Boatmen's Bank of Jefferson County v. Community Interiors, Inc.
| Decision Date | 21 October 1986 |
| Docket Number | No. 50499,50499 |
| Citation | 721 S.W.2d 72 |
| Parties | BOATMEN'S BANK OF JEFFERSON COUNTY, Plaintiff and Counterclaim Defendant, v. COMMUNITY INTERIORS, INC., Ronald Eisenbeis, Karen Eisenbeis and Paul Harter, Defendants and Counterclaim Plaintiffs, v. BOATMEN'S BANK OF JEFFERSON COUNTY, Krazo, Inc., Forest T. Crump, Douglas Draper, Mason Investments, Inc., and Douglas Land Ltd., Counterclaim Defendants. |
| Court | Missouri Court of Appeals |
A.W. Dieffenbach, Jr., Hillsboro, Robert B. Hoemeke, Richard A. Wunderlich and Mary B. Nadworny, St. Louis, for Boatmen's Bank of Jefferson Co.
Benson Cytron, House Springs, for respondents Krazo, Inc., Forrest T. Crump, Douglas Draper, Mason Inv., Inc., and Douglas Land Ltd.
G. William Weier, Hillsboro, for defendant, Paul Harter, Attorney for Eisenbeises and Community Interiors, Inc.
Dana Hockensmith, Hillsboro, for defendants, Ronald Eisenbeis, Karen Eisenbeis, Mary Ann Eisenbeis and Community Interiors, Inc.
Gary Wagner, Farmington, for Ozark Federal Sav. & Loan Assn.
Boatmen's Bank of Jefferson County sought a deficiency judgment against corporate mortgagor, its officers and statutory trustees, and guarantors of the mortgagor's note after a foreclosure sale of real estate. In a counterclaim and third-party petition, defendants sought to set aside the foreclosure sale and to recover damages. Following a trial without jury, the court entered judgment in favor of Boatmen's on the deficiency claim and against the original defendants on their claims. The court subsequently amended its judgment and found in favor of defendant Paul Harter on Boatmen's claim that he was liable as a guarantor of the note. Original defendants appeal the denial of their claims; Boatmen's appeals the judgment with respect to Harter's liability as guarantor. The appeals are consolidated here. We reverse the trial court's judgment with respect to Harter's liability as a guarantor; we affirm in all other respects.
In 1972, Community Interiors, Inc., borrowed money from Ozark Federal Savings and Loan Association and executed a deed of trust in favor of Ozark on its business premises in Festus, Missouri. At that time, Ron Eisenbeis was an employee and a minority shareholder of Community. In 1979 Eisenbeis and his wife, Karen, purchased all the stock in Community.
On February 27, 1980, Community executed a $52,000 note in favor of Boatmen's Bank of Jefferson County and secured it by a second deed of trust on its business premises. Prior to making the loan, Boatmen's obtained personal guaranties from Ron and Karen Eisenbeis and Paul Harter. Harter is a personal friend of Ron Eisenbeis and a successful businessman who has been in the plumbing supply business since 1940 and, at the time of trial, had been a member of the board of directors of Commerce Bank of Festus for approximately 17 years.
In August 1981, Ozark initiated foreclosure on its first deed of trust because of non-payment by Community on its note. Boatmen's officials informed Harter that Boatmen's intended to bid $93,000 at the foreclosure sale and that a deficiency probably would result.
On the morning of the foreclosure sale, September 15, 1981, Forrest Crump, a real estate broker and member of Boatmen's board of directors, went to Community's place of business, inspected the property, and told Ron Eisenbeis he was interested in bidding at the sale. According to Eisenbeis's testimony, Crump asked how much was owed on the property, and, when Eisenbeis said about $142,000, Crump said there "should be no problem bidding that much to cover that amount with some left over." Eisenbeis said he then told Crump that he would not bid on the property. At trial, Crump denied he made the statement.
Soon after Crump left, Harter arrived and offered to make financial arrangements to enable Eisenbeis to bid at the sale. Eisenbeis declined the offer, telling Harter that he was relying on Crump to bid enough to cover the total amount owed Ozark and Boatmen's. Harter testified he told Eisenbeis he did not believe Crump would bid more than what was required to purchase the property.
After inspecting Community's business premises, Crump telephoned Douglas Draper, successor trustee under the Ozark deed of trust to request, in Crump's words, a "short-term" loan from Draper's Mason Investments, Inc., to enable Crump's Krazo, Inc. to buy the property at the sale. Also that morning, a Boatmen's employee called Draper at Hillsboro Title Company, a firm wholly-owned by Draper, and requested that someone from the title company bid $93,000 on behalf of Boatmen's at the sale.
At the courthouse sale, Ron Eisenbeis, accompanied by a lawyer, served Draper with a notice of redemption. Draper announced that under the terms of the deed of trust and notice of foreclosure sale, the successful bidder would have to pay ten percent of the purchase price at the time of the sale and the balance in cash at the Hillsboro Title Company office within one hour of sale. Three bids were received: $76,000 from a representative of Ozark; $93,000 on behalf of Boatmen's (although there was no testimony about who actually made the bid, Draper was the only person at the sale from Hillsboro Title, the company designated to bid for Boatmen's); and $93,050 from Crump on behalf of his company Krazo.
Crump did not make the ten percent down payment at the courthouse but did accompany Draper to the Hillsboro Title office where he executed a note on behalf of Krazo to Mason Investments. A check from Mason in the amount of the purchase price was deposited into the Hillsboro Title escrow account and funds then were disbursed to pay the $634 expenses of the sale (including Draper's trustee's fee), the $75,949.33 due Ozark, and $16,466.67 of the amount due Boatmen's. Three or four days after the sale, Crump proposed that Draper take a one-half interest in the property in exchange for cancellation of Krazo's note to Mason. Draper agreed, and on September 23, 1981, Crump and Draper, through Krazo, Inc., and Draper's Douglas Land Ltd., borrowed money from United Missouri Bank of Jefferson County to pay off Krazo's note to Mason. Crump and Draper personally guaranteed the loan. The loan was renewed several times, and Draper eventually purchased the note from United Missouri Bank. As of the day of trial, Draper was holder of the note. Title to the property has been in Krazo's name since the date of the foreclosure, and Crump and Draper have shared equally in the income and expenses of the property.
On October 2, 1981, Boatmen's demanded payment of $39,929.84, the amount of the deficiency, from Community, the Eisenbeises, and Harter. In May 1984, Boatmen's filed its suit to recover the deficiency plus interest and attorneys' fees. Defendants in Boatmen's suit filed a five-count counterclaim against Boatmen's and brought in as third-party defendants Ozark, Draper, Crump, Krazo, Mason Investments, Douglas Land, and United Missouri Bank. They sought compensatory and punitive damages and a court order permitting redemption of the property or requiring another trustee's sale. The court, after modification, entered its final judgment against the statutory trustees and Ron and Karen Eisenbeis as guarantors in the amount of $72,085.64 plus $13,175.78 in attorneys' fees.
On appeal we must sustain the trial court's judgment unless there is no substantial evidence to support it, it is against the weight of the evidence, or it erroneously declares or applies the law. Murphy v. Carron, 536 S.W.2d 30, 32 (Mo. banc 1976).
We deal first with the appeal of Community, the Eisenbeises, and Harter. They contend the foreclosure sale is voidable, alleging that Draper breached his fiduciary duty as trustee and that Draper and Crump chilled the sale. The trial court found no misconduct on the part of either.
These original defendants allege several actions by Draper constitute a breach of his fiduciary duty as trustee, namely, that he acquired an interest in the property after the sale; he acquired an interest in the outcome of the sale by financing Krazo's purchase; he bid on behalf of Boatmen's, holder of the second deed of trust; he did not sell the property for cash; he sold the property for "grossly inadequate consideration"; and he acted in concert with Crump in chilling the sale because Crump's representation to Eisenbeis induced the original defendants not to bid.
Initially we note that a trustee, exercising a power of sale under a deed of trust, is the agent of both mortgagee and mortgagor and should act with impartiality and integrity. Judah v. Pitts, 333 Mo. 301, 62 S.W.2d 715, 720 (1933). The law requires the trustee to exercise sound discretion and to conduct the sale in a manner which renders the "sale most beneficial to the debtor at the best possible price." Roark v. Plaza Savings Association, 570 S.W.2d 825, 829 (Mo.App.1978). When fraud or unfair dealing surrounds a foreclosure sale, the remedy is to set aside the sale. Smith v. Haley, 314 S.W.2d 909, 915 (Mo.1958).
Original defendants' most serious complaints involve their contentions about the trustee's acquiring an interest in the property. The law is clear that the trustee in a deed of trust may not, without the consent of the maker of the note secured by the deed of trust, directly or indirectly purchase the property at a foreclosure sale. Euge v. Blase, 339 S.W.2d 807, 811 (Mo.1960). The original defendants contend that the sale must be set aside because Draper acquired an interest in the property after the sale. Crump and Draper testified about their previous business dealings with each other. Krazo often had borrowed money from Mason to finance real estate acquisitions, and, over about a 10-year period, Crump and Draper, acting through their respective corporations, had acquired as partners about...
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