Labor Discount Center, Inc. v. State Bank & Trust Co. of Wellston, 35229

• Decision Date: 20 May 1975
• Docket Number: No. 35229,35229
• Citation: 526 S.W.2d 407
• Parties: LABOR DISCOUNT CENTER, INC., Plaintiff-Appellant, v. STATE BANK & TRUST COMPANY OF WELLSTON (now named First State Bank & Trust Company), et al., Defendants-Respondents. . Louis District
• Court: Missouri Court of Appeals

Page 407

526 S.W.2d 407

LABOR DISCOUNT CENTER, INC., Plaintiff-Appellant, v. STATE BANK & TRUST COMPANY OF WELLSTON (now named First State Bank & Trust Company), et al., Defendants-Respondents.

No. 35229.

Missouri Court of Appeals, St. Louis District.

May 20, 1975.

Motion for Rehearing or Transfer Denied June 26, 1975.

Application to Transfer Denied Sept. 8, 1975.

William H. Wyne, Jr., St. Louis, Leonard R. Yocum, Clayton, Leo F. Laughren, St. Louis, for plaintiff-appellant.

Philip Gallop, St. Louis, for St. Bank & No. Co. Bank.

Jesse Bishop, St. Louis, for Am. Nat. Bank, Brentwood Bank & City Bank.

Thompson, Walther, Shewmaker & Gaebe, Martin E. Galt, III, St. Louis, for Merchantile Tr. Co. N.A.

Hyman G. Stein, Bernard J. Mellman, St. Louis, for Morris A. Shenker.

PER CURIAM.

I. Introduction

This action is an off-shoot of litigation which began as a suit filed by H. B. Deal Construction Company for the purpose of impressing a mechanic's lien in the amount of $178,182.80 on realty owned by the Labor Discount Center, Inc., located at 1795 Dunn Road in St. Louis County. Labor Discount (hereinafter referred to as plaintiff in this litigation) one of the defendants in the H. B. Deal suit filed its cross-petition against six banks, co-defendants in the mechanic's lien suit, and against four individuals--Mr. Morris A. Shenker and his wife, Lillian, and Mr. Jacob Wittels and his wife, Bertha. The six banks named by Labor Discount as cross-defendants are (1) the State Bank and Trust Company of Wellston (now known as the First State Bank and Trust Company and hereinafter referred to as the State Bank), (2) North County Bank and Trust Company, (3) Security Trust Company (which was merged into Mercantile Trust Company National Association and hereinafter referred to as Security Trust Company), (4) American National Bank in St. Louis, (5) Brentwood Bank and (6) City Bank.

II.

The Development of Labor Discount Center and The Financial

Arrangements

There were many facts adduced by all parties at trial. Many were not in dispute, and those we shall set forth initially.

Sometime in 1960 or 1961, Stephen M. Lumetta conceived of an idea for a discount store to be located in north St. Louis County which would specifically cater to the working man. As a first step in bringing his concept into being, Labor Discount Center, Inc. was incorporated sometime in 1961. In 1962, the stockholders of record of that corporation consisted of Paul Lumetta, Stephen's brother, Morris A. Shenker, Jacob Wittels, Mrs. Gertrude Krost, and Mr. James Nangle. Paul Lumetta, president of the corporation, owned 52 1/2% of the stock of the corporation, and Mr. Shenker and Mr. Wittels, 40%. To make his concept viable, Stephen Lumetta and the corporation needed two things: (1) land on which to construct the discount store and (2) money to pay for the land and the construction of the discount center. With respect to his land needs, Mr. Stephen Lumetta settled on a tract of land situated in an unincorporated area of north St. Louis County, subsequently known as 1795 Dunn Road, consisting of 105.89 acres. The purchase of the tract of land was accomplished through Stephen Lumetta's attorney, Mr. Shenker, with the aid of mortgages held by both Mr. Shenker and the Security Trust Company in an aggregate sum of $535,000.00. A deed of trust for $655,000.00 was placed on the property. By various quit-claim deeds from Mr. Shenker and Lillian Shenker, Mr. Wittels and Bertha Wittels, and McDaniel Motor Company, Inc., title to the land was conveyed to the plaintiff corporation on November 29, 1962.

Rezoning for commercial use of thirty acres of the tract was then effected. An architectural firm, Schmidt, Black and Perlsen, prepared plans for the building. Construction bids were sought, and on December 5, 1962, the plaintiff entered into a construction contract with the successful bidder--H. B. Deal Construction Company--for the construction of a building in accordance with the plans and specifications of the architectural firm for a guaranteed price of $1,250,000.00 which included a fixed contractor's fee of $50,000.00.

Having acquired the land and having contracted for construction of the discount center, Stephen Lumetta undertook to obtain financing. He made application to the Central States, Southeast and Southwest Areas Teamster's Pension Fund in Chicago, Illinois, for $2,500,000.00 for permanent financing. On October 15, 1962, the Trustees of the Pension Fund approved a commitment of $1,666,000.00 for permanent financing 'when said real estate is improved with a structure or structures which will be used as a discount house and shopping center.' The commitment contained numerous other requirements relating to (1) title, (2) method and quality of construction, (3) certification of compliance therewith by the Real Estate Research Corporation, (4) execution of a note in conformity with the payment provisions contained in the commitment to be secured by a merchantible first mortgage on the real estate and the improvements constructed thereon, (5) a mortgage guarantee policy, and (6), which later became critical, the right of revocation of the commitment in the event the borrower, Labor Discount, filed or had filed against it a petition for bankruptcy. It further provided that there should be a single payout of the loan, disbursement thereof to be 'no sooner than January 1, 1964, and no later than June 1, 1964.' Interest was 6 1/2% per annum, and the loan was payable in 240 monthly installments of $12,421.25 each to commence 'thirty (30) days from the date of the disbursement of our loan proceeds.' At the time of acceptance of the commitment, a nonrefundable service fee of $16,660.00 was to be paid the Pension Fund. The commitment was non-assignable except to a bank or insurance company or other institutional lender for the purpose of interim financing.

Armed with this commitment for permanent financing, from the Pension Fund, a meeting was arranged with Mr. Frank Chervitz, Executive-Vice President of State Bank, on December 10, 1962, for the purpose of obtaining interim financing. At this meeting were Stephen M. Lumetta representing the plaintiff, Mr. Chervitz, Mr. William Borders and Mr. Carl Sydow of Security Trust Company, Mr. Shenker, Jacob and Malcolm Wittels, William J. Waldorf, and James Nangle. At this meeting it was decided that about $1,900,000.00 would be needed 'to get the thing off the ground,' and that amount of interim financing was agreed upon. It was explained to Stephen Lumetta that State Bank would be 'the lead bank,' i.e., the bank which would administer the loan, disburse the amounts loaned, take and hold the collateral, take notes from the borrower, obtain from each 'participating bank' its share of each disbursement, issue to each of the participating banks, other than itself, a participation certificate, collect the interest and distribute it among the participating banks. At the time of this meeting Mr. Chervitz did not know who the participating banks would be. Stephen Lumetta was also advised that all of his dealings were to be with Mr. Chervitz. Two days later, by letter of December 12, 1962, Carl Sydow, the vice-president of Security Trust Company, suggested to Mr. Chervitz that an assignment of the commitment of the Pension Fund should be obtained from Labor Discount so that the Pension Fund would know of the assignment and so that none of the terms of the commitment could be changed without the consent of the assignee banks.

The banks' agreement to loan $1,900,000.00 for interim financing for construction of the building was then prepared and executed. This agreement, on the letterhead of State Bank and directed to 'Labor Discount Center, Inc. c/o Mr. Paul Lumetta, President,' is dated December 18, 1962. It confirms that the six banks would lend 'for construction funds' $1,900,000.00 in specified proportions of participation. ¹ The commitment contained no provision for the use of any part of the $1,900,000.00 for 'furnishings' or 'equipment,' but in paragraph 11 of the banks' commitment, it was provided that:

'It is further understood and agreed by and between the parties hereto and by Morris A. Shenker and Lillian Shenker, his wife, and by Jacob M. Wittels and Bertha Wittels, his wife, as evidenced by their signatures hereto, that if necessary and in order to complete the improvements and furnishings and equipment in accordance with the plans and specifications that Morris A. Shenker and Lillian Shenker, his wife, will upon demand of the undersigned Banks advance amounts up to Fifty Thousand ($50,000.00) Dollars, and that Jacob M. Wittels and Bertha Wittels, his wife, will upon demand of the undersigned Banks advance amounts up to Fifty Thousand ($50,000.00) Dollars.' (Emphasis supplied.)

The commitment letter from the banks required that the realty was not to be directly mortgaged to secure the advances by the banks, but a $2,000,000.00 note secured by the first deed of trust on the Dunn Road property was to be executed by the plaintiff and delivered to the banks to secure the indebtedness, thereby constituting collateral security for the loans. There was also a second deed of trust held by State Bank for a loan of $175,000.00, which State Bank had loaned plaintiff under a separate agreement.

As required by the construction contract, H. B. Deal, the contractor, the plaintiff and State Bank, as the 'mortgagee,' entered into a 'Construction and Disbursing Escrow Agreement' with General Title Service Corporation, whereby it was provided that all monthly requests for payments were to be signed jointly by an authorized representative of Deal and by either Stephen or Paul Lumetta as authorized representative of plaintiff. There were a number of other documents executed in connection with the Escrow Agreement, but for our purposes it is not necessary that we set them out in this opinion. The $2,000,000.00 note and deed...