Mark Twain Kansas City Bank v. Cates

• Decision Date: 10 May 1991
• Docket Number: No. 65460,65460
• Citation: 248 Kan. 700,810 P.2d 1154
• Parties: MARK TWAIN KANSAS CITY BANK, Appellant, v. Daniel J. CATES, Juhree R. Cates, Joseph A. Cates, Ellen Cates, and Cates Sheet Metal, Inc., Appellees.
• Court: Kansas Supreme Court

Page 1154

810 P.2d 1154

248 Kan. 700

MARK TWAIN KANSAS CITY BANK, Appellant, v. Daniel J. CATES, Juhree R. Cates, Joseph A. Cates, Ellen Cates, and Cates Sheet Metal, Inc., Appellees.

No. 65460.

Supreme Court of Kansas.

May 10, 1991.

Syllabus by the Court

1. A moving party is entitled to summary judgment if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact. The record must also reflect that the moving party is entitled to judgment as a matter of law.

2. If factual issues do exist, they must be material to the case to preclude summary judgment. If the disputed fact could not affect the judgment, it does not present a genuine issue of material fact.

3. In Kansas, promissory notes and mortgages are contracts between the parties, and rules of construction applicable to contracts apply to them. The primary rule in interpreting promissory notes and mortgages is to determine the intention of the parties and that intention must prevail; such intention is to be determined from an examination of both the mortgage and note, not from each one separately.

4. Subsequent debts may be secured under the dragnet clause of a real estate mortgage in either of two ways: (1) by specifically stating on the face of the new note that it is secured by the prior mortgage or (2) by showing that the subsequent debt is of the same kind or character as, or part of the same transaction or series of transactions with, that originally secured by the mortgage.

5. Antecedent debts may be secured by a mortgage containing a dragnet or other advance clause if the antecedent debts are clearly identified in the mortgage. The rule has no application when subsequent notes merely indicate that the antecedent debts are intended to be secured.

Joel K. Goldman, of Husch, Eppenberger, Donohue, Cornfeld & Jenkins, Kansas City, Mo., argued the cause, and David B. Young, was with him on the briefs, for appellant.

Curtis L. Tideman, of Lathrop, Norquist & Miller, of Kansas City, Mo., argued the cause, and was on the brief, for appellees.

LOCKETT, Justice:

Daniel J. Cates and Juhree R. Cates defaulted on a $600,000 note for a business loan obtained from Mark Twain Kansas City Bank (Bank), a Missouri bank. The Bank instituted foreclosure proceedings on the mortgage the Bank held on the Cates' home in Kansas. The Bank claims that a future advance clause in a prior $200,000 mortgage secured the subsequent $600,000 loan it had made to the Cates. The Cates counterclaimed against the Bank. The Bank moved for partial summary judgment. The Cates also moved for partial summary judgment, claiming the mortgage only secured the Bank's $200,000 note, which had been discharged. The district court found (1) under the terms of the mortgage contract, the mortgage is to be construed according to Missouri law and the foreclosure lien created by the mortgage is to be governed by Kansas law; (2) the amount secured by the mortgage was limited to $200,000; and (3) the mortgage did not secure the Bank's subsequent $600,000 loan to the Cates. The district court granted partial summary judgment to the Cates and dismissed the Bank's foreclosure action. The Bank appealed, and the case was transferred to this court pursuant to K.S.A. 20-3018(c).

This case arose from a series of financial transactions between the parties. From 1986 until 1988 the Bank loaned the Cates $1,300,000 to finance the construction of their home and a business investment.

On December 22, 1986, the Cates executed two promissory notes to the Bank. One promissory note was for $500,000 and was to be paid in equal monthly installments with the last payment due on January 1, 1997. The second promissory note of $200,000 was to be paid on January 15, 1987. Each note stated that it was a single advance loan designated as "CONSUMER:

                PAY PERSONAL DEBTS."   Both loans financed the construction of the Cates' new home and each loan was secured by a separate mortgage on the Cates' residence.  On January 15, 1987, the parties renewed the $200,000 note, with the renewal note to [248 Kan. 702] mature on April 15, 1987.  On April 15, 1987, the note was again renewed and was to mature on June 12, 1987
                

On June 12, 1987, two transactions occurred. First, the Bank loaned the Cates an additional $600,000. The $600,000 note states that its purpose is "BUSINESS: FUND EQUITY INVESTMENT IN CANDLEWYCK APARTMENT PROJECT." On the face of the note there is a box which indicates it is for the Bank's internal use. Typed in the box is a statement the note is secured by "KANSAS MORTGAGE AND SECURITY AGREEMENT DATED 12/22/86," in addition to certain other collateral. Payment on this note was due October 1, 1987. When the $600,000 note was executed on June 12, 1987, the $500,000 and the $200,000 notes and both mortgages executed December 22, 1986, were still in effect. The $600,000 note does not reflect which mortgage secured the new loan.

In addition to executing the new $600,000 note on June 12, 1987, the $200,000 note was extended and modified. A document entitled "Modification of Note" recites that the Cates had requested that the Bank allow them to borrow "up to the maximum amount of the principal on the note more than one time." The modification agreement proposed to change the original $200,000 loan agreement to an open line of credit, if certain conditions were met. The contract states:

"Open End Credit: You and I agree that I may borrow up to the maximum amount of principal, Two Hundred Thousand & 00/100 ($200,000.00), more than one time. This feature is subject to all other conditions and expires no later than October 15, 1987." (Emphasis added.)

Without stating to which of the two existing mortgages this contract applied, the contract further provided that any future advances made by the Bank under this agreement were to be secured by the mortgage.

To obtain the credit provided under the "Modification of Note" agreement, the parties executed a "Line of Credit Agreement" containing a typewritten addendum which provides:

"Borrower agrees to make a principal payment of $199,990.00 on July 15, 1987. Borrower agrees that no advances will be made under this agreement by Bank if a balance is outstanding on a certain promissory note Borrower delivered to Bank on June 12, 1987, in the amount of $600,000.00. Borrower hereby grants the Bank the right to unilaterally draw on the line of credit to make principal payments on said $600,000.00 without notice to Borrower."

Neither the $200,000 mortgage nor the $500,000 mortgage were amended or modified to reflect it secured a line of credit other than the original loan.

On July 15, 1987, the Cates failed to make the $199,990.00 payment required by the "Additional Terms" agreement to secure their line of credit. In fact, the Cates did not make any payments on the principal of the $200,000 loan during 1987.

On October 1, 1987, the $600,000 note matured. The Bank renewed the note and extended its maturity date to February 1, 1988. On October 15, 1987, the agreement allowing the Cates a line of credit expired. Since the Cates had never paid down the original $200,000 loan, they never obtained a line of credit with the Bank. On February 1, 1988, the $600,000 note again came due. Again, the Cates failed to pay the note.

On March 7, 1988, the Cates paid off the $500,000 note. The mortgage securing that note was released by the Bank on March 25, 1988.

On March 8, 1988, a mortgage securing a $206,000 loan to the Cates from Joe and Ellen Cates was recorded. On March 10, 1988, the Cates paid to the Bank the sum equal to the outstanding balance on the $200,000 note and requested that the mortgage securing that loan be released. After After each of the parties filed motions for summary judgment, the district judge found (1) although Missouri law applied under the terms of the contract, under Missouri or Kansas law, the future advance clause of the December 22 $200,000 mortgage did not secure the $600,000 loan; (2) even if the mortgage secured both the $200,000 and the $600,000 note, the amount secured by the mortgage could not exceed $200,000; and (3) the mortgage did not secure the $600,000 note. After finding that the Bank had no valid mortgage to enforce, the district judge dismissed the foreclosure action against the Cates with prejudice. The action on the $600,000 promissory note against the Cates by the Bank and the Cates' counterclaims against the Bank are still pending.

accepting the payment, the Bank refused to release the mortgage and subsequently filed the foreclosure action claiming that the future advance clause of the $200,000 mortgage also secured the Cates' subsequent $600,000 note.

A moving party is entitled to summary judgment if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact. The record must also reflect that the moving party is entitled to judgment as a matter of law. Peoples Nat'l Bank & Trust v. Excel Corp., 236 Kan. 687, Syl. p 5, 695 P.2d 444 (1985). The burden of proving that no genuine issue of material fact exists is on the moving party. The record is viewed in the light most favorable to the party against whom the motion is directed. Glenn v. Fleming, 247 Kan. 296, 304, 799 P.2d 79 (1990). The granting of summary judgment is improper where there are genuine issues of material fact which are undetermined. Willard v. City of Kansas City, 235 Kan. 655, 657, 681 P.2d 1067 (1984). If factual issues do exist, they must be material to the case to preclude summary judgment. Bacon v. Mercy Hosp. of Ft. Scott, 243 Kan. 303, 307, 756 P.2d 416 (1988).

When opposing a motion for summary judgment, an adverse party must come forward with evidence to establish a dispute as to a material fact. K.S.A.1990 Supp. 60-256(e)...