Civic Plaza Nat. Bank of Kansas City v. University Nursing Home, Inc.

• Decision Date: 01 October 1973
• Docket Number: Nos. KCD,s. KCD
• Parties: CIVIC PLAZA NATIONAL BANK OF KANSAS CITY, Respondent, v. UNIVERSITY NURSING HOME, INC., a corporation, and Chester B. Kaplan, Appellants. 26097, KCD 26164.
• Court: Missouri Court of Appeals

Page 193

504 S.W.2d 193

CIVIC PLAZA NATIONAL BANK OF KANSAS CITY, Respondent, v. UNIVERSITY NURSING HOME, INC., a corporation, and Chester B.

Kaplan, Appellants.

Nos. KCD 26097, KCD 26164.

Missouri Court of Appeals, Kansas City District.

Oct. 1, 1973.

Motion for Rehearing and/or Transfer Denied Nov. 5, 1973.

Donald L. Mason, Chester B. Kaplan, Kansas City, for appellants.

Bernard D. Craig, Jr., Kansas City, for respondent.

Before WASSERSTROM, P.J., and SHANGLER, and SWOFFORD, JJ.

SWOFFORD, Judge.

This is an appeal from a judgment rendered in a court-tried case, wherein the Civic Plaza National Bank of Kansas City (hereinafter called 'Civic Plaza Bank') was plaintiff and University Nursing Home, Inc. (hereinafter called 'Nursing Home'), Chester B. Kaplan (hereinafter called 'Kaplan') and others, were named as defendants. These other defendants, University Motel, Inc. (later merged with Kay-Cee Motel Company and defendant 'Nursing Home'), City National Bank and Trust Company of Kansas City, Motel Leasing, Incorporated, Fred Estrin and Abe Yeddis, were discharged from the case, and the Civic Plaza did not appeal from such order. These original defendants, therefore, are no longer in the case and will be mentioned further only so far as necessary to find a path through the labyrinth of the facts pertinent to our decision.

The plaintiff's first amended petition (upon which the suit was tried) is laid in two Counts. Count I is based upon a promissory note in the face amount of $130,000.00 upon which there was alleged to be due the principal amount of $106,000.00 plus interest, which the plaintiff alleged it owned by reason of the note being pledged and hypothecated to it as collateral security to loans, loans made by it directly to one Byron Prugh or loans guaranteed by him, which loans were in default. Count II asks that all shares of common stock in the Nursing Home theretofore pledged to secure the note sued upon in Count I be delivered to it.

The court below made findings of fact and conclusions of law and entered a money judgment against the defendant Nursing Home in the principal amount of $106,000.oo plus interest from November 1, 1963 in the amount of $43,268.62 or a total of $149,268.62. The judgment further ordered that the plaintiff have and recover from defendant Kaplan all shares of stock in the defendant Nursing Home owned by the defendant Kaplan. It is from this judgment that the appeal is taken.

The record and exhibits before us are rampant with intercorporate dealings, interlocking officers, mergers, agreements and amendments to those agreements, real and apparent conflicts of interest, and similar beclouding facts. We have carefully reviewed all this and have struggled toward and found what we believe to be the basic facts and important factors decisive of this case, which we undertake to summarize:

On February 1, 1958, University Motel, Inc., a Missouri corporation, purchased a developed property at 4125 Rainbow Boulevard, Kansas City, Kansas, from Byron Prugh, John M. Dickey and others, for $650,000.00. As part of the purchase price, University Motel, Inc. executed a promissory note to Byron Prugh and John M. Dickey, which was in terms as follows, with subsequent additions noted:

'COLLATERAL NOTE

$130,000.00

February 1, 1958

For value received, we promise to pay to the order of John M. Dickey and Byron E. Prugh ONE HUNDRED THIRTY THOUSAND and no/100 ($130,000.00) at Merchants Produce Bank, Kansas City, Missouri, with interest from date until paid, at the rate of five per cent per annum, both principal and interest, to be paid in equal monthly installments of $1378.91 on the first day of each month for a period of ten years, the first payment to be due March 1, 1958. Demand, protest and notice of non-payment of this note is waived by both makers and endorsers hereof. To secure the payment of this note and any and all other indebtedness which we may owe them at any time before the payment of this note, we have hereunto attached, as collateral security, all of the stock of University Motel, Inc., a Missouri corporation, and have executed a separate collateral agreement further securing payees with regard to such collateral. All dividends and maturity coupons pending life of this loan shall be paid to holder of this note after any default.

Any assignment or transfer of this note, or any other obligations herein provided for, shall carry with it the said collateral securities and all rights under this agreement. And we hereby authorize John M. Dickey or his assigns, on default of payment of this note or any part thereof, according to the terms hereof, to sell said collateral, or any part thereof, at public sale, with fifteen days notice, and by such sale the pledgor's right of redemption shall be extinguished.

Privilege is given to pay two or more installments at any time.

UNIVERSITY MOTEL, INC.

By /S/ Sheldon P. Sandler

President

(SEAL)

ATTEST:

/S/ Irving Achtenberg

Secretary

(PLAINTIFF'S EXHIBIT 15 5/25/70)

Payment of this note subject to terms of Moratorium Agreement dated June 29, 1960.

6--30--60

/S/ Byron E. Prugh ¹

/S/ Byron E. Prugh

Without recourse

/S/ John M. Dickey' ² Prugh later acquired Dickey's interest in this note and used it as collateral for loans at the Suburban Bank of Kansas City, which were paid and retired from the proceeds of the subsequent 'Civic Plaza' loans.

In addition to the note, and under the same date of February 1, 1958, University Motel, Inc. entered into an 'Agreement to Pledge Stock as Security' whereby it pledged 'all of the issued or thereafter issued capital stock of (the) Corporation' to secure the payment of said promissory note and pursuant to such pledge agreement a stock certificate No. 6 in the University Motel, Inc. for 250 shares issued August 1, 1958 in which the 'Kay-Cee Motel Co.' was the registered owner, was endorsed in blank by 'Chester B. Kaplan, President' and presumably delivered to Prugh. The record shows that on August 1, 1958, Kaplan had purchased all of the outstanding shares in University Motel, Inc. in the name of Kay-Cee Motel Co. Kaplan owned control of the common stock in Kay-Cee Motel Co. and was its president. He was also an officer, shareholder and director in University Motel, Inc.

On June 29, 1960, University Motel, Inc., the owner of the real estate at 4125 Rainbow Boulevard and the obligor on the promissory note here in suit, entered into a lease agreement with Motel Leasing, Inc., a Kansas corporation, owned and operated by Prugh, one of the original sellers of the property and then the individual owner of the purchase money note. Through his corporation he thus leased the property which he had sold and as a part of this transaction his corporation entered into an agreement with University Motel, Inc. (wholly owned by Kay-Cee Motel Co., in which Kaplan owned all the stock, which stock was pledged to secure the note held by Prugh) denominated 'Moratorium of 'Note' which basically provided as follows:

(1) Balance due on Note as of June 1, 1960 was $106,000.00;

(2) Payments on the Note to cease as of May 31, 1960 and the June payment was to be returned to University Motel, Inc.;

(3) All interest for the period of the moratorium was waived;

(4) Original Note to be endorsed '. . . subject to terms of Moratorium . . .';

(5) At end of lease term or if lessee should default on lease, the moratorium terminates and payment on Note resumes 90 days following restoration of possession of premises to lessor;

(6) If lessee defaults on lease, the balance of Note shall be adjusted by amount of damages due lessor;

(7) No payment on Note after termination of moratorium until lessor examines the Note;

(8) If, at end of term, lessee renews, the lessor shall:

(a) Pay to lessee or then holder of the Note, 1/2 of the balance now due on Note thus reducing the total sum due to $53,000.00.

(b) If lessor refinances the property the balance then due shall be paid in full.

This document was signed by Kaplan (president) and Abe Yeddis (secretary) for University Motel, Inc., and Byron Prugh (president) and Helen F. Prugh (secretary) for Motel Leasing, Incorporated.

On June 29, 1962, a corporate merger was effected merging University Motel, Inc. with Kay-Cee Motel Co., thereafter to be known as University Motel, Inc. and changing the authorized shares of common stock from 1000 shares of $100.00 par value to 20,000 shares of $1.00 par value. Both of the corporations were obviously controlled by Kaplan. He was then president of both companies. At the time of the merger there were 250 shares of capital stock (all of the outstanding stock) in University Motel, Inc. which was registered in the name of Kay-Cee Motel Co. This certificate of stock was pledged as security to the Prugh-Dickey note as above stated.

In August or September of 1962, Prugh agreed to sell all of his stock in the Motel Leasing, Inc. (then Lessee of the property at 4125 Rainbow) to Kaplan (then principal owner of the Lessor University Motel, Inc.) acting through one Dwight O. Martin. Martin's identity was never clearly defined but the clear inference emerges from the record that he was a nominee or straw for Kaplan. A sales contract was drafted in Kaplan's office under the provisions of which Prugh agreed to transfer all outstanding shares of stock in Motel Leasing, submit the resignation of all officers, and deliver the corporate stock and minute books, corporate seal and copies of tax returns to Martin. A copy of the contract, signed by Prugh but otherwise unexecuted, was offered in evidence and ultimately received in evidence as to Kaplan only. However, the evidence showed by a letter from Lyle Hanson (Prugh's attorney) to Kaplan upon which Martin had acknowledged its receipt and accuracy dated September 17, 1962; a letter from Kaplan to Hanson dated January 30, 1963, and acknowledged as correct by Prugh; and the fact that a check in the amount of.$1000.00 drawn on...