Dugan v. First Nat. Bank in Wichita, 49827

CourtUnited States State Supreme Court of Kansas
Citation606 P.2d 1009,227 Kan. 201
Docket NumberNo. 49827,49827
PartiesNancy DUGAN, Appellant, v. FIRST NATIONAL BANK IN WICHITA, K & B Development Corporation, Harry D. Bledsoe, Emmet A. Blaes, William S. Shirk, Claire E. Shirk, and Dolores J. Engels, Appellees.
Decision Date07 February 1980

Syllabus by the Court

1. Summary judgment is proper only if there are no genuine issues of material fact.

2. A trial court, in ruling on motions for summary judgment, should search the record to determine whether issues of material fact do exist.

3. When summary judgment is challenged on appeal, an appellate court must read the record in the light most favorable to the party who defended against the motion for summary judgment.

4. A party resisting a motion for summary judgment in an action based upon fraud need not present "clear and convincing" evidence of fraud in opposing the motion. The usual rules governing the ruling upon motions for summary judgment apply to actions based upon fraud.

5. The relationship between a bank and its depositor is ordinarily that of creditor-debtor and not of a fiduciary nature.

6. The determination of a fiduciary relationship is essentially a factual one.

7. Under usual circumstances, a lessee has no fiduciary relationship or duty to his lessor.

8. Every contract, to be legally enforceable, must be supported by a consideration.

9. In an action for cancellation or rescission of two mortgages and two subordination agreements, the record is examined and it is Held that the trial court was correct in entering summary judgment as to some claims and erred in entering summary judgment upon the remainder of the claims.

Roger Sherwood, of Sherwood & Hensley, Wichita, argued the cause and was on the brief for the appellant.

Windell G. Snow, of Curfman, Brainerd, Harris, Bell, Weigand & Depew, Wichita, argued the cause and was on the brief for appellee First National Bank in Wichita; Everett C. Fettis, Wichita, argued the cause, and David R. McClure, Wichita, was with him on the brief for appellees K & B Development Corporation and Harry D. Bledsoe; Emmet A. Blaes, of Jochems, Sargent & Blaes, Wichita, argued the cause for appellees Emmet A. Blaes, William S. Shirk, Claire E. Shirk, and Dolores J. Engels.

MILLER, Justice:

The plaintiff, Mrs. Nancy Dugan, appeals from the order of the trial court granting summary judgment to all defendants. Mrs. Dugan brought this action for damages and for reformation or cancellation of two mortgages and two subordination agreements against defendants First National Bank in Wichita, K & B Development Corporation, and Harry D. Bledsoe. The Bank impleaded defendants Emmet A. Blaes, William D. Shirk, Claire E. Shirk, and Dolores J. Engels, as interested parties.

The primary issue is the propriety of the entry of summary judgment. Other of the numerous issues raised will be stated and discussed later in this opinion. The facts are somewhat lengthy and complex, but a statement of the background facts is necessary to an understanding of the issues presented.

Mrs. Dugan is a widow in her seventies. She has some infirmities and suffers from Parkinson's disease and coronary disease. She owns a large tract of farm land located in the west part of Wichita, adjoining or near the municipal airport. Parts of the land, and particularly that along Kellogg, have been extensively developed through various arrangements, often including long-term leases of parcels to commercial developers. Most of the development occurred prior to the death of her husband in 1971.

Mrs. Dugan, as lessor, entered into an 87-year lease with defendant Bledsoe, as lessee, in 1972. The lease covers slightly over one acre of land. The provisions of an earlier recorded lease are included by reference. Of interest here is the following special provision:

"a) If the Lessee in financing new construction on the leased premises encounters a requirement requiring Lessors to subordinate in favor of a first mortgage Lessors agree to cooperate with Lessee in said financial arrangements and subordinate their leasehold interest thereto."

Bledsoe, in 1973, assigned his interest in the 1972 lease to K & B Development Corporation, of which Bledsoe was the principal (51%) stockholder. K & B then secured a construction loan of $275,000 and executed a note and mortgage to the Bank. Mrs. Dugan, on August 8, 1973, executed a subordination agreement, whereby she subordinated her fee simple interest in the leased land to the lien of the Bank's mortgage. The subordination agreement executed by Mrs. Dugan and also by corporate officers on behalf of K & B and the Bank contained the following provision:

"WHEREAS, in order to induce Lessors to execute this Subordination Agreement, Lessee does hereby covenant, warrant and represent that the actual costs of new construction of improvements on the leased premises described in Exhibit "A" shall exceed the sum of $275,000.00."

This document was prepared by an attorney for the Bank.

Mrs. Dugan and her late husband were customers of the First National Bank in Wichita from the 1930's up until the time of the events giving rise to this litigation, and during the same period they were clients of the Wichita law firm of Jochems, Sargent & Blaes. In later years Mr. Robert Braden of that firm handled their affairs. Mrs. Dugan sought Mr. Braden's advice before signing the $275,000 subordination agreement; thereafter she signed it, the mortgage and subordination agreement were placed of record, and the loan was dispersed to K & B.

The leased land included a building which was operated as a restaurant by Mr. Wong. Mrs. Dugan was aware that K & B was buying his business, including furniture and fixtures, at a cost of $40,000. K & B utilized the old building or at least portions of it, remodeled extensively, built an extensive new addition, installed all new furniture and fixtures, and opened the new club and restaurant for business in late 1973. At that time K & B had outstanding debts in addition to the bank loan, and when the financial picture did not improve in 1974, K & B sought unsuccessfully to increase the bank loan. Mr. Bledsoe consulted his attorney, Mr. Blaes, and eventually Blaes and the other impleaded defendants agreed to loan K & B the sum of $100,000, conditioned upon Mrs. Dugan again subordinating her fee interest.

K & B agreed to execute a mortgage to the First National Bank in Wichita. The Bank, as escrow agent and the named mortgagee, was to handle the loan. Mr. Blaes and his associates, William S. Shirk, Claire E. Shirk and Dolores J. Engels, were to advance the money; the Bank was to receive all loan payments and remit to the actual lenders in their appropriate proportionate shares. Documents to accomplish these ends were prepared and executed.

Meanwhile, Mr. Blaes prepared a subordination agreement for Mrs. Dugan's signature, and this was presented to her at her home one evening in April, 1975, by Mr. Bledsoe. Mrs. Dugan was not informed as to the actual parties involved in the loan or as to the intended use of the money. According to her deposition testimony, Mr. Bledsoe told her that it had taken more for construction and equipment than had been anticipated; and he told her or led her to believe that he would take the document to Mr. Braden so that he might look it over for her. With that understanding, she signed the second subordination agreement. Bledsoe did not present the document to Braden for review. Instead, the second subordination agreement and the new mortgage were placed of record and the loan proceeds were delivered to K & B.

When the original subordination agreement was executed in 1973, construction was hearing completion. Bledsoe informed Mrs. Dugan that the loan proceeds of $275,000 would be used for building construction costs and equipment. The loan proceeds were disbursed by the Bank under the following authorizations:

                "Working Capital ......... $ 10,000.00
                 Architect ............... $  5,946.28
                 Equipment and Fixtures .. $ 82,131.82
                 Contractor .............. $176,171.90
                 Engineering ............. $    750.00"
                

Mrs. Dugan complains of the "working capital" disbursement. In 1976, Mrs. Dugan discovered that Bledsoe had not taken the second subordination agreement to Braden; that Braden had not examined and approved it on her behalf; that the $100,000 loan proceeds had not gone into building and construction costs but instead had gone to pay debts of K & B; and that Mr. Blaes and other persons, and not the Bank, had made the second loan. Soon thereafter this action was filed.

The plaintiff claims that a portion of the funds from the 1973 mortgage was not used for the construction of improvements and to that extent the mortgage and the subordination agreement are void:

(1) for failure of consideration;

(2) because the representations by K & B in the subordination agreement were false, or negligent, and constitute a breach of the lease;

(3) because the Bank was negligent in advancing mortgage proceeds for purposes other than for new construction; and

(4) because both Bledsoe and the Bank breached a fiduciary duty to plaintiff by permitting the use of such funds for such purposes, and by failing to advise plaintiff of the consequences of the misuse of funds.

She asks that the 1973 mortgage be reformed. As to the 1975 mortgage and subordination agreement, she claims that these instruments are void:

(1) for failure of consideration;

(2) because of an implied obligation of K & B not to request plaintiff's subordination except when required by a mortgagee to finance new construction;

(3) because of false representations by Bledsoe and K & B that the mortgage proceeds would be used for construction of improvements on the real estate; in stating that the instrument would be presented to her attorney for examination prior to filing; and in advising her that the Bank would be the mortgagee; and

(4) because the Bank, K & B, and Bledsoe...

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