Sedalia Mercantile Bank and Trust Co. v. Loges Farms, Inc.

• Decision Date: 01 September 1987
• Docket Number: No. WD,WD
• Citation: 740 S.W.2d 188
• Parties: 5 UCC Rep.Serv.2d 525 SEDALIA MERCANTILE BANK AND TRUST COMPANY, Respondent, v. LOGES FARMS, INC., Robert Loges, Carol Loges, Stanley Loges, Janet Loges, Larry Loges and Judith Loges, Appellants, v. SEDALIA MERCANTILE BANK AND TRUST COMPANY and Mercantile Bancorporation, Inc., Respondents. 38310.
• Court: Missouri Court of Appeals

Page 188

740 S.W.2d 188

5 UCC Rep.Serv.2d 525

SEDALIA MERCANTILE BANK AND TRUST COMPANY, Respondent, v. LOGES FARMS, INC., Robert Loges, Carol Loges, Stanley Loges, Janet Loges, Larry Loges and Judith Loges, Appellants, v. SEDALIA MERCANTILE BANK AND TRUST COMPANY and Mercantile

Bancorporation, Inc., Respondents.

No. WD 38310.

Missouri Court of Appeals,

Western District.

Sept. 1, 1987.

Motion for Rehearing and/or Transfer to Supreme Court Denied

Oct. 27, 1987.

Application to Transfer Denied Dec. 15, 1987.

Theodore C. Beckett, Don R. Lolli, Emmett J. McMahan, Beckett and Steinkap, Kansas City, for appellants.

W. Stanley Walch, Dan H. Ball, Roman P. Wuller, Thompson & Mitchell, St. Louis, for respondent.

Before CLARK, C.J., and TURNAGE and NUGENT, JJ.

CLARK, Chief Judge.

This is an action in replevin, coupled with a claim for damages, brought by respondent bank. The debtors-appellants filed counterclaims for the unreasonable disposition of the property seized. The issues, broadly stated, are whether the bank pleaded, proved by admissible evidence and properly submitted to the jury causes of action in replevin and in damages upon which the relief given could have been awarded, and whether the court correctly directed a verdict for the bank on certain of the counterclaims.

THE PARTIES AND THE CONTROVERSY

Sedalia Mercantile Bank and Trust Company had, for many years, been a major source of financing for a farming enterprise conducted by the corporate defendant, Loges Farms, Inc. The stockholders in that company are defendants, Robert, Stanley and Larry Loges who, together with their wives, Carol, Janet and Judith Loges, also defendants, were guarantors of the loans made by the bank to the Loges corporation. By 1981, the accumulated debt owed to the bank exceeded $500,000 and the financial health of the farming business was in decline.

In the summer of 1981, the bank participated in restructuring the Loges' debts with the aid of financing provided through the Farmers Home Administration. The obligation owed the bank was reduced, the FHA acquired a mortgage on Loges' real estate and the bank debt was restated and collateralized by security agreements conveying an interest in Loges' farm equipment, vehicles and livestock. ¹

The major portion of the bank debt involved in this suit was represented by a previously executed promissory note for $200,000 dated June 9, 1980. Additional notes completing the catalog of Loges' debts after the restructuring in mid-1981 were two notes dated August 24, 1981, one for $50,000 and another for $9,000. A subsequent advance of $30,000 was evidenced by a note dated January 21, 1982. Personal guarantees were given with each note and security agreements were taken, all of which listed, in the main, the same farm equipment and livestock.

The notes all provided for monthly payments of interest, but the course of dealings between the parties was on the basis of semi-annual interest accruals. Each note bore a description of the due date in the following language: "On demand, and if no demand be made, then on the __ day of ______, 19__ * * *." Although the petition filed in this case alleged the notes to be payable on demand, the actual dates on which the notes became due depended on subsequent and collateral agreements for extensions. ²

The $200,000 note was originally due June 9, 1981, at or about the time of the Loges debt restructuring. An extension agreement made August 24, 1981 revised that payment date and extended the note to January 21, 1982. Another agreement was made February 22, 1982 deferring payment and finally, by agreement dated February 28, 1983, the note was extended to July 21, 1983. Interest payments were made on the note in January and November, 1982.

The two notes for $50,000.00 and $9,000.00 dated August 24, 1981 were originally made payable January 21, 1982. This date coincided with the first extended payment date on the $200,000.00 note. They were not paid and on February 22, 1982, an agreement was made whereby Loges agreed to list its farmland for sale to improve its debt structure and, in return, the bank extended the payment dates on the notes for one year. Shortly prior to these agreements and perhaps as part of the same negotiations, the bank loaned Loges an additional $30,000 evidenced by a note dated January 21, 1982 payable in one year. Also, by agreement of modification dated February 28, 1983, the payment date on the $9,000 note of August 24, 1981 was extended to July 21, 1983.

The foregoing transactions may therefore be summarized as follows. On April 8, 1983, the date on which the payment demand was made and the replevin was instituted, the bank held four Loges' notes, those for $200,000 and $9,000 on which payment had been extended to July 21, 1983, and the notes for $50,000 and $30,000 which were past due as of either January 21, 1983 or February 22, 1983. ³

On April 8, 1983, respondent notified appellants that all debts then owed to the bank were being declared due and immediate payment was demanded. The amount claimed and the written demand specified the sum of $304,321.23. Included were the principal sums of the four notes described above and accumulated interest. Appellants were unable to meet the demand, a circumstance apparently anticipated by respondent. A petition in replevin had already been prepared and was filed immediately after the payment demand had been made. Seizure of the Loges' livestock and farm equipment was then accomplished on that same day.

An additional document entitled "Loan Agreement," was received in evidence and is relevant to the issues on appeal. That document was prepared on respondent's letterhead at the time of the Loges' debt restructuring in the summer of 1981. The agreement bears no date in the usual form, but does recite in the body of one paragraph, "This agreement will commence on August 20, 1981." Although the agreement purports to be between the bank and Loges Farms, Inc., the only provision for signature was by Loges and the agreement terms are essentially unilateral. The paragraph of the agreement most relevant to this appeal reads as follows:

2) All information furnished to the Bank by Customer concerning the collateral or finance condition of the Customer for the purpose of obtaining credit is or will be at the time furnished accurate and correct in all material respects and complete in so far as completeness may be necessary to give the Bank a true and accurate knowledge of the subject matter. Customer agrees to furnish the statements of collateral and financial condition on periodic basis as determined by the Bank.

The replevin count was submitted to the jury under instructions which conditioned a plaintiffs' verdict on the obligations of the notes and agreements described above and the defendants' default. The jury returned its verdict on that count in favor of the bank. The following discussion focuses on the issue of default. A prime question in the case is whether the full amount for which payment was demanded on April 8, 1983 was due warranting declaration of default and seizure of the collateral.

THE LOAN AGREEMENT, PLAINTIFFS' THEORY OF DEFAULT AND

RELATED JURY INSTRUCTIONS

In six points raised on this appeal, the Logeses contend the court erred in submitting the replevin count to the jury because there was no payment default entitling the bank to seize the collateral and the theory relied on by the bank to accelerate payment of the notes was not pleaded, was not supported by admissible evidence and was legally not sustainable. Some added facts are needed to place these issues in context.

The payment demand made on Loges April 8, 1983 was precipitated by discovery of information about other indebtedness owed by Loges and not disclosed by Loges to the bank earlier. In December of 1982, the bank's loan officer Baker was concerned about the state of Loges' financial affairs. He requested a statement of assets and liabilities. The statement was supplied but, as Baker later discovered, it did not include a debt to Emma Co-Op amounting to $236,239. Baker learned of this obligation in mid-March and that Emma Co-Op had filed suit March 14, 1983. Earlier, Baker had urged his superiors at the bank to call Loges' debts, but he had been overruled. The disclosure of the debt owed Emma Co-Op altered the situation and Baker was authorized to call the notes and proceed with the replevin.

The problem with the payment demand made of Loges on April 8, 1983 was that at least $209,000 plus accrued interest on that sum was not due until the following July under the extension and modification agreements executed February 28, 1983. To sustain the replevin, it was necessary for the bank to show an entitlement to accelerate the July due date and call the notes for payment prior to maturity. For this purpose, the bank relied on the Loan Agreement of August 1981 and the paragraph of that agreement quoted in the previous section of this opinion. It was the bank's theory that when Loges supplied the financial statement in December, 1982 and did not reveal the Emma Co-Op debt, it had breached the agreement " * * * to give the Bank a true and accurate statement," and such was cause under the Loan Agreement to call the notes for payment. This leads to the question of whether the terms of the Loan Agreement were applicable after the extension and modification agreements were made in February, 1983 and whether the Loan Agreement should have been admitted in evidence over objections.

It is appellant's contention that all understandings with the bank regarding the two notes in question were fully integrated in the February, 1983 extension and modification agreements and constituted the only controlling agreements on the subject. They argue that the Loan Agreement, which was not mentioned in the extension and modification agreements, was not available to the bank as a declaration of conditions applicable to the...