From the Circuit Court of St. Louis County; Civil Appeal; Judge George W. Cloyd.
Motion for Rehearing Overruled, Transfer Denied; September 15, 1983. Application to Supreme Court for Transfer Sustained October 18, 1983 Supreme Court Retransferred to Eastern District February 1, 1984. Eastern District Reissued Opinion March 2, 1984
Before Smith, J., Flanigan, Sp.J., Mehan, Sp.J.
The opinion of the court was delivered by: Flanigan
Plaintiffs Ronald R. Reese and Deborah H. Reese, his wife, brought this action for an injunction restraining defendants from foreclosing under a deed of trust on land on which plaintiffs had built their new home. The two defendants are First Missouri Bank & Trust Company of Creve Coeur, payee and holder of the secured note, and the trustee. On the theory that default had been made in the payment of the note, the bank had requested its co-defendant to advertise the property for sale under the power of sale contained in the deed of trust.
On March 6, 1981, plaintiffs executed the note in the principal amount of $92,300 in favor of the bank as part of a home loan transaction. The primary issue is whether the note was, as the bank claims, a demand note, or whether it was, as plaintiffs claim and the trial court found, an installment note payable monthly over a period of 36 months. Although other provisions of the note will be mentioned later, the root of the controversy is the meaning of the following language contained in the payment schedule of the note: "On demand and if no demand be made then principal & interest is payable in monthly installments of $1,040.96 commencing on April 6, 1981 and on that day of each succeeding month until maturity, March 6, 1981. A final payment in the amount of $91,544.30 due March 6, 1981, plus accrued interest subject to refinance at the option of the bank."
After making requested findings of fact, the trial court enjoined the foreclosure proceedings until March 6, 1984, "at which time the remaining amount due and owing [on the note] becomes due and payable." The injunction was conditioned "on the timely payment of all remaining principal and interest payments" by plaintiffs to the bank in accordance with the monthly installments mentioned in the schedule. Since the inception of the loan plaintiffs have made, and the bank has accepted, monthly payments of $1,040.96. The bank appeals.
Although there were some factual disputes, the following summary is consistent with the trial court's findings and fully supported by the record. Since the bank does not question the authority of its various representatives, actions taken by them on behalf of the bank will be attributed to the bank itself.
Plaintiff Ronald Reese was employed by the bank from 1974 until September 1980. During the last five years of his employment Reese was a loan officer and handled "50 to 100" purchase-money real estate loans on behalf of the bank. The record does not disclose the reason for Reese's leaving the bank but apparently the parting was amicable because the following dealings between Reese and the bank commenced in October 1980 and culminated with the filing of this action on September 23, 1981. In that interval the following occurred:
October 5 - The Reeses, as purchasers, entered into a written agreement with The Jones Company, as seller, for the purchase of a lot on which the seller was to construct a new house for a total sale price of $123,450, $28,450 of which was to be paid upon or prior to completion of the construction, with the balance of $95,000, secured by a deed of trust, to be paid over 30 years at 13 percent interest. With regard to the latter feature, the Reeses were required "to furnish own financing" and to supply the seller with a copy of a loan commitment within 30 days.
October 6 - Reese informed the bank of his need for a loan commitment with respect to the Reese-Jones Company agreement. The bank gave the Reeses a commitment letter for a loan of $95,000, reading in part: "Interest rate: 13 percent . . . Term three-year note - 25-year amortization - loan service charge: 2 points. . . . Loan to be closed on or before April 7, 1981. . . . Payment in advance of the service charge as a commitment fee." The letter required that it be accepted within 10 days. The Reeses did not accept it.
October 24 - The bank gave the Reeses a new commitment letter for a loan of $80,000, reading in part: "Interest rate: 13 percent . . . Term: three-year note - 25-year amortization . . . Payable: $902.27 principal and interest payable monthly . . . Loan service charge: 2 percent [$1,600] . . . This commitment must be accepted within 10 days. . . . Loan to be closed on or before May 1, 1981. . . . Payment in advance of the service charge as a commitment fee . . . In the event any payment is received after the 10th day of the month in which the payment is due, a late charge of 4 percent of the total monthly payment is added to the payment due. The note will also provide for the increasing of the interest rate to 15 percent during delinquency." The bank understood that Reese "would give this letter to Mr. Jones, the builder."
November (?) (within 10 days of October 24) - The Reeses accepted the October 24 commitment letter and gave the bank a signed copy of it, together with a $1,600 check in payment of the loan service charge. The bank misplaced the check and the returned copy and the check was never cashed.
January or February - Reese asked the bank why the $1,600 check had not been cashed and was informed it was lost and that he could pay the loan service charge when the loan was closed.
March 6, 1981 - The bank and the Reeses agreed to increase the principal of the loan to $92,300. The Reeses paid the bank a loan service charge ("points") of 2 percent of the loan - $1,846. At the loan closing, attended by the Reeses, the bank, and a representative of Jones Company, these documents were executed: promissory note, demand note, deed of trust, and a Federal Truth-in-Lending Statement. Pertinent provisions of those documents are set forth below. *fn1 The bank also gave the Reeses a document entitled "Amortization of Extended Mortgage Loan" showing the term of the loan to be 25 years, interest rate of 13 percent, "monthly payment $1,040.96." This document showed the principal and interest components of each monthly payment.
March 8 - A loan report with regard to the Reese loan was made by the loan officer to the bank's loan committee. The report described the loan's "repayment program" as "36 months on 25-year amortization," with "maturity date" of "three years." It also showed a "fixed interest rate" of 13 percent. This form bore a comment, "This loan was committed back in October when Prime was in the 13-14 percent range." The prime interest rate had risen substantially between October and March.
April 14 - The bank Sent Reese a letter stating that the board of directors "has questioned your $92,300 loan . . . To clarify the bank's position, this loan was to serve as interim financing until you were able to obtain permanent financing . . . The bank will exercise its demand provisions if the loan is not refinanced within six months. We assume you are aware that the October 24 commitment for $80,000 expired on November 3, 1980, since you had neither paid the $1,600 commitment fee or signed your acceptance by that time." A later letter (the April 23 letter) from the bank, to similar effect, did not bear the initials of the secretary who typed it. The secretary testified ...