Globe Iron Const. Co. v. First Nat. Bank of Boston

• Citation: 140 S.E.2d 629,205 Va. 841
• Parties: GLOBE IRON CONSTRUCTION COMPANY, Incorporated, v. The FIRST NATIONAL BANK OF BOSTON and Frank W. Rogers and Leonard G. Muse, Receivers of Towers Shopping Center, Incorporated.
• Decision Date: 08 March 1965
• Court: Supreme Court of Virginia

Page 629

140 S.E.2d 629

205 Va. 841

GLOBE IRON CONSTRUCTION COMPANY, Incorporated, v. The FIRST NATIONAL BANK OF BOSTON and Frank W. Rogers and Leonard G. Muse, Receivers of Towers Shopping Center, Incorporated.

Supreme Court of Appeals of Virginia.

March 8, 1965.

E. Griffith Dodson, Jr., Roanoke (Dodson, Pence & Coulter, Roanoke, on the brief), for appellant.

Frank W. Rogers, John L. Walker, Jr., Roanoke (Woods, Rogers, Muse & Walker, Roanoke, Lyne, Woodworth & Evarts, Boston, Mass., on the brief), for appellees.

Before EGGLESTON, C. J., and SPRATLEY, BUCHANAN, SNEAD, I'ANSON and CARRICO, JJ.

EGGLESTON, Chief Justice.

The First National Bank of Boston filed its bill in the court below, alleging that Times-World Corporation had leased certain land in the city of Roanoke to Towers Shopping Center, Incorporated, on which the latter had agreed to construct a shopping center at a cost of at least $2,500,000; that the bank had entered into an agreement with Towers to make a construction loan of $3,000,000 on the property; that pursuant to this agreement Towers had executed and delivered to the bank three notes, payable to the bank, in the principal sums of $2,500,000, $500,000, and $500,000, respectively, each bearing interest at the rate of 6 1/2% per annum, and secured by first, second and third lien deeds of trust, respectively, on the property; that at the time of the filing of the bill the bank had advanced $3,199,154.38 toward the cost of the construction of the building; that the building had been substantially completed, and that numerous mechanics' liens had been filed thereon, including one of Globe Iron Construction Company, Incorporated, for $91,050.18.

The bill further alleged that under the provisions of the first lien deed of trust the bank had the right to make available to the trustees named therein 'the necessary funds for the satisfaction of all present and potential mechanics' liens and to have the amounts so advanced become a part of the debt secured by the first mortgage, with interest as therein provided.'

The prayer of the bill was that the trustees in the three deeds of trust be appointed as receivers of Towers; that all present and potential lien creditors of Towers be convened, and the amounts and priorities of their several liens ascertained.

Numerous mechanics' lien creditors, including Globe, were made parties defendant to the bill. Globe filed an answer in which it prayed for the satisfaction of its lien. It admitted the allegation in the bill that under the provisions of the first mortgage the bank had the right to make available to the first mortgage trustees the necessary funds for the satisfaction of all present and potential mechanics' liens and to have the amounts so advanced become a part of the debt secured by the first mortgage.

Later Globe filed a petition in the proceeding, alleging that it had furnished and erected all of the structural steel required for the construction of the building at an agreed price of $481,050.18; that it had been paid on account the sum of $390,000, leaving a balance due it of $91,050.18, with interest thereon from January 15, 1961, and that it had filed a mechanic's lien on the property to secure the payment of this amount. It prayed for the enforcement of its lien and the payment of the balance due it, with interest thereon as stated.

The matter was referred to a special master to ascertain and report inter alia the liens on the property and their priorities. During the course of the proceedings, without objection, the lower court directed the payment out of the proceeds of the construction loan made by the bank of various mechanics' liens in the total amount of $468,260.50, with interest, which were held to be prior to the liens of the three deeds of trust held by the bank. It was further decreed that the indebtedness secured by the first lien deed of trust was, according to its terms, increased by the amount of such payments. Among the mechanics' liens so paid was that of Lublin, McGaughy & Associates, architects, for $42,102.03, of which more will later be said.

In due course the special master heard the evidence on the claim of Globe for the enforcement of its mechanic's lien. At this hearing counsel for the bank took the position that according to the terms of a subordination agreement executed by Globe, Globe had agreed to subordinate its mechanic's lien to the liens of the first two deeds of trust held by the bank securing indebtednesses of Towers for $2,500,000 and $500,000, respectively, and all additional indebtednesses of Towers thereby secured. Globe took the position that this agreement had been executed by it upon the express understanding that its mechanic's lien was to be subordinated only to the total principal indebtedness of $3,000,000 secured by the first two deeds of trust.

The special master reported that Globe was entitled to a mechanic's lien against the property in the sum of $91,050.18, with interest thereon from January 15, 1962, but that pursuant to the terms of the subordination agreement executed by Globe, in which there was 'no ambiguity or uncertainty,' its lien was subordinated to the liens of the first two deeds of trust held by the bank 'and to all debts held to be secured thereby,' without limitation to the total of $3,000,000 as contended for by Globe.

The special master further held that it was 'neither necessary nor appropriate, for a determination of the matters in dispute between Globe and the bank, to consider the previous disposition by the court of the claim of Lublin, McGaughy & Associates.'

From a decree overruling its exceptions to the report Globe has appealed. Specifically, it contends:

(1) Construed in the light of the evidence surrounding the execution of the subordination agreement, Globe did not thereby agree to subordinate its claim to more than $3,000,000, that is, the principal amount of the two notes of $2,500,000 and $500,000 secured by the first and second lien deeds of trust.

(2) The mechanic's lien claim of Globe is entitled to priority equal to that of the architects, Lublin, McGaughy & Associates, which was paid although those claimants had signed a subordination agreement similar in terms with the agreement signed by Globe.

(3) The lower court erred in confirming the report of the special master holding that interest on Globe's claim of $91,050.18 ran from January 15, 1962 instead of from January 15, 1961.

At the time of the execution of the subordination agreement on August 2, 1961, Towers was indebted to Globe in the sum of $481,050.18 for structural steel furnished and work done on the building. Towers was then in financial difficulties and was being pressed by Globe for payment of the account.

Arthur Peregoff, secretary and treasurer of Globe, testified that on July 31, 1961, he received a telephone call from L. T. Zoby, president of Towers, who was then in Boston trying to negotiate a construction loan on the building from The First National Bank of Boston. Zoby told Peregoff that he could secure such a loan from the bank, out of which Globe would be paid 'around $300,000 immediately,' provided Globe would sign a subordination agreement. Peregoff said that he had never heard of a subordination agreement. When he asked Zoby what the term meant, Zoby put on the telephone a representative of the bank who undertook to explain the meaning of the term.

Peregoff further testified that in the course of the conversation the representative of the bank 'indicated' that the bank was prepared to advance Towers the sum of $2,500,000, and to protect itself 'further' would have a second deed of trust of $500,000, 'so that I would be subordinating to $3,000,000.' Zoby supplemented this statement by explaining to Peregoff that Globe would subordinate its lien to two liens of the bank for $2,500,000 and $500,000, respectively. Peregoff told Zoby that he would have to discuss the matter with Globe's local attorneys.

The proposed subordination agreement was prepared in Boston and forwarded either to Globe's office at Norfolk or to its attorneys there. Presumably, Peregoff revealed to counsel for Globe his conversation with Zoby and the representative of the bank as to the terms of the proposed agreement. So far as the record shows, no question was raised as to whether the draft of the agreement was in accordance with this understanding

In any event, upon the advice of Globe's counsel, it was decided that the agreement should be executed and delivered in return for the largest possible cash payment which could be...