Dreckshage v. Community Federal Sav. and Loan Ass'n, 59697

CourtUnited States State Supreme Court of Missouri
Citation555 S.W.2d 314
PartiesFrances G. DRECKSHAGE, Hazel White and John William White, Respondents, v. COMMUNITY FEDERAL SAVINGS AND LOAN ASSOCIATION, a Corporation, and John T.Miller, Substitute Trustee, Appellants.
Docket NumberNo. 59697,59697
Decision Date12 September 1977

Page 314

555 S.W.2d 314
Frances G. DRECKSHAGE, Hazel White and John William White, Respondents,
Corporation, and John T.Miller, Substitute
Trustee, Appellants.
No. 59697.
Supreme Court of Missouri, En Banc.
Sept. 12, 1977.

Page 316

Carroll J. Donohue, St. Louis, for appellants.

Dale L. Rollings, St. Charles, for respondents.

FINCH, Judge.

This is an action wherein plaintiffs sought cancellation of instruments by which they had subordinated their purchase money deeds of trust to a later deed of trust given by Bill and Rosemary Bangert to Community Federal Savings and Loan Association (hereinafter Community). Cancellation was sought on the basis of alleged fraud and deceit by Bill Bangert in obtaining plaintiffs' signatures on the subordination agreements. Plaintiffs also requested equitable foreclosure of their deeds of trust and sought punitive damages against defendant Bill Bangert.

The trial court found for plaintiffs and granted broad relief, including cancellation of the subordination agreements and equitable foreclosure of plaintiffs' first deeds of trust. It also awarded punitive damages on a separate count against Bill Bangert. Only Community and Miller appealed. On appeal, the Missouri Court of Appeals, St. Louis District, reversed on the basis that plaintiffs' action was barred by the statute of limitations. On application, we ordered the case transferred and we now decide it as though here on direct appeal. We reverse and remand with directions.

Bill Bangert was the principal proponent of the creation of a large sports, shopping and industrial complex in northwest St. Louis County. As part of that effort, he obtained the incorporation of the village of Champ and made efforts to annex considerable land to that village. For details of the plan, see State ex rel. Eagleton v. Champ, 393 S.W.2d 516 (Mo. banc 1965). Included in the proposed annexations were tracts of land owned by plaintiffs.

In 1960 Bangert contracted to purchase 171 acres of farm land from Frances Dreckshage for $85,000, paying $1,000 down and giving notes and a purchase money deed of trust payable over 5 years for the balance. At approximately the same time, he contracted to buy 110 acres from the Whites for $90,000. $1,000 was paid down and the

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rest was covered by notes and a purchase money mortgage payable over a 5 year period. Bangert made one interest payment on the Dreckshage notes in January 1962, but made no other payments. The only payments made on the White notes were the interest due in December 1961, plus payments on interest of $1,000 in 1963 and $2,500 in 1965.

In attempting to implement his development plan, Bangert undertook to build a plant to be leased to the R. C. Can Company. In the spring of 1962, he applied to Community for a loan of $2,100,000 (later increased to $2,700,000) to finance construction of that building. The proposed loan was approved on condition that it be secured by a first deed of trust, insured by a mortgage policy of title insurance, on a tract which included not only the actual building site but also the other land adjacent thereto which Bangerts owned, including the Dreckshage and White tracts.

Bangerts and Community contracted with Land Title Insurance Company of St. Louis to act as the escrow and disbursing agent in the loan transaction. The contract provided for Land Title to issue at Bangert's expense a mortgage policy of title insurance to cover the loan. Land Title issued an interim binder in which the Dreckshage and White deeds of trust were listed as exceptions to the execution by Bangerts of a first deed of trust to Community. In order to eliminate those exceptions and meet the requirements for the loan, it was necessary that said deeds of trust be satisfied or that agreements which subordinated the Dreckshage and White purchase money mortgages to a deed of trust to Community be executed and recorded. In addition, the binder required that agreements subordinating the two deeds of trust to certain roadway easements be furnished and that a 2.511 acre tract be released from the Dreckshage deed of trust and added to the actual R. C. Can tract.

After issuance of the binder, Land Title's attorney met with Bangert's attorney to explain the exceptions listed therein and what would be required as a condition to issuance of the mortgage policy of title insurance. Bangert's attorney then prepared agreements whereby the Dreckshage and White purchase money deeds of trust would be subordinated to the deed of trust to be given by Bangerts to Community to secure the loan for the construction of the R. C. Can building. After approval thereof as to form and substance by Land Title's attorney, Bangert's attorney delivered them to Bangert who secured execution thereof by the Whites on August 13, 1962 and by Mrs. Dreckshage on August 16, 1962. The required agreements subordinating the deeds of trust to certain roadway easements were executed at the same time. Neither Mrs. Dreckshage nor the Whites read any of the agreements before executing them.

The executed subordination agreements were delivered by Bangert to Land Title which recorded them on October 10, 1962. 1 These subordination agreements were relied on by Community when it made the loan to Bangerts and disbursed the money thereon to Land Title as escrow agent. Subsequently, the building for which the loan was obtained was built and occupied by R. C. Can.

Bangert experienced financial difficulties and became delinquent on the loan from Community. He executed an assignment of the rentals from R. C. Can, but these were not sufficient to take care of all sums due on the deed of trust and his delinquency on the loan continued. In July 1971 Community began foreclosure proceedings, with the sale set for August 11, 1971. In September 1971 Bangert was adjudged a bankrupt.

Plaintiffs were notified by letter of the foreclosure proceedings by Community. They promptly made inquiry as to the proceedings and the basis therefor, after which

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they filed this action, claiming that this was the first time that they had known that the agreements executed in 1962 subordinated their first deeds of trust. They alleged that these agreements had been secured by fraud and should be cancelled.

At trial Mrs. Dreckshage testified that Bangert had represented the documents presented to her for signature as being agreements concerning the 2.511 acre tract she was to release and that in signing the documents she had relied upon a note of approval from her attorney, presented by Bangert, which had been obtained on the basis of her attorney's examination of an agreement concerning the 2.511 acre tract, not the agreement subordinating her deed of trust to that of Community. Mr. and Mrs. White testified that Bangert had represented to them that the paper presented for execution was just another document related to the proposed annexation to the village of Champ, similar to many they had signed before, and that a subordination agreement had not been mentioned. Both Mrs. Dreckshage and the Whites testified that they did not read the instruments before signing them.

The first issue for resolution is defendants' contention that plaintiffs' cause of action is barred by limitation. This necessarily involves a determination as to which statute of limitation is applicable.

The objective of this suit is to cancel for fraud the instruments which subordinated plaintiffs' purchase money mortgages. It does not attack the conveyances whereby the tracts were conveyed by plaintiffs to Bangert nor does it seek to set aside those conveyances or recover the real estate on the basis of fraud. For these reasons we agree with the trial court's conclusion that § 516.120(5), 2 which establishes a five-year statute of limitation, is applicable. Ludwig v. Scott, 65 S.W.2d 1034, 1035 (Mo.1933).

Sec. 516.120(5), after establishing a five-year statute of limitation, provides that an action seeking relief on the ground of fraud accrues when the aggrieved party discovers the facts constituting the fraud. 3 The actions of Bill Bangert which induced plaintiffs to sign the subordination agreements and which the trial court found to be fraudulent occurred in the summer of 1962 and this suit was not instituted until 1971, considerably more than five years later. However, the evidence disclosed and the trial court found that plaintiffs did not read the subordination instruments when presented to them for signature and did not learn until 1971 of the true nature of the instruments they had signed and of the fraud perpetrated upon them. Hence, the statute began to run at that time unless, as defendants contend, plaintiffs were charged with constructive notice of the fraud by the fact that the subordination instruments in question were recorded on October 10, 1962. To sustain their position that plaintiffs were charged with constructive notice of the true nature of the instruments they had signed and, hence, of the fraudulent misrepresentations made to them, defendants rely on § 442.390 which provides:

"Every such instrument in writing, certified and recorded in the manner herein prescribed, shall, from time of filing the same with the recorder for record, impart notice to all persons of the contents thereof and all subsequent purchasers and mortgagees shall be deemed, in law and equity, to purchase with notice."

Defendants' position on this issue is clearly stated in their brief in this language:

"It is the law that the very liberal provisions of § 516.120(5) apply only to 'concealed' fraud. The alleged fraud in this case was not of a secret nature. Here the Subordination Agreements, complete and perfect on their faces, and in form appropriate for recordation were of record

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when the Community Federal Deed of Trust was recorded and have been of record ever since. That was open to discovery by the plaintiffs at...

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