330 S.W.3d 519
Mo. Ct. App.2010Background
- Pitman Place Development, LLC (Pitman) formed January 2002 with Burghoff, Sensakovic, and Moore as members; Burghoff named initial manager with authority limited by Article 5.1.
- Pitman’s sole real estate asset, the Property in St. Louis County, was leased to a restaurant operator.
- Burghoff fraudulently altered Article 5.1 to increase borrowing/encumbrance authority from $50,000 to $750,000.
- Burghoff, acting as Pitman’s manager, obtained a $525,000 Rockwood Bank loan, signing the Note and Deed of Trust and other related instruments in Pitman’s name.
- Pitman’s other two members neither consented to nor knew of the loan; funds were used for Pitman’s expenses and unrelated purposes.
- Rockwood Bank later assigned the Note and Deed of Trust to Howard Investments, LLC; Pitman sued Rockwood Bank and Howard seeking to invalidate the loan and protect property; trial court entered judgment for Howard, finding Burghoff acted with apparent authority and that Howard was a holder in due course under the shelter rule.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Burghoff’s apparent authority to bind Pitman | Pitman asserts no apparent authority due to fraud | Howard/ Rockwood Bank relied on apparent authority | Yes, there is substantial evidence of apparent authority |
| Whether Burghoff’s conduct fell within Section 347.065’s usual course | Rockwood’s loan not within usual business; no binding | Loan aligned with Pitman’s stated purposes | Yes, substantial evidence supports binding under 347.065 |
| Howard’s status as holder in due course via shelter rule | Howard cannot be holder due to notice of lack of authority | Shelter rule grants Howard Rockwood Bank’s holder rights | Howard holds rights as a holder in due course via shelter rule |
| Deed of Trust as a negotiable instrument | Deed not negotiable; cannot be held in due course | Deed of Trust accompanies the Note and is negotiable | Deed of Trust is negotiable; transfers with Note; binding |
Key Cases Cited
- Lynch v. Helm Plumbing and Elec. Contractors, Inc., 108 S.W.3d 657 (Mo. App. W.D. 2002) (estoppel/responsibility for agent’s apparent authority)
- Premium Fin. Specialists, Inc. v. Hullin, 90 S.W.3d 110 (Mo. App. W.D. 2002) (fraud by agent may still bind principal under apparent authority)
- K & G Farms v. Monroe County Serv. Co., 134 S.W.3d 40 (Mo. App. E.D. 2003) (principal bound by agent’s apparent authority)
- Goetz v. Selsor, 628 S.W.2d 404 (Mo. App. S.D. 1982) (note/deed pass with negotiable instrument; negotiability principles)
- Jenkins v. Thyer, 760 S.W.2d 932 (Mo. App. S.D. 1988) (dual instruments connected as entire contract; negotiability contexts)
- Bellistri v. Ocwen Loan Servicing, LLC, 284 S.W.3d 619 (Mo. App. E.D. 2009) ( nah: treatment of mortgage debt as negotiable instrument)