Mcadow v. Smith
| Decision Date | 02 February 1937 |
| Parties | McADOW et ux. v. SMITH et al. |
| Court | Florida Supreme Court |
Suit by M. A. Smith, as successor to J. H. Therrell, as liquidator of the Trust Company of Florida as trustee, and others, to foreclose a trust deed, wherein P. L. McAdow and wife, on behalf of themselves and all others similarly situated, filed a petition to intervene. From an adverse decree, the interveners appeal and plaintiffs cross-appeal.
Affirmed. Appeal from Circuit Court, Duval County; Miles W. Lewis, judge.
Casey & Walton and David B. Newsom, all of Miami, for appellants.
Austin Miller, of Jacksonville, for appellees.
In 1926, the Times Corporation issued serial coupon bonds in the sum of $390,000 bearing interest at 8 per cent. and secured by a trust deed on the Park Lane Apartments in Jacksonville. The Trust Company of Florida was named as trustee. Coupons 1 2, and 3 were paid and the mortgagor defaulted. About two years after default, the trustee and the mortgagor entered into an extension agreement whereby interest for one year was waived, interest for two years was fixed fixed at 4 per cent., and for the balance of the period, the bonds run at 5 1/2 per cent. Certain of the maturities were also waived.
The extension agreement was entered into only 'insofar as it is authorized to do so under the terms of the said trust instrument or under the laws pertaining to trusts of the character created by said original trust deed.' It also provided, among other things, that the original bonds should be delivered to the trustee in exchange for new bonds but that the original bonds should not be cancelled until the debt secured by the trust deed was paid in full. Holders of $361,000 of the bonds complied with the extension agreement but holders of $29,000 refused to comply. The trustee without the knowledge or consent of the consenting bondholders declined to pay interest to the nonconsenting holders.
The trustee went into the hands of the State Banking Department, the mortgagor again defaulted, and the State Liquidator for the State Banking Department declared the extension agreement void, and brought suit to foreclose the original trust deed. The appellants, representing $12,000 of the original and nonconsenting bondholders filed their petition for intervention, which was denied. After the sale of the mortgaged property but before distribution of the proceeds, appellants filed a second petition to intervene claiming a preference in distribution of the proceeds of the mortgage or the theory that the extension agreement amounted to a novation which put them in the position of a first mortgagee and the majority or consenting bondholdings in the position of a second mortgagee. This question was submitted by consent of the parties (which was made a rule of court) to a special master for determination, who found that the interveners were not entitled to a preference in the payment of principal, but that they were entitled to a preference in payment of an amount equal to the interest which had been received by the majority or consenting bondholders above that which had been received by the interveners. Appellants excepted to the master's report, and appellees excepted to that portion of it allowing a preference in the payment of interest. The chancellor overruled all exceptions and entered a final decree of distribution in accordance with the master's report. Both parties have appealed from the final decree.
To reverse the decree of the chancellor, appellants rely on novation; that is to say, they contend that when the extension agreement was executed and the new bonds issued, a new debt was substituted for the old one and this fact made them (appellants) preferred creditors over the consenting bondholders who had accepted the new bonds. If defeated in this contention, they assert that the trustee and the consenting bondholders are guilty of constructive fraud, in that a collusive agreement was made between them and the Park Lane...
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