In re Title Guaranty Trust Co., 24205.

• Decision Date: 01 March 1938
• Docket Number: No. 24205.,24205.
• Citation: 113 S.W.2d 1053
• Parties: In re TITLE GUARANTY TRUST CO.
• Court: Missouri Court of Appeals

113 S.W.2d 1053

In re TITLE GUARANTY TRUST CO.

No. 24205.

St. Louis Court of Appeals. Missouri.

March 1, 1938.

Appeal from St. Louis Circuit Court; Frank C. O'Malley, Judge.

"Not to be published in State Reports."

Proceeding in the matter of the Title Guaranty Trust Company in liquidation, wherein Graham Farm, Inc., filed a claim against R. B. Hart, deputy commissioner of finance, as liquidator in charge, for certain rents and income from property. From a judgment denying its claim, claimant appeals.

Affirmed.

Charles A. Lich, of St. Louis, for appellant.

James V. Frank, of St. Louis, for respondent.

BECKER, Judge.

This is an action, in the matter of the Title Guaranty Trust Company, a corporation, in liquidation, seeking to establish a claim against the liquidator of the Title Guaranty Trust Company for certain rents and income from property in his charge known as the Graham Farm. Upon a hearing petitioner's petition was denied. After an unavailing motion for new trial, the petitioner appeals.

The following facts were stipulated and agreed to by and between the parties below:

In May, 1923, John M., James F., and Genevieve McK. Graham were the owners of property located in Cross county, Ark., known as the Graham Farm. They obtained a loan from the Commonwealth Farm Loan Company for $22,500, evidenced by forty-three serial notes of $500 each, payable five years after date. These notes were secured by a first mortgage on the Graham Farm.

The Commonwealth Farm Loan Company indorsed these notes without recourse, together with a guarantee of the payment of the notes, and an agreement to "promptly attend to the collection of interest and principal of said loan for the owner thereof, free of charge, and pay over same on surrender to it of the notes evidencing same."

As its fee or commission for making the above-mentioned loan, the Commonwealth Farm Loan Company took the Grahams' note for $843.75, secured by a second mortgage on the Graham Farm. This note for the commissions matured in May, 1925, and the Grahams having failed to pay the interest or the principal thereon, the Commonwealth Farm Loan Company filed foreclosure proceedings thereunder in the chancery court of Cross county, Ark., and as highest bidder bought in the property on May 22, 1926, at the sale of the property by special commissioner appointed by said court, and received a deed therefor, subject, of course, to the first mortgage, which deed was duly recorded. The Commonwealth Farm Loan Company thereupon quitclaimed the property to one William Healy, who acted as the straw man for the company. This deed was also recorded. Healy in turn quitclaimed the property back to the Commonwealth Farm Loan Company, but this deed was not recorded until October 4, 1926.

Shortly after the issuing of the notes aggregating the $22,500 loan secured by the first mortgage, the Grahams failed to pay the interest coupons and thereafter the Commonwealth Farm Loan Company paid the interest as it fell due. When the $22,500 loan fell due on May 22, 1928, the holders of the note consented to a five years' extension on the loan, and semiannual interest coupons for such extension were signed by William Healy.

All of the stock of the Commonwealth Farm Loan Company was owned by the Title Guaranty Trust Company, the directorate of both companies being identical with the exception of one director. In 1931, the Title Guaranty Trust Company was taken over for the purpose of liquidation by the commissioner of finance of the state of Missouri, and shortly thereafter the Commonwealth Farm Loan Company was placed in the hands of a receiver; the receiver R. B. Hart, deputy commissioner of finance, was also in charge of the liquidation of the Title Guaranty Trust Company.

After the affairs of the Commonwealth Farm Loan Company had been taken over by the court, Mr. Hart, as an officer of the federal court, and as agent of the finance department, operated the Graham Farm and collected the rents thereon for a part of the year 1931, and for all of the years 1932, 1933, and part of 1934, such rents totaling $3,807.45. On March 9, 1934, Hart, as receiver of the Commonwealth Farm Loan Company, deeded the Graham Farm to the Title Guaranty Trust Company, which deed was recorded October 8, 1934.

In October, 1934, the holders of the so-called Graham notes organized a corporation known as the Graham Farm, Inc., and exchanged their notes for stock in said corporation, said corporation being organized as a matter of convenience for the purpose of acquiring said notes from the several individuals so that the corporation could obtain the fee-simple title to said property for the benefit of said individuals in accordance with their respective interests, and on March 30, 1935, Graham Farm, Inc., as the owner of all of the notes aggregating the $22,500 loan, turned said notes over to Hart as deputy finance commissioner in charge of liquidation of the Title Guaranty Trust Company, in exchange for a quitclaim deed to the Graham Farm, authority for such transfer having been theretofore obtained from the circuit court of the city of St. Louis, Mo., in which court the liquidation of the Title Guaranty Trust Company was pending, said deed reciting that it was "being made by O. H. Moberly, Commissioner of Finance of the State of Missouri, as holder of the mortgage on said property, and in release thereof and satisfaction of said mortgage dated May 22, 1923."

The record further discloses that as early as November, 1931, shortly after the receiver had been appointed for the Title Guaranty Trust Company, certain holders of the notes making up the $22,500 loan on the Graham Farm had formed a note holders' committee, and that Hart, as receiver, in 1931, offered to turn over the farm to the note holders if they unanimously agreed upon such action. The note holders' committee, however, did not accept this offer, nor did it take steps to assert any claim to the accruing rents on the Graham Farm, nor move to foreclose, under the mortgage securing their notes. Only after the organization of Graham Farm, Inc., which became the holders of all the outstanding notes making up the original $22,500 loan, was the present petition filed for an order to require the liquidator of the Title Guaranty Trust Company to account for the rents and income collected from the Graham Farm during 1931, 1932, 1933, and 1934.

Appellant contends that the trial court erred in denying its claim for rents and income collected by the receiver of the Commonwealth Farm Loan Company from the Graham Farm during the years 1931, 1932, 1933, and 1934, contending that by the terms of the guarantee which was attached to all of the serial notes evidencing the original $22,500 loan to the Grahams, the Commonwealth Farm Loan Company constituted itself the agent of the owners and holders of said notes; and that when said Commonwealth Farm Loan Company bid in the Graham Farm at the foreclosure sale held under the second deed of trust (at a time when the owners of the property, namely, the Grahams, were in default in their payments under the first mortgage), the Commonwealth Farm Loan Company acquired title to the said farm in a trust capacity for the benefit of the holders of said serial notes; and that it breached its duty as such trustee in concealing from the holders of the notes the fact that it had acquired title to the Graham Farm, and by quitclaiming its interest in the property to William Healy and in obtaining a five years' extension on the $22,500 loan at maturity upon representation that the Grahams still owned the property but were not able to make payment of the principal at its maturity, and that therefore the title of the Commonwealth Farm Loan Company to the Graham Farm "became impressed with a trust in favor of the aforesaid note holders and their assignees, and that when the said property was acquired by the Title Guaranty Trust Company it acquired such property with full knowledge and information that said property was so impressed with a trust and did not acquire said property as holder in due course for value and without notice, but, on the contrary, by...