Title Ins. Co. of Minnesota v. Construction Escrow Service, Inc., 47148

• Decision Date: 29 June 1984
• Docket Number: No. 47148,47148
• Citation: 675 S.W.2d 881
• Parties: TITLE INSURANCE COMPANY OF MINNESOTA, a corporation, Plaintiff-Respondent, v. CONSTRUCTION ESCROW SERVICE, INC., a corporation, Defendant-Appellant.
• Court: Missouri Court of Appeals

Page 881

675 S.W.2d 881

TITLE INSURANCE COMPANY OF MINNESOTA, a corporation Plaintiff-Respondent, v. CONSTRUCTION ESCROW SERVICE, INC., a corporation, Defendant-Appellant.

No. 47148.

Missouri Court of Appeals,

Eastern District,

Division Four.

June 29, 1984.

Motion for Rehearing and/or Transfer to

Supreme Court Denied Aug. 28, 1984.

Application to Transfer Denied

Oct. 9, 1984.

Charles M. Schmidt, Brackman, Copeland, Otting, Copeland, Walther & Schmidt, St. Louis, for defendant-appellant.

Robert C. Jones, Ziercher, Hocker, Human, Michenfelder & Jones, Clayton, for plaintiff-respondent.

GAERTNER, Presiding Judge.

Defendant Construction Escrow Services, Inc. (CESI) appeals from the judgment in this court-tried case entered in favor of plaintiff Title Insurance Company of Minnesota (Minnesota Title) on each of two counts of plaintiff's amended petition. Both counts were predicated on Minnesota Title's claim that CESI failed to perform its obligations under Construction and Disbursing Escrow Agreements relating to two different construction loans. Otherwise unrelated, the two counts require separate discussion on appeal.

COUNT I.

Count I involved the construction and furnishing of a Howard Johnson Motel in St. Charles, Missouri. St. Charles Motor Inn Corporation (Motor Inn), as the contractor and owner, obtained financing in the amount of $1,600,000 from First Mortgage Investors (FMI). These two entered into an escrow agreement with CESI wherein the latter undertook to disburse the construction loan funds upon completion of various phases of construction. This agreement was an outgrowth of a commitment by Minnesota Title to insure FMI on condition that CESI disburse the funds. Included in the loan and, by rider in the escrow agreement, were funds to pay for furnishings and equipment of the motel. FMI's loan was secured by a first deed of trust on the real property and by a security agreement whereby FMI acquired a security interest in all property located on the real estate. A UCC Financing Statement pertaining to the furniture, fixtures and equipment was filed for record on behalf of FMI on August 28, 1972.

The escrow agreement provided that all furniture, fixtures, and equipment "shall be in place and fully paid at the time of completion of this project." Construction and furnishings were completed and the motel commenced operations on July 1, 1972, although at that date all disbursements and financial arrangements had not been completed. By September of that year, the only significant item on which disbursement had not been made was the furniture and equipment. One of the principals of Motor Inn requested direct payment for this item from CESI. The latter demanded that the normal course of dealing regarding disbursements be followed, i.e., Motor Inn should submit a request for disbursement to FMI which, in turn, would authorize CESI to make payment. On September 20, 1972, CESI received a telegram from FMI authorizing the release of monies held in escrow for furniture and equipment directly to Motor Inn subject to receipt of "paid bills or other satisfactory evidence that the furniture and equipment presently located in the motel have been fully paid for." On September 21, 1972, CESI received a letter from Landmark Supply Division enclosing copies of invoices for furniture shipped to the motel but sold to Leasing Service Corporation at a cost of $132,395.92. CESI disbursed this sum directly to a principal of Motor Inn on October 3, 1972. On that same date CESI sent to Missouri Title Guaranty Co., the agent of Minnesota Title, a letter which enclosed a "Final Affidavit and Agreement" and further stated "please proceed with issuance of final policy." The enclosure consisted of the owner's affidavit that the work was completed and fully paid for and CESI's guarantee to Missouri Title Guaranty Company against loss by mechanics' or materialmen's liens. In reliance upon this notification, Minnesota Title issued its policy of insurance which contained the following provisions:

Title Insurance Company of Minnesota hereby agrees, insures and guarantees to the insured that the construction project referred to in that Construction and Disbursing Escrow Agreement dated August 16, 1971, between St. Charles Motor Inn Corporation, First Mortgage Investors and Construction Escrow Service, Inc. (the "Escrow Agreement") has been fully completed substantially in accordance with the plans and specifications referred to in the Escrow Agreement, and Title Insurance Company of Minnesota hereby insures against mechanics' and materialmen's liens respecting such project in the amount of this policy. Title Insurance Company of Minnesota further insures and guarantees the insured against all loss or damage resulting from the failure of said Construction Escrow Service, Inc. to comply with the terms of said Escrow Agreement.

An FMI interoffice memorandum dated July 26, 1972, reflects FMI was aware of the fact that Motor Inn had made preliminary arrangements to lease furniture and equipment from Leasing Service Corporation. The memo also refers to the requirement of the loan commitment that Motor Inn secure approval from FMI of any secondary financing arrangement. The evidence fails to disclose any details of such "preliminary arrangements." FMI did have a copy of a proposed agreement between Motor Inn and Leasing Service to subordinate the latter's interest in the furniture to FMI's security interest therein. However, this document was never executed. Another FMI interoffice memorandum mentions that Motor Inn was considering a sale to Leasing Service Corporation accompanied by a lease-back to Motor Inn. There is no evidence that FMI ever gave approval to Motor Inn of any financing arrangement with Leasing Service. In fact, the furniture and equipment were purchased from Landmark by Leasing Service and leased to Motor Inn. The lease provided for options to purchase by the lessor at continually decreasing prices on each anniversary date of the lease. The trial court found this to be a "true lease" as opposed to a security interest and that Leasing Service was the owner of the furniture and equipment. On September 11, 1972, Leasing Service filed a UCC Financing Statement with a copy of the lease attached with the St. Charles County Recorder of Deeds.

In the spring of 1974 Motor Inn was in default on its payments to FMI and the latter discovered Leasing Service's claim of ownership of the furniture and equipment when it caused a title search to be made. In February 1976 FMI foreclosed on its deed of trust and security interest and purchased the real property and the furniture and equipment. Subsequently, Leasing Service sued FMI in the State of New York seeking, among other relief, $150,000 actual and $250,000 punitive damages for conversion of the furniture and equipment. On August 17, 1976, FMI called upon Minnesota Title to defend this action under its policy insuring FMI's security interest in the real and personal property in Motor Inn. After first refusing, Minnesota Title eventually assumed the defense of this litigation. After discovery and extensive negotiations and after notifying CESI of its intent to do so, Minnesota Title settled the New York case for a payment of $40,000 in exchange for title to the furniture and equipment. A total of $50,045.49 was expended by Minnesota Title, consisting of the settlement amount, legal fees, and other litigation expenses. Minnesota Title then instituted this action against CESI on July 5, 1978, seeking to recover that sum. The trial court, without a jury, heard evidence, found in favor of Minnesota Title and awarded damages in the amount of $50,045.49 plus interest in the sum of $9,106.51.

On appeal CESI first contends the trial court erred in failing to find that Minnesota Title's action was barred by the five year statute of limitations, § 516.120, RSMo 1978. This five year-period commences not "when the wrong is done or the technical breach of contract or duty occurs, but when the damage resulting therefrom is sustained and is capable of ascertainment, and, if more than one item of damage, then the last item, so that all resulting damage may be recovered, and full and complete relief obtained." § 516.100, RSMo 1978.

It is firmly established in Missouri law that this statute fixes the time at which the statutory period commences at the date on which damages are capable of ascertainment, not the date upon which they are discovered. Lato v. Concord Homes, Inc., 659 S.W.2d 593, 594-95 (Mo.App.1983). Capable of ascertainment refers to the fact of damage rather than the precise amount. Id. at 595. The statute begins to run when the plaintiff's right to bring and maintain a suit arises. Davis v. Laclede Gas Co., 603 S.W.2d 554, 555 (Mo. banc 1980).

The trial court held the statute inapplicable because the suit was commenced within two years of August 17, 1976, the date of notification by FMI to Minnesota Title of the claim of Leasing Service. CESI argues that the statute began to run in September, 1972 when the disbursement of the escrowed funds for furniture and equipment was made. The fact we hold the finding of the trial court to be erroneous is of no solace to CESI, for we reject its argument as well.

The cornerstone of Minnesota Title's action, as pleaded in its amended petition, is the letter by CESI to Missouri Title Guaranty Company on October 3, 1972, requesting the issuance of the final policy of title insurance. The notice and affidavit are both composed of printed forms with typewritten insertions. They are clearly intended to convey the assertion by CESI that the project had been completed and fully paid for and that CESI had performed its obligation of disbursing the construction loan funds in accordance with the construction and disbursing escrow agreement. CESI does not contend otherwise, but asseverates only that Minnesota Title had no right to rely upon its...