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Grisham v. The Mission Bank

Court of Appeals of Missouri, Western District, Second Division

June 13, 2017

THERESA GRISHAM, Respondent,
v.
THE MISSION BANK, Appellant.

         Appeal from the Circuit Court of Platte County, Missouri The Honorable James W.Van Amburg, Judge.

          Before: Thomas H. Newton, Presiding Judge, and James Edward Welsh and Karen King Mitchell, Judges.

          Karen King Mitchell, Judge

         The Mission Bank appeals from the trial court's judgment in favor of Theresa Grisham on her claims of wrongful foreclosure, breach of contract, and unjust enrichment, in which she sought damages following Bank's foreclosure sale of Grisham's real property pursuant to a deed of trust. Bank argues that, because Grisham had defaulted under the terms of various loan documents before Bank exercised its right to seek foreclosure, she should not have been allowed to pursue any of her claims. We agree and reverse the judgment below.

         Background

         Grisham and her former husband owned and operated their own business, Grisham Grading and Excavating, Inc. (GGE), a Kansas corporation. The Grishams also had a custom-built home on 150 acres in Platte City, Missouri. At its highest value, the home and surrounding real estate was worth approximately $2.1 million.

         To facilitate their business, the Grishams executed several promissory notes with Bank, which were secured by various equipment and personal property, personal guaranties from the Grishams, individually, and their real property. The following chart identifies the notes at issue in this appeal, their principal amounts, their interest rates, and their corresponding security:

Loan Number

Amount[1]

Interest Rate

Collateral

740040

$3, 000, 000

6.00%

Equipment, vehicles, personal guaranties from Grisham and her ex-husband, 5th Deed of Trust on Grisham's real property

324054

$250, 000

6.00%

Personal guaranties of Grisham and her ex-husband, 3rd Deed of Trust on Grisham's real property

324104

$250, 000

6.00%

4th Deed of Trust on Grisham's real property

324105

$250, 000

6.00%

1st Deed of Trust on Grisham's real property

         There are four Deeds of Trust at issue in this appeal that were executed on Grisham's real property in connection with the various notes. Each Deed of Trust provided for future advances and obligations and contained "Mother Hubbard" provisions[2] as well as provisions indicating a "maximum lien" amount. In the 3rd, 4th, and 5th Deeds of Trust, the "future advances" provision stated:

In addition to the Note, this Deed of Trust secures all future advances made by [Bank] to Borrower or Grantor whether or not the advances are made pursuant to a commitment. Specifically, without limitation, this Deed of Trust secures, in addition to the amounts specified in the Note, all future obligations of Borrower or Grantor to [Bank] and all future amounts [Bank] in its discretion may loan to Borrower or Grantor, together with all interest thereon; however, in no event shall such future advances and obligations (excluding interest) exceed in the aggregate [the maximum lien amount].

         The 3rd, 4th, and 5th Deeds of Trust also contained "cross-collateralization" provisions, which provided:

In addition to the Note, this Deed of Trust secures all obligations, debts and liabilities, plus interest thereon, of either Grantor or Borrower to [Bank], or any one or more of them, as well as all claims by [Bank] against Borrower or Grantor or any one or more of them, whether now existing or hereafter arising, whether related or unrelated to the purpose of the Note, whether voluntary or otherwise, whether due or not due, direct or indirect, determined or undetermined, absolute or contingent, liquidated or unliquidated, whether Borrower or Grantor may be liable individually or jointly with others, whether obligated as guarantor, surety, accommodation party or otherwise, and whether recovery upon such amounts may be or hereafter may become barred by any statute of limitations, and whether the obligation to repay such amounts may be or hereafter may become otherwise unenforceable. If [Bank] is required to give notice of the right to cancel under Truth in Lending in connection with any additional loans, extensions of credit and other liabilities or obligations of Grantor to [Bank], then this Deed of Trust shall not secure additional loans or obligations unless and until such notice is given.

         The 1st Deed of Trust contained a "secured debt and future advances" provision, which provided:

The term "Secured Debt" is defined as follows:
A. Debt incurred under the terms of all promissory note(s), contract(s), guaranty(s) or other evidence of debt described below and all their extensions, renewals, modifications or substitutions. . . .
PROMISSORY NOTE #1041000296-501 DATED SEPTEMBER 19, 2001 IN THE AMOUNT OF $250, 000[3]
[X] Line of Credit. The Secured Debt includes a revolving line of credit provision. Although the Secured Debt may be reduced to a zero balance, this Security Instrument will remain in effect until released.
. . .
B. All future advances from Lender to Grantor or other future obligations of Grantor to Lender under any promissory note, contract, guaranty, or other evidence of debt existing now or executed after this Security Instrument whether or not this Security Instrument is specifically referenced. If more than one person signs this Security Instrument, each Grantor agrees that this Security Instrument will secure all future advances and future obligations that are given to or incurred by any one or more Grantor, or any one or more Grantor and others. All future advances and other future obligations are secured by this Security Instrument even though all or part may not yet be advanced. All future advances and other future obligations are secured as if made on the date of this Security Instrument. Nothing in this Security Instrument shall constitute a commitment to make additional or future loans or advances in any amount. Any such commitment must be agreed to in a separate writing.
C. All obligations Grantor owes to Lender, which now exist or may later arise, to the extent not prohibited by law, including, but not limited to, liabilities for overdrafts relating to any deposit account agreement between Grantor and Lender.
D. All additional sums advanced and expenses incurred by Lender for insuring, preserving or otherwise protecting the Property and its value and any other sums advanced and expenses incurred by Lender under the terms of this Security Instrument.

         The "maximum lien" provision in the 5th Deed of Trust provided: "The total principal amount of obligations at any one time which is secured by this Deed of Trust, in addition to any interest and any amounts advanced by [Bank] for the protection of the security interests granted herein, is $500, 000." The same language was used in the 3rd and 4th Deeds of Trust, with the only difference that the amount identified was $250, 000, rather than $500, 000. Unlike the 3rd, 4th, and 5th Deeds of Trust's "maximum lien" provision, the 1st Deed of Trust contained a "maximum obligation limit" provision. That provision provided:

The total principal amount secured by this Security Instrument at any one time shall not exceed $250, 000. This limitation of amount does not include interest and other fees and charges validly made pursuant to this Security Instrument. Also, this limitation does not apply to advances made under the terms of this Security Instrument to protect Lender's security and to perform any of the covenants contained in this Security Instrument.

         The following chart identifies the various Deeds of Trust, the loans secured by each, and their "maximum lien" amounts:

Deed of Trust

Loan Number

Maximum Lien/Obligation Limit

1st Deed of Trust

324105

$250, 000

3rd Deed of Trust [4]

324054

$250, 000

4th Deed of Trust

324104

$250, 000

5th Deed of Trust

740040

$500, 000

         The Grishams divorced in 2007, and upon their dissolution, Theresa Grisham was awarded the marital home and real property. By March of 2009, Loans 324105, 324054, 324104, and 740040, along with other loans, had matured and not been paid. Additionally, GGE's bank account was then overdrawn by $27, 000. Accordingly, because of GGE's apparently dire financial condition and Grisham's failure to make payments, Bank determined that its ability to collect approximately $2.55 million in outstanding indebtedness was materially impaired, resulting in a default under the various loan documents.

         Grisham requested that Bank forbear from exercising its rights and remedies under the loan documents, and Bank agreed, so the parties entered into a Forbearance Agreement on April 6, 2009.[5] As part of that agreement, Grisham acknowledged her default on the various loan documents and agreed that the amount of the outstanding indebtedness was approximately $2.55 million. Grisham agreed to make regularly scheduled interest-only payments in the amount of $13, 215.11 (plus accrued interest on a new note executed simultaneously with the Forbearance Agreement) to Bank on the 15th day of each month, beginning on May 15, 2009.

         On August 31, 2009, the parties entered into a First Amendment to Forbearance Agreement, wherein Grisham again acknowledged the prior default and acknowledged that the outstanding indebtedness was then approximately $2.75 million. The First Amendment required Grisham to make regularly scheduled interest payments at a rate of 6.00% on the 15th day of each month on all debt obligations beginning September 15, 2009, along with regularly scheduled principal payments of $8, 000 on loan number 740040 on the 15th of each month, beginning on March 15, 2010. The First Amendment further provided: "Notwithstanding any provision of this Agreement or any Loan Document to the contrary, [Bank] may in its sole discretion apply any funds it receives (including by setoff or otherwise) in connection with the Obligations in any manner it sees fit and for any purpose." The parties agreed that, in the absence of any other termination events, the Forbearance Agreement would expire on July 15, 2010, at 5:00 p.m.

         The Forbearance Agreement was amended a second time in February of 2010, providing for an additional advance and adding, as a repayment obligation, that Grisham was to repay all obligations in "the amount of all proceeds received in connection with work related to [the EPA contract]."

         July 15, 2010, came and went, and the Forbearance Agreement expired by its own terms. In either late summer or early fall of 2012, Grisham advised Bank that she intended to sell her home. Grisham worked to get the house ready for sale and eventually put it on the market. Before it was officially on the market, however, Grisham offered it to an individual in December 2012 for $2.4 million. The potential buyer counteroffered $1.8 million. Grisham then came back with a figure of $2.1 million, but the potential buyer decided not to buy the home. During this time, GGE was still conducting work on its contract with the EPA until approximately January of 2013. The final EPA payment on the contract came in around January or February of 2013. Grisham did not receive any other offers on her home until mid-May 2013.

         Beginning May 5, 2013, Grisham started requesting a "payoff" letter against the liens on her property in order to determine what amount was needed to release the deeds of trust. Bank advised Grisham that the various deeds of trust secured $1.25 million, even though the principal amount remaining on at least one of the loans secured by a deed of trust carried a zero balance.

         On May 9, 2013, Bank sent three letters to Grisham, notifying her that all promissory notes had matured and all forbearance agreements had expired by their own terms. The letters further identified the outstanding balances on each loan as of April 18, 2013, and advised Grisham that the amounts were then due and payable. The letters further advised that, if Grisham failed to make payment within ten days, Bank would take action to enforce the terms of its security agreements, potentially including a non-judicial foreclosure sale of Grisham's home and surrounding land.

         Grisham received a second offer on the property on May 15, 2013, in the amount of $1.725 million. Grisham again sought a "payoff" letter from Bank to discern how much money would be required to release the deeds of trust, and she eventually enlisted the help of legal counsel to obtain a "payoff" letter. Grisham's attorney and Bank's legal counsel then exchanged a series of letters regarding Grisham's requested "payoff" letter. In seeking a "payoff" letter, Grisham was seeking "an assurance from the bank that upon payment, they w[ould] release their deed of trust." Because she was unable to secure a "payoff" letter as she envisioned, Grisham ultimately rejected the offer.

         On May 22, 2013, Bank sent Grisham's attorney a letter indicating that Grisham's loans were all cross-collateralized, that the various deeds of trust were future advance deeds of trust, and that they secured repayment of outstanding indebtedness up to $1.25 million. Bank advised that "the sums owed by your clients as of May 31, 2013 for principal and interest total Three Million Seventy-eight Thousand Nine Hundred Ninety-two and 86/100 Dollars ($3, 078, 992.86)." Bank then broke that number down by each loan, stating both the principal balance and accrued interest, along with the per diem rate. Bank noted that all promissory notes had matured and all forbearance agreements had expired, making all sums due and payable. Bank further noted that it was "most likely ...


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