Gibson v. Harl

• Citation: 857 S.W.2d 260
• Decision Date: 13 April 1993
• Docket Number: No. WD,WD
• Parties: Tom C. GIBSON and Dorthea L. Gibson, Appellants, v. Jerry D. HARL and Sharon Harl, Respondents. 45775.
• Court: Court of Appeal of Missouri (US)

Page 260

857 S.W.2d 260

Tom C. GIBSON and Dorthea L. Gibson, Appellants, v. Jerry D. HARL and Sharon Harl, Respondents.

No. WD 45775.

Missouri Court of Appeals Western District.

April 13, 1993.

Motion for Rehearing and/or Transfer to

Supreme Court Denied June 1, 1993.

Application to Transfer Denied Aug. 17, 1993.

Thomas H. Rost, Jefferson City, for appellants.

Craig A. Van Matre and Thomas M. Harrison, Columbia, for respondents.

Before BRECKENRIDGE, P.J., and SHANGLER and SPINDEN, JJ.

SHANGLER, Judge.

The plaintiffs Tom Gibson and Dorthea Gibson, husband and wife, sued the defendants Jerry D. Harl and Sharon E. Harl, husband and wife, on a claim for money due on an $80,000 promissory note that the Harls had originally issued to Terry Gibson and Mary Sue Gibson, husband and wife. [Terry Gibson is the son of the plaintiffs.] The defendants Harl made answer and brought a third-party petition against Terry Gibson and Mary Sue Gibson. The answer asserted several affirmative defenses and pleaded also that the promissory note was not a negotiable instrument, and so was subject to all defenses had by the Harls. The defendants Harl also counterclaimed against the plaintiffs Gibson for a declaratory judgment that the promissory note was paid in full. Their third-party petition sought a declaratory judgment that the promissory note was subject to their defenses and that no money was due on the instrument, for an award of attorney fee against third-party defendants Terry and Mary Sue Gibson as makers of the note, and for other relief.

The court gave judgment in favor of the defendants Harl on the petition of the plaintiffs Gibson. The court gave declaratory judgment in favor of the defendants Harl on their counterclaim against the plaintiffs Gibson and in favor of the third-party plaintiffs Harl on their third-party petition against third-party defendants Gibson by declarations that the promissory note was not collectible, was paid in full by the Harls, that the defenses possessed by the Harls prevented any sums being collected on the note and that the deed of trust executed by the Harls to Terry and Mary Sue Gibson was void and no longer constituted a lien against the real estate. The plaintiffs Tom and Dorthea Gibson appeal.

The Real Estate Transaction

Third-party defendant Terry Gibson was a shareholder in four Missouri corporations known as Shorty's Fried Chicken, Inc., Shorty's Missouri Fried Chicken, Inc., Gibwell, Inc. and Granny's Fried Chicken, Inc., during the period of 1980 through April 22, 1987. Shorty's Fried Chicken, Inc. was a franchisor of restaurants while the other three corporations operated restaurants in the central Missouri area including Columbia. Third-party defendants Terry Gibson and Mary Sue Gibson owned certain improved real estate locations in which their corporations operated their restaurant businesses.

In 1978, they acquired title to the real estate described as: "Lots 308 and 309 of the original Town now City of Columbia, Boone County, Missouri." From 1978 until 1984, the third-party defendants Gibson leased this property to Terry Gibson's corporation, Granny's Fried Chicken, Inc., which operated its restaurant there during that period. On November 20, 1984, the defendants Harl and the third-party defendants Gibson entered into a contract for the sale of the real estate, and on December 28, 1984, title was conveyed to the Harls. The purchase price under the contract was $800,000. The Harls financed the purchase by a loan of $640,000 from Great Southern Savings and Loan secured by a first priority deed of trust in favor of the lender. To further finance the purchase, the Harls were loaned $80,000 by the sellers of the real estate, third-party defendants Gibson, and executed to them a promissory note in that amount. The terms of the note required the Harls to make payments of $732 per month to the sellers Gibson beginning in January of 1985. It was secured by a second priority deed of trust, which was duly recorded in Boone County.

A condition to the closing of the transaction under the real estate contract was that franchisor Shorty's Missouri Fried Chicken, Inc., commit to a written lease of the premises on terms satisfactory to the Harls, the purchasers. Accordingly, on December 28, 1984, the Harls and Granny's Fried Chicken, Inc., entered into a lease of the property whereby Granny's was to pay the Harls a base rent of $6,900 per month, due on the first day of each month during the term of the lease. Granny's obligations under the lease were jointly and severally and personally guaranteed by the third-party defendants Gibson. The lease included provisions for a late charge of $20 for each day the rent was delinquent, for reimbursement by the lessee for real estate taxes paid by the lessor, and for an attorney fee to the prevailing party in any action to enforce the lease.

The trial court entered detailed findings of fact as to the transactions between the third-party defendants Gibson and the Harls. The court found, among others, that: (1) The monthly rent payment by the Gibsons under the lease was intended to provide sufficient money each month to enable the Harls to make the payments due under the promissory note to the Gibsons and the loan from Great Southern Savings and Loan; (2) The Harls would not have concluded the real estate contract with the Gibsons or the transactions contemplated by its terms without a valid lease of the real estate from the Harls to Granny's and the personal guarantees of its obligations by the Gibsons; (3) The Harls would not have executed and delivered their note to the Gibsons without a valid lease of the real estate from the Harls to Granny's; (4) The real estate contract, the note and lease were all components of a single transaction and were executed, exchanged and delivered simultaneously by the Harls and the Gibsons.

The Attempted Sale of the Promissory Note

Thereafter, in mid-1985, Terry Gibson needed more capital for his business operations and approached W. Michael Stroupe, a Senior Vice President and Executive Vice President of Boone County National Bank for that purpose. Gibson offered to sell the Harl note to the Boone County National Bank, but Stroupe refused. Then in December of 1985, when the Gibsons had possession of the note and were still receiving payments under the note, Terry Gibson It was then when Terry and Mary Sue Gibson learned that the note was not negotiable and therefore subject to any defenses or claim for setoff of the Harls.

approached Craig A. Van Matre, an attorney, concerning the sale or discount of the note to a client. Van Matre contacted the trustee of an employees' pension plan and trust concerning a possible purchase of the note. Van Matre prepared on behalf of the trustee of the plan and trust an "estoppel certificate" for signature by the Harls in connection with the contemplated sale. The Harls refused to sign the certificate upon the advice of their then attorney, Richard C. Thomas. Van Matre advised the trustee not to purchase the note because the note was not negotiable and so subject to all the defenses that the Harls could assert.

The Transfer of the Promissory Note

Terry Gibson then again approached Boone County National Bank concerning a sale or pledge of the note to the Bank as collateral for an additional loan. Stroupe was by then aware that Van Matre as counsel for the trustee of the pension plan had examined the note and expressed opinion that the note was not a negotiable instrument and was subject to all the defenses of the Harls. On February 15, 1985, Terry and Mary Sue Gibson borrowed $270,508.94 from the Boone County National Bank to finance business operations. The plaintiffs Tom and Dorthea Gibson guaranteed $100,000 of this first loan.

On January 10, 1986, Terry and Mary Sue Gibson borrowed another $80,000 from the Boone County National Bank to finance business operations. The Bank loaned the money to Terry and Mary Sue Gibson only after Tom and Dorthea Gibson personally guaranteed repayment of the second loan. As further collateral for the second loan, Terry and Mary Sue Gibson pledged the Harl note to Boone County National Bank by a security agreement. As a part of the security transaction, the third-party defendants Gibson delivered the original of this note to the Bank.

The security agreement allowed the third-party defendants Terry and Mary Sue Gibson to continue to receive all payments and interest due under the Harl note on or after January 10, 1986, even though the note was in the possession of the Boone County National Bank. The Harls made all payments to the Gibsons and not to Boone County National Bank. The court found that neither the Bank nor the Gibsons informed the Harls of the pledge of the note, nor did either of them request the Harls to make future payments due under the note to the Bank. The Harls were neither informed nor notified by anyone of the pledge of the note prior to March 31, 1987.

The court found that the pledge of the note by Terry and Mary Sue Gibson to the Boone County National Bank "did not constitute a complete assignment of the Note, but was rather merely a pledge of the note."

After August 1, 1986, neither Granny's Fried Chicken, Inc., nor third-party defendants Gibson made any rental payments under the lease. Since the Harls used the rent money received under the lease to make payments on the note, when the rent payments ceased, the payments on the note ceased. The court found that the third-party defendants Gibson gave their consent to the Harls to cease payments on the note for as long as the third-party defendants Gibson and lessee Granny's were in default under the lease.

As of March 31, 1987, the third-party defendants Gibson and Granny's were in default under the lease and were delinquent in payment of rent and other charges in the amount of $106,339.03. The third-party defendants were personally liable in that amount to...