Opinion ID: 1718143
Heading Depth: 1
Heading Rank: 6

Heading: the award of actual and punitive damages for fraud

Text: The trial court awarded $10,000 in actual damages and $100,000 in punitive damages against Mercantile and in favor of EA Financial Corporation on the latter's claim that Mercantile's conduct when it attempted to draw on the letters of credit was fraudulent. Mercantile contends that judgment should be reversed for want of proof of the essential elements of the claim. In their petition below, respondents alleged that on March 9, 1987, Mercantile undertook to present to Merchants Bank the documentation necessary to withdraw the credits under the two letters of credit Mercantile held, purportedly as transferee from KBDC. That action prompted respondents to seek the temporary restraining order, which the trial court ultimately converted into a permanent injunction, precluding Merchants Bank from paying out on the letters of credit. The actual damages to EA Financial Corporation were associated with fees and expenses incurred in obtaining the restraining order. Respondents contended, and the trial court found, that Mercantile's conduct with respect to the letters of credit was fraudulent. Without exploring all the elements of a fraud claim, it suffices to say that respondents alleged Mercantile's conduct to have been fraudulent because Mercantile was fully aware prior to March 9, 1987, of respondents' claims that Mercantile was not a transferee of the letters of credit, that KCA I and KCA III owed nothing to KBDC and hence the capital notes represented no liability as regarded a KBDC debt to Mercantile, and that any obligation owed KCA I and KCA III had been satisfied by payment of the notes to the partnerships. According to respondents, that information placed Mercantile on notice that a representation to Merchants Bank regarding overdue status of the capital notes, a condition to making a draw on the letters of credit, would be false. Among the elements of an action for fraud are, (1) a false, material representation, and (2) the speaker's knowledge of its falsity or his ignorance of its truth. Gast v. Ebert, 739 S.W.2d 545, 547 (Mo. banc 1987). The evidence in this case established that Mercantile's officer represented to the Merchants Bank that the debt on the capital notes was overdue. That representation was not made with the hindsight enhanced by the research subsequently made into the complexity of the transactions this opinion has explored, nor with the benefit of this opinion. At the time, Mercantile knew it held the letters of credit with amendments designating it beneficiary. It also had the capital notes on which payment had been demanded of the makers before any payments were made by them to KCA I and KCA III. Finally, it had disbursed loan proceeds in 1984 and 1986 without receiving any repayment. Virtually any hope of recovering any amounts from KBDC had ended. As this opinion has demonstrated, the complexities of the subject transactions have raised a number of intricate questions going ultimately to the decision of who bears the loss attributable to the failed Kroh Brothers ventures. Mercantile did act imprudently and contrary to good banking practice in many respects. The evidence does not, however, show that Mercantile knew its representations made to draw on the letters of credit were false, but rather that an arguable case could be made for indemnification. There was no proof of intent to deceive. The dispute could be and was legitimately entertained over rights to the credits. For this reason, the trial court improperly found for respondents on the fraud claim and allowed damages. This conclusion obviates the necessity to pursue other defects Mercantile asserts in respondents' fraud count.