State ex rel. Missouri Highway and Transp. Com'n v. Morganstein

Decision Date15 January 1986
Docket NumberNo. 66987,66987
Citation703 S.W.2d 894
Parties1 UCC Rep.Serv.2d 197 STATE ex rel. MISSOURI HIGHWAY AND TRANSPORTATION COMMISSION, etc., Respondent, v. Mary E. MORGANSTEIN, et al., Defendants, Ardeis H. Myers, Exceptions of A.H. Meyers, Jr., Defendants, Commerce Bank of Kansas City, Missouri, N.A., Appellant.
CourtMissouri Supreme Court

James Borthwick, Michael D. Gibbons, Kansas City, for appellant.

Earl H. Schrader, Jr., Bruce Ring, Gary McMillan, Kansas City, for respondent.

ROBERTSON, Judge.

Commerce Bank appeals from the entry of summary judgment against it by the trial court. The issue is whether the trial court has jurisdiction over Commerce Bank (hereafter the Bank) under Rule 81.11 as a result of a letter of credit issued to the Missouri Highway and Transportation Commission (hereafter the Commission) by the Bank on behalf of Flora E. Myers. The letter of credit was issued to stay the execution of a judgment obtained by the Commission against Mrs. Myers. The trial court ruled that the letter of credit was tantamount to a supersedeas bond and exercised jurisdiction over the Bank, pursuant to Rule 81.11. The Western District reversed. We granted transfer and now treat this case as on original appeal. Mo.Const. art. V, § 10. The judgment of the trial court is reversed.

The full procedural history of this case can be found in two prior appellate opinions. State of Missouri ex rel. State Highway Commission of Missouri v. Morganstein, 588 S.W.2d 472 (Mo.1979), and State of Missouri ex rel. State Highway Commission of Missouri v. Morganstein, 649 S.W.2d 485 (Mo.App.1983). See also, Commerce Bank of Kansas City v. Randall, 675 S.W.2d 687 (Mo.App.1984). Accordingly, the factual summary which follows, though lengthy, is limited to that which is necessary for the disposition of the issues now before the Court.

I.

In July, 1970, the State Highway Commission petitioned to condemn certain land owned by Ardeis Myers and Flora Myers as tenants by the entirety. In February, 1971, the condemnation commissioners assessed damages for the appropriation at $387,000, and issued the Myers a check in that amount. Both the Myers and the Highway Commission filed exceptions to the award and in May, 1976, the case went to trial. 1 The jury assessed the Myers' damages at $150,000, $237,000 less than the condemnation commissioners' award. As a result, the trial court ordered the Myers to repay the Commission the $237,000 difference, plus interest. The Myers' filed a notice of appeal from this adverse judgment, but failed to file a supersedeas bond.

In December, 1977, the Commission sought execution on the Myers' house. The Myers unsuccessfully moved to quash the execution, and also failed in their efforts to gain a writ of prohibition against the proposed action. On January 5, 1978, a member of the Myers' family, the family's attorneys, the Commission's attorney, and a Bank official met to consider the use of a letter of credit rather than a supersedeas bond to stay execution on the house.

As a result of this meeting, the Bank issued a document which stated, inter alia, that it was a letter of credit, effective for one year, (January 5, 1978 to January 5, 1979), and that upon presentation to the Bank of certain documents, the Bank would pay up to $350,000 to the Highway Commission. This document, in pertinent part, reads as follows:

Letter of credit number (of issuing bank) 16513

Date of issue (month/day/year) January 5, 1978

Expiry Date January 5, 1979

Beneficiary

Missouri State Highway Commission

State Office Building

Jefferson City, Missouri

Accountee

Flora E. Myers

6335 Ward Parkway

Kansas City, Missouri

GENTLEMEN:

WE HEREBY AUTHORIZE YOU TO DRAW ON COMMERCE BANK OF KANSAS CITY, N.A., Kansas City, Missouri UP TO AN AGGREGATE AMOUNT OF US $350,000.00 (Three Hundred Fifty Thousand and 00/100 US Dollars AVAILABLE BY YOUR DRAFT(S) AT Sight TO BE ACCOMPANIED BY

1. A signed order of the Circuit Court of Jackson County, Missouri, directing payment of a judgement [sic] in the amount specified by the Court, or;

2. An affidavit signed by the legal counsel for the Missouri State Highway Commission and a director of Shughart, Thomson & Kilroy, presented on January 5, 1979, stating that no final judgement [sic] has been reached.

NOT-NEGOTIABLE

Partial drawings are permitted ...

* * *

All drafts drawn under This Credit are to be endorsed hereon and shall bear the clause "Drawn under COMMERCE BANK OF KANSAS CITY N.A., LETTER OF CREDIT NO. 16513 dated Kansas City, Missouri, January 5, 1978[.]

WE HEREBY AGREE WITH THE DRAWERS, ENDORSERS AND BONA FIDE HOLDERS OF DRAFTS DRAWN UNDER, AND IN COMPLIANCE WITH THE TERMS OF THIS CREDIT, THAT SUCH DRAFTS WILL BE DULY HONORED ON PRESENTATION TO THE DRAWEES if drawn and negotiated not later than January 5, 1979[.]

This Credit is subject to the "Uniform Customs & Practice for Documentary Credits (1974 Revision), International Chamber of Commerce, Publication No. 290."

[signatures omitted.]

The Bank charged the Myers a fee for the issuance of the letter of credit, and obtained a promissory note from them in the amount of $350,000. The promissory note was to be activated in the event that the Highway Commission drew upon the letter of credit and was secured by various properties, including a first deed of trust on the property which had been subject to the execution. For its part, the Commission agreed to accept the letter of credit in lieu of a supersedeas bond, and also agreed to dissolve its pending execution on the house. Beyond these facts, the parties disagree as to the full scope and effect of the "agreement" reached at this meeting. Upon joint application of the Myers and the Commission, the Western District approved the security pursuant to Rule 81.10.

In June, 1978, the Western District affirmed the trial court's judgment. However, this Court granted the Myers' application for transfer. While the matter was pending before this Court, counsel for the Commission contacted counsel for the Myers and expressed concern that, by its own terms, the letter of credit was due to expire before the appellate process had run its course. The Myers therefore requested that the Bank renew the letter of credit for another year, (until January 5, 1980), and also asked that the stated limit be increased to $362,760 to cover the additional interest that would accumulate. After receiving additional security, the Bank renewed the letter of credit for another year and increased its stated limit to $362,760.

In September, 1979, this Court affirmed the amount of damages awarded for the taking, but remanded the matter for a determination of the liability of each individual defendant with regard to the excess award. Morganstein, supra, 588 S.W.2d at 481. With the end of the year approaching, and no final resolution imminent, the Highway Commission again asked that the Myers obtain a one-year extension of the letter of credit. Upon request by the Myers, the Bank renewed the letter of credit in the same face value, with a new expiration date of January 5, 1981.

No significant litigation activity occurred during 1980. In early January, 1981, the Bank extended the letter of credit until January 5, 1982, at the request of the Myers. The face value of the document as renewed remained at $362,760.

In July, 1981, the trial court on remand found that Mrs. Myers had the use and enjoyment of only one-half of the condemnation proceeds, and entered judgment against her estate in the amount of $119,500. Both the Commission and Mrs. Myers appealed.

In October, 1981, the Myers' attorneys informed the Commission that when the existing letter of credit expired on January 5, 1982, the renewed letter of credit would be modified to reflect a reduced face value, since the judgment had been cut in half. 2 In early January, 1982, the Myers communicated their desire to renew the letter of credit at a reduced amount to Commerce Bank. On January 4, 1982, the Bank mailed the Commission a copy of the renewed letter of credit, modified to show a face value of $204,950. Counsel for the Commission received word of the reduction sometime in the second week of January, 1982. In correspondence with the Myers' attorneys, counsel for the Commission protested the reduction in face value of the letter of credit. Counsel did not, however, notify the Court of Appeals of its objections to the modified letter of credit.

In January, 1983, the Myers requested and received from the Bank another one-year extension of the letter of credit to January 5, 1984. The face amount of the letter of credit remained at $204,950.

The Western District reversed the trial court's determination and remanded the case with directions that the Circuit Court enter judgment against the estate of Flora Myers for the entire amount of the condemnation overpayment, with interest from February, 1971. Morganstein, supra, 649 S.W.2d at 490. In June, 1983, the trial court entered judgment against the estate in the amount of $477,922.81. The Commission then attempted to draw on the letter of credit by submitting to the Bank the court order described in paragraph 1 of the letter of credit, along with a draft in the amount of $478,494. The Bank refused to honor the draft because it exceeded the $204,950 maximum amount of credit provided by the instrument in its last renewal.

In August, 1983, the Commission filed a motion with the circuit court asking that Commerce Bank be brought into the lawsuit pursuant to Rule 81.11, and that summary judgment be entered against the Bank. The Bank denied jurisdiction and liability. The trial court heard evidence in October, 1983, found in favor of the Commission, and entered judgment against the Bank in the amount of $415,626.58. 3

On appeal, the Bank contends that the letter of credit was not a supersedeas bond, and does not reflect a surety undertaking on behalf of its customer. The Bank...

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