Bowman v. Reyburn

• Decision Date: 29 April 1946
• Docket Number: 15300.
• Citation: 170 P.2d 271,115 Colo. 82
• Parties: BOWMAN et al. v. REYBURN et al.
• Court: Colorado Supreme Court

170 P.2d 271

115 Colo. 82

BOWMAN et al. v. REYBURN et al.

No. 15300.

Supreme Court of Colorado, en Banc.

April 29, 1946

Rehearing Denied June 3, 1946.

Error to District Court of City and County of Denver; Robert W Steele, Judge.

Suit by Dorothy Bowman and others against Roscoe Reyburn and others for specific performance of a contract. To review an adverse judgment, plaintiffs bring error.

Affirmed.

BAKKE and BURKE, JJ., dissenting.

Max P Zall, of Denver, for plaintiffs in error.

A. R Morrison and Ralph L. Carr, both of Denver, for defendants in error.

STONE Justice.

William N. Bowman was a Denver architect. His wife Alice became the owner of all capital stock of The Norman Apartments, Inc., which held title to an apartment building in Denver, subject to a first mortgage of $244,000 and a second mortgage of $49,500. Defendant Reyburn was a Kansas City contractor. Bowman and Reyburn together planned to construct a second apartment building on property adjoining that occupied by the first, and in November 1928 they entered into an agreement whereunder Reyburn was to advance money to Bowman for payment of defaulting taxes and interest and other pressing financial obligations and be secured by Mrs. Bowman's capital stock in The Norman Apartments, Inc., and other agreed collateral. Pursuant to such agreement Reyburn advanced in excess of $50,000. Included in these advances was the sum of $11,000 paid by Reyburn on March 7, 1929, to purchase Bowman's note then outstanding, secured by part of the second mortgage bonds of The Norman Apartments, Inc. Upon such purchase Bowman executed a new note to Reyburn for $11,000 maturing on the first day of July 1929 and secured by $26,000 face value of the bonds. Bowman defaulted in payment and, approximately a year after the maturity of the note, Reyburn advertised the collateral for sale. Bowman attempted by suit to enjoin the sale, then by agreement it was postponed to the 20th day of August, 1930, and the bonds were then bid in for $1,100 by one Baker who thereafter transferred them to Rockhill Realty Company which turned them over to Rockhill Improvement Company on May 30, 1935.

Meantime, Bowman had defaulted in payments under the first mortgage obligation on the apartment house property and in December 1932 the trustee for the first mortgage bondholders started foreclosure. Thereafter, notwithstanding numerous disagreements, Bowman and Reyburn worked together to delay the foreclosure, Bowman's suit against Reyburn was later dismissed for want of prosecution and on June 29, 1935, the two men met in Denver and entered into the contract (Plaintiff's Exhibit C) of which specific performance is sought in this action. It was written by Reyburn's attorney, in long hand, at the hotel room where they conferred, and provided as follows:

'First:--That a petition under section 77B shall be prepared and presented by the corporation known as The Norman Apartments, Inc. for reorganization as soon as same can be reasonably prepared.

'Second:--That the undersigned will work together for a reduction of the First Mortgage loan to the lowest point possible.

'Third:--The stock of a new corporation shall be issued one-half to Mr. Roscoe Rayburn and one-half to Miss Dorothy Bowman.

'Fourth:--That one-half of the net income, over and above the First Mortgage requirements shall be declared as dividends and paid to Roscoe Rayburn; the other half shall be declared as dividend on stock issued to Dorothy Bowman but shall be paid to Roscoe Rayburn until he shall receive therefrom the sum of Fifty Thousand Dollars ($50,000.00) at which time all the stock standing in the name of Roscoe Rayburn will be, without further payment, assigned by him to Dorothy Bowman or such party or parties as she may direct.

'Fifth:--As soon as the reorganization is completed as above provided, Mr. Rayburn will, in consideration of the stock and agreements above mentioned surrender all of the Bonds, Notes or other evidences which he has in his possession to Mr. and Mrs. W. N. Bowman, or the old corporation, or such other party as he may direct.

'Sixth:--That Mr. Bowman or his family be allowed to retain his present apartment (No. 102) without payment of rental and also storage in garage.'

Pursuant to the provisions of this pitifully meager agreement, there were negotiations and correspondence in which Bowman, Reyburn, and their attorneys participated, as a result of which on September 19, 1935, a petition was filed in the name of The Norman Apartments, Inc., for leave to reorganize under section 77B of the United States bankruptcy laws, 11 U.S. C.A. § 207. Under this petition there were submitted three alternative plans for compromise of the first mortgage bonds, second mortgage bonds and all other outstanding debts. None of these plans was approved by the first mortgage bondholders and the apartment property went to sale under foreclosure on October 14, 1935, whereat a representative of the bondholders' committee bid in the property for the sum of $164,000. After it became apparent that no reorganization was possible, and the property had been sold under foreclosure, there were discussions by Reyburn and Bowman as to the possibility of redemption from the foreclosure sale in behalf of the second mortgage bondholders and as to procuring a loan sufficient to pay the amount for which the property was bid in, as well as with reference to agreement as to expense and method of procedure and reorganization, as to protection of Reyburn and as to ultimate ownership of the stock in the company which, in the event of redemption, should hold title to the equity in the apartment building. Englander, the manager of the apartment property, assisted in the efforts to save the property and to compose the differences between Bowman and Reyburn. In December 1935, Englander bought some of the second mortgage bonds of the face value of $8,500 which he turned over to Reyburn and the latter sold half of them to Bowman at the price paid, to wit, $425. They were apparently taken in the name of Bowman's daughter, Dorothy. Both Reyburn and Englander testified that when this sale was made they had come to a verbal understanding evidenced by pencil notations made on a copy of the old agreement of June 29, and that only upon approval of the contract as so modified would Reyburn agree to such sale, but when attempt was made to prepare a formal contract on the basis of those notations Bowman refused to sign. Bowman thereafter repeatedly insisted that no new agreement was necessary and that he was still acting under the old agreement of June 29, 1935, and demanded performance thereunder by Reyburn. On the second day of January 1936, without consultation with Bowman, a plan for redemption was filed in the name of the Rockhill Improvement Company as a second mortgage bondholder, providing in brief for procuring a new mortgage to pay the amount bid at the sale by the first mortgage bondholders and the organization of a new company to hold title subject to such new mortgage; the stock of the new company to be accepted by the second mortgage bondholders in proportion to their holdings and in satisfaction of their bonds. Of the $49,500 second mortgage bonds outstanding, more than two-thirds were deposited with the referee in bankruptcy as approving the plan, to wit: $26,000 held by Rockhill Improvement Company, $2,000 of Reyburn's part of the $8,500 which had been bought through Englander, and all or part of $11,500 of the bonds which were later acquired and deposited by Englander. About May 1, 1936, this plan was approved by the federal court. Then Reyburn and Englander procured a mortgage loan with which to carry it into effect and a new corporation (defendant in error The Norman, Inc.) was organized and its corporate stock tendered to the holders of the second mortgage bonds, including stock to Dorothy Bowman on the basis of the $4,250 face value of the bonds purchased by her father from Reyburn for $425. In February 1936, Bowman filed petition in bankruptcy, listing his notes to Reyburn, but not the contract nor the balance of his debt to Reyburn not evidenced by notes. Thereafter the Bowmans made demand for an accounting and performance of the agreement of June 29, 1935, and upon refusal thereof filed this action on January 10, 1941, for specific performance of that contract, contending that the Rockhill Improvement Company, which filed petition for redemption, was owned and controlled by the defendant Reyburn and that the redemption as carried out was a reorganization as contemplated by their agreement of June 29, 1935. These contentions were put in issue by defendants' answer, and, after trial on the merits, the court below determined that the weight of the evidence is to the effect that the contract sued upon here was at an end when the plan of reorganization first presented to the Federal Court failed of adoption, and that there is no equity in the bill. Accordingly, it found the issues in favor of defendants.

It is first contended that the court below erred in holding that the burden of proof rested on plaintiffs. On June 29, 1935, when the contract was made, Bowman was the owner of the corporate stock of The Norman Apartments, Inc., which, however, was pledged to Reyburn to secure his advances. Bowman's $26,000 of second mortgage bonds had already been sold and were held by Rockhill Improvement Company. The other second mortgage bonds were held by numerous parties and Bowman had no interest in the property or hope of recovery except through such reorganization as would give some value to his capital stock. The one method of reorganization which could avail Bowman was through such compromise and adjustment of the mortgages and debts...