Montrose Sav. Bank v. Landers

• Decision Date: 14 August 1984
• Docket Number: No. WD-34585,WD-34585
• Citation: 675 S.W.2d 668
• Parties: MONTROSE SAVINGS BANK, Plaintiff-Respondent, v. Darwin LANDERS, Defendant-Appellant.
• Court: Missouri Court of Appeals

Page 668

675 S.W.2d 668

MONTROSE SAVINGS BANK, Plaintiff-Respondent, v. Darwin LANDERS, Defendant-Appellant.

No. WD-34585.

Missouri Court of Appeals Western District.

Aug. 14, 1984.

Austin F. Shute, L. Patrick O'Brien, Kansas City, for defendant-appellant.

Robert K. Ball, David R. Odegard, Kansas City, for plaintiff-respondent.

Before LOWENSTEIN, P.J., and MANFORD and BERREY, JJ.

BERREY, Judge.

Montrose Savings Bank (hereinafter "bank") instituted suit, in the Circuit Court of Jackson County, against Darwin C. Landers (hereinafter "appellant") for payment upon thirteen promissory notes which had been obtained by fraud and deceit. Appellant, in a motion for summary judgment and thereafter in a motion for a directed verdict, raised the affirmative defense of a covenant not to sue as a complete bar to this litigation. The court denied both motions and following trial, without the aid of a jury, entered judgment for the bank awarding $13,838.00 in actual damages, $250.00 in punitive damages, together with costs of this litigation.

Appellant asserts the circuit court erred by not granting his motion for a directed verdict. Appellant also challenges the award for actual damages, claiming it is excessive and not supported by the evidence.

Since this is a bench-tried case, the judgment must be affirmed unless there is no substantial evidence supporting it, it is against the weight of the evidence, or it erroneously declares or applies the law. Trenton Trust Co., v. Western Surety Co., 599 S.W.2d 481, 483 (Mo. banc 1980); Murphy v. Carron, 536 S.W.2d 30, 32 (Mo. banc 1976). The litigants did not request written findings of fact or conclusions of law and none were issued. Thus, all factual issues are deemed in accordance with the results reached and the judgment must be affirmed under any reasonable theory supported by the evidence. Elliott v. West, 665 S.W.2d 683, 690 (Mo.App.1984). Additionally, this court must accept as true all evidence and permissible inferences therefrom favorable to the prevailing party and disregard any contradictory evidence. Id.; Gubernik v. Han-Dee Pak, 668 S.W.2d 574, 575 (Mo.App.1984).

In April, 1972, appellant and William Putthoff purchased a used car enterprise doing business as Clean Car Center, Inc., a Missouri corporation. On April 19, 1972, appellant and Putthoff entered into a credit agreement with the bank to finance the corporation's inventory. Separate promissory notes and security agreements were drafted for each automobile purchased, and the bank took back a security interest in each automobile. The individual promissory notes bear the simple interest rate of eight percent per annum until maturity. Each note also includes a clause that if a note, "is placed in the hands of an attorney for collection, all costs of collection and attorney fees shall be paid by signers and endorsers." Additionally, the bank required both appellant and Putthoff to personally guaranty each promissory note. The guaranties, by their terms, limited each guarantor's liability to those notes which he actually signed.

In February, 1974, Putthoff sold his entire interest in the corporation to appellant. The bank was not informed of Putthoff's withdrawal from the corporation, nor did it have any independent knowledge thereof. Appellant continued to finance purchases of automobiles by forging Putthoff's signature on thirteen promissory notes. In late August, 1974, the corporation ceased doing business and defaulted on the notes.

The president of the bank, Mr. Daugherty, contacted Putthoff regarding payment of the overdue notes. Putthoff informed Daugherty he no longer participated in the business. No question of the genuineness of Putthoff's signature on the notes was raised because Putthoff assumed the notes in default were those he had signed prior to his withdrawal from the business.

The bank was unsuccessful in its efforts to collect payment on the notes. Hence, in September, 1978, the bank hired Theodore B. Barnes, an attorney, to do that which it could not. On December 7, 1978, Barnes contacted appellant and Putthoff demanding payment of the principal balance of $15,838.80 plus interest in the amount of $7,498.11. After several conferences between Barnes and appellant, a settlement was negotiated whereby appellant deeded to the bank a parcel of real estate (subsequently sold by the bank for $13,000.00) and $500.00 cash in return for the covenant not to sue on the promissory notes or his personal guaranty. The covenant not to sue was expressly authorized by the bank and duly executed. During negotiation of the settlement and prior to execution of the covenant not to sue, appellant was aware of Barnes' intent to sue Putthoff for the remainder of the note obligation. Appellant also was aware that neither Barnes nor the bank had knowledge of the forged signatures on the defaulted notes.

To collect the balance due on the notes, Barnes brought suit against Putthoff. After commencement of that litigation, Putthoff discovered that the promissory notes were dated after his withdrawal from the corporation and, therefore, did not bear his genuine signature. Shortly thereafter, appellant informed both Barnes and Putthoff he had forged Putthoff's signature on the promissory notes. The bank dismissed the action against Putthoff and then brought this action against appellant seeking damages for fraud and deceit.

On January 3, 1980, the bank filed its petition against appellant praying for actual damages of $12,405.90, punitive damages, plus interest and attorney fees. In his answer, appellant raised the covenant not to sue as an affirmative defense barring this lawsuit. Before trial, appellant moved for summary judgment, which the circuit court denied. After the presentation of evidence at trial, appellant moved for a directed verdict, which was also denied.

I

Appellant has candidly admitted forging Putthoff's signature on the promissory notes. Appellant argues that the covenant not to sue is so general as to be a complete bar to this action for fraud and deceit. In pertinent part the covenant reads:

[T]he undersigned does hereby covenant ... to forever refrain and desist from instituting or asserting against said Darwin C. Landers any claim, demand, action or suit for his execution and delivery of the Notes ... (or) ... his Personal Guaranty ...

[T]his instrument may be pleaded as a counterclaim to or as a defense in bar or abatement of any action of any kind whatsoever, brought, instituted or taken by or on behalf of the undersigned on account of said claims against said Darwin C. Landers.

The bank contends, of course, that the covenant is not broad enough to include appellant's forgery of Putthoff's signature which was unknown to the bank when the covenant was executed. Essentially, the bank argues it would not have executed the covenant had appellant divulged the fact he had forged Putthoff's signature on the promissory notes.

Under the prevailing law in Missouri, a covenant not to sue is considered a release for purposes of determining its legal effect. See Bacon v. United States, 321 F.2d 880, 884 (8th Cir.1963).

In interpreting the language of a release, the primary rule of construction, as in the case of construing any contract, is that the intention of the parties shall govern. Any question regarding the scope and extent of a release is to be determined according to what may fairly be said to have been within the contemplation of the parties at the time the release was given. This, in turn, is to be resolved in the light of all the surrounding facts and circumstances under which the parties acted. Continental Bank and Trust Company v. American Bonding Company, 605 F.2d 1049, 1056-1057 (8th Cir.1979); State ex rel. Normandy Orthopedics v. Crandall, 581 S.W.2d 829, 833 (Mo. banc 1979); Adriatic Insurance Company v. Brewer, 657 S.W.2d 692, 694 (Mo.App.1983); Williams v. Riley, 243 S.W.2d 122, 124 (Mo.App.1951).

In the instant case, the preceding legal principle applies even though the language of the covenant itself, given a...