Kahn v. Royal Banks of Missouri

• Decision Date: 29 May 1990
• Docket Number: No. 57032,57032
• Citation: 790 S.W.2d 503
• Parties: 12 UCC Rep.Serv.2d 756 Linda S. KAHN, Plaintiff-Appellant, v. ROYAL BANKS OF MISSOURI and Farrell Kahn, Defendants-Respondents.
• Court: Missouri Court of Appeals

Page 503

790 S.W.2d 503

12 UCC Rep.Serv.2d 756

Linda S. KAHN, Plaintiff-Appellant, v. ROYAL BANKS OF MISSOURI and Farrell Kahn, Defendants-Respondents.

No. 57032.

Missouri Court of Appeals,

Eastern District,

Division Three.

May 29, 1990.

Rexford H. Caruthers, Martha L. Goodloe, Michael A. Vitale, Eugene J. Brockland, Jr., Sidney Stone, Steven Stone, St. Louis, for plaintiff-appellant.

Terrence Finan Moffitt, John A. Klobasa, Alan C. Kohn, St. Louis, for defendants-respondents.

SATZ, Presiding Judge.

This case concerns liabilities arising from two promissory notes executed in April, 1987 and made payable to the Royal Banks of Missouri (Bank). The trial court found Mrs. Linda Kahn (wife) and Mr. Farrell Kahn (husband) jointly liable on the notes and awarded the Bank the full amount of an injunction bond which the wife had posted as security for a temporary restraining order issued against the Bank. We affirm in part and reverse in part.

We review this court tried case under the well known principles established by Murphy v. Carron, 536 S.W.2d 30 (Mo. banc 1976) and Rule 73.01(c). We defer to the credibility determinations made by the trial court, and we accept as true the evidence and permissible inferences favorable to the prevailing party and disregard contrary evidence and inferences. E.g., Snowden v Gaynor, 710 S.W.2d 481, 483 (Mo.App.1986).

The husband and wife were married in 1959. From the beginning of the marriage, the husband assumed exclusive responsibility for the couple's business affairs, including millions of dollars' worth of oil and real estate investments, and continued to do so throughout the marriage. In 1979, the wife executed two separate powers of attorney: a "durable" power of attorney and a general power of attorney to convey real estate. In the durable power of attorney, she granted the husband broad authority, including the power on her behalf "to borrow money and to pledge ... securities or mortgage ... real estate for such loans if [in his] ... judgment ... such action should be necessary...." In the other power of attorney, she authorized the husband, on her behalf, to "mortgage or otherwise purchase or convey any oil and gas leases or any part or all of the real estate or personal property now owned or hereafter acquired by [her]...."

In April, 1987, the husband signed both his and his wife's names to two renewal notes approximating $1,400,000.00 and made payable to the Bank. The husband pledged jointly owned stock and real estate as collateral for the notes. The notes and pledge were part of one written agreement. The Bank declared the notes in default after they were not paid on time, and the Bank informed the husband and wife of its intention to sell the collateral to satisfy the notes.

The wife then filed the present declaratory judgment action against the Bank and the husband, seeking a declaration that the husband was solely liable on the notes and that the Bank had no interest in the wife's share of the jointly owned property pledged as collateral. At the wife's request, the trial court issued a temporary restraining order prohibiting the Bank from attempting to foreclose on the wife's interest in the collateral.

The husband filed a counterclaim seeking a declaration that his wife and he were jointly liable on the notes and that the pledge of the jointly owned property as collateral was valid. The Bank filed a counterclaim against the wife and a crossclaim against the husband seeking, in each claim, a declaration that the husband and wife were jointly liable on the notes and that the Bank had a valid security interest in the pledged collateral.

The trial court found the husband and wife to be jointly liable on the notes and also found the jointly owned collateral to have been validly pledged. Accordingly, the court entered a judgment in favor of the Bank and against the wife and husband in the amount of $1,543,002.60, constituting principal and interest. The court also awarded the Bank damages caused by the temporary restraining order. This appeal by the wife followed.

The wife makes several arguments on appeal. Their basic thrust is that the husband's signing of his wife's name to the 1987 notes did not make the wife an obligor on those instruments. The dispositive issues raised by these arguments focus on the validity of the husband's acquisition, retention and exercise of the 1979 powers of attorney empowering him to act on her behalf.

The wife contends the durable power of attorney was void from the outset because it was part of her husband's scheme to defraud his creditors by transferring his assets to her, in violation of Missouri's Fraudulent Conveyance Statute, § 428.020. ¹ As a corollary, the wife argues the court erred in excluding parol evidence of her husband's alleged scheme.

Parol evidence, like any other evidence, can be admitted only if relevant to a material issue. See Matter of Estate of Passman, 537 S.W.2d 380, 386 (Mo. banc 1976). The material issue here is whether the husband's signing of his wife's name was valid insofar as the Bank, a third party, is concerned. Fraudulent conveyances are void against creditors; they are, nevertheless, " 'valid as against the grantor and his privies....' " E.g. Loe v. Downing, 325 S.W.2d 479, 482 (Mo.1959).

The wife is not her husband's judgment creditor, nor does she claim to be one. More important, perhaps, the wife's offer of proof seemingly implies she would testify that she knew of her husband's alleged scheme. Therefore, she clearly has no standing under the Fraudulent Conveyances Statute to question her husband's authority to act on her behalf, insofar as the Bank is concerned.

The wife next argues the durable power of attorney executed in 1979 had expired prior to the execution of the 1987 notes. The wife did not formally revoke the durable power of attorney until 1988. She notes, however, that this power of attorney had no express termination date, and she argues that the power of attorney terminated by operation of law before her husband used it in 1987. We disagree.

An agent's authority under an agency agreement of indefinite duration does terminate at the end of a "reasonable period." Restatement (Second) of Agency, § 105 (1957) ²; see also 3 Am Jur 2d Agency § 37 (1986). The reasonable duration of an agent's authority depends on such factors as "the nature of the acts specifically authorized, the formality of the authorization, [and] the likelihood of changes in the purposes of the principal." Restatement, § 105, Comment b. "Authority may be kept alive beyond what otherwise would be a reasonable time by the fact that the principal knows that the agent is continuing to make efforts to perform and acquiesces therein." Id.

In the present case, it was reasonable for the husband to believe the durable power of attorney authorized him to act as his wife's agent as long as they were married. While all-encompassing, the durable power of attorney executed in 1979 merely formalized the authority which the husband had in fact been exercising from the date of the marriage in 1959, a 20 year period. According to wife's own testimony, husband had handled the couple's business affairs from the inception of the marriage. The couple had regularly borrowed money to invest in millions of dollars' worth of oil properties and real estate.

The 1987 notes at issue here are the culmination of a series of renewal notes securing long-standing indebtedness. The wife personally signed some of the renewal notes. More important, the wife acquiesced in her husband's execution of the 1987 notes on her behalf: the husband testified that he had informed the wife that he was signing her name to the 1987 notes. The wife concedes that she never told the husband not to sign her name to documents until 1988, when she instituted proceedings to terminate their marriage. These facts show that the durable power of attorney did not terminate by operation of law before the 1987 transactions in issue here.

However, the wife also contends that even if the durable power of attorney was in effect in 1987, the husband's signing of his wife's name to the 1987 notes was a breach of the fiduciary duty he, as the agent, owed his wife, as the principal, because he signed her name for his own benefit. This breach, the wife apparently reasons, precluded the husband from binding the wife to the Bank on the 1987 notes. The wife's apparent reasoning is a free leap justified by neither logic nor law.

Principals and agents do stand in a fiduciary relationship, which obligates an agent "to be perfectly frank with [his principal], to make full disclosure of all material facts, to strictly avoid misrepresentation ..., and in all respects to act with the utmost good faith, fidelity and loyalty in the interest of [the principal]." Groh v. Shelton, 428 S.W.2d 911, 916 (Mo.App.1968). An agent who acts for a purpose unrelated to the principal's welfare violates this duty of loyalty, which requires an agent to place his principal's interest above all others, including the agent's. See Utlaut v. Glick Real Estate Co., 246 S.W.2d 760, 763 (Mo.1952). Thus, when an agent is authorized to borrow money on his principal's behalf, "it is inferred that the agent is authorized to borrow only for the purposes of the principal, and the power of attorney, given for the benefit of the principal is so interpreted, even though expressed in the broadest terms." Restatement, § 75, Comment d.

Obviously, then, an agent has no actual authority to act in violation of his fiduciary duties. However, if we assume, as the wife does for the purpose of this point, that the durable power of attorney authorized borrowing for their joint benefit, then, the husband had at least apparent authority to obtain the 1987 loans, even if husband had breached his fiduciary duties.

Apparent authority results from a manifestation by a principal to a third party that an agent for the...