partnership when KBDC pledged partnership assets for the 1986 loan to KBDC, (3) the trial court erred in finding that the letters of credit were not properly assigned to Mercantile Bank, because Mercantile is the named beneficiary, not a mere assignee, and because respondents have no standing or have waived their rights to challenge the letters of credit, (4) the trial court erred in entering a judgment for fraud in favor of EA because the evidence was insufficient to support an essential finding that Mercantile knew its statement that the notes were in default was false. Contrary to appellant's assertions, the standard of review in this court-tried case is that articulated in Murphy v. Carron, 536 S.W.2d 30, 32 (Mo. banc 1976). A discussion of these issues requires an extensive statement of facts.

II. THE FACTS

In 1983, KBDC, a Missouri corporation, acquired leasehold interest in two office buildings located in the Anchor Centre, Phoenix, Arizona. KBDC formed two limited partnerships under Arizona law to hold the leases, designating them as KCA I and KCA III. KBDC was the general partner in KCA I and KCA III with provisions to admit investors as limited partners.

In 1984, respondent EA became a limited partner in KCA I and KCA III pursuant to an "Amended and Restated Limited Partnership Agreement," referred to by the parties as the "First Partnerships."

The purpose for entry of EA into the partnerships was to permit it to evaluate the projects as investment vehicles for clients of EA. It was the business of EA to formulate and offer for sale investments in real estate and other ventures to firms and persons with capital available for those purposes. To this end, when a project such as Anchor Centre became available, EA would become a limited partner and if it found the project feasible, it would form a second partnership to which its clients would subscribe. That partnership would then acquire by assignment from EA the latter's limited partnership interest in the first partnership interest that held the investment property. Conversely, if EA decided the project did not offer promise to EA investors, it would withdraw from the first partnership. Initial participation by EA in the first partnership was conditioned upon its right to so withdraw.

In the event EA decided to offer a partnership investment to its clients, the result would be a two tier alignment of interests. The upper tier partnership would consist of the developer as general partner and the lower tier partnership as limited partners. The lower tier partnership would consist of EA as general partner and the individual investors as limited partners. The financing of the partnerships was generally by loans from the partners or from outside sources. Some cash was paid in to the partnership but in limited amounts. Investors usually executed capital notes evidencing obligations to make capital contributions to the partnership. Those notes were used as collateral for partnership loans.

In the present case, the organization of partnerships described above was followed. The details, which the parties agree were not in dispute when the case was presented to the trial court, were these.

When EA entered the KCA I and KCA III partnerships on November 21, 1984, as a limited partner, it gave in exchange for its interests as limited partner noninterest bearing capital notes in the sum of $7,775,000 to KCA I and $1,350,000 to KCA III. The notes evidenced EA's future obligation to contribute capital to the partnerships. EA also made interim loans to the partnerships of $3,325,000 to KCA I and $1,200,000 to KCA III. Throughout, KBDC was and remained the general partner in KCA I and KCA III with operating and management responsibility.

Early in 1985, EA concluded that KCA I and KCA III did not offer satisfactory potential for investment and decided not to continue its participation. The partnership agreement, the "First Partnerships," included reciprocal options entitling KBDC and EA to withdraw from the partnerships and be restored to the status each held before entering the partnerships. KBDC as general partner accepted the withdrawal of EA and, in accordance with the agreements, caused EA's loans to the partnerships to be repaid. KBDC also assured EA that its obligations on the capital notes were terminated. Thus, to the knowledge of EA, involvement in the KCA I and KCA III first partnerships was at an end. KBDC failed to disclose to EA that in December of 1984 it had pledged EA's capital note of $7,775,000 to Mercantile Bank as security for a loan of $4,450,000, the proceeds of which were deposited by Mercantile in an account in another bank in the name of Kroh Brothers Management Company, a Missouri corporation owned by George P. Kroh and John A. Kroh, Jr. The record is silent as to why distribution was made to that entity or what became of those funds thereafter.

Later in 1985, EA again became interested in the Phoenix office projects. From materials furnished to EA in the course of those discussions, EA first learned that the partnership books showed a loan taken in the name of the partnerships for $4,450,000. EA protested and pointed out that the deficit represented by the obligation was an insurmountable obstacle to marketing partnership investments in KCA I and KCA III. KBDC then informed EA that although KCA I...