Angoff v. Mersman, s. WD

• Decision Date: 12 March 1996
• Docket Number: Nos. WD,s. WD
• Citation: 917 S.W.2d 207
• Parties: Jay ANGOFF, Director of the Missouri Department of Insurance, as receiver for Continental Security Life Insurance Company, Respondent, v. Richard K. MERSMAN, III, Appellant, and Executive Management and Consultants, Inc., Donald J. Flier, Carl DiSalvo, Irven Hammerman, Gordon A. Gundaker, and Arthur A. Blumeyer, III, Defendants. 50547, WD 50642 and WD 50643.
• Court: Missouri Court of Appeals

Page 207

917 S.W.2d 207

Jay ANGOFF, Director of the Missouri Department of Insurance, as receiver for Continental Security Life Insurance Company, Respondent, v. Richard K. MERSMAN, III, Appellant and Executive Management and Consultants, Inc., Donald J. Flier Carl DiSalvo, Irven Hammerman, Gordon A. Gundaker and Arthur A. Blumeyer, III, Defendants.

Nos. WD 50547, WD 50642 and WD 50643.

Missouri Court of Appeals Western District.

March 12, 1996.

Appeal from the Circuit Court of Cole County; James F. McHenry, Judge.

H. Kent Munson, St. Louis, for appellant.

Dana Frese, Jefferson City, for respondent.

Jerry Venters, Jefferson City, for defendant Irven Hammerman.

Before ELLIS, P.J., and HANNA and SPINDEN, JJ.

SPINDEN, Judge.

Jay Angoff, as director of the Missouri Department of Insurance and receiver for the Continental Security Insurance Company, sued Richard K. Mersman, III, Irven Hammerman, Executive Management and Consultants, Inc., and others to collect sums due under a promissory note for Continental Security. Mersman defended on the ground that the director had released him from any obligation under the promissory note. In December 1994, the circuit court entered judgment for Angoff. We reverse.

Continental Security was a Missouri insurance company owned principally by Executive Management and Consultants, a holding company owned by various investors in Continental Security, including Mersman and Hammerman. These investors also served as Continental Security's directors and officers.

In November 1988, Mersman and Executive Management and Consultant's other shareholders, at the behest of the Department of Insurance, gave Continental Security a promissory note for $700,000 to add capital to the failing insurance company. In March 1989, James Oetting, the Department of Insurance's chief financial examiner, concluded that Continental Security was in sufficiently bad financial condition that the investors should pay the $700,000 promised. Mersman and two other investors paid Continental Security $154,000, as their share of the obligation. Nicholas M. Monaco, attorney for the note makers and as trustee, tendered a check for $700,000 to the Department.

On July 7, 1989, the circuit court declared Continental Security insolvent and ordered it into receivership for liquidation. The court appointed Lewis E. Melahn, then director of the Department, as Continental Security's receiver. ¹ On that same day, Melahn agreed to release Mersman and the other investors from "any claim, demand, action or suit of whatever kind or nature, either directly or indirectly, for injuries or damage, to person or property, resulting or to result from the impaired, insolvent, or financially hazardous condition of the company."

Robert Deck, special deputy receiver of Continental Security, later discovered that Mersman and the other investors had used $507,500 of Continental Security's money to fund the Monaco trust account check. In 1992, Melahn sued Mersman and the other investors and Executive Management, alleging that they had failed to pay in full the required sum due under the promissory note and still owed $161,000, plus interest. ² Melahn also alleged that Monaco's trust account check did not satisfy the note obligation because a portion of the funds used to cover the check were owned by Continental Security.

The circuit court convened a hearing on December 22, 1993. On December 3, 1994 the circuit court entered a judgment for the director. Mersman and Hammerman appealed. Executive Management did not appeal. This court dismissed Hammerman's appeal; therefore, we address only Mersman's appeal.

Mersman argues that the trial court erred in concluding that Melahn's agreement of July 7, 1989, not to sue Mersman and the other investors did not release him from his obligation under the promissory note. He complains that the circuit court's allowing extrinsic evidence as to the scope and effect of the covenant was error because the covenant was not ambiguous. He also claims the covenant's language cannot be disregarded on the basis of fraud, mistake or unfair dealing because the director did not plead or prove these matters.

Under Missouri law, a covenant not to sue is considered a release. Montrose Savings Bank v. Landers, 675 S.W.2d 668, 670 (Mo.App.1984). The law presumes that a release is valid. Howell v. St. Louis Steel Erection Co., 867 S.W.2d 677, 679 (Mo.App.1993). "This presumption is founded in the policy of law to encourage freedom of contract and the peaceful settlement of disputes." Andes v. Albano, 853 S.W.2d 936, 940 (Mo.1993).

The circuit court's conclusion that the covenant did not release Mersman and the other investors from their obligations under the promissory note was based, for the most part, on the director's evidence that Melahn did not intend to release the investors from their obligations under the promissory note because he believed the note had already been paid and the purpose of the covenant was merely to release the directors and officers of Continental Security from claims of mismanaging the company. Although Mersman objected to this parol evidence, the circuit court concluded that it was admissible because the covenant did not specifically refer to the promissory note, and was therefore ambiguous. The circuit court relied on this evidence in concluding that the covenant did not release Mersman and the other defendants from their obligations under the promissory note.

A contract is ambiguous only if its terms are susceptible to more than one meaning so that reasonable persons may fairly and honestly differ in their construction of the terms. Jake C. Byers, Inc., v. J.B.C. Investments, 834 S.W.2d 806, 816 (Mo.App.1992). "A contract is not ambiguous merely because the parties disagree over its meaning." Id. To determine whether a contract is ambiguous, we consider the whole document and give words their natural and ordinary meaning, id., unless the release is based upon fraud, accident, misrepresentation, mistake or unfair dealing. Andes, 853 S.W.2d at 941.

The covenant stated:

For the consideration of certain efforts...