Austin Apparel, Inc. v. Bank of Prattville

• Decision Date: 21 February 2003
• Citation: 872 So.2d 158
• Parties: AUSTIN APPAREL, INC. v. BANK OF PRATTVILLE n/k/a Whitney National Bank, and Southern Industries of Clover, Ltd.
• Court: Alabama Court of Civil Appeals

872 So.2d 158

AUSTIN APPAREL, INC. v. BANK OF PRATTVILLE n/k/a Whitney National Bank, and Southern Industries of Clover, Ltd.

2010292.

Court of Civil Appeals of Alabama.

February 21, 2003.

Rehearing Denied May 2, 2003.

J. Knox Argo, Montgomery, for appellant.

Kimberly G. Kervin of Kervin & Cook, L.L.C., Prattville, for appellee Bank of Prattville n/k/a Whitney National Bank.

J. Robert Faulk of McDowell, Faulk & McDowell, L.L.C., Prattville, for appellee Southern Industries of Clover, Ltd.

MURDOCK, Judge.

This case arose out of an interpleader action filed in the Autauga Circuit Court by the Bank of Prattville n/k/a Whitney National Bank ("the Bank") for the disbursement of what the Bank determined to be excess sales proceeds the Bank received when it foreclosed on a mortgage lien against real property owned by Gurney Industries, Inc. ("Gurney"), and sold the real property (located in Autauga County) that had secured the mortgage.

The record reveals the following facts. It is undisputed that the Bank held the first mortgage on the property and that Southern Industries of Clover, Ltd. ("Southern Industries"), held a mortgage on the property subordinate to the Bank's mortgage. There were a number of judgment lienholders, including Austin Apparel, Inc. ("Austin Apparel").

On June 17, 1999, the Bank conducted a foreclosure sale on the steps of the Autuaga County courthouse; the property was sold at the sale for $190,000. On July 12, 1999, the Bank filed a "complaint for interpleader" and deposited with the court $120,211.70¹ of the proceeds from the foreclosure sale. The Bank retained the remaining sales proceeds after having determined that, pursuant to the terms of the loan documents (i.e., the mortgage, the loan agreement, and the promissory note), the Bank was owed principal in the amount of $56,939 (which included a payment of $16,939 to Goodwyn, Mills & Cawood Environmental Consultants, Inc. ("GM & C Environmental Consultants"), for an environmental study); interest; attorney fees; and publication expenses.

On August 2, 1999, Southern Industries filed a "motion for a judgment on the pleadings," claiming that it was owed $119,214. Southern Industries arrived at $119,214 as follows: principal in the amount of $115,629; attorney fees in the amount of $3,500; and an abstract cost in the amount of $85. On November 9, 1999, the trial court entered a judgment in favor of Southern Industries in the amount of $115,629, and ordered the court clerk to pay Southern Industries $116,629.² In its judgment, the trial court reserved the issue of attorney fees and costs.

On June 12, 2000, the trial court held a hearing on the issue of whether Southern Industries should be paid attorney fees out of the sales proceeds. At the hearing, the parties stipulated to the admission of the loan documents and submitted the following written stipulation to the court:

"(1) ... [The] Bank ... foreclosed a mortgage on June 17, 1999, which had been given from Gurney ... to the Bank....

"(2) ... Southern Industries ..., which holds a second mortgage subordinate to the Bank['s] ... mortgage, claims that it is owed certain attorney fees and an abstract cost out of the excess funds now being held by the Bank ... from said foreclosure sale, and that said attorney fees and abstract costs are secured by the second mortgage from Gurney ... in favor or Southern Industries....

"(3) The mortgage from Gurney ... in favor of Southern Industries ... has never been foreclosed."

The record does not include a transcript of the hearing. The court entered a judgment in favor of Southern Industries on June 12, 2000, and awarded it $3,585 as attorney fees.³ The judgment entered on the case action summary sheet stated:

"Case called on issue of attorney fee issue for 2nd [mortgage] holder who did not foreclose, parties stipulated as to documents, identified by party and their date. Stipulation entered in writing. Issue submitted. Upon hearing the stipulation and review of the exhibits, Court determines the attorney fee awarded to Southern Industries ... to be $3585 and same to be appropriate under the mortgage and note."

Austin Apparel filed a counterclaim to determine whether the Bank was entitled to charge against the sales proceeds the full amounts the Bank claimed it was owed pursuant to the loan documents. On November 19, 2001, the trial court held a hearing on, among other things, the appropriateness of the Bank's charging against the sales proceeds the sum of $16,939 for an environmental study. At the hearing, the parties stipulated to, among other things, the admission of the loan documents. Two witnesses testified regarding the environmental study: (1) Myron Smith, the attorney who had represented the Bank regarding this matter until just before the hearing when he withdrew as counsel after it was determined that he would be a witness at the hearing; and (2) Galen Thackston of GM & C Environmental Consultants.

The testimony and other evidence presented at the hearing established the following facts regarding the environmental study. After Gurney had defaulted on the note, the Bank retained Smith to collect the indebtedness and to foreclose on the mortgage lien, if necessary. The Bank gave Smith what the parties referred to as a "phase-one" environmental study, which Smith testified "was basically a walk-through examination of the collateral which indicated the probability of hazardous material contaminants throughout the collateral." Smith testified that the Bank requested his advice "as to whether [the] Bank ... could call on ... [Gurney] to move forward with a phase two environmental impact study for the purpose of determining ... the extent of contamination and the probable cost of correcting or repairing the collateral, eliminating the hazardous materials from the collateral."

After reviewing the loan documents, Smith advised the Bank that the loan documents authorized the Bank to call upon Gurney to pay for a phase-two environmental-impact study. Smith testified:

"I read all of those paragraphs [referring to certain paragraphs in the loan documents]. The paragraph to me indicated that, number one, the borrower promised that there would be no toxic waste to begin with and there wouldn't be any in the future, and to correct any defects in the collateral which were referred to under the concepts of repairs, in my estimation. It appeared to me that the [B]ank upon notice that there is toxic—apparent toxic waste on the property was within its rights to demand of the debtor the phase two environmental impact study to help everyone who was interested in this property figure out to what extent it has been contaminated and what's going to be the expected dollar cost of cleaning it up."

The pertinent sections of the loan documents discussed by Smith at the hearing and/or the parties in their briefs on appeal are:

"MORTGAGE

"1. OBLIGATIONS. This Mortgage shall secure the payment and performance of all present and future indebtedness, liabilities, obligations and covenants of Borrower or Mortgagor (cumulatively `Obligations') to Lender pursuant to:

"(a) this Mortgage and the following promissory notes and other agreements:...

"(b) all other present or future, written agreements with Lender which refer specifically to this Mortgage (whether executed for the same or different purpose than the foregoing);

"....

"(e) all amendments, extensions, renewals, modifications, replacements or substitutions to any of the foregoing.

"2. REPRESENTATIONS, WARRANTIES AND COVENANTS.

"....

"(b) Mortgagor is in compliance in all respects and with all applicable federal, state and local laws and regulations, including, without limitation, those relating to `Hazardous Materials,' as defined herein and other environmental matters.... Neither Mortgagor nor, to the best of Mortgagor's knowledge, has any other party used, generated, released, discharged, stored, or disposed of any Hazardous Materials, in connection with the Property or transported any Hazardous materials to or from the Property. Mortgagor shall not commit or permit such actions to be taken in the future....

"....

"(f) Mortgagor has not violated and shall not violate any statute, regulation, ordinance, rule, or law, contract, or other agreement (including, but not limited to, those governing Hazardous Materials) which might materially affect the Property or Lender's rights or interests in the Property pursuant to this Mortgage.

"....

"9. USE AND MAINTENANCE OF PROPERTY. Mortgagor shall take all actions and make any repairs needed to maintain the Property in good condition. Mortgagor shall not commit or permit any waste to be committed with respect to the Property....

"10. LOSS OR DAMAGE. Mortgagor shall bear the entire risk of any loss... or damage (cumulatively `Loss or Damage') to the property from any cause whatsoever. In the event of any Loss or Damage, Mortgagor shall, at the option of Lender, repair the affected Property to its previous condition or pay or cause to be paid to Lender the decrease in the fair market value of the affected Property.

"....

"15. INDEMNIFICATION. Lender shall not assume or be responsible for the performance of any of Mortgagor's obligations with respect to the Property under any circumstances. Mortgagor shall immediately provide Lender with written notice of and indemnify and hold Lender ... harmless from all claims ... pertaining to the Property (including, but not limited to, those involving Hazardous Materials).... In the alternative, Lender shall be entitled to employ its own legal counsel to defend the Claims at Mortgagor's cost. Mortgagor's obligation to indemnify Lender under this paragraph shall survive the termination, release or foreclosure of this Mortgage.

"....

"20. RIGHTS OF LENDER ON DEFAULT. If there is a default under this Mortgage, Lender shall be entitled to exercise one or more of the following remedies without notice or demand (except provided by

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