W-V Enterprises, Inc. v. Federal Savings & Loan Ins.W-V Enterprises, Inc. v. Federal Savings & Loan Ins.
The opinion of the court was delivered by
The plaintiffs-appellees are Michael Wayland and W-V Enterprises, Inc. The defendant at trial was North Kansas Savings Association, a federally insured, state chartered savings and loan corporation. By virtue of a post-trial order of the Federal Home Loan Bank Board the defendant is in receivership, and the appellant is now the Federal Savings & Loan Insurance Corporation (FSLIC), as receiver for North Kansas Savings Association.
The appellees’ cause of action for compensatory and punitive damages at issue in this appeal arose from the business relationship between the appellees and North Kansas Savings Association from 1972 through 1974. The focal point was a plan for the design, development, and marketing of pre-stressed steel apartment buildings. The appellees were induced by the appellant North Kansas Savings Association, through its officers, to participate in this business enterprise.
North Kansas was affiliated with a number of corporations
Although Trans-Western, Inc. was created for the purpose of becoming the holding company of North Kansas Savings Association, that plan never came about. At the time North Kansas Savings Association applied for approval of Trans-Western as its holding company, federal regulations provided only two percent of the total assets of the savings association could be invested in risk ventures of a related service corporation and its subsidiaries. North Kansas Savings Association had greatly exceeded the two percent limitation. The reason given for the denial of Trans-Western’s application for holding company status by the Federal Home Loan Bank Board was that no certified audit could be provided.
Against this background, while North Kansas was creating an interlocking corporate pyramid, Michael Wayland became acquainted with Roger Chester, president of North Kansas Savings Association. Wayland did business as Wayland Construction Company. In 1972 Wayland was constructing a steel building to house a mobile home manufacturing plant in Lincoln, Kansas. Wayland had been in the construction business since early 1956. He had become an authorized Behlen Steel distributor in 1965. In addition, Wayland was a fifty percent owner in Colby Steel Corporation, which was also an authorized Behlen Steel distributorship. Colby Steel engaged in marketing and installing grain handling equipment.
After seeing the Wayland project in Lincoln, Chester became interested in using the Behlen free-standing structural steel concept in the design and construction of apartment complexes. Chester believed spiraling lumber and construction costs made such buildings cost efficient. Chester proposed Wayland build a “pilot project” as a “showcase” to demonstrate design and cost efficiency in selling packages to investors, developers, and contractors.
After a plan to build the pilot structure in Colby fell through, Concordia was selected as the site. An appraisal indicated the project was feasible there. Chester promised Wayland North Kansas would provide interim and long-term financing for the construction. In spite of Chester’s assurances of complete financing, on March 1, 1973, North Kansas issued a commitment for only permanent financing. Thereafter Wayland and VanDalsem made arrangements with Citizens Savings Association for interim construction financing in the amount of $300,000. Citizens Savings agreed to provide the interim construction financing conditioned on the reissuance of the March 1 commitment letter from North Kansas Savings Association to provide the long-term, take-out financing flowing directly to Citizens Savings. This resulted in a second commitment letter, dated March 14, 1973, which provided upon completion.of the project North Kansas Savings Association would provide $300,000 in permanent financing. The commitment was restricted. W-V paid a commitment fee of $3,000 to North Kansas. The real property in Concordia was purchased by W-V for $7,500 on March 6, 1973, and the project began shortly thereafter. Wayland informed North Kansas he estimated the cost of the Concordia project would be $295,000 for materials alone. According to Chester, W-V would receive a six percent development fee and a six percent construction fee when the project was sold.
At the request of Roger Chester, and to accommodate his plan that the Concordia complex be a “showcase” for potential investors, Wayland redesigned it to give it a more attractive mansard roof. This change increased the cost by $10,000 per unit. Chester orally committed North Kansas to provide additional financing in the amount of $30,000.
On June 20, 1983, just three months after issuing its commitment letter, Carl VanDalsem was informed by Don Tompkins, vice-president of North Kansas, that North Kansas might not be in a position financially to provide any financing on the Concordia project. When Wayland confronted Chester, he was informed there was no basis for the letter. Wayland was assured by Chester if the apartments were not sold to one of Chester’s investor contacts by the time they were completed, North Kansas would place the Concordia project in one of its subsidiary or affiliated corporations.
In the meantime Carl VanDalsem had gone bankrupt. In order to keep North Kansas informed of all developments Wayland informed Dennis Vogan, of North Kansas, by letter on September 10,1973, that Carl VanDalsem was no longer financially capable of carrying on his role in W-V. Wayland further stated he was not willing to continue the project unless North Kansas would stand behind its commitment of $330,000 at a maximum rate of nine and one-quarter percent. Additionally, in a memorandum to the file, dated September 26, 1973, Dennis Vogan referred to a telephone conversation with Mike Wayland in which he stated, “Mike indicated that Carl VanDalsem was completely out of the picture .... Conversation ended on good standing saying we would be in touch.” Thereafter, on October 5, 1973, W-V paid an additional fee of $100 to North Kansas Savings as consideration for an extension of the permanent loan commitment.
On December 18, 1973, Vogan informed Wayland the appraisal of the Concordia apartments obtained in November, 1973, reflected a value of only $300,000 and therefore a loan in the amount of $330,000 was not feasible. On December 26, Don Tompkins, vice-president of North Kansas, wrote: “Due to substantial changes in W-V, Inc., after our commitment letter of March 14, 1973, . . . North Kansas Savings Association is no longer in a position to purchase the permanent [financing].” North Kansas’ waffling on its commitment was very unsettling to Wayland.
Wayland did not accept the offer of $260,000 in permanent financing. Instead, he attempted to extricate himself from the problems by offering to sell the Concordia project. On February 13, 1974, he made a payment of $2,500 to Interstate Business Marketing, Inc., Pueblo, Colorado, to retain its services for the sale of the project. Interstate undertook an extensive nationwide effort to sell the project. Wayland also contacted Green Realtors in Overland Park, Kansas, regarding the rental and sale of the apartments. In addition, officers of Citizens Savings undertook to rent the apartments. In the meantime, Wayland also attempted to obtain financing from numerous other sources and in his efforts to remain solvent he sold some of his own property and obtained a $100,000 loan from the Small Business Administration (SBA). This money was used to pay the out-of-pocket construction costs for the Concordia project and to pay off material and subcontractors’ liens to make it merchantable. The total cost of the project turned out to be $422,000. Only $284,000 had been received from the interim construction lender, Citizens Savings. There is no evidence North Kansas ever attempted to sell the project or obtain a substitute lender.
Wayland’s efforts to sell were unsuccessful. On February 20, 1974, Wayland received notice from Citizens Savings the construction loan, plus interest, was due; by August 7,1974, Citizens Savings laid claim to the rental payments; and on April 5, 1976,
Wayland brought suit against North Kansas Savings Association on January 21, 1976. A jury returned a verdict in his favor in the amount of $1,245,944 in compensatory damages and awarded punitive damages of $250,000. The FSLIC as receiver for North Kansas appealed.
The appellant first argues the letter of January 28, 1974, by W-V’s attorney to North Kansas’s attorney, memorializing a meeting of the parties on January 22, 1974, was a new and fully integrated final agreement of the parties and the trial court erred in admitting parol evidence to contradict its terms.
The January 22, 1974, meeting was requested by Michael Wayland’s attorney. The purpose of the meeting was to determine why North Kansas was stalling on honoring its written commitment to provide permanent financing for the Concordia apartment project. North Kansas contended the loss of Carl VanDalsem’s interest in W-V had created “substantial changes” in W-V, and thus released North Kansas from its obligation to provide permanent financing. The evidence at trial indicated this was a pretext. That evidence consisted of statements by and communications with officers of North Kansas and Trans-Western, Inc., which disclosed Trans-Western had attempted to become the holding company for North Kansas. Its application was denied by the Federal Home Loan Bank Board because no certified audit could be provided. Also, in June, 1973, one officer informed W-V that North Kansas was experiencing “tight money problems” and it was uncertain whether it could fulfill its commitment to provide permanent financing for W-V. The evidence also showed Mike Wayland had informed North Kansas Carl
The letter memorializing the January 22 meeting noted six factors upon which the permanent financing of W-V was contingent. These factors were: (1) W-V would provide North Kansas with a MAI appraisal of the Concordia apartment project by an appraiser approved by North Kansas; (2) the appraisal would be submitted to the North Kansas Board of Directors along with personal financial statements of Mike Wayland and his brother, John, and their tax returns for the preceding three years; (3) subject to the board of directors’ approval North Kansas would loan to W-V a sum equal to eighty percent of the appraised value of the project, such sum not to exceed $330,000 and at an interest rate not to exceed nine and one-quarter percent; (4) the board of directors would render its decision within three days after the appraisal and other information was submitted; (5) the shareholders of W-V would submit an affidavit indicating Carl VanDalsem had no further interest in W-V; (6) the mortgage title insurance would be taken care of by Citizens Savings Association, which had provided the interim financing.
All the conditions were met by W-V until a problem arose over the MAI appraisal. The parties had originally agreed to $300,000 financing on March 14, 1973, plus an additional $30,000 for the mansard roof design change. Thus, W-V was entitled to $330,000. The MAI appraisal of the complex was $325,000. The board of directors of North Kansas calculated eighty percent of the $325,000, pursuant to the letter of January 28, 1974, and offered to provide W-V $260,000 financing, $70,000 short of the previous commitments. The issue then is whether the letter of January 28, 1974, constituted a novation or a modification of the March 14, 1973, agreement.
Appellant contends the January 28 letter is a complete new agreement of the parties. The appellees counter that the construction of the letter was a question of fact and therefore was properly submitted to the jury and decided. Appellees’ argument
W-V, however, also argues the point in the alternative, contending that if the construction was in fact a question of law for the court, but was erroneously submitted to the jury at trial, North Kansas cannot raise the issue on appeal and request this court to reconstrue it, since the issue was presented to the jury upon North Kansas’ request. This argument is correct. At trial, North Kansas contended the validity of the January 28, 1974, agreement was a question of fact for presentation to the jury. The trial court acceded to its request. Where a party persuades a court to proceed in a particular way and invites a particular ruling, the party is precluded from asserting the issue on appeal.
Grimm v. Pullesen, 215
Kan. 660, Syl. ¶ 3,
North Kansas next contends the January 28, 1974, letter was a modification of its commitment since the intent of the parties to modify the March 14 commitment “may be implied from their conduct.”
Byers Transp. Co. v. Fourth Nat. Bank
&
Trust Co., Wichita,
Appellant next argues the trial court erred in admitting parol evidence to explain the January 28 letter. At trial the court ruled W-V had introduced sufficient evidence of mutual mistake to admit parol evidence. The mutual mistake of the parties consisted of the meaning of “appraisal” in calculating the loan amount. Appellees understood the appraisal was mere red tape for the purpose of substantiating the amount of the loan for examiners while appellant contends the appraisal controlled the loan amount. This court has stated the rule pertaining to the admission of parol evidence in the case of mutual mistake as follows:
“In order for parties to form a binding contract, there must be a meeting of the minds as to all essential terms. [Citation omitted.] As between the original parties to a contract parol evidence to show mutual mistake may be introduced in an action to show the nonexistence of a binding contract.” Sidwell Oil & Gas Co. v. Loyd,230 Kan. 77 , 79,630 P.2d 1107 (1981).
North Kansas asserts even though mutual mistake exists parol evidence should not have been admitted since “appraisal” is not an ambiguous term. Appellant’s argument is erroneous. The evidence was admissible on the issue of either mutual mistake or ambiguity. Here both exist. “The law is well settled that where ambiguity exists in a document evidence is admissible as an aid to its interpretation.”
Mobile Acres, Inc. v. Kurata,
For its next issue North Kansas argues there was insufficient evidence for the trial court to submit fraud and the tort of outrage to the jury. The proof of fraud consisted of North Kansas’ inducement of Mike Wayland to undertake construction of a “showcase” apartment complex to be used as a pilot project to sell to the appellant’s “investor contacts.” North Kansas prom
North Kansas contends its continuous promises to Mike Way-land were mere “puffing” upon which W-V had no legal right to rely. Appellant argues Chester’s statements should have been recognized by Wayland as hopeful opinions regarding the potential for a national marketing scheme for projects such as the Concordia project, and these opinions never rose to the level of misrepresentations of material fact.
The jury in this case determined North Kansas was guilty of fraud. This court has discussed fraud many times and in doing so has declined to specifically define fraud. In
Augusta Bank & Trust v. Broomfield,
“While the broad outlines of fraud have been indicated by regarding it asincluding any cunning, deception, or artifice used, in violation of a legal or equitable duty, to circumvent, cheat, or deceive another, the forms it may assume and the means by which it may be practiced are as multifarious as human ingenuity can devise, and the courts consider it unwise or impossible to formulate an exact, definite, and all inclusive definition thereof. It is synonymous with, or closely allied to, other terms indicating positive and intentional wrongdoing, but is distinguishable from mistake and negligence.”
See also
Citizens State Bank v. Gilmore,
The law in Kansas concerning proof of fraud was discussed in
Nordstrom v. Miller,
“We have held fraud is never presumed and must be proven by clear and convincing evidence. [Citations omitted.] The term ‘clear and convincing evidence’ means:
“ ‘[T]he witnesses to a fact must be found to be credible; the facts to which the witnesses testify must be distinctly remembered; the details in connection with the transaction must be narrated exactly and in order; the testimony must be clear, direct and weighty; and the witnesses must be lacking in confusion as to the facts at issue.’ Modern Air Conditioning, Inc. v. Cinderella Homes, Inc.,226 Kan. 70 , 78,596 P.2d 816 (1979).
“ ‘The existence of fraud is ordinarily a question of fact.’ ”
A verdict for fraud cannot be disturbed on appeal if there is substantial evidence in the record to support it.
Modern Air Conditioning, Inc. v. Cinderella Homes, Inc.,
“Viewing all the evidence and inferences therefrom in the light most favorable to Broomfield, we cannot escape the conclusion that there is substantial evidence to support the jury’s awards. The landowners led Broomfield down the ‘primrose path.' ”231 Kan. at 64 .
Mike Wayland was a reputable and honest steel distributor and construction contractor. North Kansas’ promises of financing induced him to invest in and build the Concordia complex. The promised financing never occurred. Wayland was led to change his position by North Kansas’ false representations. There is
North Kansas also contends W-V failed to present sufficient evidence to support recovery for the tort of outrage. In
Dawson v. Associates Financial Services Co.,
Liability may be predicated on the tort of outrage “only in those cases where the conduct has been so outrageous in character, and so extreme in degree, as to go beyond the bounds of decency, and to be regarded as atrocious and utterly intolerable in a civilized society.”
Roberts v. Saylor,
The appellant next argues the trial court erred in submitting the issue of tortious breach of contract to the jury since the issue
North Kansas next argues the damage verdict is not supported by the evidence.' Appellant initially contends W-V breached its legal duty to mitigate its damages. It is true we have held a party “is bound to protect himself if he can do so with reasonable exertion or at trifling expense and can recover from the delinquent party only such damages as he could not, with reasonable effort, have avoided . . . .”
In re Estate of Stannard,
Appellant next contends the damage award attributable to loss of future profits is speculative and not supported by the record. In
Butler v. Westgate State Bank,
“ ‘This court follows the general rule that loss of profits resulting from a breach of contract may be recovered as damages when such profits are proved with reasonable certainty, and when they may reasonably be considered to have been within the contemplation of the parties. [Citations omitted.] Recovery for loss of profits caused by a breach of contract depends upon the facts and circumstances of each particular case.’ ” (quoting Vickers v. Wichita State University,213 Kan. 614 , 618,518 P.2d 512 [1974])
In
Butler,
which involved a new business, we held the evidence of loss of profits, which consisted of one person’s testimony, to be too speculative. In
Vickers,
this court held the
Appellant next argues the record does not support a damage award for nervous exhaustion and emotional breakdown and that the award of $400,000 is excessive. Our examination of the record indicates the jury award for damages in this category is $200,000 rather than $400,000 as stated by appellant.
North Kansas contends there is no evidence indicating it caused the emotional breakdown of Michael Wayland. W-V argues its evidence established Wayland’s emotional problems resulted directly from his dealings with North Kansas. The testimony does show Wayland suffered severe emotional problems at the time of his financial losses from the failure of the Concordia project, but there was also evidence of domestic discord, which could also have been the cause of his emotional distress. The evidence does not point to specific acts of North Kansas which inflicted emotional distress on Wayland. This court has held the law involving emotional distress has
“two threshold requirements which must be met . . . [These are]: (1) Whether the defendant’s conduct may reasonably be regarded as so extreme and outrageous as to permit recovery; and (2) whether the emotional distress suffered by plaintiff is in such extreme degree the law must intervene because the distress inflicted is so severe that no reasonable person should be expected to endure it.” Roberts v. Saylor,230 Kan. 292 -30.
The purpose of these stringent requirements is to protect “defendants against fictitious claims and litigation based on trivialities . . . .”
“It cannot be disputed that the appellants suffered a tremendous amount of emotional and physical stress and anxiety .... Despite this the appellants maintain that all of the emotional and physical maladies suffered by them . . . have been caused solely by [the acts of the defendant] .... This claim is not supported by the appellants’ evidence.” Hoard v. Shawnee Mission Medical Center, 233 Kan. 267 , 277-78,662 P.2d 1214 (1983).
In Hoard, the parents of a teenage girl were erroneously informed by a hospital official that their daughter had died as a result of massive injuries incurred in an automobile accident. The parents began making funeral arrangements and as they were leaving the hospital, it was discovered their daughter was still alive but in another hospital and the fatality erroneously identified as their daughter was one of her friends. Both girls had been passengers in the same car during the auto accident. While the shock and distress created by the mistaken identity was terrible, we held it was not sufficient to support a damage award for emotional distress.
In the instant case, while Wayland was financially ruined by his activities with North Kansas, there is no evidence in the record of specific acts of North Kansas which inflicted the emotional distress on Wayland. The damages resulting from Way-land’s emotional problems are not recoverable. To find otherwise would permit recovery for every individual who suffered emotional problems after a substantial financial loss. Clearly that was not the intent of this court in Saylor. The trial court, therefore, erred in submitting the issue to the jury and the $200,000 award is without basis and is set aside.
Appellant’s final damage issue is that the trial court erred in awarding punitive damages. Punitive damages may not be recovered for a breach of contract unless an independent tort is also established. See
Atkinson v. Orkin Exterminating Co.,
“[T]he previously granted stay of execution of judgment without bond be continued in force and the attachment orders remain in effect until further order of this Court.”
We then remanded the case to the district court for the limited purpose of conducting proceedings pertaining to the validity of the attachment order under K.S.A. 1982 Supp. 60-712. The district court made findings of fact and conclusions of law upholding the attachment order and returned the case to this court.
Let us first consider the supersedeas bond issue. The FSLIC argues it should not be required to post a bond pursuant to federal law which provides no security may be required against a United States instrumentality in any court proceeding. See 28 U.S.C. § 2408. This argument is erroneous. 28 U.S.C. § 2408 does not contemplate the situation presented in this case. This statute applies only in cases where the United States or its agencies institute the action. The wording of the statute discloses its purpose: “Costs taxable . . . shall be paid out of the contingent fund of the department or agency which directed the proceedings to be instituted.” In the present case costs taxable will not be paid out of the funds of the FSLIC but rather out of the insurance fund FSLIC holds for North Kansas and revenue received from liquidating North Kansas.
FSLIC also argues it should not be required to post a bond because it is stepping into the shoes of North Kansas, and North Kansas was not required to post a bond. When the issue first arose in the district court, appellees argued K.S.A.
60-262(d),
which requires a supersedeas bond to stay execution upon ap
FSLIC next argues the attachment order of the district court is invalid. It initially contends the district court was without jurisdiction to issue the order since a notice of appeal had already been filed by North Kansas. This argument is without merit. The order of attachment was filed prior to filing of the docketing statement on October 19, 1982. Thus, the district court had jurisdiction to enter the order of attachment. See
Carson v. Eberth,
The attachment was ordered pursuant to K.S.A. 60-701(5) and (6). FSLIC contends the trial court erred in imposing K.S.A. 60-701(6), which states:
“[T]he plaintiffs . . . may have, as an incident to the relief sought, one or more attachments against the property of the defendant, or that of any one or more of several defendants, when the defendant whose property is to be attached:
“(6) fraudulently contracted the debt or fraudulently incurred the liability.”
FSLIC argues North Kansas did not fraudulently contract with W-V. That issue has been decided herein adverse to appellant. The purpose of the statute is to prevent disposal of a defendant’s property before a plaintiff may obtain a judgment when the defendant has proven to be dishonest in its past conduct. See 1 Gard’s Kansas C. Civ. Proc. 2d Annot. § 60-701 (1979). This purpose likewise extends to an appeal. The trial court here had a final jury verdict indicating fraud on the part of North Kansas. The purpose of the statute would be defeated if the court were
FSLIC additionally argues it did not engage in fraudulent conduct; thus upon the court’s order substituting it as a party the attachment should have been released. K.S.A. 60-701(6) does not contemplate such a situation. The only authority cited by either party on this point is 12 C.F.R. § 569a.7(a)(2) -(1983), which mandates that the FSLIC must assume the liabilities and just claims against an insolvent association as they exist at the time of declaring the association insolvent. The law requiring FSLIC as receiver to step into the shoes of North Kansas shoulders FSLIC with all the liabilities of its predecessor, including its liabilities for fraudulent conduct.
The FSLIC further claims it is prejudiced by the continuation of the attachment order because the order interferes with its liquidation of North Kansas. The facts show, however, that during the hearing on February 15, 1983, the trial court suggested a release of the orders of attachment if the receiver would place the funds in escrow and continue to recognize the priority lien on the proceeds arising from the payment of the attached indebtedness. Appellees informed the court of appellees’ willingness to consider such an arrangement. However, FSLIC took no steps to comply. In addition, FSLIC made no attempt to seek release of the attachments under K.S.A. 1982 Supp. 60-707, which provides for a discharge of attachment upon the posting of a bond by defendant.
The FSLIC also suggests dissolution of the order of attachment would have no adverse effect on the appellees because of FS LIC’s adherence to its fiduciary obligation to liquidate North Kansas in accordance with federally mandated guidelines. Not so. If the orders of attachment are rescinded, the status of the appellees will be changed from that of secured to unsecured creditors, thereby reducing the collectability of their judgment. In this regard, the trial court held as follows:
“The attachment orders are necessary to protect the plaintiffs as against the receiver, FSLIC. The result of a dissolution of the attachment would be to reduce the plaintiffs’ judgment to the position of an unsecured creditor and a 60% pro-rata payment in satisfaction of the judgment.”
The prejudice to the appellees by dismissing the attachment
Appellees next request this court to rule their judgment liens on real property extend to certain real property owned by Rock-wood, Inc., a subsidiary of North Kansas Service Corporation, which, in turn, is a subsidiary of North Kansas Savings Association. This issue was not before the trial court and cannot be raised for the first time on appeal. See
State v. Puckett,
The judgment of the trial court is modified by reduction of the compensatory damages award from $1,245,944 to $1,045,944 and affirmed as modified.