Central Bank of Kansas City v. donald Perry, et ux

IN THE MISSOURI COURT OF APPEALS
WESTERN DISTRICT
CENTRAL BANK OF KANSAS CITY, )
Respondent, )
)
v. ) WD76102
)
DONALD PERRY, et ux, ) FILED: April 15, 2014
Appellant. )
Appeal from the Circuit Court of Platte County
The Honorable Owens L. Hull, Jr., Judge
Before Division One: Alok Ahuja, P.J., and Thomas H. Newton
and Anthony Rex Gabbert, JJ.
In November 2007, Appellants Donald D. Perry and N. Alice Perry (collectively “the
Perrys”) executed a deed of trust to secure a loan extended by Respondent Central Bank of
Kansas City to Perry & Sons, Inc. (doing business as “North Oak BP”). The Perrys appeal from
a judgment entered by the Circuit Court of Platte County, which declared that the Perrys’ deed of
trust was valid and enforceable. We affirm.
Factual Background
On November 5, 2007, Perry & Sons obtained a loan from Central Bank for
$1,100,889.73, evidenced by a promissory note. The loan was denominated Loan Number
5871002. The Perrys executed a Real Estate Deed of Trust to secure the repayment of the 2007
Note. The Perrys’ son, Donald D. Perry II, and their daughter-in-law, Kari C. Perry, also
executed a personal guaranty and deed of trust; a deed of trust and guaranty were also executed
by GOG, LLC, a Missouri limited liability company of which Donald D. Perry was the organizer
and registered agent.
The 2007 note went through four separate modifications, on October 5, 2009, on October
5 and November 5, 2010, and on February 5, 2011. Although each modification was different,
speaking generally the modifications authorized certain interest-only loan payments, extended
the loan’s maturity date, modified the formula for calculating the loan’s variable interest rate,
added additional security, and advanced some limited additional funds. The Perrys did not
execute, or expressly consent to or authorize, any of the loan modifications.
Central Bank declared Perry & Sons to be in default on the loan. On January 20, 2012,
Central Bank filed a petition for declaratory judgment against the Perrys in the circuit court.
Central Bank’s petition sought a declaratory judgment that the Perrys’ November 2007 Deed of
Trust was a valid and enforceable security instrument. The Perrys argued, to the contrary, that
the Deed of Trust was a guaranty, and was rendered unenforceable by the modification of the
loan’s material terms without their consent. The parties filed cross motions for summary
judgment. The trial court granted Central Bank’s motion. The trial court’s judgment states that,
“from the pleadings on file the Court finds that the Real Estate Deed of Trust filed on or about
November 5, 2007, and signed by [the Perrys] herein is exactly what it purports to be in that it is
a Deed of Trust and not a guaranty.” The Perrys appeal.
Standard of Review
When considering appeals from summary judgments, the Court will
review the record in the light most favorable to the party against whom judgment
was entered. Facts set forth by affidavit or otherwise in support of a party’s
motion are taken as true unless contradicted by the non-moving party’s response
to the summary judgment motion. We accord the non-movant the benefit of all
reasonable inferences from the record.
Our review is essentially de novo. The criteria on appeal for testing the
propriety of summary judgment are no different from those which should be
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employed by the trial court to determine the propriety of sustaining the motion
initially. The propriety of summary judgment is purely an issue of law. As the
trial court’s judgment is founded on the record submitted and the law, an appellate
court need not defer to the trial court’s order granting summary judgment.
ITT Commercial Fin. Corp. v. Mid-Am. Marine Supply Corp., 854 S.W.2d 371, 376 (Mo. banc
1993) (citations omitted).
Analysis
I.
The Perrys first Point argues that the trial court erred in granting summary judgment,
because the Deed of Trust which they executed is a guaranty, not simply a security agreement.
In their second Point the Perrys contend that, if the Deed of Trust is characterized as a guaranty,
the material modifications of the underlying loan relieved them of their obligations as guarantors.
We reject the Perrys’ attempt to characterize the Deed of Trust as a guaranty. “A
guaranty is a collateral agreement for performance of an undertaking of another, and it imports
two different obligations, that of the principal debtor and of the guarantor.” United Sav. & Loan
Ass’n v. Lake of Ozarks Water Festival, Inc., 805 S.W.2d 350, 353 (Mo. App. S.D. 1991)
(citation omitted). “A guaranty is a contract in which a guarantor agrees to become secondarily
liable for the obligation of a debtor in the event the debtor does not perform the primary
obligation.” Capitol Group, Inc. v. Collier, 365 S.W.3d 644, 648 (Mo. App. E.D. 2012) (citing
Jamieson-Chippewa, Inv. Co. v. McClintock, 996 S.W.2d 84, 87 (Mo. App. E.D. 1999)). “The
heart of a contract for guaranty is that the signor has agreed to be liable principally for another’s
debt.” ITT, 854 S.W.3d at 386; accord Patterson v. Katt, 791 S.W.2d 466, 468 (Mo. App. E.D.
1990) (“both guaranty and suretyship involve the acceptance by the promisor of liability for the
debt of another”).
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On the other hand, by executing a deed of trust a grantor merely pledges specific property
as security for a debt; the grantor does not assume any personal liability. “A deed of trust is a
form of mortgage consisting of an instrument that uses an interest in real property as a security
for performance of an obligation.” Bob DeGeorge Assocs., Inc. v. Hawthorn Bank, 377 S.W.3d
592, 597 (Mo. banc 2012) (quoting RESTATEMENT (THIRD) OF PROPERTY (MORTGAGES) § 1.1
(1997)). “A deed of trust in the nature of a mortgage given on land to secure the payment of a
debt is held to be a lien and nothing more. . . . It is merely the right to have the debt, if not
otherwise paid, satisfied out of the land.” HSBC Bank USA, N.A. v. Weber, 400 S.W.3d 32, 36
(Mo. App. W.D. 2013) (quoting R.L. Sweet Lumber Co. v. E.L. Lane, Inc., 513 S.W.2d 365, 368
(Mo. banc 1974) (other citations omitted)); see also US Bank N.A. v. Cox, 341 S.W.3d 846, 854
(Mo. App. W.D. 2011). Unlike a guarantor, the grantor of a deed of trust does not assume
personal liability for the underlying debt. US Bank, 341 S.W.3d at 853 (citing R.L. Sweet, 513
S.W.2d at 368; State Ins. Co. v. Irwin, 67 Mo. App. 90 (1896)).
Both guaranties and deeds of trust are subject to generally applicable rules of contract
construction. See Capitol Group, 365 S.W.3d at 648 (“[t]he rules governing construction of
contracts generally apply to the construction of a guaranty.”); Melson v. Traxler, 356 S.W.3d
264, 270 (Mo. App. W.D. 2011) (“[t]he resolution of [the party’s obligations under a deed of
trust] hinges on contract interpretation.”). The first step in interpreting a contract is to “ascertain
the intent of the parties by looking at the words of the [contract] and giving those words their
plain, ordinary and usual meaning. The intent of the parties is determined based on the [contract]
alone unless the contract is ambiguous.” Melson, 356 S.W.3d at 270 (quoting Ethridge v.
TierOne Bank, 226 S.W.3d 127, 131 (Mo. banc 2007)).
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In this case, the terms of the November 2007 Deed of Trust make unmistakably clear that
the Perrys did not agree to serve as guarantors of Central Bank’s loan to Perry & Sons. The
Deed of Trust refers to itself as a “Security Instrument” subject to § 443.055, RSMo. It begins
by specifying that, “to secure the Secured Debt” (defined as Perry & Sons’ November 2007
loan), the Perrys “irrevocably grant[ ]” their property to the trustee, “in trust for the Benefit of
Lender, with power of sale.” The Deed of Trust gives the trustee the power to sell the pledged
property on a default on the Secured Debt, and contains numerous property-specific terms
(referring, for example, to the quality of the grantors’ title to the property, the condition and
maintenance of the property, other security interests against the property, and the possible
leasing or condemnation of the property). While the Deed of Trust contains a provision stating
that “[g]rantor agrees that all payments under the Secured Debt will be paid when due and in
accordance with the terms of the Secured Debt and this Security Instrument,” another provision
makes clear that the Perrys assume no personal liability for payment of the Perry & Sons loan:
If Grantor signs this Security Instrument but does not sign an evidence of debt,
Grantor does so only to mortgage Grantor’s interest in the Property to secure
payment of the Secured Debt and Grantor does not agree to be personally liable
on the Secured Debt.
(Emphasis added.)1
Thus, the Deed of Trust clearly indicates that the purpose of the instrument was to pledge
the Perrys’ real property as security for the underlying debt; the Deed of Trust gave Central Bank
no recourse against the Perrys, personally, for a default on that debt. Because the Deed of Trust
did not impose any personal liability on the Perrys for the Perry & Sons loan, it did not impose
guaranty obligations upon them. The Perrys’ first Point is denied. Because their second Point is
1
This same provision refers to the possibility that the Deed of Trust may “secure[ ] a
guaranty between Lender and Grantor.” This reference to a separate guaranty certainly suggests that the
Deed of Trust does not itself constitute or contain such a guaranty.
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based on the premise that the Deed of Trust is properly characterized as a guaranty, we deny
Point II as well.
II.
In their third Point, the Perrys argue that even if the Deed of Trust is not a guaranty, the
November 2010 and February 2011 loan modifications constituted new loan agreements which
extinguished the prior note, and released any security which had been pledged as collateral for
the prior note. We disagree.
When interpreting written contracts, courts must first ascertain the parties’ intent.
If the terms of the contract are clear, the parties’ intent must be determined from
the contract language without applying the rules of construction. When
interpreting a contractual provision, it should not be done by isolating one
particular sentence or provision. Courts must construe and consider the entire
instrument from its four corners. The law favors reasonable interpretations, and
results which vitiate the purpose of the terms of the agreement to an absurdity
should be avoided.
O'Connor v. Miroslaw, 388 S.W.3d 541, 552 (Mo. App. W.D. 2012) (citation omitted).
The Perrys’ Deed of Trust specifies that it is intended to secure the 2007 promissory note,
as well as its “extensions, renewals, modifications, or substitutions.” The Deed of Trust also
specifies that
Grantor agrees that Lender and any party to this Security Instrument may
extend, modify or make any changes in the terms of this Security Instrument or
any evidence of debt without Grantor’s consent. Such change will not release
Grantor from the terms of this Security Instrument. The duties and benefits of
this Security Instrument shall bind and benefit the successors and assigns of
Grantor and Lender.
Based upon the terms in both the November 2010 and February 2011 loan documents, it
is clear that those documents extended, renewed, modified, or functioned as substitutes for the
2007 note. Although the principal documents executed by the Perrys’ son and daughter-in-law
in November 2010 and February 2011 were labeled “Commercial Loan Agreements” (rather than
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“loan modifications”), the documents are identified by Loan Number 5871002, the same loan
number as the original 2007 Note and each of the previous modifications.
Moreover, at the same time that they executed the “Commercial Loan Agreements” in
November 2010 and February 2011, the Perrys’ son and daughter-in-law also executed “Debt
Modification Agreements.” The Debt Modification Agreements identified the “Prior
Obligation” as Loan Number 5871002. The Modification Agreements recited that, because
“[c]onditions have changed since the execution of the Prior Obligation instruments,” the lender
and borrower “agree to modify the terms of the Prior Obligation, as provided for in this
Modification.” The Modification Agreements also provided that, “[e]xcept as specifically
amended by this Modification, all of the terms of the Prior Obligation shall remain in full force
and effect.” Furthermore, in both November 2010 and February 2011, the Perrys’ son and
daughter-in-law signed a “Notice and Consent to Modification by Guarantor,” in which they
indicated their personal consent (as guarantors of the Perry & Sons loan) to the loan
modifications effected at the time. The Notice and Consent documents “unconditionally consent
to the Modification,” and attest that, “[e]xcept to the extent that the Modification expressly
modifies the terms and conditions of the Prior Obligation, I acknowledge that the terms and
conditions of the Prior Obligation and the Guaranty continue in full force and effect.”2
“[W]hen several instruments relating to the same subject are executed at the same time,
the documents will be construed together, even in the absence of explicit incorporation, unless
the realities of the situation indicate that the parties did not so intend. Such is true even when the
2
It is also significant that, other than an additional advance of $30,000 in the November
2010 transaction, the principal amount of the indebtedness was not altered by the November 2010 or
February 2011 transactions. The additional $30,000 extension of credit is less than 3% of the outstanding
loan balance; and the loan principal never exceeded the $1,100,889.73 limit stated in the Perrys’ Deed of
Trust.
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instruments are not part of a single contract.” Midland Prop. Partners, LLC v. Watkins, 416
S.W.3d 805, 812 (Mo. App. W.D. 2013) (citations and internal quotation marks omitted).
Considering the documents executed at the time of the November 2010 and February 2011 loan
modifications as a whole, it is clear that those transactions were intended as “extensions,
renewals, [or] modifications” of, or “substitutions” for, the November 2007 promissory note
which the Perrys’ Deed of Trust secured. The Perrys’ Deed of Trust survived the November
2010 and February 2011 tranactions.3 Point III is denied.
Conclusion
The circuit court’s judgment is affirmed.
__________________________________
Alok Ahuja, Judge
All concur.
3
The Perrys cite Golden Sun Feeds, Inc. v. Dugan, 682 S.W.2d 173 (Mo. App. W.D.
1984), to argue that a factual issue exists as to whether the November 2010 and February 2011
transactions were intended to extinguish the earlier note, and thereby discharge the Perrys’ Deed of Trust.
Golden Sun Feeds involved a guaranty rather than a deed of trust, however, and therefore applied
different legal standards concerning the discharge of a guarantor due to subsequent modifications of the
underlying debt. Id. at 176. In addition, there is no indication in Golden Sun Feeds that the guaranty
contract provided that the guaranty obligation would apply to extensions, renewals or modifications of, or
substitutes for, the underlying notes. Finally, in Golden Sun Feeds, one of the signatories to a later note
testified that “he believed the new note was intended to replace the original notes,” id.; here, by contrast,
the Perrys’ son and daughter-in-law attested in writing that the November 2010 and February 2011
transactions were modifications of the original note, rather than replacements for it. They also agreed that
the terms of the original note continued in effect except as expressly modified.
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