Centerre Bank of Independence, N.A. v. Bliss

Decision Date29 November 1988
Docket NumberNo. WD,WD
Citation765 S.W.2d 276
PartiesCENTERRE BANK OF INDEPENDENCE, N.A., Plaintiff-Appellant, v. Curtis BLISS and Milton W. Adams, Defendants-Cross-Appellants. 39678.
CourtMissouri Court of Appeals

Norman Humphrey, Jr., Kenneth B. McClain (argued), Independence, for plaintiff-appellant.

Paul H. Niewald (argued), Alice Amick, Kansas City, for defendants-cross-appellants.

Before NUGENT, P.J., and KENNEDY Judge and CLARK, JJ.

NUGENT, Presiding Judge.

Plaintiff Centerre Bank of Independence, N.A., (formerly the First National Bank of Independence) appeals from the judgment entered in its favor on a verdict of the jury for one dollar on Count I, which charged breach of lease, and from the court's refusal to submit punitive damages on Count IV, which alleged fraudulent misrepresentation. Defendants Curtis Bliss and Milton W. Adams cross-appeal the judgment entered on the jury's verdict awarding plaintiff bank one dollar on Count I and $291,000 actual damages on Count IV; they also complain that the trial court erred in directing a verdict against them on their counterclaim for tortious interference with contract.

We reverse the judgment in favor of the plaintiff on Counts I and IV and affirm the judgment on defendant's counterclaim.

I. The Facts

In 1973 defendants Bliss and Adams, partners doing business under the name of Noland South Development Company, leased to Shortman Development Company, a Kansas corporation, property located at 4300 Noland Road in Independence. Financed by Fidelity National Bank and Trust Co. of Topeka, Shortman constructed a new car showroom on the site. A deed of trust on the building secured the bank. Fidelity also set up an escrow agreement with Shortman by the terms of which Fidelity paid the rent due Noland South. Under the terms of the lease, the title to the building remained in the lessee until the expiration date of the lease when it would pass to the lessor, Noland South Development Company.

The lease required the lessee to pay all expenses on the leasehold estate including utilities, taxes, insurance, and maintenance and upkeep of the building. It also provided that the insurance policy on the property name the lessee as the principal insured and the lessor as an additional insured. The lease granted an initial term of ten years with an option in the lessee to extend the lease for four successive terms of five years upon the lessee's notifying the lessor in writing of its intent at least one hundred eighty days before the last day of the term. Lessee's exercise of the option did not require lessor's consent.

Article X of the lease reads as follows:

The Lessee by the nature of its business operates various functions related to the sale of new and used automobiles and may do so under different legal entities therefor Lessor and Lessee covenant and agree that after the building described herein is completed, and all conditions precedent thereto fulfilled, that Lessee may assign or sublet, in whole or in part, the leased premises, to such legal entity without consent of the Lessor, provided Lessee remains responsible for covenants and agreements incurred by it herein and provided further, that assignee shall simultaneously agree in writing to assume and perform all the terms, covenants, conditions and agreements of this Lease imposed upon the Lessee named herein. The Lessee shall deliver to the Lessor, a duplicate original of such assignment and assumption agreement in recordable form within ten (10) days after the execution thereof. The Lessee shall have the right to assign, sublet or transfer its interest in the premises to a party other than a related party, provided that in addition to the foregoing requirements, such assignment or transfer shall be compatible with the development of the shopping center by Lessor and provided further that Lessor consents in writing to such assignment or transfer, which consent shall not be unreasonably withheld.

Article XI in its pertinent part reads as follows:

11.1 The Lessee may at any time and from time to time during the term of this Lease, mortgage the leasehold estate hereby granted to it; ... provided the entire proceeds of such loan shall be applied in payment of all or part of the cost of constructing a new building or buildings and improvements upon the premises.... Such loan shall have a maturity date no later than date upon which the term of this Lease is scheduled to expire.

Article XV reads as follows in its pertinent parts:

15.1 In the event the Lessee shall fail or neglect to perform ... any covenant, ... hereunder for thirty (30) days, except non-payment of rent which default shall be corrected within ten (10) days, after written notice thereof from Lessor, then without further notice or demand the Lessor shall have the right to declare this Lease null and void and to enter upon and take possession of the leased premises and all improvements thereon; provided however, that if any default for which notice has been given, as aforesaid, shall be remedied within said thirty (30) day period, except non-payment of rent, which default shall be corrected ten (10) days after written notice is given, then this Lease shall remain in full force and effect the same as though no such default had occurred.

In October, 1974, Bill Rodekopf Motors, Inc., acquired the building and its fixtures and furniture by sublease from Shortman. Later, Shortman assigned the lease to Rodekopf. Defendant Bliss testified that he received notice of the assignment in either 1978 or 1979. In 1979 when first asked to accept the assignment and assumption of liability executed by Bill Rodekopf Motors, the defendants consented.

In January, 1979, plaintiff bank lent $100,000 to Rodekopf, but obtained a Small Business Administration guaranty of the loan because it believed that Rodekopf did not have sufficient collateral. As a part of that transaction, Rodekopf Motors, as lessee, assigned the Shortman lease to the bank. As a general rule, Centerre did not take lease assignments as security, but the SBA required this arrangement as a condition for guarantying the loan. The bank did not record the assignments, and no one advised defendants of the loan or the assignment. In addition to the original $100,000 loan, on December 12, 1979, the bank lent $80,000 to Rodekopf, taking another such lease assignment explicitly given as security for payment of the note. This time the bank recorded the assignment, but again no one told defendants of the loan or the security arrangements or furnished defendants with a copy or notice of the assignment.

Despite those loans, Rodekopf was soon short of funds, therefore, on March 5, 1980, Centerre consolidated Rodekopf's debts in a new $400,000 loan, applying the proceeds to payment of all Rodekopf's outstanding indebtedness, including the remaining debt due Fidelity National of Topeka. As additional security for that new loan, Rodekopf executed a deed of trust in favor of Centerre on the building and a lease assignment. The assignment document was a duplicate of the December 12, 1979, assignment with the original amounts and dates whited out and the new amounts and dates typed over the whiting. The new assignment was not recorded, although on March 11, 1980, Centerre did record the contemporaneous note and the deed of trust on the leasehold improvements.

On March 13 the bank recorded its deed of release acknowledging satisfaction of the December 12, 1979, debt and releasing the property, that is, the leasehold interest in the defendants' property, from the lien and effect of the deed of trust. Paul Weston, the plaintiff's first witness, acknowledged that the bank thereby released the December, 1979, assignment of the lease.

As part of the $400,000 loan consolidation, Centerre and Rodekopf also entered into an escrow agreement to ensure that Rodekopf paid the rent and other payments due under the terms of the lease. The escrow agreement provided that the bank would have no duty or responsibility except as an escrow agent and that it would not be liable for payment of any of Rodekopf's debts if Rodekopf failed to pay or perform. Paul Weston, then chief loan officer of Centerre Bank, directed R.D. Stoneking, vice president in commercial loans, to notify defendants Bliss and Adams by letter of the loan and the escrow agreement. The letter dated March 25, 1980, stated:

Pursuant to our phone conversation today, I am forwarding a cashier's check in the amount of $2083.33. As we discussed, this represents the current payment on the above referenced lease accounts you service. All future payments, until you are notified otherwise, will come from our bank via an escrow account we have with Bill Rodekopf Motors, Inc.

If at any time you have questions regarding this or other problems materialize, I would ask that you contact me immediately. We have a sizeable security interest in the leasehold improvements on this property and, therefore, are most interested in keeping this lease current.

The bank did not send defendants any of the March 5 loan documents or security instruments and made no mention to defendants of the size of the loan, the terms of the deed of trust or of the execution by Rodekopf of any assignment of the lease to Centerre at any time. Mr. Weston testified that in March, 1980, the bank expected Rodekopf to perform all of the terms of the security agreements.

In April, May and June of 1980, in accordance with the escrow agreement, Rodekopf paid Centerre the rental payments but then ran out of money. After that and until the lease expired in June, 1983, Centerre paid the rent, taxes and insurance using its own money.

On August 20, 1980, in connection with another matter defendant Adams forwarded to another attorney a title report that included mention of the real...

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