Bank of New York v. University Partners, Ltd., Civ. No. 87-5113.
| Decision Date | 03 August 1989 |
| Docket Number | Civ. No. 87-5113. |
| Citation | 719 F. Supp. 1479 |
| Parties | BANK OF NEW YORK, Plaintiff, v. UNIVERSITY PARTNERS, LTD., et al., Defendants. |
| Court | U.S. District Court — Western District of Arkansas |
Larry W. Burks, William H. Sutton, Meredith P. Catlett, Friday, Eldredge & Clark, Little Rock, Ark., for plaintiff.
George E. Butler, Jr., Boyd D. Cox, Fayetteville, Ark., Douglas P. Ray, Moore & Peterson, Dallas, Tex., William Jackson Butt, II, Davis, Cox & Wright, Fayetteville, Ark., Thomas A. Connop, Locke, Purnell, Rain, Harrell, Joseph J. Leising, Receiver, MHM, Inc., Dallas, Tex., for defendants.
Pending before the court are various motions and cross-motions for summary judgment filed by the respective parties. Ultimately at issue is the right of the plaintiff, the Bank of New York (hereafter BONY) to judgment on a note, trust indenture, and loan agreement executed by defendants, University Partners, Ltd. (formerly University Hilton Partners, Ltd.) (hereafter University Partners), Sumner and Greener (a Texas general partnership), and Charles W. Greener and Alan R. Sumner, individually (hereinafter referred to collectively as Obligors).
The note and debt of the Obligors is secured by a lien on certain real and personal property constituting the Fayetteville Hilton Hotel. The trust indenture is a mortgage and lien on the Fayetteville Hilton. BONY seeks to foreclose on the Fayetteville Hilton pursuant to the terms of the trust indenture.
Defendant, Sunbelt Service Corporation, a Texas corporation (hereafter Sunbelt) and Edward Peterson, trustee, claim an interest in the Fayetteville Hilton pursuant to a deed of trust and a correction deed of trust filed subsequent to the trust indenture in favor of BONY.
Sunbelt disputes BONY's right to foreclose on the property and attacks the validity, priority and superiority of BONY's lien.
The following synopsis of the factual background is taken from the statements of uncontested facts filed by the parties, and the voluminous documentary evidence submitted in support of and in opposition to the various pending motions.
On November 13, 1979, the Board of Directors and Mayor of the City of Fayetteville, Arkansas, passed Resolution No. 110-79, authorizing the execution of a Memorandum of Intent involving the City of Fayetteville and Sumner and Greener, proposing that a hotel be acquired, constructed and equipped for the purpose of developing tourism and economic growth in Fayetteville and adjacent areas.
On April 15, 1980, the Board and Mayor of Fayetteville enacted Ordinance No. 2627, authorizing the issuance of $9,850,000 of "Tourism Revenue Bonds." Ordinance No. 2627 was amended by Ordinance 2770 on November 3, 1981, to provide for the issuance of Tourism Revenue Bonds in a principal amount not to exceed $10,000,000 amending the rate of interest on the bonds to a rate "not to exceed the maximum rate permitted by applicable law at the time of issuance."
On February 24, 1982, University Partners executed and delivered a promissory note in the principal amount of $10,000,000 payable to the order of BONY. The note provides, inter alia:
The note was executed by University partners in connection with the issuance of $10,000,000 in bonds by the City of Fayetteville. The interest and payment provisions of the bonds are identical to the terms of the note. Each bond provides:
This Bond is one of an issue of Bonds in the principal amount of $10,000,000 (the "Bonds") issued pursuant to the hereinafter described Act and to a Trust Indenture duly executed and delivered by the Issuer, Greener and Sumner Architects, Inc., a Texas corporation (the "Corporation"), Alan W. Sumner ("Sumner"), Charles R. Greener ("Greener"), Sumner & Greener, a Texas general partnership (the "General Partnership"), and the Borrower (identified below) to the Trustee and The Bank of New York, in its corporate capacity and not as Trustee (the "Bank") (the "Indenture") for the purpose of providing funds to refinance the cost of acquiring, equipment and constructing a certain site and building located thereon together with certain other property in connection therewith constituting tourism facilities (the "Project") and paying expenses incidental thereto, to the end that the Issuer may be able to promote the economic and general welfare within the City of Fayetteville, Arkansas....
As indicated, the bonds and the note are secured by the aforementioned Trust Indenture encumbering the Fayetteville Hilton. The Trust Indenture was filed for record on March 2, 1982. The loan agreement is dated January 1, 1982. The note is dated February 24, 1982.
The proceeds from the sale of the bonds were loaned to the Obligors under the note, Trust Indenture, and loan agreement as part of the financing for the construction of the Fayetteville Hilton. A Deed of Trust encumbering the property in favor of Sunbelt was filed for record on November 1, 1984, and a Correction Deed of Trust was filed on November 4, 1985. The Deed of Trust evidenced an agreement between University Partners and Sunbelt as part of University Partners' overall financing package.
Proceeds of the bonds in the amount of $9,709,557 were applied on March 4, 1982, to an interim construction loan issued by BONY. After application of the bond proceeds, in addition to the bond obligation of $9,709,557 there remained owing on the construction loan the sum of $283,925 plus construction interest of $692,904.
BONY initiated this foreclosure action on September 3, 1987, claiming a prior and superior lien on the Fayetteville Hilton. In the amended answer of Sunbelt and Peterson, these parties alleged that the bond issue was invalid, and therefore that BONY's mortgage was also not valid, making Sunbelt the superior lien holder. Additionally, Sunbelt alleged that the BONY debt was usurious, that the statute of limitations prevents BONY from maintaining an action against the Obligors, and that, as a result Sunbelt and Peterson may pursue any of their remedies unimpeded by any claim of BONY.
BONY subsequently filed a motion for Summary judgment and Sunbelt timely responded and filed a cross-motion for summary judgment. The issues have been fully briefed by the parties and the court is prepared to dispose of these motions.
The first issues that must be addressed is whether Sunbelt and Peterson have standing to challenge the validity of the bonds and whether the validity of the bonds is relevant to the validity of the Obligors debt to BONY.
BONY argues that Sunbelt and Peterson have standing to raise the issue of the validity of the bonds only as authorized by Article 16, § 13 of the Arkansas Constitution, which authorizes any citizen of a county, city, or town to challenge the enforcement of an "illegal exaction." BONY asserts that because no tax will be paid as a result of the bonds and because Sunbelt and Peterson are not citizens of Fayetteville, neither Sunbelt nor Peterson may challenge the validity of the bonds under Article 16, § 13.
Sunbelt and Peterson, in response, contend that BONY's "illegal exaction" argument is a smokescreen and that Sunbelt and Peterson have standing in this case by virtue of their status as a junior lienholder. Sunbelt and Peterson cite three Arkansas cases on this point. In Potter by Redden v. 1st National Bank, 292 Ark. 74, 728 S.W.2d 167 (1987), the Arkansas Supreme Court indicated that issues of standing are not to be narrowly or restrictively resolved. Other than that general rule of limited utility, Potter is not enlightening.
In Woods v. Bournes, 228 Ark. 540, 309 S.W.2d 309 (1958), the Arkansas Supreme Court quoted from 59 C.J.S., "Mortgages", § 146, as follows:
The right to contest the validity of a mortgage by way of defense or affirmative attack belongs not only to the mortgagor and those claiming under him, but also to third persons whose rights or interests are injuriously affected by the mortgage, such as junior mortgagees, or other creditors whose rights or interests are injuriously affected by an invalid mortgage.
The facts in Woods are particularly unlike those presented here. In Woods, Woods sold a tractor to Bournes for $1250. Bournes executed two notes in that amount payable to Woods. One note was signed only by Augustine Bournes. The other was signed by Augustine and Hazel Bournes and was secured by a mortgage on 100 acres of land. There was only one debt of $1250.00. Augustine Bournes died and Woods filed suit to foreclose the mortgage on the land naming Hazel Bournes and the administrator and heirs of Augustine Bournes as defendants, as well as Dismang, a purchaser of the land from James Bournes who also held a mortgage on the land and who had foreclosed without making Woods a party.
After the notes and mortgage in favor of Woods were executed, Woods repossessed the tractor. In Woods' suit, all defendants contended that, in repossessing the tractor, Woods had cancelled the original debt with the result that there was no debt to be secured by the mortgage. The trial court held that the debt was cancelled. On appeal by Woods, ...
To continue reading
Request your trial
- Hill v. Lockhart, PB-C-88-376.
-
Karnes v. Marrow
...in installments, the statute of limitations runs against each installment from the time it becomes due. Bank of New York v. University Partners, Ltd., 719 F.Supp. 1479 (W.D.Ark.1989) [citing Linke v. Kirk, 204 Ark. 393, 162 S.W.2d 39 (1942) Here, the appellants point out that Robert's promi......