State Ex Rel. Missouri Highway & Transportation Commission v. Morganstein

ex rel. STATE MISSOURI HIGHWAY

AND TRANSPORTATION etc.,

COMMISSION, Respondent,

Mary MORGANSTEIN, E. et

al., Defendants, Myers, Exceptions

Ardeis H. of A.H.

Meyers, Jr., Defendants, City,

Commerce Bank of Kansas

Missouri, N.A., Appellant.

No. 66987.

Supreme Missouri,

En Banc.

Jan. 1986.

Rehearing Denied Feb.

895 Borthwick, Gibbons, damages appropriation James Michael D. sessed for the City, appellant. $387,000, Myers Kansas for and issued the a check in Myers that amount. Both the and the Schrader, Jr., Ring, Earl H. Gary Bruce Highway exceptions Commission filed to McMillan, City, respondent. Kansas May, the award and in the case went jury Myers’ to trial.1 The assessed the ROBERTSON, Judge. $150,000, $237,000 damages at less than appeals Commerce Bank entry from the the condemnation commissioners’ award. summary judgment against by of result, As a the trial court ordered the trial court. The issue is whether the trial Myers repay $237,- to the Commission the jurisdiction court has over Commerce Bank difference, plus 000 Myers’ interest. The (hereafter Bank) under Rule 81.11 as a appeal filed a notice of from this adverse result of a letter of credit issued to the judgment, failed to file supersedeas but Highway Transportation Missouri bond. (hereafter Commission) by Commission December, 1977, Myers. the Bank on behalf of Plora E. sought Myers’ execution on the house.

letter of stay credit was issued to the exe- Myers unsuccessfully quash moved to cution of a by obtained the Com- execution, and also failed in their ef- Myers. mission Mrs. The trial gain forts to prohibition against a writ of court ruled that the letter of credit was proposed 5, 1978, January action. On tantamount to a bond and ex- Myers’ family, family’s member of the jurisdiction Bank, ercised pursu- over the attorneys, attorney, the Commission’s ant to Rule 81.11. The Western District a Bank official met to consider the use of a granted reversed. We transfer and now of credit rather than a treat original this case as on appeal. Mo. Const, stay bond to execution V, on the house. art. 10. The § trial court is reversed. As meeting, a result of this the Bank stated, alia, issued a procedural

The full document which inter history of this case can that it was a letter of prior appellate be found two effective opin year, one (January January ions. 1978 to State High Missouri ex rel. State of 1979), upon presentation and that way Commission Morgan Missouri v. stein, documents, (Mo.1979), Bank of certain Bank 588 S.W.2d and State $350,000 pay up Highway would Missouri ex Highway rel. State Com document, pertinent Commission. This mission Morganstein, Missouri v. part, reads as follows: (Mo.App.1983). also, S.W.2d 485 See Com Randall, merce City Kansas (of bank) Letter issuing of credit number (Mo.App.1984). 675 S.W.2d 687 According ly, follows, the factual summary which (month/day/year) Date issue Janu- though lengthy, is limited to that which is ary necessary disposition of the issues Expiry January 5, Date now before the Court. Beneficiary Highway Missouri State Commission I. Building State Office July, Highway the State Com- City, Jefferson Missouri petitioned mission to condemn certain land Accountee by Myers Myers owned Ardeis and Flora Myers Flora E. tenants the entirety. February, 1971, the Parkway condemnation commissioners as- 6335 Ward Myers early opinions clarity 1. Both Ardeis and Flora died noted above. For the sake of however, litigation. involving Questions course of the de- we continue to refer executors, underlying substitution of and the fendants action as the respective "Myers”. prior estates were addressed in the City, Kansas Missouri note was to be activated in event the Highway Commission drew GENTLEMEN: was secured various WE HEREBY AUTHORIZE YOU TO properties, including a first deed trust DRAW ON BANK COMMERCE OF on property subject had been CITY, N.A., City, KANSAS Kansas Mis- For its part, execution. the Commis- souri UP TO AN AGGREGATE agreed sion accept the of letter credit in $350,000.00 (Three AMOUNT OF US supersedeas bond, lieu of a also and Fifty Hundred Thousand and 00/100 US pending dissolve its execution on the Dollars AVAILABLE BY YOUR facts, Beyond parties house. these the dis- DRAFT(S) AT Sight BE TO ACCOMPA- agree as full scope and effect of the NIED BY “agreement” reached meeting. at this signed 1. A order of the Circuit Court Upon joint application Myers and the Missouri, County, of Jackson directing Commission, approved the Western District payment of judgement [sic] security the pursuant to Rule 81.10. specified Court, or; amount by the June, 1978, In the Western District af- 2. An signed by legal affidavit the firmed judgment. the court’s trial How- counsel for the High- Missouri State ever, granted applica- this Court the Myers’ way Commission and a director of tion for transfer. While the matter was Shughart, Kilroy, present- Thomson & pending Court, this before counsel for the 5, 1979, January stating ed on that no Commission contacted counsel the judgement final been has reached. [sic] Myers that, expressed and concern its terms, own the of credit was due to NOT-NEGOTIABLE expire appellate before process had run drawings Partial permitted are ... its Myers requested course. The therefore that the Bank renew the letter of credit for All (until drafts drawn under This year, 5, 1980), Credit are to another January be endorsed hereon bear the also asked stated limit be in- $362,760 clause “Drawn under COMMERCE creased to to cover the additional N.A., BANK OF KANSAS CITY LET- interest that would After re- accumulate. CREDIT TER OF NO. 16513 dated ceiving Kan- security, additional re- Missouri, January 5, sas City, year newed the letter of credit for another 1978[.] $362,760. and increased its stated limit to WE HEREBY AGREE WITH THE DRAWERS, AND ENDORSERS BONA 1979, September, In this affirmed FIDE HOLDERS OF DRAFTS DRAWN damages the amount of awarded for the UNDER, AND IN COMPLIANCE WITH taking, but remanded the matter a de- CREDIT, THE TERMS OF THIS THAT termination of the individu- each SUCH DRAFTS WILL BE DULY HON- al regard defendant with the excess ORED ON PRESENTATION TO THE award. Morganstein, supra, 588 S.W.2d if negotiated DRAWEES drawn and not approach- at 481. end of year With the 5, January later than 1979[.] ing, imminent, and no final resolution subject This Credit “Uniform Highway again Commission asked that the & Documentary Customs Practice for Myers one-year obtain a extension of the (1974 Revision), Credits International Upon request by credit. Commerce, Chamber Publication No. Myers, the Bank renewed the letter of 290.” value, credit in the face same new 5, [signatures expiration of January date omitted.] charged Myers litigation The Bank No significant activity fee for occurred during early issuance of the letter January, 1980. In promissory obtained a note from them in Bank the letter of until extended credit $350,000. promissory January request amount by submitting to the Bank The face letter of credit Myers. value of the document $362,760. paragraph remained at in 1 of renewed order described the court credit, along with a draft the letter July, remand the trial court on $478,494. The Bank refused the amount of Myers that Mrs. had the use and found it exceeded to honor the draft because enjoyment only one-half of the condem- $204,950 pro- amount of maximum proceeds, nation and entered $119,- last renewal. the instrument its against her estate the amount of vided Myers Mrs. 500. Both the Commission and filed a August, appealed. asking circuit court motion with the October, 1981, attorneys Myers’ brought into the law- Commerce Bank be informed the Commission that when the 81.11, and that sum- pursuant suit to Rule expired January on existing letter of credit mary judgment be entered 5, 1982, the renewed letter of credit would jurisdiction and Bank. The Bank denied value, a reduced face be modified to reflect in liability. The trial court heard evidence in judgment since the had been cut half.2 October, 1983, found in favor of the Com- 1982, January, Myers early In the commu- mission, against judgment and entered the nicated their desire to renew the letter of $415,626.58.3 Bank in the amount of credit at a reduced amount to Commerce appeal, the Bank contends that the On 4, 1982, January the Bank Bank. On bond, not a letter of credit was copy mailed the of the re- Commission undertaking surety and does not reflect a newed letter of modified to show a fur- on behalf of its customer. The Bank $204,950. face value of Counsel surety relationship is a ther contends that a Commission received word of the reduction precedent to the invocation of condition January, sometime in the second week of response, In the Rule 81.11. Commission correspondence Myers’ 1982. In of credit must be attorneys, pro- counsel for the Commission asserts that the letter bond, tested the reduction in face value of the least a as a or at viewed not, however, credit. Counsel did alleged three- surety as a result of an notify Appeals objec- the Court of of its 5, January party agreement reached at tions to the modified letter of credit. meeting preceded the issuance 1978 claims of the document. The Commission 1983, January, Myers requested

In oral contract formulated that an under and received from the Bank another one- agreed to secure meeting, the Bank year extension of the letter of credit to in any final payment full January 1984. The face amount of the result of this “oral $204,950. on-going action. As a letter of credit remained at argues, agreement”, the Commission The Western District reversed the trial surety. The to become a court’s determination and remanded of credit asserts that the letter Commission case with directions that the Circuit agreement of embody does not the entire judgment against enter the estate of Plora to do so. parties, and was not intended Myers for entire con- amount of the Rather, suggests that the overpayment, demnation with interest from may gleaned agreement terms of the February, supra, 1971. 649 Morganstein, follow-up prepared by the from a letter June, S.W.2d at 490. the trial counsel, testimony and Commission’s judgment against court entered the estate and, evaluated $477,922.81. parties, when conduct amount of The Com- letter background, this attempted to draw on the the context of mission then $237,- disputes any interest accumulated on the that it received lation of the 2. The Commission October, principal. 1981. then entered such information The circuit court against Myers’ Mrs. estate September, the circuit court vacated $415,626.58. amount of. June, because a miscalcu- of credit Finally, itself.4 Commission stipulated documents, provided contends that when the per- Bank failed to that the terms and conditions of the credit form obligation its ultimate surety, complied are UCP, it with.” General Provi susceptible motion, ¶ was Definitions, (b); a Rule 81.11 & sions see also 400.5- § the entry 103(1)(a) of summary judgment. (b), 1978; RSMo Easton Tire Bank,

Co. v. Farmers & Merchants S.W.2d 398 (Mo.App.1982). II. In actuality, a credit is the third A supersedeas bond is a form of contract in complex independent three party (the contract under which one contracts. Republic National Bank v. surety), (the assures party a second credi Bank, Northwest National 578 S.W.2d tor), payment performance by a third (Tex.1978); Co., Easton Tire su- (the party principal). The liability of the pra. The first contract is between the surety is secondary in the sense that issuer and its customer and reflects an only upon arises nonperformance of the agreement to issue the letter of credit. underlying promise by the principal. If the The second contract is between the custom- principal performs the underlying promise, er and the beneficiary. contract, The third the surety is not liable. generally See itself, letter of credit is between the Stearns on the Law Suretyship, 5th ed. issuer and beneficiary, provides (J. Elder, editor). general, the issuer payment will make to the benefi- obligation of is both measured and ciary upon presentation of certain doc- by limited principal’s obligation. Boli Co., uments. supra; Easton Repub- Tire Reorganized var 1, School District No. Polk Bank, lic supra. National County v. Surety American Co. of New York, 405, (Mo.1957). 307 S.W.2d 410 distinguishing feature of a independence credit is the 400.5-102(4), 1978, Section pro RSMo contracts comprise it. State ex rel. vides that the Uniform Commercial Code Development Turco Lasky, v. 581 S.W.2d provisions relating to letters of credit con 935, 937 (Mo.App.1979); Republic Nation trol parties unless the express an intention Bank, 114; al supra UCP, at see also to subject the letter of credit to “the ‘Uni supra, 9; art. 400.5-109 and § form Customs and Practice for Documenta 400.5-114, RSMo 1978. No default § ry Credits’, by fixed by thirteenth or a performance of the underlying obligation subsequent congress of the International by the customer necessary trigger is Chamber of By Commerce.” its own obligation pay of the issuer to under the terms, the scrutiny document now under is Co., letter. supra. Easton Tire If the subject made to the Uniform Customs and beneficiary appropriate tenders the doc (1974 Practice for Documentary Credits Re uments, the issuer must honor the letter vision, International Chamber of Com regardless underlying of whether the con merce, 290) (hereafter Publication No. performed. tract has been Lasky, supra; UCP). The UCP defines a letter of credit Republic Bank, supra; National see also arrangement as an whereby “... a bank UCP, supra, 9; 400.5-109, art. 8 and § (the bank), issuing acting request at the 400.5-114, RSMo 1978. § and in accordance with the instructions of a (the customer applicant credit), ... A recent in the innovation use is to payment make to or to the order of a letters of “standby credit is the credit” (the party third beneficiary), pay, or is to employed which is primarily to finance or accept negotiate or bills exchange underlying intangible secure an or mone (drafts) drawn the beneficiary tary ... indebtedness undertaken the cus- J.Y., 4. The Commission also argument. contends that the Bank decline to consider this In Re estopped denying is from that (Mo.1982); Dixon, the document Bybee 637 S.W.2d surety issued was a bond. As (Mo.App.1964). 380 S.W.2d plead below, prove theory failed to this we Bank, supra III. Republic tomer. National 113; supra at Company, Easton Tire provides appeal that an Rule 81.09 Under, issuer standby credit the stay of a its execution judgment agrees beneficiary upon presen- pay provides appellant where the indicating tation of documentation security, either in creditor sufficient party payment account has defaulted on a other supersedeas form of a bond or obligation. Bank, Republic National su- security approved by the trial court. See pra. Saitz, 664 rel. Brickner v. also State ex standby

A much the serves (Mo.1984). 81.11 Rule S.W.2d purpose same surety as a contract —both entering supersedeas “by states that into a obligor’s nonperform ensure surety subjects himself to the ance, Republic Bank, supra; National jurisdiction of the trial court and his liabili Carolina, Bank North N.A. v. Rock ty may be enforced on motion for Bank, (7th Island 570 F.2d Cir. thereon, necessity of an inde without 1978). is, however, significant There dif added.) pendent (Emphasis action.” ference between the two. The letter of referred to in Rule 81.11 is described bond credit creates a on an primary and Form Mo.R.Civ.Pro. Rule 81.09 original obligation requires payment contemplate surety Both those sources presentation required doc by its terms remains effective bond which uments. The contract of creates a or set until the is either satisfied secondary liability pre-existing on the obli contrast, sharp the letter of cred aside. gation requires of another and expressly is conditioned to it in this case pay only principal event that the of the stated term. The expire at the end Carolina, pay. does not Bank North present issued in the case letter of credit N.A., Dolan, supra; generally see J. not a bond. (1984). Law of Letters of Credit juris- court’s The sole basis the trial foregoing From the discussion it is clear present diction over Commerce bonds and letters of cred- providing 81.11. Rules for action is Rule it are distinct entities. It is clear also of claims are to be summary disposition the document before the is a of Smith, 104 strictly construed. Judson v. only credit not because it bears all the (1891); re Mo. S.W. credit, hallmarks aof but because Estate, Mo.App. Parker’s Trust primary liability it creates in the Bank a on (1934). Rule 81.11 refers S.W.2d original obligation. an The Commission refers only supersedeas It also to bonds. however, suggests, that the letter of credit on exclusively to sureties repeatedly and case, being standby in this a letter of cred- Therefore, extent that those bonds. it, functions the same as a and bond bonds, suretyship rela- and supersedeas super- should therefore be considered as of from letters general, are distinct tions meaning of the sedeas bond within the apply must construed to the rule be true, above, Rule 81.11. It is as observed the to exclude solely to the former and general standby letters of credit in latter, may employed though both be even possess a feature which is similar to that 81.11 must security appeal. on Rule as such letters of surety bonds. Whether encompass only the read to therefore be greater de- possess, credit to a or lesser former. gree, suretyship characteristics common purpose behind from the It is also clear irrelevant, however, ques- only is since the uniquely suited for use it is Rule 81.11 that present pertinent tion case is wheth- purpose suretyship. in the context of provides er the letter of issued here court, once permit the trial the rule is to predicate for the a sufficient trial court finally appellant is obligation of the jurisdiction pursuant to Rule 81.- exercise resolved, liability on the impose BLACKMAR, necessity separate Judge, without the action. dissenting. for generally, of letters of credit context dispute I would not the demonstration in summary no such procedure would either opinion principal that letters of credit necessary appropriate. be or It would not legal and bonds are different be necessary because the letter of credit case, however, parties animals. In this obligation specified attaches whenever the and the court that a letter of credit supporting properly documents are could be used in lieu of a conventional presented. Any by refusal issuer supersedeas bond. A transaction of this pay beneficiary letter of credit to kind expressly seems to me to be autho- time, point such would be actionable at that 81.09, contemplates rized Rule only dispute being with the material security. pertinent alternate forms of propriety of the tender. It would not be portions governing of the rule reads as appropriate proce- the summary because (Emphasis supplied). follows: in question non-party dure treats the sure- pal, ty a letter of credit is whereas liable obligation obligation independent of an issuer of of that of its princi- Rule 81.09 ^{[*] [*] [*] [*] [*] [*]} its customer. (b) Form of Bond—Amount. The bond shall be conditioned for the satisfaction however, urges,

The Commission that the together of the in full terms written document have been costs, interest, damages delay, and for if representa- varied certain claimed oral However, any appeal tions and modes of conduct. for reason the is dismissed or argument unavailing, Commission’s is affirmed, if the is and to satis- since, in order for Rule 81.11 apply, fy in full such judg- modification of the there must be a which is costs, interest, ment and such and dam- suretyship. a contract of Neither of the ages appellate may adjudge as the court agreement Commission’s claims—that the and award. When the is for obligation was for an unlimited in both recovery money not otherwise se- change amount and the doc- duration — cured, the amount bond ument’s essential character as a letter of fixed at such sum as will cover the whole event, credit. either the Bank’s obli- judgment remaining amount of the un- gation primary independent and of that satisfied, interest, appeal, costs on the customer, contingent of its only damages delay, unless the court propriety underlying documents hearing good notice and after presented payment. to the Bank for Since cause shown amount fixes different question document here is a letter of security orders other than the bond. bond, credit and not a the trial court against the Bank under Rule 81.11. versed. is without judgment of the trial court is re- jurisdiction proceed Rule 81.11 By entering ^{[*] [*]} submits himself to into a ^{[*] [*] [*]} juris- ^[*] liability diction of the trial court and his BILLINGS, DONNELLY and WELLIV- may judgment be enforced on motion for ER, JJ., FLANIGAN, Special Judge, thereon, necessity of an inde- without the concur. motion, pendent copy A action. BLACKMAR, J., in separate dissents and such of the motion additional notice opinion filed. requires, as the court served like shall be HIGGINS, C.J., dissents and concurs in resides upon a summons who separate dissenting opinion of BLACK- county and can where the be found MAR, J. entered, or who maintains was RENDLEN, J., sitting. county agent not office in said where an may whom such service be

made.... SHARP BROTHERS CONTRACTING

* * * * * * COMPANY, al., et Plaintiffs/Respondents/Cross-Appellants, appellant bank to issue a so that its customers could stay judgment against on a execution them. HOIST & DERRICK COM- AMERICAN There why is no reason should not bank PANY, good undertaking, be held to make on its Defendant/Appellant/Respondent. once the final. has become Nor relegated should the be creditor No. 67090. to a separate lawsuit. should Relief judgment. available at foot of the Missouri, Supreme Court of procedural There is no dis- substantive En Banc.

advantage to the issuer if its is Jan. 1986. determined in the same lawsuit. We can that, confidently long predict so as the Rehearing Denied Feb. principal stands, opinion judgment credi- accept tors will hesitate alternate forms security. why

There is another reason the full

reversal brought error. The record

us unequivocal objection shows no

jurisdiction per- trial court over the

son of the defendant. Commerce Bank

was before the court. must We assume properly it was summoned accord-

ance with the terms of 81.11. Rule If challenges service,

Commerce it has the adducing support

burden of record its

claim of It error. filed no motion to dis- jurisdiction

miss quash for want or to it

service and made clear outset at the disputed only liability.1 amount of its arguments jurisdictional

Its hesitant about

questions interspersed argu- were touching

ments the merits. Counsel re-

quested findings and conclusions. Counsel

placed itself in court. opinion

To the principal extent that the

relegates Highway Commission to a action, I

separate the case in dissent. With posture principal opinion in which the it, opinion

leaves I no as to express wheth- against

er the should the bank the full amount of the owners, property or for the

face amount of the latest issue of the letter issue credit. This will be resolution separate

when and if lawsuit filed. why paid it 1. I cannot not it admits owes. understand has amount

Case Details

Case Name: State Ex Rel. Missouri Highway & Transportation Commission v. Morganstein

Court Name: Supreme Court of Missouri

Date Published: Jan 15, 1986

Citation: 703 S.W.2d 894

Docket Number: 66987

Court Abbreviation: Mo.