J. H. Morris, Inc. v. Indian Hills, Inc.

• Citation: 212 So.2d 831,282 Ala. 443
• Parties: J. H. MORRIS, INC. v. INDIAN HILLS, INC., et al. I Div. 416, 417.
• Decision Date: 27 June 1968
• Court: Supreme Court of Alabama

Page 831

212 So.2d 831

282 Ala. 443

J. H. MORRIS, INC. v. INDIAN HILLS, INC., et al.

I Div. 416, 417.

Supreme Court of Alabama.

June 27, 1968.

Rehearing Denied July 25, 1968.

Kilborn, Darby & Kilborn, Mobile, for appellant.

Caffey, Gallalee, Edington & Loveless, Mobile, for appellee Ripps.

Lyons, Pipes & Cook, Mobile, for Indian Hills.

COLEMAN, Justice.

Complainant appeals from decrees declaring that a mortgage held by one of the respondents was superior to and took precedence over a mortgage held by complainant on the same land. The correctness of this ruling is the principal question for decision.

Complainant is J. H. Morris, Inc., a corporation, hereinafter referred to as Morris. The president is J. H. Morris. He will be referred to as J. H. Morris.

On this appeal, the contest is between complainant and the respondent, Meyer A. Ripps.

Another respondent is Indian Hills, Inc., a corporation, referred to as Indian Hills. The respondent, Huston Carter, is president of Indian Hills and acted for it in the transactions here involved.

The other respondent is Estates Development Corporation, referred to as Estates.

All parties, natural and corporate, apparently reside in Mobile County.

Complainant averred in its amended bill that Ripps owned certain land in Mobile County; that in early 1960 Ripps and Carter caused Indian Hills to be incorporated so that Ripps, by controlling Indian Hills, could use it to subdivide land for residential purposes and sell it so as to enjoy the benefit of capital gains treatment in the sale of the land; that the capital of Indian Hills was at all times monies advanced by or for the benefit of Ripps; that, by deed dated August 3, 1962, Ripps conveyed to Indian Hills 19.6 acres of his land; that simultaneously Indian Hills executed to Ripps a purchase money mortgage for the purchase price, which was $50,000.00, and also for an additional $30,000.00 which Ripps loaned to Indian Hills to pay part of the costs of subdividing the land; that the total mortgage debt was $80,000.00; that the mortgage was recorded; that Ripps borrowed from a Mobile bank the $30,000.00 which he loaned to Indian Hills; and that he assigned the mortgage to the bank as security for the loan.

We interpolate here that the evidence shows that the mortgage was filed for record in the office of the Judge of Probate on August 8, 1962, which was six days after the mortgage date; that the assignment to the bank was filed for record in the same office on August 14, 1962; and that both instruments were duly recorded.

We interpolate further that the mortgage to Ripps provides that the mortgage debt shall be paid in semi-annual installments of $8,000.00 each, commencing February 3, 1963, and also provides:

'The parties hereto further agree that since the mortgagor intends to subdivide the property herein conveyed into 68 lots, the mortgagee agrees to release a lot upon the prepayment of $1250.00, which shall be applied against the next ensuing semiannual payments.'

When each of four of the lots were sold, $1,250.00 were paid to the bank and the lots were released from the mortgage. The only payments made on the mortgage debt were these four payments aggregating $5,000.00.

Complainant further avers that it was in the business of grading and preparing land for subdivisions, including installation of gutters, sewer systems, and water systems; that, in furtherance of the plan for development of the land, Indian Hills employed an engineer to survey it into lots; that Ripps and Indian Hills had an understanding that the land should be subdivided and in furtherance thereof, the engineers selected a portion of the land which was marked off into lots with streets laid out; that complainant was asked to bid for the construction and installation of these improvements, which complainant agreed to do; that it was agreed that $35,430.40 would be paid for water and sewer mains and $37,575.43 for the streets and site improvements; that the final sum due should be divided by the number of lots and the quotient should be the amount payable per lot; that as the lots were sold such sum should be payable, but, if all lots had not been sold within one year from completion of the contract by complainant, the full sum should be payable; that, simultaneously with execution of the contract, Indian Hills executed to complainant a mortgage on the land to be improved; that, because the amount of the mortgage debt was not then determined, the final price would be arrived at at completion of the work; that delays were experienced by Indian Hills and Ripps in obtaining necessary governmental approval of the subdivision; that it was ascertained that Ripps had constructed an access road, over the land conveyed, from other land on which he operated a drive-in theatre, and it was necessary to relocate this road; that, at request of Ripps and at his expense, complainant relocated the road; that, to aid and assist Ripps and Indian Hills, complainant agreed not to record its mortgage; that complainant performed its contract and became entitled to $79,865.80, which amount was inserted in the mortgage as the recited consideration and debt; that, on completion of the work, the plat of the subdivision was accepted by Indian Hills, Ripps, the bank, and the Planning Board and was filed for record and recorded; that Indian Hills built houses on and sold four of the lots, which were released from the Ripps mortgage on payment of $1,250.00 per lot; that Ripps and Carter did not pay complainant for the lots or inform complainant of the sales; that, on learning of the sales, complainant recorded its mortgage on February 17, 1964; that Ripps, Carter, and Indian Hills thereupon embarked on a scheme to defraud complainant and destroy its rights under its lien for improvements and its mortgage. It appears that the 19.6 acres were subdivided into 68 lots and an undivided parcel.

Complainant avers 'that by reason of the facts herein related as a matter of law,' complainant's lien and mortgage became superior to the mortgage to Ripps, and that Ripps was estopped from asserting the priority of his mortgage over that of complainant; that, by a 'spurious foreclosure proceedings,' Carter, Ripps, and Indian Hills foreclosed the mortgage to Ripps and he bought in the property for $51,775.00, at a sale of the land as a block or unit, less and except the four lots previously sold as aforesaid; that the property was not offered for sale by lot but as a unit; that the property was sold for far less than its improved value and as a part of a scheme to deprive complainant of its lien.

Complainant prayed that the court set aside the foreclosure sale, declare complainant's mortgage superior to the mortgage to Ripps, and require an accounting; that the court grant to complainant, if it is not otherwise entitled to relief, redemption from Ripps of the mortgaged land if complainant's liens are inferior to the liens of Ripps, and for general relief.

After taking testimony ore tenus, the court declared that the mortgage to Ripps was and is a first mortgage and the amount secured by it is $90,414.26 on the date of trial, plus interest thereafter; that complainant's mortgage is a second mortgage and the amount of the debt is $91,937.59 on trial date, plus interest thereafter; that both mortgages are in default; that the first foreclosure sale to Ripps is invalidated and the title to the property and mortgage debt remain as though the sale had not occurred; that Ripps is not estopped to assert the priority of the first mortgage: that there is no evidence of fraud on the part of Ripps; that Ripps and complainant are both entitled to foreclose their mortgages and the register is ordered to foreclose both mortgages at one sale and report the sale to the court.

The register sold the property under the decree and reported the sale to the court. The property was offered for sale lot by lot, and then as a whole. The highest bids on individual lot bidding were made by Ripps and aggregated $53,930.00. On offer of the property as a whole, Ripps was again the highest bidder at $55,000.00.

The report was ordered to lie over for five days. No exceptions to the report were filed. The court approved the sale and ordered the register to execute a deed to Ripps and that he might discharge his bid by crediting $55,000.00 against the amount owed on his mortgage. Complainant appealed and respondent, Ripps, has cross-assigned errors.

Assignment 1.

Complainant assigns that the court erred in sustaining the demurrer of respondent, Ripps, to that aspect of the amended bill wherein complainant sought to have the court declare that Ripps, by reason of his alleged conduct, was estopped to assert the priority his mortgage over complainant's mortgage.

Ripps demurred to the several so-called aspects of the bill stated in the demurrer as follows: to the aspect which seeks to set aside the foreclosure, to the aspect which seeks to declare complainant's mortgage superior to Ripps' mortgage, to the aspect which seeks judgment against Ripps for money collected on lot sales, to the aspect which seeks judgment for the alleged wrongful destruction of complainant's alleged lien, to the aspect which seeks redemption from Ripps, and to the aspect which seeks to require Ripps to account for any sums received by him on lot sales or an alleged sale of statutory redemption rights.

The court overruled the demurrer to the aspect seeking to set aside the foreclosure and the aspect seeking accounting for money received on lot sales or the sale of right of redemption, and sustained the demurrer to the other aspects mentioned in the demurrer.

Complainant then amended by adding to paragraph 21(b) the averment that if complainant be mistaken in alleging that its lien became superior to Ripps' mortgage, then the alleged conduct of Ripps estopped him from asserting the priority of his lien as against complainant's...