Barrows v. Firstar Bank

• Decision Date: 29 April 2003
• Docket Number: No. WD 61363.,WD 61363.
• Citation: 103 S.W.3d 386
• Parties: Jo-Ann BARROWS and Coffelt Land Title, Inc., Appellants, v. FIRSTAR BANK f/n/a Mercantile Bank, Respondent, Virginia L. Fuqua, Defendant.
• Court: Missouri Court of Appeals

103 S.W.3d 386

Jo-Ann BARROWS and Coffelt Land Title, Inc., Appellants, v. FIRSTAR BANK f/n/a Mercantile Bank, Respondent, Virginia L. Fuqua, Defendant.

No. WD 61363.

Missouri Court of Appeals, Western District.

April 29, 2003.

COPYRIGHT MATERIAL OMITTED

Lynn Ballew, Harrisonville, for Appellant.

Joe Willerth, Independence, for Respondent.

RONALD R. HOLLIGER, Presiding Judge.

Jo-Ann Barrows, the purchaser of a piece of real estate, and Coffelt Land Title, Inc., her title insurer, appeal a judgment in favor of respondent Firstar (hereinafter "Bank"), denying their petition for declaratory judgment and injunctive relief seeking to halt the Bank's attempt to foreclose upon real estate under an unreleased deed of trust given Bank by Virginia Fuqua and Bonita Snider before they sold the property to Barrows. Those prior owners misled Barrows and Coffelt into believing that a loan secured by the property had been paid, when they had, instead, merely executed a modification and extension agreement regarding that loan. The trial court found that Barrows and Coffelt were on constructive notice of the Bank's interest, and, therefore, Barrows did not have protection as a bona fide purchaser against the Bank's attempt to foreclose on the unpaid loan. We find that the trial court did not err in its judgment, and affirm.

Facts and Procedural Background

The case was tried to the court upon a partial stipulation of facts. The facts most favorable to the judgment are as follows. Firstar (now known as "US Bank") was the mortgagor on the parcel of real property at issue in this matter, holding a 1993 note and deed of trust executed by Virginia Fuqua and Bonita Snider, former owners of the property. The deed of trust was properly recorded with the Jackson County Recorder of Deeds, and provided that it secured the indebtedness created by the note and any modifications, extensions, or renewals to that note.

The 1993 note was scheduled to reach maturity in 1998. In August 1998, the parties to the note entered into a modification agreement changing many of the original terms and established a new maturity date of August 5, 2000. This modification and extension agreement was not recorded.

Due to software limitations in the Bank's computer system, the Bank's bookkeeping department was unable to enter the revised terms of the loan into its accounting system under the entry for the original loan. As a consequence, it was necessary for them to "rebook" the loan, by closing out the original loan in the system and entering a "new" loan into the system whose terms reflected those agreed to within the modification agreement.

As part of that process, the original entry for the loan was taken to a zero balance in the Bank's system in October 1998. As a result, a "goodbye letter" was automatically generated by the Bank's system, which could not distinguish between accounts that had been taken to a zero balance because the loan had been fully paid and those that had been rebooked. It was the Bank's practice to manually cull the letters generated when a loan was rebooked, so that they would not be sent out to the borrower. For some reason, however, the "goodbye letter" was not discarded in this instance and was sent to Fuqua and Snider, unsigned.

While the original entry for the Snider/Fuqua loan was closed out in October 1998, the new entry of the loan, reflecting the modified terms, was not entered into the Bank's system until a number of weeks later. In the interim, Fuqua and Snider undertook to sell the property to appellant Barrows. Appellant Coffelt was providing title insurance for the transaction.

Coffelt and Barrows had actual knowledge of the recorded deed of trust. However, Fuqua and Snider proffered the "goodbye letter" and made other representations that the mortgage on the property had been satisfied. At trial, an agent of Coffelt testified that she might have contacted the Bank via phone to confirm that the 1993 loan had been satisfied.¹ At no point does it appear that Coffelt requested either a payoff letter or a deed of release from the Bank. The sale of the property was consummated on November 6, 1998. The entry of the modified loan into the Bank's system was made on the same date.

There is a dispute regarding when the Bank last received payment on its loan to Snider and Fuqua. Regardless of the date of last payment, however, the loan went into default, and the Bank attempted to foreclose on the property in June 1999. Only after receiving notice of the Bank's intended foreclosure, did Barrows and Coffelt claim they first learned that the property was still encumbered by the Snider/Fuqua loan.

As a result, Barrows and Coffelt initiated the underlying proceeding, seeking a declaratory judgment that Barrows took the property free of the obligation in the modified note and an injunction barring the Bank from proceeding with the foreclosure. They also sought to recover against Fuqua and Snider,² under a fraud theory.

The trial court tried the case under a partial stipulation of facts. It held that Barrows and Coffelt had actual and constructive notice that the property might be encumbered by an unrecorded modification and extension agreement, based upon the recorded 1993 deed of trust. It, therefore, granted judgment in favor of the Bank on the claims raised by Barrows and Coffelt, finding that the Bank could proceed to foreclose on the real property under its deed of trust. Barrows and Coffelt did, however, obtain judgment against Fuqua upon their fraud claim.

Barrows and Coffelt now appeal that portion of the judgment in favor of the Bank.

Discussion

The parties agree that the applicable standard of review in this case is that discussed in Murphy v. Carron, 536 S.W.2d 30, 32 (Mo. banc 1976). The judgment must be affirmed unless "no substantial evidence supports it, it is against the weight of the evidence, it erroneously declares the law, or it erroneously applies the law." Brizendine v. Conrad, 71 S.W.3d 587, 590 (Mo. banc 2002).

Here, Barrows and Coffelt contend that the trial court's judgment was not supported by substantial evidence or was against the weight of the evidence on several grounds. In determining whether the judgment is supported by substantial evidence, we view the evidence in the light most favorable to the judgment and defer to the trial court's credibility determinations. Searcy v. Seedorff, 8 S.W.3d 113, 116 (Mo. banc 1999). Further, we grant the respondent the benefit of all reasonable inferences favorable to the judgment and disregard all contrary inferences and evidence. Farmers' Elec. Coop., Inc., v. Mo. Dep't. of Corr., 59 S.W.3d 520, 522 (Mo. banc 2001). When asked to determine whether a judgment is against the weight of the evidence, we also view the evidence and the permissible inferences that may be drawn therefrom in the light most favorable to the judgment. Neal v. Sparks, 773 S.W.2d 481, 486 (Mo.App. 1989). "We will set aside the judgment on the basis that it is against the weight of the evidence only with caution and with a firm belief that the decree is clearly wrong." Komosa v. Komosa, 776 S.W.2d 424, 425 (Mo.App.1989).

Was the Original Snider/Fuqua Loan Satisfied?

In the first of their four points on appeal, Barrows and Coffelt argue that the trial court erred in finding that the promissory note had not been satisfied, because that finding was not supported by substantial evidence and was against the weight of the evidence. They contend that the evidence adduced at trial established that the note had been satisfied on the Bank's books and that the Bank later created a new loan reflecting the new terms agreed to between the Bank, Snider, and Fuqua. The Bank responds that the trial court did not err, as the above finding was supported by substantial evidence and was not against the weight of the evidence. They argue that the evidence established that there was no intent to release Fuqua and Snider from the debt, but that the "new" loan was created because that was the only way of entering the modified terms of the loan into the Bank's computer system.

Ultimately, the question presented in this point on appeal is whether a novation has taken place and that the Bank issued a new loan in place of the original loan that was secured by the deed of trust. Determining whether a novation has taken place requires examining the intent of the parties. McDowell v. Miller, 557 S.W.2d 266, 271-72 (Mo.App.1977). At trial, Barrows and Coffelt bore the burden of establishing that a novation had taken place. See id. at 272.

In some circumstances, even the issuance and substitution of a new loan does not deprive the lender of the protection provided by a deed of trust. See Constr. Equip. Mgmt., Inc. v. Dunhill Dev. Corp., 892 S.W.2d 639, 644-45 (Mo. App.1994). In such cases, the courts look to several factors, such as whether "(1) the loans were for the same amount of money, (2) the loans were made for the same purpose, (3) the loans were secured by the same land, and (4) the only change was in the form of the payments." Id. at 645 (italics omitted).

We need not address these factors, however, as the parties stipulated that it was the intent of the parties to modify the original loan. A stipulation is binding upon the parties and the court, unless its terms prevent or prohibit its use in a particular proceeding. See Griffin Contracting Co. v. Hawkeye-Security Ins. Co., 867 S.W.2d 602, 605 (Mo.App.1993). As the parties stipulated that the parties intended to modify the original loan, we need not entertain Barrows' and Coffelt's arguments that a novation took place.

That stipulation contains other provisions that further belie Barrows' and Coffelt's argument that the Bank's bookkeeping indicated that the parties' intent was to enter into a new loan agreement. The parties stipulated that it was necessary to "rebook" the loan, as the terms of the loan could not be directly changed in the...