Citizens Bank of Windsor v. Landers, s. KCD

CourtCourt of Appeal of Missouri (US)
Writing for the CourtBefore WELBORN, Special Judge, Presiding, HIGGINS, Special Judge, and PRITCHARD; PRITCHARD
Citation570 S.W.2d 756
Parties25 UCC Rep.Serv. 195 The CITIZENS BANK OF WINDSOR, Appellant-Respondent, v. Burnell LANDERS et al., Respondents-Appellants. 29078, KCD 29094.
Docket NumberNos. KCD,s. KCD
Decision Date31 July 1978

William E. Simmons, Kansas City, Robert L. Wesner, Sedalia, for respondents-appellants; Miller, Simmons, Moore & Jung, Kansas City, Wesner, Wesner & Turley, Sedalia, of counsel.

Robert R. Raymond and Dennis D. Palmer, Kansas City, for appellant-respondent; Shughart, Thomson & Kilroy, Kansas City, of counsel.

Before WELBORN, Special Judge, Presiding, HIGGINS, Special Judge, and PRITCHARD, J.


This case consists of cross-appeals, one by the appellant-respondent Bank from a verdict and judgment against it and in favor of the Landers on a guaranty, $48,000, plus interest, attorney fees and collection costs (Count I); and one by respondents-appellants Landers from a verdict and judgment against them for $12,000.00 as maker and guarantor (Mrs. Landers) upon a promissory note, plus interest, $1,393.31, and attorney fees and costs of collection, $3,158.64, in favor of the Bank (Count II).

J. W. Simmons was the Bank's president. In the spring of 1971, Simmons and Archie Eugene Finley had discussions about taking over a defunct manufacturing company in Windsor, Missouri. Finley was then employed and remained employed by a company called Norandex. As a result of the discussions a new company, Windsor Manufacturing Company, was formed May 24, 1971, with Finley as its president. Finley continued his Norandex employment covering 38 states and 2 foreign countries because that company was considering stopping the manufacture of storm windows and was considering an outside source, assured to be Windsor, for that item. The Bank loaned Windsor $100,000 at its start, guaranteed by the Small Business Administration. In December, 1972, Finley received a call from Simmons informing him that he wanted $48,000. Finley asked him why and Simmons said, " 'Well, I don't know, I can't give you the exact answers, but it seems that we have loaned the company money on accounts receivable. The receivables have been paid but I didn't get any money, so I want you to get here and pay me.' " As a result, Finley got Dr. Landers, his friend and neighbor, to sign a note, the subject of Count II, for $12,000, which note was prepared by Simmons. The proceeds of that note were deposited in Finley's special account, and were used in part to pay the Bank interest owed by Windsor.

There was then a discussion in 1973 between Simmons and Finley about the purchase for Windsor of a Chicago subsidiary company of Allied Products called Star-Brite, which manufactured and sold house, yard and driveway signs and markers. SBA, however, because of Windsor's existing indebtedness, took the position that the Bank's second loan to Windsor, $80,000, in 1973, could not be used to purchase the Star-Brite company of Chicago. The subject then came up of forming a separate (Missouri) corporation, Star-Brite, Inc., in order to obtain an SBA guaranteed loan. On May 10, 1973, the separate corporation was formed, its Board of Directors on May 11, 1973, being Finley, Gene Roberts and Simmons. Simmons was also its elected Secretary-Treasurer. At that time Windsor was losing money.

After Star-Brite, Inc., was formed, Simmons and Finley discussed getting an SBA loan, and there was a discussion about using Star-Brite, Inc., money that was borrowed in its name for Windsor in the summer or early fall of 1973. Simmons knew from his experience in handling probably a dozen SBA loans, that it would require guarantors. Prior to any loan application being submitted for Star-Brite, Inc., Simmons and Finley met with SBA in Kansas City, and there confirmed that it would be necessary to have guarantors on the loan. Dr. Burnell Landers, Finley's friend, and a social and professional acquaintance of Simmons, was suggested as a possible guarantor. Finley then invited Dr. Landers to Windsor, Missouri, for the purpose of meeting with Simmons as well as looking over the companies.

Dr. Landers went to Windsor in early September, 1973, to Simmons' home, and there, in Simmons' kitchen, met with Finley and Simmons, and had a discussion about Star-Brite, Inc., in which Simmons took the lead. He told Dr. Landers that Star-Brite, Inc., was and definitely could be a very successful, profit-making company. Dr. Landers was told that they would like him to be a part of Star-Brite corporation, "and so there was a discussion of the distribution of stock. Q Was Dr. Landers supposed to get any stock? A At that meeting, it was agreed that Dr. Landers was to receive forty percent. Q What was Dr. Landers supposed to do in return for getting this forty percent? A He was to sign the guaranty for one hundred and twenty thousand dollar S.B.A. application, and for his forty percent he would only be liable for forty percent of that one hundred and twenty thousand dollars." (Finley testifying.)

At that meeting, no one told Dr. Landers that Windsor Manufacturing Company had only operated profitably one month since 1971, or that some of Star-Brite's money was going to be used to help pay out Windsor. Later, they submitted the loan application, which noted the fact that the Landers would be guarantors, and it was approved (by SBA), and the Bank loaned Star-Brite $120,000 which was put in its account at the Bank on October 12, 1973, and on that same day $80,773.34 was transferred from that account to Windsor's account, and a loan to Windsor for $80,000 was shown on Star-Brite's books. It is not precisely clear in the record whether Landers' SBA form guaranty was ever forwarded to SBA, the form providing for a 100% Guaranty instead of 40%. Dr. Landers crossed out a portion of the form and apparently retained it as not being acceptable. Star-Brite's notes receivable account shows that six loans, totalling $118,755.26, were made to Windsor.

Dr. Landers testified: "Q Did J. Simmons say anything to you about whether or not you should participate in any sort of investment or anything to do with Star-Brite? A He told me that, he said that well, let me back up. The point was that Mr. Finley had made the statement that they could get the products of Star-Brite into the True Value Stores, Ace Hardware Stores, Western Auto, those are the three big ones. And he repeated this. Q He repeated this? A He repeated the fact that he could get this done. I remember this, that Mr. Simmons stated that he knew that a man that ran or was the head of Walmart and they could get those products into that line of stores also. Q Was anything said about making an application to the S.B.A. for a loan or S.B.A. participation in a loan that was to be made to Star-Brite? A Yes, sir. This was the part I was to play. I was to as it was explained to me, on the basis of my guaranty, that this would help Mr. Finley and Mr. Simmons get an S.B.A. loan to get Star-Brite off the ground. Q Were you to receive anything in exchange for giving that guaranty? A Forty percent of the stock of Star-Brite." Dr. Landers admitted that prior to the execution of the note and the security on the guaranty agreement, he had no discussions with Simmons about the financial condition of Star-Brite, Inc., or of Windsor Manufacturing Company. He did not know how much stock was outstanding in Star-Brite, Inc., at the time he executed the guaranty agreement, or from whom he was to receive 40% Of the stock. It was his understanding that Finley was the sole stockholder of Star-Brite.

The Star-Brite, Inc., loan application to SBA reflected that Dr. Landers was 40 percent owner of the company, and SBA's preliminary commitment provided this condition, among others, "13. Personal Guaranty on SBA Form 148 of Burnell Landers and Linda Long Landers, his wife; * * * each of said Personal Guaranty shall be collateralized with an Assignment with Full Voting Rights of all Stock, Warrants and Options of the corporate Borrower owned by said Guarantors, or any of them." Dr. Landers received a copy of the commitment containing the conditions, and he testified that it gave him confidence that the SBA loan had "been approved and that things were moving forward to the fact that my, that I was entitled to, I thought, some stock after I read this letter."

On October 31, 1973, Star-Brite's board of directors, including Simmons, passed resolutions authorizing him, among others, to borrow money and sign checks for the corporation. In two meetings, November 1 and 27, 1973, the board transferred all of Star-Brite's outstanding common stock to Windsor Manufacturing Company. According to Finley, this was done because "in essence everything that Windsor owned, or Gene Finley, according to SBA's conditions, was collateralized by their loan. So it made no difference. Windsor Manufacturing Company owned Star-Brite period." There was also a reason given that there would be a tax advantage resulting from the transfer.

Simmons and Finley procured from Roberts and Finley guaranties dated October 12, 1973, the Bank's $120,000 loan to Star-Brite, Inc., being made on October 21, 1973. The guaranty of Dr. Landers and his wife to the Bank is dated January 9, 1974, which is after the loans from Star-Brite to Windsor were made, and after the transfer of Star-Brite's common stock to Windsor. The discrepancy in dates is not explained in the record, but Dr. Landers was never told that Star-Brite had supplied funds to Windsor, or that the stock was going to be transferred, or that the SBA application had been withdrawn. SBA learned of the relationship between Star-Brite and Windsor in November, 1973, and called Finley and Simmons to Kansas City for a series of meetings. They, accompanied by an attorney, Riley, went to Kansas City to confer with SBA officials, who were angry about the fact that Star-Brite was...

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