Ottarson v. Dobson & Johnson, Inc.

• Decision Date: 04 September 1963
• Parties: A. P. OTTARSON, Jr., Receiver for S. D. Harrison Co. Inc. v. DOBSON & JOHNSON, INC. 52 Tenn.App. 280, 372 S.W.2d 777
• Court: Tennessee Court of Appeals

Page 777

372 S.W.2d 777

A. P. OTTARSON, Jr., Receiver for S. D. Harrison Co. Inc. v. DOBSON & JOHNSON, INC.

52 Tenn.App. 280, 372 S.W.2d 777

Court of Appeals of Tennessee, Middle Section.

Sept. 4, 1963.

Certiorari Denied by Supreme Court Dec. 5, 1963.

[52 TENNAPP 281] Maclin P. Davis, Jr., Nashville, for complainant.

William J. Harbison, Nashville, for defendant.

HUMPHREYS, Judge.

Defendant Dobson & Johnson, Inc. has appealed to this Court from a decree entered against it, in favor of A. P. Ottarson, Jr., Receiver, etc., in the total amount of $3,611.35.

The opinion of the court on which this decree was entered succinctly states the facts and the conclusions of the Chancellor based thereon, so we save ourselves from [52 TENNAPP 282] the unnecessary labor of restating the case by quoting from the Chancellor's opinion as follows:

'The involvent corporation (S. D. Harrison Co. Inc.), for which the complainant was appointed Receiver, was engaged for sereral years in the construction of dwellings with large sums of money it borrowed from the defendant, which was and is in the mortgage loan and real estate sales business. This suit is brought to recover of the defendant payments it made to itself from the sale price of houses hold by it as agent for the builder, representing charges made for title policies and attorneys fees in connection with the construction loans and interest. The amounts in dispute are $2,411.35 for title policies and $1,200.00 for attorneys fees.

'The defendant insists that the charges made the builder were reasonable and according to the contract between the parties, and avers that the insolvent corporation is indebted to it for money loaned, for which it will have a very large unsecured claim and it further avers that if it should be held that it is indebted in any amount to the insolvent corporation that it would be entitled to have such indebtedness set-off against the indebtedness due it by the insolvent corporation.

'The insolvent corporation, in most instances bought a lot or lots from a corporation, the stock of which was principally owned by the stockholders and officers of defendant. It would then arrange for a construction loan with defendant, secured by a deed of trust upon the lot on which the dwelling house was to be built. The total amount of the construction[52 TENNAPP 283] loans were made available to the builder and the costs of said loans including charges for title policies and attorneys fees were deducted by the defendant from the sale price of the houses when they were sold for the builder by the defendant. It also paid itself real estate agent's commissions for making the sales.

'The defendant did not purchase the title policies as agreed and it did not pay the attorneys fees to its attorneys. However it paid its attorneys an annual retainer of more than the total of the fee so collected.

'Since the title policies were not purchased as agreed the defendant has no right to pay itself for them and these charges were improper. Likewise, since the attorneys fees charged the builder were not paid over to the defendant's attorneys they too were improper charges.

'The Court is therefore of the opinion that the complainant is entitled to recover said items with interest from the defendant.

'As above stated, the funds from which the defendant deducted the charges for title policies and attorneys fees arose from the sales of the houses owned by the insolvent corporation by the defendant in its capacity as real estate agent and they therefore constituted trust funds for which defendant must account in its capacity as trustee.

'It is essential to the allowance of a set-off that the relationship between the parties be that of debtor and creditor and under the facts of this case such [52 TENNAPP 284] relationship does not exist between the defendant and the complainant.

'The set-off claimed by the defendant is denied.' Tr. pp. 76-77

On its appeal here defendant has assigned two errors as follow:

'1. The Chancellor erred in holding that the charges made by defendant to the insolvent corporation were improper and in allowing judgment therefor.

'This was error because (a) as to the title charges, the amounts collected were shown to have been reasonable and far less than the cost of mortgage title insurance, and were for a necessary service in the making of the construction loans; and (b) the charges for attorneys fees were for legal work actually and necessarily performed, and the amount thereof was actually paid to the attorneys for doing this work. The metbod of making this remittance was one of form, not of substance. Further, all of the charges of both types were authorized when made, and had been agreed to over a long period of time and through a long course of dealing between the parties.

'2. The Chancellor erred in disallowing defendant's plea of setoff.

'This was manifestly erroneous. If there was any liability of any nature by defendant to complainant, it was clearly a liability arising out of alleged improper charges on construction loans. The insolvent was heavily indebted to defendant for non-payment [52 TENNAPP 285] of those very same loans. The defendant was no more a 'fiduciary' toward the insolvent than vice-versa. The insolvent failed to...