Kreutz v. Wolff, 37904

CourtCourt of Appeal of Missouri (US)
Citation560 S.W.2d 271
Docket NumberNo. 37904,37904
PartiesEdward C. KREUTZ, Harold L. Studt and Frank A. Forst, Plaintiffs-Respondents, v. Ray J. WOLFF and Lester N. Jaffee, Defendants-Appellants. . Louis District
Decision Date29 November 1977

Page 271

560 S.W.2d 271
Edward C. KREUTZ, Harold L. Studt and Frank A. Forst,
Ray J. WOLFF and Lester N. Jaffee, Defendants-Appellants.
No. 37904.
Missouri Court of Appeals, St. Louis District.
Nov. 29, 1977.

Page 273

Donald J. Sher, St. Louis, for defendant-appellant Ray J. Wolff.

Ben Boxerman, St. Louis, for defendant-appellant Lester N. Jaffee.

Ziercher, Hocker, Tzinberg, Human & Michenfelder, Robert C. Jones, Clayton, for plaintiffs-respondents.

DONALD L. MASON, Special Judge.

This is an appeal by defendants-appellants Ray J. Wolff and Lester N. Jaffee from a judgment of the circuit court of St. Louis County, Missouri, sustaining plaintiffs-respondents' motion for a directed verdict or in the alternative for a new trial and entering judgment for plaintiffs in the sum of $137,014.71, as claimed to be due on a promissory note. For reversal appellants argue that (1) the trial court erred in sustaining respondents' motion for a directed verdict because there was substantial evidence to support the jury verdict; and (2)

Page 274

the trial court erred in alternatively granting respondents' motion for a new trial because the uncontradicted evidence of lack of consideration and fraudulent misrepresentation entitled appellants to a directed verdict.

For the reasons discussed below, we reverse the judgment of the trial court sustaining respondents' motion for a directed verdict and affirm the order granting a new trial.

The assertions in opposition to and in support of the post trial orders entered in this jury tried case requires a detailed recitation of the evidence.

In 1967 Roger Development Company, a corporation jointly owned by respondents Frank A. Forst, Harold L. Studt and Edward C. Kruetz, and of which corporation they were officers, purchased a 180 acre tract of land in St. Charles County, Missouri, as the site for a subdivision development. Roger Development Company filed a Declaration of Trust containing restrictions and naming respondents as the first trustees. One of the subdivision restrictions prohibited the construction on any lot any residence of less than 1,200 square feet first floor living area. The subdivision restrictions were subject to amendment with the approval of two-thirds of the record property owners voting at a meeting called by the owners of at least ten percent of the total area of the subdivision.

The initial development of Royal Oaks Subdivision involved only 27 acres at one end of the tract. The property was subdivided into more than 20 lots, each a minimum of one acre in size, and sold subject to the restrictions. The remainder of the property was platted into building lots of three to five acres in size, but not developed. In 1970 this undeveloped part, minus a small section sold to a school, was sold to Sixty-eight Twenty, Inc. Appellant Ray J. Wolff was a stockholder in Sixty-eight Twenty, Inc., and had made several loans to the corporation. Appellant Jaffee was an employee of the corporation. Monroe Wolff, not a party to this action due to lack of service of process, was president of the corporation.

The sale price of the property was $250,000. One thousand dollars was paid as earnest money and $29,000 was paid at closing. The balance of $220,000 was evidenced by a promissory note secured by a deed of trust on the property sold. The sales contract specified that the transaction was contingent upon Sixty-eight Twenty's ability to change the zoning to permit smaller lots and secure FHA and VA approval for financing. In the event that any of the contingencies could not be secured by Sixty-eight Twenty, the contract was to be null and void and the earnest money returned.

Sixty-eight Twenty succeeded in changing the zoning to permit smaller lots (7,500 square feet), but FHA refused approval of the proposed modular home development unless the subdivision restrictions were removed. As submitted, all the floor plans for the proposed modular homes specified first floor living areas of less than 1200 square feet. After hearing of the reason for FHA's refusal to approve the proposed development for financing, respondent Studt assured appellants that he would "take care of the restrictions." The manner in which respondents amended the subdivision restrictions is one of appellants' defenses and the basis of their counterclaims.

Respondents Studt and Forst solicited some of the Royal Oaks homeowners to agree to an amendment of the restrictions, and to this end circulated a document entitled "Amendment to Restrictive Agreement" in the subdivision. In order to induce the homeowners to sign the agreement respondent Forst, or Mrs. Lois Warfield, a friend of Forst's, and at that time a homeowner in the subdivision, represented that the sole purpose of the proposed amendment was to separate the two groups of homeowners for self-government so that the original group of homeowners would not be out-voted in such matters as the selection of future trustees, that the minimum floor area restrictions of 1200 square feet would continue to apply to any further development of the remainder of the tract,

Page 275

that any homes constructed would be comparable to theirs, and that any lots in the remainder of the tract would be at least one acre in size. The amendment was recorded, but was not presented to nor approved at a meeting of the homeowners as required in the Declaration of Trust nor as declared in the amendment. As a Notary Public, respondent Forst attested the signatures of the various homeowners.

Respondent Studt then informed appellant Jaffee that the restrictions "had been lifted," and the amendment recorded, which appellant Jaffee verified through the St. Paul Title Company. In December of 1970 appellants closed the deal acting on the belief that the restrictions had been legally changed. Appellants (and Sixty-eight Twenty, Inc.) executed, in favor of Roger Development Company, their promissory note for the balance of the purchase price.

Thereafter, preliminary work was done at the development site, including grading, platting the streets, pouring concrete foundations and erecting display modular homes. Appellants also arranged for the hiring of a sales agent and the printing of sales brochures and advertising.

The homeowners in Royal Oaks, alerted by the construction and promotional publicity, bitterly opposed the proposed development of 450 modular homes on small one-fifth acre lots. Local protest groups formed, held meetings and even hired an attorney. A lawsuit was filed in June of 1971 alleging a conspiracy between Roger Development Company and Sixty-eight Twenty, Inc., to change the zoning and subdivision restrictions by means of fraudulent representations. This lawsuit was subsequently dismissed for failure to prosecute. Some homeowners posted signs along the road leading to the development describing the overcrowded conditions of the local schools, the inadequacy of the sewer system and that a lawsuit had been filed to stop the development. The proposed development was also the subject of several local newspaper articles. As a consequence of this neighborhood opposition, local officials refused to grant any additional building permits and weight limits were posted on an old bridge over which trucks hauling concrete and modular homes had to pass. This effectively prevented further delivery of materials and halted construction. The display homes were not sold and were eventually vandalized.

Respondents acquired the promissory note when Roger Development Company was dissolved and the company's assets were distributed to its stockholders (respondents) in June of 1971. Sixty-eight Twenty, Inc. had made one principal payment of $10,000, reducing the principal owed to $210,000, and one partial interest payment of $2,500. No other payments were made. Respondents foreclosed on the Deed of Trust in August of 1975 and purchased the property at the foreclosure sale for $140,000. This amount was credited against the principal balance on the promissory note, leaving a deficiency of $70,000, for which sum, plus interest and foreclosure expenses, this action was brought. Respondents calculated accrued interest to amount to $66,351.31 and foreclosure expenses in the amount of $663.40, a total deficiency in the sum of $137,014.71.

Appellants pleaded as affirmative defenses lack of consideration and fraud in the inducement and counterclaimed for damages sustained as a result of the fraudulent manner in which...

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