United Missouri Bank, N.A. v. Beard, WD

Citation877 S.W.2d 237
Decision Date07 June 1994
Docket NumberNo. WD,WD
PartiesUNITED MISSOURI BANK, N.A., Appellant, v. Clyde M. BEARD, H. Irene Beard, Judy Carol Cunningham, Timothy Dean Walkenhorst, and JoAnn Frances Walkenhorst, Respondents. 47996.
CourtCourt of Appeal of Missouri (US)

Leonard L. Wagner and Greg T. Spies, Kansas City, for appellant.

Thomas Sullivan, Kansas City, for respondents.

Before BERREY, P.J., and KENNEDY and ELLIS, JJ.

ELLIS, Judge.

This is a suit on a promissory note and for foreclosure of a deed of trust securing the note. United Missouri Bank, N.A. ("UMB") filed its petition on September 20, 1991. The case was tried to the court on November 9, 1992, and the matter was taken under advisement. On May 13, 1993, the trial court entered judgment in favor of the defendants, and UMB appeals. We affirm.

In the summer of 1977, Timothy and JoAnn Walkenhorst purchased certain Jackson County residential real estate from Paul Gimmarro, a home builder and real estate developer. The financing was arranged through W.L. Brady Investments, Inc. ("Brady Investments"), and on July 26, 1977, the Walkenhorsts executed a promissory note and deed of trust in favor of Brady Investments. The face amount of the note was $35,500.00, payable in monthly installments of $285.62, which included interest of 9% per annum, with the first payment due on September 1, 1977 and the final payment due on August 1, 2007. The note also gave the Walkenhorsts a prepayment privilege. The deed of trust described the real estate and pledged it as security for payment of the note. On July 27, 1977, the deed of trust was filed and recorded in Jackson County.

The very next day, July 28, 1977, W.L. Brady (Brady Investments' president and founder) executed an assignment of the deed of trust to UMB. Brady Investments' vice president Geraldine Brady then endorsed the Walkenhorst note, and both documents were delivered to UMB as collateral for a loan from UMB to Brady Investments. Neither UMB nor Brady Investments informed the Walkenhorsts of the assignment, which was not recorded until April 2, 1991.

Brady Investments collected regular monthly payments on the Walkenhorst note from September, 1977 until September, 1989, when the Walkenhorsts contacted Paul Gimmarro's father Carl Gimmarro, another home builder and real estate broker, about selling their home. The Walkenhorsts eventually agreed to convey the property to Gimmarro as part of the consideration for his building their new residence. Gimmarro, in turn, agreed to sell the property to Clyde and Irene Beard and their daughter Judy Cunningham ("the Beards"). Both transactions were closed through Ticor Title Insurance Company ("Ticor Title").

The closing took place on October 2, 1989. A few days earlier, Ticor Title had requested and received from Brady Investments a loan payoff letter showing the remaining balance on the Walkenhorst note. At closing, the Beards delivered cash for the purchase price to Ticor Title, and two days later, on October 4, 1989, Ticor Title forwarded to Brady Investments by mail a check in the amount of $30,719.38, the amount shown in the payoff letter. In the same letter, Ticor Title also requested that Brady Investments send a deed of release for recording "as soon as possible." Neither the note nor the deed of release were returned as requested. In fact, after the check was sent, Ticor Title never heard from Brady Investments again. Moreover, although the check was endorsed for deposit and paid on or about October 10, 1989, Brady Investments never forwarded any of the proceeds to UMB to satisfy the Walkenhorst note held as collateral on the Brady note. 1

On September 20, 1991, UMB filed its Petition for Judicial Foreclosure of Deed of Trust seeking judgment for $17,000.00 (the unpaid balance on the Brady note), plus accrued interest and attorney fees, and for an order foreclosing the deed of trust. The Walkenhorsts' answer alleged, inter alia, that payment in full was made (through Ticor Title) to Brady Investments, who collected said payment as UMB's agent. The case was tried without a jury on November 9, 1992. On May 13, 1993, the trial court entered judgment in favor of the Walkenhorsts and the Beards on the basis that the Walkenhorsts made final payment to Brady Investments as UMB's agent, issuing findings of fact and conclusions of law in support of its decision. 2 This appeal followed.

Our standard of review in this court-tried case is set forth in Murphy v. Carron, 536 S.W.2d 30 (Mo. banc 1976). Accordingly, the judgment entered by the trial court will be affirmed on appeal unless it is not supported by substantial evidence, it is against the weight of the evidence, or it erroneously declares or applies the law. Id. at 32.

The Burden of Proof

A party sued on a note has the burden of establishing the affirmative defense of payment by a preponderance of the evidence. Madison v. Dodson, 412 S.W.2d 552, 556 (Mo.App.1967); Household Fin. Co. v. Watson, 522 S.W.2d 111, 114 & n. 1 (Mo.App.1975). If the maker of a promissory note who has made payments thereon to someone other than the note's rightful owner demonstrates that the one to whom the payments were made was the owner's agent with authority to collect the payments, the affirmative defense of payment is established and the maker is entitled to the benefit of all such payments. Tedesco v. Bekker, 741 S.W.2d 896, 898 (Mo.App.1987).

This case therefore turns on the existence and scope of an agency relationship between UMB and Brady Investments. The Walkenhorsts had the burden of proving that Brady Investments was UMB's agent with authority to collect the $30,719.38 prepayment on the note, 3 because a party alleging agency has the burden of proof regarding both the fact of the agency and the scope of the agent's authority. Houston v. Groth Enterprises, Inc., 670 S.W.2d 178, 180 (Mo.App.1984).

Apparent Authority

In its first point, UMB argues the trial court erroneously applied the law of agency in holding that prepayment of the principal balance on the Walkenhorst note to Brady Investments constituted payment to UMB and discharged the debt. UMB directs our attention to the trial court's conclusions of law, from which it is clear the trial court's rationale was that Brady Investments had apparent authority to collect prepayment on the note as UMB's agent.

"Apparent authority is created by the conduct of the principal which causes a third person reasonably to believe that another has the authority to act for the principal." Barton v. Snellson, 735 S.W.2d 160, 162 (Mo.App.1987). Put another way, it is authority which the principal, by his acts or representations, has led third persons to believe has been conferred upon the agent. Hyken v. Travelers Ins. Co., 678 S.W.2d 454, 457 (Mo.App.1984).

Accordingly, apparent authority does not arise if the third person does not act in the belief that the agent possesses authority to act on the principal's behalf. Hamilton Hauling, Inc. v. GAF Corp., 719 S.W.2d 841, 846 (Mo.App.1986). This rule is explicitly stated in an official comment to § 8 of the Restatement (Second) of Agency:

[A]pparent authority exists only with regard to those who believe and have reason to believe that there is authority; there can be no apparent authority created by an undisclosed principal.

Restatement (Second) of Agency § 8 comment a (1958) (emphasis added).

Missouri courts have followed the Restatement on this point. Comment a to § 8 of the Restatement (Second) of Agency was quoted with approval in Jeff-Cole Quarries, Inc. v. Bell, 454 S.W.2d 5 (Mo.1970), in which the Missouri Supreme Court held that a party who, in entering into a contract with the general contractor on a construction project, "considered no agency relationship and looked to no one as a principal of" the general contractor, could not later seek to hold the owner of the real estate upon which the project was being built liable on the contract by asserting that the general contractor had apparent authority to act on behalf of the owner. Id. at 13-14 (emphasis in original). As the Court explained:

One who deals with a person as principal cannot later set up that person's apparent authority to act for another so as to hold the latter person liable as principal, when he did not previously rely upon any such authority..... [O]ne cannot escape the fact that the plaintiff did not rely upon any claimed agency of [the general contractor] for the actual owners, and it cannot now reverse its position.

Id. at 13, 14 (emphasis in original). In the instant case, the evidence clearly established UMB was an undisclosed principal as to the Walkenhorsts since they did not know UMB held the note and deed of trust or had any interest in their property whatsoever until well after they had prepaid the principal balance (through Ticor Title) to Brady Investments. Moreover, Betty Frerking, the closing agent at Ticor Title who handled the sale for both the Walkenhorsts and the Beards, said she, too, was unaware that UMB had become the holder of the note.

It thus cannot be said the Walkenhorsts prepaid the principal balance on the note in reliance on the apparent authority of Brady Investments as UMB's agent. They made the $30,719.38 prepayment to Brady Investments on the assumption that the note and deed of trust were in fact still held by Brady, the original owner. They cannot reverse their position and hold UMB liable as principal now, when they did not previously rely upon the existence of any apparent agency relationship. Jeff-Cole Quarries, 454 S.W.2d at 14.

The Walkenhorsts also contend that certain representations made by Geraldine Brady created apparent authority for Brady Investments to collect prepayments on the note. In 1982 or 1983, Mr. Walkenhorst called Geraldine Brady and asked if she would show him some houses in the Blue Springs area. According to Walkenhorst, during the course of this conversation, Ms. Brady told him "s...

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