George v. Capital South Mortg. Investments, Inc.

• Decision Date: 19 June 1998
• Docket Number: No. 78313,78313
• Parties: Arthur J. GEORGE and Janet George, Appellees/Cross-appellants, v. CAPITAL SOUTH MORTGAGE INVESTMENTS, INC., et al., Appellants/Cross-appellees.
• Court: Kansas Supreme Court

Page 32

961 P.2d 32

265 Kan. 431

Arthur J. GEORGE and Janet George, Appellees/Cross-appellants, v. CAPITAL SOUTH MORTGAGE INVESTMENTS, INC., et al Appellants/Cross-appellees.

No. 78313.

Supreme Court of Kansas.

June 19, 1998.

Syllabus By The Court

1. A motion to amend a petition to include a claim for punitive damages timely filed prior to the pretrial conference may be considered by the trial court at a later date.

2. When a statute is plain and unambiguous, the appellate courts will not speculate as to the legislative intent behind it and will not read such a statute so as to add something not readily found in the statute. When construing a statute, a court should give words in common usage their natural and ordinary meaning.

3. Under Kansas law, a joint venture is defined as an association of two or more persons or corporations to carry out a single business enterprise for profit; it may be found in the mutual acts and conduct of the parties. Among acts or conduct which is indicative of a joint venture, but no single one of which is controlling in the determination, are: (1) the joint ownership and control of property; (2) the sharing of expenses, profits and losses, and having and exercising some voice in determining the division of the net earnings; (3) a community of control over and active participation in the management and direction of the business enterprise; (4) the intention of the parties, express or implied; and (5) the fixing of salaries by joint agreement.

4. The existence of a joint venture may be inferred from the facts and circumstances presented at the trial which demonstrate that the parties, in fact, undertook a joint enterprise. The requisite intent of parties required to create a joint venture may be express or implied.

5. Error cannot be predicated on the refusal to give an instruction when its substance is adequately covered in other instructions.

6. While we do not endorse or recommend the giving of an instruction on the badges or indicia of fraud, the determination of whether one should be given should be left to the sound discretion of the trial court based upon the facts and circumstances of the particular case. Ordinarily a trial court will not need to give such an instruction, but if the court is of the opinion, based upon the evidence and circumstances of the case, that such an instruction is necessary for the guidance of the jury in arriving at a proper verdict, the trial court should not be precluded from giving an instruction on the badges or indicia of fraud.

7. Usury statutes are penal in nature and are to be strictly construed in favor of the lender.

8. K.S.A. 16-207 does not authorize an offensive usury action; it only authorizes the defensive use of a usury claim. Neither this court nor the legislature has ever held that attorney fees are recoverable for a successful usury claim brought under the common law.

9. In an action requesting punitive damages, the record is examined and it is held the defendants are entitled to a new trial on the issue of punitive damages.

Jeffrey M. Friedman, of Friedman & Weddington, L.L.P., Austin, TX, argued the cause, and Thomas M. Martin, of Lewis, Rice & Fingersh, L.C., Kansas City, MO, was with him on the briefs for appellant/cross-appellee Capital South Mortgage Investments, Inc.

Spencer J. Brown, of Deacy & Deacy, Kansas City, MO, argued the cause, and Brett C. Coonrod, of the same firm, was with him on the briefs, for appellant/cross-appellee Castanuela.

John H. Fields, Kansas City, argued the cause, and Edwin Fields, of the same firm, was with him on the brief, for appellees/cross-appellants.

ABBOTT, Justice.

The plaintiffs, Arthur J. and Janet George, sought to obtain financing for the purchase of a house from a quasi relative-friend. However, due to the alleged misrepresentation of those parties who secured the financing, the plaintiffs unintentionally borrowed more money than they intended to borrow and at a higher interest rate. Thus, the plaintiffs brought suit in Wyandotte County District Court against several parties involved in securing the loan, including Creative Capital Investment Bankers (Creative), Capital South Mortgage Investments, Inc. (Capital), and Elio Castanuela. Creative did not appear at trial, and the plaintiffs received a default judgment against it. At trial, the plaintiffs alleged that Capital and Castanuela, the appellants herein, engaged in a joint venture with Creative to defraud the plaintiffs and commit usury against them. The jury agreed with the plaintiffs and entered a verdict against the appellants for fraud and usury. The plaintiffs were awarded actual damages for usury, punitive damages against Capital in the amount of $50,000, punitive damages against Castanuela in the amount of $50,000, an equitable reformation of the note from a $60,000 loan to a $32,000 loan, and attorney fees. The appellants appealed the jury's verdict and the damage award to the Court of Appeals. The plaintiffs cross-appealed, alleging that the actual damages or usury penalties awarded against the appellants were inadequate. The case was transferred to this court pursuant to K.S.A. 20-3018(c).

The plaintiffs purchased a home in Kansas City, Kansas, from Opal Morgan, Arthur George's step-grandmother. The home had an appraised value of approximately $60,000. However, Morgan planned to sell the house to the plaintiffs for $40,000. The only condition was that she needed all of the money up front.

The plaintiffs were not able to obtain conventional financing, so they approached Creative in an effort to obtain a loan. Creative indicated that it would be able to assist the plaintiffs in obtaining financing. At that time, Morgan signed a written, notarized agreement dated August 26, 1993, which stated: "I, Opal N. Morgan, agree to sell my house as it is for $40,000." This agreement was prepared and signed due to the plaintiffs' meeting with a representative from Creative who told the plaintiffs that he would need a document stating that Morgan was selling her house for $40,000. The plaintiffs then executed a note between themselves and Morgan for $40,000, which was secured by Morgan's house. The note did not include an interest rate or other terms because the parties did not know who would loan the money and were unsure of the terms of the note. Instead, the note stated that all $40,000 was due and payable upon the plaintiffs' financing being completed by September 30, 1993.

Later, this note was altered by the plaintiffs, who changed the principal amount owing to Morgan from $40,000 to $60,000, and initialed these changes. The plaintiffs testified that this change was made because Creative told them that a lender would only lend them a certain percentage of the cost of the house. Thus, the plaintiffs understood that to get a $40,000 loan, it had to appear that they would be paying $60,000 for the house. Since the house was valued at $60,000, Creative suggested changing the principal amount of the note to $60,000. The plaintiffs agreed to such change, but testified that they had made it clear that they did not want to actually borrow more than $40,000. According to the plaintiffs, Creative assured them that the change would be a change on paper only. In the end, Creative requested the alteration of the note and the plaintiffs initialed this alteration. In the margin of the amended note is a handwritten message stating, "Attention: Margie; From: Stacy Bennett." Bennett is a representative of Creative, and Margie is employed by Capital.

Subsequently, the plaintiffs added a one-page typed amendment to the original note, which included a $60,000 principal, as well as an interest rate and terms. In the amendment, the plaintiffs agreed to pay Morgan $60,000 and to pay this amount in a monthly installment of $440.26 per month over a 10-year period. At the end of the 10-year period, the remaining balance would become due. The annual interest rate on the unpaid principal balance was 8%. Finally, the plaintiffs executed an entirely new note showing a principal balance of $60,000 and an interest rate of 8%. Under this note, the plaintiffs were to pay $440 per month until both the principal and interest were paid off in full. All of these notes showed that the plaintiffs owed the principal directly to Morgan without the involvement of any third-party financing.

After this note was entered into, Capital sent a fax to Guarantee Title, the title company, asking Guarantee Title to prepare a title insurance policy for Capital, showing that it would issue a loan for $60,000. The policy was issued on October 25, 1993, listing Capital as the proposed insured, and the amount of the insurance as $60,000.

Also, after the plaintiffs entered into the note with Morgan, Morgan signed a promissory note endorsement. The endorsement was payable to Capital, and was to be a permanent rider on the promissory note executed by the plaintiffs for $60,000. This endorsement amounted to an assignment of the final $60,000 note, between Morgan and the plaintiffs, to defendant Capital from Morgan. Prior to making this assignment, Morgan provided Capital with a mortgage estoppel certificate, advising Capital that she (Morgan) had the authority to transfer the mortgage. With this authority, Morgan also assigned the mortgage of her house to Capital, at the same time that she assigned the note from the plaintiffs. Capital, in turn, assigned this note and mortgage to Castanuela.

The plaintiffs had no knowledge that Creative had also obtained Morgan's signature on a document entitled "Standard Option To Purchase Agreement," without explaining to Morgan anything about the document. The document refers to a note in the amount of $60,000, with a remaining unpaid balance of $60,000. Also in the document, Creative offers to purchase the note for the sum of $35,000. However, Morgan never received $35,000 from Bennett. Instead, on or about October 4,...