Clikas v. Steele

• Decision Date: 05 August 1971
• Docket Number: 1 Div. 658
• Parties: Christina Elizabeth CLIKAS and Emalyne Knoll Clikas v. Samuel S. STEELE, E. N. Merriwether, and Gulf Development Company, Inc., a Corporation.
• Court: Alabama Supreme Court

Page 575

251 So.2d 575

287 Ala. 270

Christina Elizabeth CLIKAS and Emalyne Knoll Clikas v. Samuel S. STEELE, E. N. Merriwether, and Gulf Development Company, Inc., a Corporation.

1 Div. 658.

Supreme Court of Alabama.

Aug. 5, 1971.

Gaillard, Wilkins & Smith, Mobile, for appellants.

Diamond & Lattof, Mobile, for appellees.

HARWOOD, Justice.

Suit below was on a promissory note, dated 31 July 1961, executed by Gulf Development Company, Inc., by E. N. Merriwether, and payable to Samuel S. Steele. On the back of the note is a more or less standard endorsement provision, and immediately following this provision appears the signature of E. N. Merriwether.

Below Merriwether's signature there is typed, 'Pay to the order of Christina Elizabeth Clikas and/or Emalyne Knoll Clikas,' with Samuel S. Steele's signature thereunder.

Gulf Development was sued as maker of the note, and Merriwether and Steele as endorsers thereon.

Some ten pleas were filed to the complaint. Plea 1 was a plea of the general issue. Demurrers were filed to the remaining pleas, that is, 2 through 10.

The court sustained the demurrers to all of the pleas except pleas 3, 4, 8, and 10, and as to these pleas the demurrers were overruled. These four pleas will be hereinafter set out when respectively discussed.

The plaintiffs filed a replication to plea 10, asserting that:

'1. Plaintiffs join issue with the defendant's plea,' and

'2. Plaintiffs aver that the defendant has not paid the balance due on the note of Dixie Engineering Company of Montgomery.'

Thereafter, the cause came on for hearing before the court sitting without a jury. After such hearing, the court entered two judgments, one in favor of the plaintiffs and against the defendants Gulf Development Company, Inc., and E. N. Merriwether, for the sum of $10,970.16, and a second judgment in favor of the defendant Steele.

The plaintiffs below have perfected this appeal from the judgment in favor of the defendant Steele.

Since the parties occupy the same position in this appeal that they did in the court below, we will continue to refer to the appellants as plaintiffs, and the appellee Steele as the defendant.

In the hearing below Tony M. Clikas testified that in the summer of 1960, as Chairman of the Loop Optimist Christmas Tree Committee, he had contacted Steele in reference to renting a lot controlled by Steele for the purpose of selling Christmas trees. During their conversation, Steele, who was a mortgage broker, suggested the purchase of a mortgage by Clikas, but Clikas told him he was unable at that time to purchase a mortgage.

According to Clikas, between July 1960 and July 1961, Steele attended a good many meetings of the Loop Optimist Club, either as a member, honorary member, or guest, and during this time Steele discussed with him several times the purchase of a mortgage.

In July of 1961, Clikas again contacted Steele in reference to renting the lot. Steele again initiated a discussion as to Clikas buying a mortgage, and sketched out on a pad the terms of the mortgage.

At this time Clikas reached an agreement with Steele to purchase a construction loan mortgage to be executed by Gulf Development Company or E. N. Merriwether, who apparently was principal owner of Gulf Development. Clikas knew at this time that Merriwether was considered of substantial financial worth.

Clikas was to pay $7,600.00 for an $8,000.00 mortgage and note, the $400.00 discount being because of the risk involved. The loan was payable in 120 days, and was to bear 6% Interest. The estimated return as computed by Steele was 22% On this particular mortgage.

Clikas instructed Steele that he wanted the note and mortgage to be in the names of 'Mrs. Emalyne K. Clikas and/or Miss Christina Elizabeth Clikas,' these parties being his wife and daughter. The money with which to purchase the mortgage belonged jointly to Clikas and his wife. His daughter Christina was 15 years of age at the time.

Either on 31 July 1961, or the day before, Clikas went to Steele's office to complete the purchase of the mortgage. He testified that at this time Steele had the note which had been endorsed by E. N. Merriwether. At his insistence, Steele also endorsed the note, and Clikas then wrote out a check payable to Title Insurance Company of Mobile, which company was to handle the closing of the transaction.

Clikas denied knowing that Steele was to receive a brokerage fee. He testified that he did not know that a portion of the purchase price money was to be held in escrow by Steele and disbursed to Gulf Development Company in installments upon receipt of F.H.A. approvals. He later testified otherwise to the effect that Steele was to hold all of the purchase price money back which was to be disbursed at Steele's discretion.

When the note was not paid after maturity, Tony Clikas and Steele engaged in a series of transactions extending over a period of several years, during which several extensions of time for the payment of the note were granted. Not until shortly before this suit was filed, and after an attorney was consulted, did the Clikases assert any liability on the note by Steele.

Payments were made by Steele to the plaintiffs, at first out of the escrow funds in his hands from the original loan, and later from amounts paid by Dixie Engineering Company, which company was under Merriwether's control.

It appears that in early 1964, Gulf Development Company developed severe financial difficulties. Steele devised a plan, agreed to by Merriwether, that Dixie Engineering Company would execute and deliver to Steele promissory notes payable to various holders of Gulf Development Company mortgages, including the plaintiffs.

Dixie's note, in the amount of $7,162.07, was payable to the plaintiffs pursuant to this plan. This note was delivered to Steele, and several payments were made thereon, the last being on 22 August 1965. These payments were forwarded to the plaintiffs.

The original mortgage was never cancelled of record, and the original note given by Gulf remained in possession of the plaintiffs and was never marked paid. The Dixie note remained in possession of Steele.

Mrs. Clikas testified that her husband represented her in business affairs and had full authority to act in her behalf.

Christina Clikas (now Currie) testified that her father had handled various business transactions for her, some while she was a minor, and she did not repudiate anything he had done while she was a minor, and now that she was of age she ratified anything he had done for her or in her name.

In his own behalf Steele testified that upon their meeting in 1960, when Clikas had come to him about obtaining the lot for the Optimist Club Christmas tree sale, he had inquired of Clikas if he was interested in buying a mortgage. Clikas told him he was not at that time interested.

At their second meeting in reference to obtaining the lot, he again asked Clikas if he was interested in buying a mortgage, and Clikas asked him if he was still handling Gulf Development mortgages.

He told Clikas what the yield would be on a Gulf Development mortgage, that is a little better than 22% On the money loaned counting the discount of $400.00. Steele's only interest in the transaction was a brokerage fee of 2% For selling a mortgage. He was in no way connected with Gulf Development Company.

He explained to Clikas that of the $7,600.00 purchase price of the $8,000.00 mortgage 50% Would be disbursed on the first F.H.A. inspection, and the remainder would be kept in escrow pending a second F.H.A. inspection when 25% Of the remaining escrow fund would be paid, and the remaining escrow balance would be paid on the final F.H.A. inspection.

After this conversation with Clikas, Steele called Gulf Development Company and they told him they would have a mortgage on Lot 92 available shortly and would let him know when they were ready to close the transaction so his client (Clikas) could bring in the funds.

Steele called Clikas on 30 July 1960, and Clikas came into his office on 31 July 1960.

At this time he asked Clikas who was to take title to the mortgage and note, and Clikas inquired how he normally handled such matters. Steele told Clikas he could make out the mortgage and note to whomsoever he wished--that one of his clients in purchasing mortgages had the mortgage and note made out to Steele in order that the client's name would not appear on the 'pink sheet,' (a report of various legal transactions and proceedings) and he would then assign the mortgage and note to whoever was designated. Clikas told him to handle it the way he had for his other clients. Clikas gave him the names of 'Christina Elizabeth Clikas and/or Emalyne Knoll Clikas' as mortgagees and payees, which were written out.

Clikas then executed his check in the amount of $7,600.00, payable to Title Insurance Company.

On that same day Steele took the check to the offices of Title Insurance Company to complete the transaction. He had neither the note nor the mortgage at this time.

Steele testified that he had been a mortgage broker and real estate broker for some years, but that he did not know at the time of the transaction that by placing his signature on the back of a note without limiting language that he thereby became legally bound to pay the note, though he was aware of this at the time of the trial.

The mortgage was made to Samuel S. Steele, as mortgagee, and the note secured by the mortgage named Steele as payee.

The closing of the transaction was handled by Charles Cunningham who at that time was attorney with the Title Insurance Company.

Cunningham testified he would not have delivered the mortgage and note to Steele until the proceeds of the mortgage were in his possession.

The records of Title Insurance Company (plaintiffs' Exhibit No. 7) showed that $7,600.00 had been paid to Title Insurance Company by Tony Clikas, and that a portion of these proceeds had been...