Petrol Properties v. Stewart Title Co.

• Decision Date: 30 May 2007
• Docket Number: No. 27661.,27661.
• Citation: 225 S.W.3d 448
• Parties: PETROL PROPERTIES, INC., Plaintiff-Appellant, v. STEWART TITLE COMPANY, d/b/a Stewart Title Guaranty Company, and Lincoln Land Title Company, Defendants-Respondents.
• Court: Missouri Court of Appeals

225 S.W.3d 448

PETROL PROPERTIES, INC., Plaintiff-Appellant, v. STEWART TITLE COMPANY, d/b/a Stewart Title Guaranty Company, and Lincoln Land Title Company, Defendants-Respondents.

No. 27661.

Missouri Court of Appeals, Southern District, Division Two.

May 30, 2007.

John E. Price, Springfield, for Appellant.

Gail L. Fredrick, Fredrick, Rogers & Vaughn, P.C., for Respondent Lincoln Land Title Co.

James R. Fossard, Pratt, Fossard, Jensen & Masters, L.L.C., Springfield, for Respondent Stewart Title Guaranty Company.

PHILLIP R. GARRISON, Judge.

Petrol Properties, Inc., ("Petrol") appeals from the trial court's judgment in favor of Stewart Title Company, d/b/a Stewart Title Guaranty Company ("Stewart Title") and Lincoln Land Title Company ("Lincoln") (collectively referred to as "Defendants"), in its suit to quiet title to certain real estate and for negligent title examination. We affirm in part and reverse in part.

This dispute primarily concerns the validity of a deed of trust, currently held by Stewart Title, to a ten-acre tract of land¹ ("ten-acre tract"). Initially, Petrol² possessed exclusive title to the ten-acre tract, but later granted a warranty deed to its legal advisor Gary Love, ("Love") with the understanding that Love would show the property on his financial statement in order to obtain a loan. Love had simultaneously re-conveyed the property back to Petrol by warranty deed, with the instructions that Petrol wait for an unspecified period before recording it. Love subsequently recorded his warranty deed and then executed a deed of trust against the ten-acre tract to Southwest Bank, securing a loan for approximately $50,000.

Believing that it was still the owner, Petrol later sold six acres of the ten-acre tract to Lindy May ("May"). Before closing on the transaction, Lincoln³ performed a title search for the ten-acre tract and reported to the parties that it had come back "clean." Love eventually defaulted on the loan secured by the deed of trust, and Mercantile Bank, successor to Southwest Bank, instituted foreclosure proceedings. Petrol informed all parties involved that it was going to attempt to have the deed of trust cancelled on the ground that Love had committed a fraud when he caused a deed of trust to be placed against the ten-acre tract. To protect his interest in the property, May purchased the note from Mercantile Bank, took assignment of the deed of trust, and executed a partial release of his six acres. May then filed a claim on his title insurance policy with Stewart Title, and as part of the settlement of that claim, Stewart Title purchased the note and deed of trust from May.

As the result of Stewart Title instituting foreclosure proceedings on the remaining four acres, Petrol filed suit against Defendants seeking to cancel Stewart Title's deed of trust, because it was purchased with notice of Petrol's allegation that it was obtained fraudulently. Petrol also sought to recover for negligence on the part of Lincoln in not discovering the encumbrance when it performed a title search on the property.

To assist in our analysis, we set out the following timeline below describing the events in greater detail:

Early 1991—E. Jack Webster, Jr., ("Webster Jr."), president and founder of Petrol, begins meeting with Love, a "reorganization attorney" who also happened to be his son-in-law, to discuss ways in which the corporation could work out its financial problems.

January 1991—Webster Jr. begins negotiating with May to lease six acres of the ten-acre tract.

February 1991—Webster Jr.'s son and vice president of Petrol, Jack Webster, III ("Webster III"), became concerned that Love may be charging for his legal advice, and suggested a meeting with Love to discuss the issue. At the meeting, Love tells the Websters, "You can't afford me," but, "what you can do to help me is to let me show a piece of property on my financial statement to help me with my Prop Company."⁴

March 8, 1991—The Websters agree with Love to exchange two warranty deeds to the ten-acre tract. The first deed ("warranty deed") is a warranty deed from Petrol to Predator Props, which is delivered to Love on behalf of Predator Props. The second deed ("re-conveyance deed") is a warranty deed from Predator Props re-conveying the same ten-acre tract back to Petrol.

March 12, 1991—Love, on behalf of Predator Props, executes a deed of trust against the ten-acre tract to Southwest Bank, securing a loan for approximately $50,000.

July 26, 1991—May and Petrol finalize a lease agreement for the six-acres, which includes an option to purchase.

April 30, 1992—Webster III notices that the re-conveyance deed is not affixed with Predator Props' corporate seal, so he sends a letter to Love to "try and get [Love] to come forward with the corporate seal to perfect the re[-]conveyance deed," which Love does shortly after the letter was written.

June 9, 1992—In a letter to Webster Jr., Love relates the following:

[I] took a piece of unencumbered real property and borrowed against it, [and][u]sed the money for working capital for my Prop Corporation[.] . . . The idea was never, of course, that I would retain this property, but ultimately would be paid and the property reconveyed to you. I even gave you a deed back to hold in that regard.⁵

June 28, 1992—May sends a letter to Petrol exercising his option to purchase the six acres as provided in the lease agreement.

July 15-16, 1992—May contacts Lincoln to handle the closing and to do a title commitment for the purchase of the six acres.

July 21, 1992—Webster III records the re-conveyance deed from Predator Props.

July 28, 1992—May receives the title commitment, which shows that title is vested in Petrol and that there are no liens against the property. Closing occurs for the six acres, and May is told by Larry Jones ("Jones") at Lincoln that the title to the six-acre tract is "clean." Petrol receives the full contract price of $35,000 from May, with no deduction to pay the lien of the bank.

July 28, 1992—In a letter to Webster Jr., Love states the following:

My understanding is that [May] is ready to close on one half of the investment property at Division and 125. I received the legal for that closing at 4:30 p.m. on July 27th. I had previously talked with Gary Metzger,[⁶] who indicated that he would release these properties for that sum. That will leave a small sum still owing to Metzger. Ironically, it will be about what you owe me once this 35,000 is applied, although I did not plan it that way.

December 1992—Webster III discovers the letters from Love to Webster Jr., when he is preparing the taxes for Petrol.

The fall of 1997—Webster III is contacted by a representative of Mercantile Bank, successor to Southwest Bank, advising him that Love had a note and mortgage with Mercantile Bank that was in default. Webster III contacts Mark Powell ("Powell"), an attorney who represented Mercantile Bank, and Jones at Lincoln, and advises them that he believes that the deed of trust had been obtained fraudulently by Love.

December 1997—Webster III receives a notice of foreclosure.

January 29, 1998—May purchases the note, takes assignment of the deed of trust, and executes a partial release of his six acres. May then makes a claim as an insured on his title policy and Stewart Title purchases the note and deed of trust from May.

After Stewart Title commenced foreclosure proceedings against the remaining four-acres, Petrol filed suit against Defendants seeking to quiet title to the four acres and for damages for negligent title examination. On December 12, 2005, after hearing evidence, the trial court entered its judgment and findings of fact in favor of Defendants and against Petrol on all claims. This appeal followed.

OPINION

In reviewing a court-tried case, we will reverse the judgment of the trial court if it is not supported by substantial evidence, it is against the weight of the evidence, or it erroneously declares or applies the law. Crenshaw v. Maguire, 208 S.W.3d 302, 303 (Mo.App. E.D.2006). The power to set aside a judgment on the ground that it is against the weight of the evidence must be exercised with caution, and only where we have a firm belief that the judgment was wrong. Bacon v. Uhl, 173 S.W.3d 390, 396 (Mo.App. S.D.2005). "When we evaluate the weight of the evidence, we mean `its weight in probative value, not the quantity or amount of evidence.'" Id. (quoting Lee v. Hiler, 141 S.W.3d 517, 525 (Mo.App. S.D.2004)).

On appeal, we review the evidence and all reasonable inferences in the light most favorable to the judgment and disregard all contrary evidence and inferences. We defer to the trial judge's superior opportunity to assess the witnesses' credibility. Judging credibility and assigning weight to evidence and testimony are matters for the trial court, which is free to believe none, part, or all of the testimony of any witnesses.

Id. (internal quotations and citations omitted).

Petrol brings six points on appeal, the first three of which challenge the trial court's entry of judgment in favor of Defendants on Count I. In that count, Petrol sought to cancel the deed of trust held by Stewart Title, and quiet title to the property that is subject to the deed of trust, on the theory that Stewart Title took the deed of trust with notice of and subject to Petrol's fraud claim against Love.

In its judgment, the trial court found that Stewart Title took assignment of the deed of trust with notice of Petrol's allegation that it was originally executed by reason of fraud.⁷ This is important because the relief of cancellation may be granted against one who purchases a deed with notice of fraud or other grounds of cancellation. See Blaise v. Ratliff, 672 S.W.2d 683, 692 (Mo.App. E.D.1984)(explaining conversely, that "[t]he relief of cancellation will not be granted against a bona fide purchaser for value and without notice of the fraud or other grounds of...