Iota Management Corp. v. Boulevard Inv. Co., 49817

• Decision Date: 28 April 1987
• Docket Number: No. 49817,49817
• Citation: 731 S.W.2d 399
• Parties: IOTA MANAGEMENT CORP., United Associates, Inc., Arthur Loomstein, and David Weil, d/b/a Parklin Associates, a Missouri Limited Partnership, Plaintiffs and Counterclaim-Defendants/Respondents, and Kay Loomstein, Counterclaim-Defendant/Respondent, v. BOULEVARD INVESTMENT COMPANY, Defendant and Counterclaim-Plaintiff/Appellant, and Madesco Investment Corp., Defendant/Appellant, and Norman K. Probstein, Defendant.
• Court: Missouri Court of Appeals

Page 399

731 S.W.2d 399

IOTA MANAGEMENT CORP., United Associates, Inc., Arthur Loomstein, and David Weil, d/b/a Parklin Associates, a Missouri Limited Partnership, Plaintiffs and Counterclaim-Defendants/Respondents and Kay Loomstein, Counterclaim-Defendant/Respondent, v. BOULEVARD INVESTMENT COMPANY, Defendant and Counterclaim-Plaintiff/Appellant and Madesco Investment Corp., Defendant/Appellant and Norman K. Probstein, Defendant.

No. 49817.

Missouri Court of Appeals,

Eastern District,

Division Three.

April 28, 1987.

Motion for Rehearing and/or

Transfer Denied

June 2, 1987.

Application to Transfer Denied

July 14, 1987.

John R. Musgrave, Ellen E. Bonacorsi, Ronald L. Hack, Coburn, Croft, Putzell, St. Louis, for appellants.

Robert F. Summers, Bryan L. Hettenbach, Summers, Compton, Wells & Hamburg, Clayton, for respondents.

SNYDER, Chief Judge.

Madesco Investment Corporation and its wholly owned subsidiary, Boulevard Investment Co., appeal from a judgment in favor of respondents in which the trial court found appellants liable for breach of a sales agreement and constructive fraud in connection with appellant Boulevard's sale of a hotel to respondents. The judgment is affirmed.

This action arose from the sale of the Bel Air West Motor Hotel by appellant Boulevard to respondents. Respondents alleged in their petition actual fraud (Count I), constructive fraud (Count II), and wrongful foreclosure (Count III) against appellant Boulevard and Norman Probstein. Respondents also alleged breach of contract (Count IV) and sought the return of expenses and monies due (Count V). In addition, respondents sought to have a constructive trust imposed against appellant Madesco (Count VI). Appellant Boulevard counterclaimed for breach of the sales contract and related agreements against respondents (Counts I-IV), for unjust enrichment against respondents, (Count V), and for breach of a guarantee against respondents Loomstein and Wiel and counterclaim-defendant respondent Kay Loomstein.

The trial court entered its judgment for respondents on Counts II, IV, V, and VI and entered judgment against appellant Boulevard on all six counts of its amended counterclaim.

Appellants have challenged the sufficiency of the evidence in several of their twelve points on appeal. Therefore, a summary of the voluminous trial evidence will be helpful.

On March 31, 1981, appellant Boulevard and respondents executed an agreement for the sale of the Bel Air West Motor Hotel located in the City of St. Louis. Appellant Boulevard is a wholly owned subsidiary of appellant Madesco. Norman Probstein was the president and a director of Boulevard, as well as chairman of the board of directors of Madesco.

Parklin Associates, a limited partnership, was the entity designated as the purchaser in the sales agreement. Respondents Iota Management Corporation, United Associates, Inc., Arthur Loomstein, and David Wiel were general partners in Parklin.

Parklin's attorney, Ron Compton, and Boulevard's attorney, Eugene Portman, engaged in a series of negotiations concerning the sale of the Bel Air West. Portman expressed throughout the negotiations that the sale of the hotel would be an "as is" sale and that Parklin should inspect the hotel to ascertain its condition.

The sales agreement provided that Boulevard would sell the hotel and all the personal property within the hotel to Parklin for $1,750,000.00, with $600,000.00 to be paid at closing. The agreement included:

Section 4.1. Condition of Hotel. Seller makes no representations or warranties as to the condition of the Hotel, other than as contained herein; rather, Seller is selling the Hotel "as is." Purchaser, therefore, shall have 21 days from the date of execution of this Agreement to have the Hotel inspected and examined by its architects, service representatives, engineers, or contractors. Within said 21-day period, Purchaser shall have the right to terminate this Agreement if, based upon sound engineering advice, or in Purchaser's good faith opinion, any substantial portion of the Hotel is determined to be in an adverse condition.

Section 8.4. Condition of Hotel. Seller has no actual notice of any substantial defect in the structure of the Hotel or in any of its plumbing, heating, air-conditioning, electrical, or utility systems.

Section 15.1. All representations and warranties set forth in this Agreement shall survive the Closing and thereafter shall be fully effective and enforceable, and shall not be affected by any investigation, verification, or approval by any party or anyone on behalf of such party.

Probstein, the president of Boulevard, learned of the existence of § 8.4 of the agreement prior to its execution, but testified that he had no actual notice of any substantial defect in the structure or systems of the hotel.

The agreement was executed on March 31, 1981, but amended on June 17, 1981. The amendment, among other things, changed the closing date from July 1, 1981, to July 8, 1981, changed the terms of payment, and also provided for a personal guarantee by Mr. and Mrs. Arthur Loomstein and David Weil.

After the agreement was executed, Loomstein conducted a room inspection and inventory of the personal property. In addition, Phil Bassin, a vice president of Centerco, a building management company of which Loomstein was the president and principal shareholder, inspected the hotel's rooms to determine what cosmetic improvements would be necessary.

Loomstein also hired Thomas Kirk, a registered professional engineer, to inspect the structural condition of the hotel and the heating and air conditioning system. Kirk visited the hotel six to ten times during the week of April 8, 1981, when the air conditioning system was not in operation, and was accompanied by Boulevard's maintenance supervisor, Cecil Lillibridge.

The principal heating and cooling system at the hotel was a closed-loop water circulation system. A set of self contained pipes circulated heated or cooled water throughout the hotel to fan coil units located in guest bathroom ceilings where air was blown across the heated or cooled coils. The water heating and cooling units were located in the boiler room of the basement of the hotel. Pipes ran vertically from the basement to the three floors of the hotel through narrow concealed spaces called pipe chases or risers. Supply and return pipes called mains and run outs branched off horizontally from the risers and ran above the hotel corridor ceilings.

The pipes in the closed-loop system were insulated with fiberglass, Armaflex, Rubatex or asbestos. Armaflex and Rubatex are trade names for pipe insulation. The pipes were insulated to provide a vapor barrier so that condensation would not form on the pipes.

The mains in the hotel were covered with either fiberglass or Armaflex; the closed-loop pipes in the risers were insulated with either asbestos or Armaflex; and closed-loop pipes in the boiler room were covered with fiberglass. Cecil Lillibridge, Boulevard's maintenance supervisor, from what he could see of the exposed insulated pipe, estimated that 10% of the insulation in the hotel is Armaflex located mainly on the pipes in the bathroom ceilings. He was unable to see or inspect much of the pipe because it was concealed.

In addition to the closed-loop system, two direct expansion heating and cooling units serviced the hotel's restaurant and the Phillips Room, a meeting room. The hotel lobby and other areas of the hotel, including the lounge, were heated and cooled by air carried through metal ductwork.

Kirk, the registered professional engineer, prepared a report for Loomstein in which he cited staining in the bathroom ceilings which he attributed to condensation from the cooling units and steam and condensation from the bathroom showers. He also reported stains on the third floor ceilings which he believed were caused by inoperative exhaust vents on fans on the roof. Kirk looked at some closed-loop pipe during his inspection but did not touch or examine it. Kirk prepared a report in which he stated that the heating and air-conditioning system was in excellent condition, except that the chiller insulation needed to be repaired and that a 60 ton unit that provided heating and cooling to the lobby and restaurant would need to be replaced in about two years because of considerable corrosion and resulting reduced efficiency.

After reviewing the Kirk report, Loomstein instructed Frank Huseman, an air-conditioning specialist to examine the air-conditioning chiller in the boiler room. Loomstein did not order any further inspections of the ceiling stains.

Loomstein reviewed the reports he received from Kirk, Bassin and Huseman prior to the expiration of the twenty-one day inspection period referred to in § 4.1 of the sales agreement. There were no allegations that access to any portions of the hotel were denied to Loomstein or anyone working for him.

In June of 1981, the parties approved an amendment to the sales agreement. The cash payment at closing was reduced from $600,000.00 to $200,000.00. Boulevard took back a promissory note from Parklin in the amount of $1,550,000.00. The terms of the note called for monthly interest payments of $6,000.00 each beginning in August, 1981, and for payment of $400,000.00 in principal on January 29, 1982. A personal guarantee was made by Loomstein, his wife Kay, and Weil on the $400,000.00 principal amount.

The sale was closed on July 8, 1981. Loomstein and Weil executed the Part Purchase Leasehold Deed of Trust and Security Agreement on behalf of Parklin, and Probstein represented Boulevard. Loomstein, Kay Loomstein, and Weil executed their personal guarantee that the principal installment would be paid.

On the date of closing, July 8, 1981, possession of the real and personal property was transferred from Boulevard to Parklin Associates. A list of personal property to be transferred included an agreement that each guest...