F.A.L. Investments, LLC v. Hawthorne Bank, 2014 WL 1663767 (Mo. Ct. App., W.D., Apr. 1, 2014), presents a number of interesting issues concerning interpretation of a contractual relationship memorialized in multiple writings.
The facts are not stated succinctly in the brief. And what I would like to see, in order to make my own assessment of the merits, a verbatim, unedited extract of from the operative agreements, is not reproduced in one place. So, understanding the brief would require moving back-and-forth between the brief and other documents. And the arrangements are messy, involving obligations owed by an entity, and LLC, and its members in their individual capacities. So, I do not envy the judges.
In essence, the appellant’s brief seems to reference the following basic circumstances:
- Existing loans extended by the bank were refinanced by the bank.
- During that refinancing, what had been unrelated personal debts of one of the members of an LLC (one Samson) were secured by a deed of trust on LLC-owned property (other obligations also being secured under that deed of trust).
- The deed of trust appears to be a form that was not negotiated.
- The loan agreement has some oblique provision in it, described on page 10 of the brief, as follows:
“Upon the sale of any portion or all of the 179 property,” proceeds were to be divided as follows:
a. agreed expenses and taxes were payable to Green [a borrower];
b. the Borrowers’ Obligations of $1.781 Million were payable to Hawthorne; and
c. “any remaining proceeds” were to be divided equally between Hawthorne and the Greens, with Hawthorn’s share applied “to the Samson Obligations”.
- The real property is sold to an affiliate at a price the bank thinks inadequate.
- The borrower claims that, under the loan agreement, the Bank, after other debt is paid, is limited to getting half the proceeds for purposes of satisfying the Samson Obligations. The Bank claims it is not; the sale of the property triggers a separate due-on-sale provision in the deed of trust, entitling the Bank to additional rights.
One can see that the brief here just provides snippets in quotes. To analyze this, I want to see the entire, unedited language.
The case illustrates that the memorialization of an agreement in multiple writings can create ambiguities, because the separate parts may not fit well together. I recently wrote about this problem in an article styled, Side Letters, Incorporation by Reference and Construction of Contractual Relationships Memorialized in Multiple Writings, 64 BAYLOR LAW REVIEW 651 (2012), which can be downloaded for free at:
I would think a form deed of trust unlikely to address satisfactorily the arrangements to provide collateral securing multiple obligations, only some of which are intended to be with recourse to the borrower.
More after the break …