Black v. O'Haver, s. 76-1201
| Decision Date | 23 November 1977 |
| Docket Number | 76-1202 and 77-1195,D,Nos. 76-1201,No. 76-1202,s. 76-1201,76-1202 |
| Citation | 567 F.2d 361 |
| Parties | Kenneth E. BLACK et al., the Trustees of C. I. Mortgage Group, or their respective successors in office as Trustees, Plaintiffs-Appellees, v. Louis G. O'HAVER and Betty K. O'Haver, Defendants-Appellants in& 77-1195, Defendants-Appellees inNOAH BUILDERS, INC., Defendant-Third-Party Plaintiff-Appellant inefendant-Third-Party Plaintiff-Appellee in & 77-1195, and Curtis G. Newman (Third-Party Plaintiff) et al., Defendants-Appellees, v. STILLWATER NATIONAL BANK AND TRUST COMPANY, Third-Party Defendant-Appellee. , 76-1202 and 77-1195. |
| Court | U.S. Court of Appeals — Tenth Circuit |
James F. Davis, Oklahoma City, Okl. (S. Paul Hammons, Oklahoma City, Okl., on the brief), of Andrews, Mosburg, Davis, Elam, Legg & Bixler, Inc., Oklahoma City, Okl., for plaintiffs-appellees, Black, et al.
Winfrey D. Houston of Fitzgerald, Houston & Worthington, Stillwater, Okl., for O'Havers.
Robert H. Alexander, Jr., Oklahoma City, Okl. (Val R. Miller, Oklahoma City, Okl., on the brief), of Crowe, Dunlevy, Thweatt, Swinford, Johnson & Burdick, Oklahoma City, Okl., for Noah Builders, Inc.
W. Keith Thomas of Thomas, Hert & Anderson, Stillwater, Okl., for Stillwater National Bank and Trust Co.
Ronald D. Fulkerson, Oklahoma City, Okl., on the brief, for appellee, Milford W. Parker, d/b/a Parker Drywall Co.
Mitchell D. O'Donnell, Tulsa, Okl., on the brief, for appellee, Concrete Specialties of Tulsa, Inc.
Carroll F. Pope, Stillwater, Okl., on the brief, for appellee, Roy T. Hoke Lumber Company, Inc.
R. L. Hert, Jr., of Thomas, Hert & Anderson, Stillwater, Okl., on the brief, for appellees, the Quapaw Co. and Kerns Const., Inc.
Max E. Sater, Stillwater, Okl., on the brief, for appellee, Sam Short, d/b/a Short's Floor Covering.
Frank W. Davis, Guthrie, Okl., on the brief, for appellee, Turnkey Industries, Inc.
Before McWILLIAMS, BREITENSTEIN and BARRETT, Circuit Judges.
These consolidated appeals arise from a financial collapse involving a residential construction project. At issue is the liability of a construction company officer, the company's bank, and two guarantors of the company's obligations. Jurisdiction is based entirely upon diversity.
The facts as stated below were included in the special master's findings, as adopted by the district court:
In May of 1971, appellant O'Haver, together with two men named Head and Newman, organized appellant Noah Builders, Inc. (Noah). O'Haver, Head and Newman were directors, officers and shareholders of Noah. Noah was created solely for the purpose of building an apartment complex in Stillwater, Oklahoma. The project was dubbed "The Hacienda Apartments."
On July 7, 1971, Noah executed three instruments in favor of the trustees of C.I. Mortgage Group (CI), appellee. Under the Building Loan Note (Note), Noah borrowed money from CI to build the Hacienda project. The other two instruments were a Real Estate Mortgage (Mortgage) securing the Note, and a Building Loan Agreement (Agreement). Both the Agreement and the Mortgage contained terms, conditions and covenants relating to the loan and the construction of the Hacienda project.
In Paragraph Eleven (11)(d) of the Agreement, Noah covenanted that it would:
. . . cause the construction of the building and improvements to be prosecuted with diligence and continuity and complete the same, in accordance with the final plans and specifications . . . free and clear of liens or claims for liens for materials supplied and for labor or services performed in connection with the construction of the building and improvements . . .
Paragraph Nineteen (19) of the Mortgage provided that:
The Mortgagee (CI) may employ counsel for advice or other legal service at the Mortgagee's discretion in connection with any dispute as to the obligations of the Mortgagor (Noah) hereunder and under the Note and Building Loan Agreement hereby secured, or as to the lien of this instrument, or in any litigation to which the Mortgagee may be made a party on account of this lien or which may affect the title to the Premises or the validity of the indebtedness hereby secured, and any reasonable attorneys' fees so incurred shall be added to and be part of the debt hereby secured . . .
In their individual capacities, and in order to induce CI to make the loan to Noah as approved, O'Haver, Head and Newman, together with appellant Mrs. O'Haver and Mrs. Head, executed a Guaranty of Completion (Guaranty) in favor of CI. The second and third paragraphs of the Guaranty are central to our determination:
2. The undersigned unconditionally guarantee to the Trust (CI) the due performance of all the Borrower's (Noah's) obligations under the Building Loan Agreement and the Mortgage . . . including the Borrower's obligation for the payment of all legal and other costs and expenses paid or incurred by the Trust in the enforcement thereof against the Borrower or the undersigned.
3. The liability of the undersigned under this Guaranty shall be unaffected by (i) any amendment or modification of the provisions of the Building Loan Agreement, Mortgage or any other instruments made to or with the Trust by the Borrower . . . or (iii) the release of the Borrower from performance or observance of any of the agreements, covenants, terms or conditions contained in any of the said instruments by operation of law . . . Each of the undersigned . . . agrees that any payments required to be made by them hereunder shall become due on demand in accordance with the terms hereof immediately upon the happening of a default under either the Building Loan Agreement or the Mortgage and each of them expressly waives and relinquishes all rights and remedies accorded by applicable law to guarantors.
Noah's board of directors authorized O'Haver and Head to engage in banking transactions for and on behalf of Noah. During July, 1971, O'Haver or Head, or both, opened two accounts at the Stillwater National Bank and Trust Company (Bank). The first account was originally in Noah's name, but the account name was soon changed to read "Head Construction, Hacienda Apts. Project." The second account, opened later in the month, was and remained in Noah's name.
Beginning in July, 1971, and continuing for almost one year, CI advanced loan money to the Bank with instructions that it be deposited to Noah's account. O'Haver and Head, in their capacities as Noah officers, instructed the Bank to deposit each of the advances received from CI to the Head Construction account, and the Bank did so. The advances from CI were, in that manner, diverted from the Noah account.
Construction of the Hacienda project was begun in July, 1971. From then until early July, 1972, O'Haver and Head were in complete active control of Noah and the project. From early July, 1972, through most of August, 1972, O'Haver, Head and Newman each exercised some control over Noah. From August 24, 1972 and thereafter, Newman was in complete active control of Noah.
After June 7, 1972, CI stopped advancing loan money because construction of the Hacienda project had not progressed quickly enough. CI and Noah, acting through Newman, amended the Building Loan Agreement. CI waived one clause in the Agreement and made additional advancements to Noah. In consideration of these acts, Noah paid CI a $12,000 fee.
Newman began an investigation of the application of funds previously advanced by CI and deposited, as we have seen, to the wrong account. Discussions among Newman, O'Haver and Head led to a written agreement in which O'Haver and Head acknowledged their debt to Noah for amounts diverted from the Noah account. O'Haver and Head executed promissory notes in favor of Noah. They also assigned their Noah stock interests and incident voting rights to Newman pending satisfaction of the debt. O'Haver sought to pay off his debt by discharging or assuming certain lienable claims incurred by Noah in constructing the Hacienda project.
CI made its last advance on the Noah loan on October 20, 1972. The Hacienda project was still unfinished when CI instituted foreclosure proceedings on March 12, 1973. CI in a separate cause of action sued the O'Havers, the Heads and Newman on the Guarantee for the amount required to complete construction of the Hacienda project as contemplated in the Agreement. Several unpaid mechanics and materialmen filed liens against the property. Noah and Newman filed cross-claims against O'Haver and Head, as well as third-party complaints against the Bank. A receiver chosen by CI took control of the Hacienda project and completed its construction.
The district court referred the case to a special master for hearing. The master's report setting forth findings of fact and conclusions of law was adopted by the court with few modifications. The district court's Journal Entry of Judgment provides, inter alia :
1. That the Mortgage be foreclosed and the Hacienda project sold to satisfy the judgments of CI and the mechanics and materialmen against Noah;
2. That CI recover judgments against the O'Havers on the Guaranty for:
(a) the costs of completing the Hacienda project;
(b) the costs and expenses of CI's receiver;
(c) the sum of judgments in favor of mechanics and materialmen, and attorneys' fees allowed in connection with those judgments;
(d) the amount allowed as CI's attorneys' fees,
such judgments to be enforceable to the extent that proceeds from the sale of the Hacienda project are inadequate to reimburse CI for such amounts;
3. That the mechanics and materialmen recover judgments against O'Haver as a "managing officer" of Noah, for the amount of their lienable claims and attorneys' fees, such judgments to be enforceable to the extent that proceeds from the sale of the Hacienda project are insufficient to satisfy the judgments;
4. That Noah recover judgment from O'Haver for the amount...
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