Centerre Bank of Kansas City, N.A. v. Distributors, Inc.

• Decision Date: 17 December 1985
• Docket Number: No. WD,WD
• Citation: 705 S.W.2d 42
• Parties: 42 UCC Rep.Serv. 901 CENTERRE BANK OF KANSAS CITY, N.A., Plaintiff/Appellant, Cross-Respondent, v. DISTRIBUTORS, INC., Donald Brown, Susan Brown, Raymond Brown, Virginia Brown, Daniel Brown, Mary E. Brown, Defendants/Respondents, Cross-Appellants. 36053.
• Court: Missouri Court of Appeals

Page 42

705 S.W.2d 42

42 UCC Rep.Serv. 901

CENTERRE BANK OF KANSAS CITY, N.A., Plaintiff/Appellant Cross-Respondent, v. DISTRIBUTORS, INC., Donald Brown, Susan Brown, Raymond Brown, Virginia Brown, Daniel Brown, Mary E Brown, Defendants/Respondents, Cross-Appellants.

No. WD 36053.

Missouri Court of Appeals Western District.

Dec. 17, 1985.

Motion for Rehearing and/or Transfer

to Supreme Court Overruled and

Denied

Jan. 28, 1986.

Application to Transfer Denied

March 25, 1986.

Loeb H. Granoff, Gregory L. Vranicar, Charles A. Blackmar and Lynne C. Kaiser, Rich, Granoff, Levy & Gee, Kansas City, for plaintiff/appellant, cross-respondent Centerre Bank of Kansas City.

Stinson, Mag & Fizzell, George E. Feldmiller and Don M. Downing, Kansas City, for amicus curiae Missouri Bankers Ass'n.

Willard B. Bunch, Elisabeth R. Sauer and Brian B. Myers, Campbell, Morgan & Gibson, Kansas City, for defendants/respondents, cross-appellants Donald Brown, Susan Brown, Raymond Brown, Virginia Brown, Daniel Brown and Mary E. Brown.

James C. Wirken and Sue A. Sperry, Spradley & Wirken, Kansas City, for defendants/respondents, cross-appellants Distributors, Inc. and Daniel Brown.

Before SHANGLER, P.J., and TURNAGE and BERREY, JJ.

TURNAGE, Judge.

Centerre Bank filed suit against Distributors, Inc. to collect the unpaid balance due on a demand note. The Bank also sued Alan Bronfman on his personal guaranty of the note and Daniel Brown, Mary E. Brown, Raymond Brown, Virginia Brown, Donald Brown and Susan Brown on their personal guaranties of the note. All defendants filed counter-claims against the Bank. A jury trial resulted in verdicts in favor of all defendants on the Bank's claim under the note and on the guaranties and in favor of all defendants on their counter-claims. The jury awarded the defendants a total of $7,528,800 in actual and punitive damages. ¹ The court remitted one-half of the punitive damages of $6,000,000 and entered judgment against the Bank on the counter-claims for a total of $4,528,800.

The Bank contends that the trial court erred in allowing all defendants to assert an affirmative good faith defense to the Bank's action on the note. The Bank further contends that the trial court erred in submitting to the jury counter-claims asserting fraudulent misrepresentation based on representations by the Bank that it would continue to extend credit to Distributors, asserting breach of contract on the theory that the parties entered into a new contract which replaced the personal guaranties of the individual defendants, asserting failure by the Bank to disclose the loan was classified a problem loan, and asserting prima facie tort. Reversed and remanded.

The defendants all appeal the remittitur of one-half of the punitive damages. As the judgments are reversed on other grounds, the issue of remittitur is not decided.

Alan Bronfman was the owner of Distributors, Inc., a corporation which distributed kitchen appliances to builders in the Kansas City area. In August of 1979, the Bank extended a line of credit to Distributors in exchange for Distributors signing a promissory note payable on demand. The note was in the face amount of $900,000 and was delivered to the Bank with an Inventory and Accounts Receivable Loan Agreement. The Loan Agreement provided that the note was to be secured by all accounts receivable and inventory of Distributors. In addition, Bronfman signed a personal guaranty of the note. After the Browns had acquired their interest in Distributors, each signed a personal guaranty of the note.

Prior to January of 1980, Bronfman hired Dan Brown as the general manager of Distributors. In January of 1980, Bronfman sold 20% of the stock in Distributors to Dan.

The building industry was depressed in 1979-1980 and Distributors was not making money. Bronfman was interested in selling his remaining stock in early 1981. Dan began to discuss with his father Raymond, and later his brother Donald, the possibility of the Brown family purchasing from Bronfman the remaining 80% interest in Distributors so that Dan could maintain his position in the company. Raymond and his wife, Virginia, lived in Albuquerque, New Mexico, and owned Kitchen Concepts, a small company which manufactured kitchen cabinets. Dan believed Kitchen Concepts would go well with Distributors' kitchen appliance business and that the two operations could be melded.

Distributors purchased its inventory with advances the Bank made under the promissory note. Dan and Raymond were concerned about whether the Bank would continue to extend credit to Distributors if the Browns purchased all of the Distributors' stock. Dan consulted Bill McDaniel, the officer of the Bank who handled the Distributors' loan. Dan told McDaniel that he and his family were thinking of buying Bronfman's stock and inquired if that would bring about any change in the Bank's lending to Distributors. Dan testified that McDaniel told him that so long as Bronfman remained on his personal guaranty, the Bank would continue loaning money to Distributors. The evidence showed that Bronfman was a multi-millionaire while the Browns were of a more modest financial status.

Raymond sent his CPA, Fred Winter, to Kansas City to talk with the Bank. Winter and Dan talked with McDaniel and visited Distributors. Winter reported to Raymond that he believed there was a good working relationship with the Bank but testified that he did not make any recommendation to Raymond on the purchase of Bronfman's stock.

Bronfman sold his remaining 80% interest in Distributors to Dan, Raymond and Donald as of May 1, 1981. Dan purchased an additional 20% which brought his total interest to 40%, Raymond purchased a 40% interest, and Donald purchased a 20% interest.

McDaniel told Dan that the Bank wanted personal guaranties from the Browns and their wives in addition to the guaranty which the Bank had from Bronfman. Dan testified that he obtained the personal guaranties of his wife Mary, of his mother and father, and of Donald and his wife Susan on McDaniel's representations that he was pleased with Dan's performance as general manager of Distributors and that the sale of Bronfman's stock to the Browns would have no effect on the Bank's continuing to make loans to Distributors. Dan testified that McDaniel told him the Bank would continue on the loan if the personal guaranties were given. Dan admitted that McDaniel told him that McDaniel was going to run the continuation of the loan through the Bank's committee.

On August 18, 1981, Dan Brown delivered to the Bank the personal guaranties of all of the Browns for Distributor's note. On August 21, 1981, McDaniel called Dan and told him that the Bank was giving 60 days notice that it was going to demand payment of its note. Dan expressed shock at the decision of the Bank to call the note.

The Bank presented evidence that the Bank had not considered the Distributors' loan to be a good loan. Distributors had been losing money and the statement for fiscal year 1979 showed a loss of over $100,000. The Bank placed the Distributors loan on the Bank's problem list after receiving that statement. This meant the Bank considered the loan to have a high possibility of loss to the Bank. The fact that the loan was placed on the problem list was not communicated to either Bronfman or the Browns. In addition, the Bank was concerned that the inventory list which it received was not accurate because the comptroller of Distributors had reportedly said she could not be certain the cards on which the inventory was kept were reliable.

Barry Myers, the president of the Bank, testified that a number of factors in addition to the losses suffered by Distributors played a role in calling the note due. These factors were the depressed state of the building industry, which had a severe impact on Distributors' business, the problems with the inventory list and the fact that 14% of Distributors' receivables were over 90 days past due. Any receivable over 90 days past due was not considered collateral for the note because of the likelihood that such receivable would not be collected. Myers also testified that the Bank examiners were very critical of the Distributors' loan.

McDaniel testified that he told Dan and Winter that he would recommend that the loan be continued. Even quotes from McDaniel's testimony contained in the Brown's brief to illustrate that McDaniel represented the loan would be continued reveal McDaniel stated he would recommend the loan remain in place.

Prior to the Bank's decision to call the note, McDaniel had been working with Dan in an effort to find another lender for Distributors. These efforts were unsuccessful.

Despite the Bank's notification to Dan that payment on the note would be demanded by October 20, 1981, the Bank actually continued to extend credit to Distributors until December 15, 1981. Between August 19, 1981 and December 15, 1981, the Bank loaned Distributors almost $635,000 and Distributors made substantial payments to the Bank on the loan.

Moreover, after August 20, 1981, the Bank talked with Bronfman about financing for Distributors, and McDaniel met with a venture capital company to try to obtain financing for Distributors. Distributors proposed a controlled liquidation plan to the Bank which called for the Bank to extend credit for four months after October 30, 1981. Although the Bank approved this proposal from Distributors, it was never implemented by Distributors or the Browns.

Despite efforts by Dan and McDaniel to obtain other financing none was found and on December 15, 1981, the Bank demanded payment of its note by December 28, 1981. On December 24, 1981, Dan called McDaniel and told him that he gave up and that he was surrendering all of the assets of Distributors to the Bank. Thereafter, the Bank took possession of the assets and collected part of the accounts receivables and liquidated the inventory. As of the trial the Bank...