LeMay Bank & Trust Co. v. Lawrence, 49712

• Citation: 710 S.W.2d 318
• Decision Date: 25 March 1986
• Docket Number: No. 49712,49712
• Court: Court of Appeal of Missouri (US)
• Parties: 42 UCC Rep.Serv. 1710 LEMAY BANK & TRUST CO., Appellant, v. Milton LAWRENCE, et al., Respondents.

Page 318

710 S.W.2d 318

42 UCC Rep.Serv. 1710

LEMAY BANK & TRUST CO., Appellant, v. Milton LAWRENCE, et al., Respondents.

No. 49712.

Missouri Court of Appeals,

Eastern District,

Division Three.

March 25, 1986.

Marc Sandberg, John S. Meyer, Jr., Bryan, Cave, McPheeters & McRoberts, St. Louis, for appellant.

Gregory O'Shea, St. Louis, for respondents.

GARY M. GAERTNER, Judge.

Plaintiff, Lemay Bank and Trust Co. (Lemay Bank), brought this action for breach of contract against defendants, who had guaranteed payment of certain loans issued by the bank. After a trial to the court, judgment was entered in favor of the defendant guarantors. Lemay Bank appeals from that judgment. We reverse and remand.

In 1974, defendant Emil Heimos, Jr., (Heimos) and Milton D. Lawrence (Lawrence) were engaged in a business partnership known as H & G Equipment Co. (H & G). On July 26, 1974, Heimos and his wife (the Heimoses) executed a continuing guaranty ¹ whereby they guaranteed payment of any existing or future debts owed by H & G to Lemay Bank. ² At that time, H & G owed Lemay Bank $18,000 under a demand line of credit and $17,426.85 on an installment loan. The installment loan was secured by several pieces of heavy equipment owned by H & G. ³

At some point in 1975, Heimos and Lawrence dissolved their partnership by mutual agreement. At trial, Lemay Bank's only witness was Frank Ziegler, a vice president of the bank. Ziegler supervised all of H & G's credit transactions with Lemay Bank. He testified that Heimos and Lawrence had indicated to him in 1975 that they were "having problems". He further testified, however, that he had no knowledge of H & G's dissolution until 1979, when this action was filed.

The defendants' only witness at trial was Heimos. He testified that in 1975 he told Ziegler he "wanted to split" and to "get out of" his business with Lawrence. He also testified that some time in 1975 or 1976 he told Ziegler that he and Lawrence thought they "could take over the business."

In May 1977, $18,000 remained due on H & G's demand line of credit, and an additional $3,800 was owing on the installment loans. Ziegler testified that at that time Heimos and Lawrence indicated to him they could no longer make the monthly payments on the installment loans. Lemay Bank thus consolidated the installment loans into the demand line of credit, for a total balance of $21,800.

On May 17, 1977, H & G executed a demand note renewing its $21,800 debt under the consolidated line of credit. Three more renewal notes were subsequently executed, the last one on December 2, 1979. Although the signatures of both Lawrence and Heimos appear on each of the notes, Ziegler testified that only Lawrence signed them in his presence at Lemay Bank. After each such signing, Lawrence would take the note with him for the stated purpose of securing Heimos's signature. Each of the notes was subsequently returned to Ziegler, bearing what appeared to be Heimos's signature.

At trial, Heimos testified that he never signed any of the renewal notes. He further testified that at some point in 1976 or 1977 Ziegler called him to ask when he was going to sign a note, whereupon Heimos told him that he had not signed any notes and was unaware of any such notes. Defendants also introduced into evidence the written report of a handwriting expert who opined that Heimos's signature had been forged onto each of the renewal notes. Ziegler testified that he never had any reason to suspect that Heimos's signature had been forged.

When the last renewal note became due on August 2, 1979, Lemay Bank demanded that the Heimoses pay the $21,800 owing under the line of credit. The Heimoses failed to make this payment, and Lemay Bank brought this action to enforce the continuing guaranty against them. After hearing all the evidence, the court concluded that Lemay Bank had effectively released defendants from their obligation under the continuing guaranty. The court thus entered judgment in favor of defendants, and Lemay Bank has appealed from that judgment.

For the sake of clarity, we will not consider Lemay Bank's points on appeal in the same order that they are set forth in the bank's brief. We first consider points two and three, wherein the bank alleges that certain factual findings made by the trial court were not supported by the evidence before the court.

Preliminarily, we note that under Rule 73.01, we must sustain the trial court's judgment unless there is no substantial evidence to support it, unless it is against the weight of the evidence, or unless the trial court has erroneously declared or applied the law. Murphy v. Carron, 536 S.W.2d 30, 32 (Mo. banc 1976). "Substantial evidence" is evidence which, if true, has probative force upon the issues. Such evidence must be sufficiently substantial for the trier of fact to reasonably find those facts that the evidence was introduced to prove. Reproductive Health Services, Inc. v. Lee, 660 S.W.2d 330, 335 (Mo.App.1983).

In point two of its brief, Lemay Bank challenges the trial court's finding that the bank had reasonable notice as early as 1975 that H & G had been dissolved as a partnership. Lemay Bank argues that this finding was not supported by substantial evidence, and that the court misapplied the legal standard for notice of dissolution.

It is well established that the appropriate standard for determining whether notice of dissolution has been given to a partnership creditor is whether such notice has been "brought home" to the creditor. Truck Leasing Corp. v. Swope, 248 S.W.2d 84, 85 (Mo.App.1952). Such notice must be given directly, or delivered through some channels that the law recognizes as legitimate means of communication. Fenix v. Celebrezze, 289 F.Supp. 758, 766 (W.D.Mo.1968).

In the case before us, the evidence does not support a finding that notice of dissolution was "brought home" to Lemay Bank before 1979. Ziegler expressly denied receiving such notice, and Heimos, in his communications with Ziegler, never gave any direct notice of dissolution. Defendants seemingly suggest that Ziegler should have inferred from the circumstances or discovered through his own investigation that the partnership had been dissolved. The law, however, places no such duty upon a partnership creditor; rather, it is the duty of the partners to "bring home" the notice of dissolution to the creditors. This Heimos and Lawrence failed to do. ⁴

In light of this record, we must conclude that Lemay Bank did not receive notice of dissolution before 1979. None of the evidence presented at trial was sufficiently substantial to support the trial court's factual finding that Heimos notified Ziegler of the dissolution in 1975. Nor does the evidence support the legal conclusion that notice of dissolution was "brought home" to Lemay Bank through any legitimate means of communication. Accordingly, we hold that the trial court erred in finding that Lemay Bank received notice of dissolution as early as 1975.

In point three of its brief, Lemay Bank challenges two other findings of fact made by the trial court. The first of these is a finding that the partnership's debt totalled only $18,000. Lemay Bank contends that the total debt, after consolidation, was $21,800. The evidence supports the bank's contention, and defendants concede this point in their brief. We thus hold that the trial court erred in making this finding. Secondly, the bank challenges the trial court's finding that Heimos verbally requested that the bank repossess the equipment being held as collateral. In note 4, supra, we explained that Heimos's testimony does not support such a finding. The remainder of the record likewise offers no support, and we thus hold that the trial court also erred in making this finding.

We next consider Lemay Bank's argument that the trial court erred in finding that the bank had released defendants from their obligation under the continuing guaranty by failing to preserve the loan collateral. The bank contends that this finding was erroneous because, by the terms of the continuing guaranty, defendants consented to paying H & G's debt regardless of the bank's failure to repossess or liquidate the collateral. This court recently set forth the principles applicable in construing guaranty contracts:

It is well settled that the liability of a guarantor is to be strictly construed according to the terms agreed upon, and a guarantor is bound only by the precise words of his contract, and no stretching or extension of terms can be indulged in order to hold the guarantor liable. Pelligreen v. Century Furniture & Appliance Co., 524 S.W.2d 168, 172 (Mo.App.1975). Other words cannot be added by construction or implication, but the meaning of the words actually used is to be ascertained in the same manner as the meaning of similar words used in other contracts. They are to be understood in their plain and ordinary sense, when read in the light of the surrounding circumstances and the object intended to be accomplished. Zoglin v. Layland, 328 S.W.2d 718, 721 (Mo.App.1959).

U.S. Suzuki Motor Corp. v. Johnson, 673 S.W.2d 105, 107 (Mo.App.1984). Any material alteration of the guarantor's obligation under the guaranty contract will, therefore, discharge the guarantor, unless the guarantor has consented to such alteration. Citizens Bank of Smithville v. Lair, 687 S.W.2d 268, 270 (Mo.App.1985); Missouri Farmers Association, Inc. v. Wolfe Brothers Farm, Inc., 681 S.W.2d 15, 20 (Mo.App.1984).

In Commerce Bank of St. Louis v. Wright, 645 S.W.2d 17 (Mo.App.1982), a creditor bank of a bankrupt corporation sued the guarantors of the bankrupt's debt. The defendant guarantors appealed from the trial court's order granting summary judgment to the bank. On appeal, defendants argued, inter alia, that their liability under the guaranty contract was discharged because the bank had failed to satisfy the corporation's debts out of the corporate assets, in which...