Roosevelt v. Missouri State Life Ins. Co.

• Decision Date: 01 August 1935
• Docket Number: No. 10254.,10254.
• Citation: 78 F.2d 752
• Parties: ROOSEVELT et al. v. MISSOURI STATE LIFE INS. CO. et al.
• Court: U.S. Court of Appeals — Eighth Circuit

78 F.2d 752 (1935)

ROOSEVELT et al. v. MISSOURI STATE LIFE INS. CO. et al.^*

No. 10254.

Circuit Court of Appeals, Eighth Circuit.

August 1, 1935.

C. E. Daggett, of Marianna, Ark. (J. B. Daggett, of Marianna, Ark., Walter Chandler and J. H. Shepherd, both of Memphis, Tenn., Daggett & Daggett, of Marianna, Ark., and Chandler, Shepherd, Owen & Heiskell, of Memphis, Tenn., on the brief), for appellants.

George B. Rose, of Little Rock, Ark. (Allen May and Warren Rogers, both of St. Louis, Mo., Richard B. McCulloch, of Marianna, Ark., and Rose, Hemingway, Cantrell & Loughborough, of Little Rock, Ark., on the brief), for appellees.

Before GARDNER, SANBORN, and WOODROUGH, Circuit Judges.

GARDNER, Circuit Judge.

Appellees Missouri State Life Insurance Company and Burk Mann, trustee, commenced this suit in equity to foreclose a real estate mortgage deed of trust which secured payment of $240,000 and interest. The deed of trust covered lands in several counties in Arkansas. Defendants in the lower court were Hughes Investment Company, a corporation, Arthur F. Douglas, record owner of the land, and various individuals comprising a committee known in the record as the committee for the protection of holders of bonds sold through G. L. Miller & Co., Inc., and others. The Hughes Investment Company filed an answer denying the allegations of the bill for foreclosure. The committee and Arthur F. Douglas filed answer and cross-bill. The issues before us are those raised by this cross-bill and the answer thereto.

In the cross-bill it is alleged that the committee were the victims of a fraud perpetrated by the Missouri State Life Insurance Company and its representatives, in a transaction involving the exchange by the committee of property known as the Medical Arts building in Memphis, Tenn., for a consideration partly in cash and partly in a first mortgage note secured by a deed of trust on Arkansas lands. The committee demanded damages for fraud and deceit in the sum of $210,000.

The case was referred to a special master, with directions to take the testimony and to report findings of fact and conclusions of law. In due time the master made and reported findings to the effect that the fraud alleged had been committed, and that the committee had suffered damages thereby in the sum of $210,000. Exceptions to the report were filed, and the lower court, upon hearing, sustained all of the exceptions and filed findings of fact and conclusions of law of its own, and entered decree thereon in favor of the appellees, dismissing the cross-bill for want of equity, and decreeing foreclosure of the trust deed for the full amount of the debt thereby secured. From this decree, the cross-complainants appealed to this court, and, because of procedural defects, we reversed the judgment. Roosevelt v. Missouri State Life Ins. Co., 70 F.(2d) 939. On remand to the lower court, this defect was remedied, and thereupon the lower court again made findings of fact and conclusions of law which are identical with those formerly made, and entered decree of foreclosure and dismissed the cross-bill. The record having been perfected, the case is now before us on the merits.

To understand the relationship of the insurance company, the committee, and other parties, and the nature of the transaction in which fraud is alleged to have been perpetrated, it is necessary to detail some otherwise unrelated facts which appear in the court's findings, or from undisputed evidence.

A Mrs. Rees owned a lot in the business section of Memphis, Tenn. G. L. Miller & Co., of New York, investment bankers, made a specialty of taking mortgages upon urban property to secure bond issues which they sold, using the proceeds in financing the construction of buildings. This concern and Mrs. Rees became interested in the erection of a building on her lot in Memphis, to be called the Medical Arts building. To that end Mrs. Rees and a Mr. Sackett organized a corporation called the Madison Building Company, to which Mrs. Rees conveyed the lot. The Madison Building Company executed to G. L. Miller & Co. a mortgage to secure a bond issue amounting to $825,000. These bonds were sold to a great number of persons. Mrs. Rees at first took for her interest in the property a second mortgage, which she afterwards exchanged for preferred stock in the Madison Building Company. Before the building was completed, G. L. Miller & Co. failed. A receiver was appointed to take charge of the building in the suit of a mechanic's lienholder. The trustee for the bondholders intervened, and the receivership was extended for their protection. Other holders of mechanics' liens intervened. The Madison Building Company filed an answer, setting up that the mortgage was usurious.

A great part of the building had not been divided up by partitions, and with but little of it rented, the income was not adequate to pay the carrying charges. The total claims ahead of Mrs. Rees amounted to $1,010,500. In this condition of her affairs, she placed them in the hands of Fred Callahan, a lawyer in Memphis, Tenn., who made various unsuccessful efforts to refinance so as to save something for her, but accomplished nothing until he met Burk Mann, who suggested to him that the Missouri State Life Insurance Company would be glad to exchange some of its lands in Arkansas for the office building in Memphis. Mr. Mann was a member of a firm of Arkansas attorneys who represented the life insurance company in its Arkansas foreclosure business, being regularly retained and on a salary basis. After considerable negotiations between the insurance company and Callahan, they entered into a contract on the 21st day of July, 1927, by which it was provided that Callahan was to deliver to the insurance company $850,000 in bonds, secured by a first mortgage on the Medical Arts building; that a corporation which he would organize, and which would execute the mortgage, would finish the building and clear it of liens, and to guarantee his so doing, he would deposit with the insurance company the sum of $31,000. In consideration of the delivery of the bonds, the insurance company was to pay Callahan $100,000 in cash, from which the $31,000 to be deposited to secure completion of the building was to be deducted, and convey to him by warranty deed, free of all liens except the taxes and assessments becoming payable after the year 1927, lands to be selected by Mann, of the value of $750,000, according to the cost to the insurance company on the day they were transferred to its real estate division after foreclosure. The insurance company also agreed that it would loan to Callahan $120,000 on $220,000 in value of the lands, valued as above set forth. The insurance company also agreed to convey to Callahan, or his nominee, lands which the insurance company carried on its books at a value of $430,000, which lands were to be used by Callahan in settling with the holders of the bonds on the Medical Arts building. The insurance company further agreed that it would give Callahan, or his assigns, an option to borrow $215,000 from the insurance company, which loan should be secured by a first mortgage on the $430,000 list of lands. The contract further provided that unless the deal should be concluded on or before October 15, 1927, it should become null and void at the option of the insurance company. This time was, on August 22, 1927, extended to November 15, 1927.

After this contract with the insurance company had been tentatively agreed upon, but before the date of the execution of the formal contract, Callahan had several meetings with the committee representing the bondholders of G. L. Miller & Co., appointed by the United States District Court at New York City in a bankruptcy proceeding of the G. L. Miller & Co. On July 17th and 18th, Callahan submitted to the committee a proposal for contract, and this proposal was accepted by the committee, but it was contemplated by the parties that a formal contract would be executed at a later date; and on August 3, 1927, the committee and Callahan entered into a formal contract which was, however, subject to the approval of the United States District Court for the Southern District of New York. By the terms of this contract, the committee agreed to transfer to Callahan the title to the Medical Arts building, free of liens, and as consideration for such transfer, Callahan agreed to pay the committee $170,000 in cash, and to deliver to the committee a first mortgage note for $430,000 to be executed by a corporation to be organized by Callahan and to be secured by a mortgage on approximately 8,500 acres of land theretofore acquired by the real estate division of the insurance company by foreclosure of first mortgages, the value of such lands to be ascertained by their cost to the insurance company.

On September 3, 1927, an agreement was entered into between the insurance company and the committee, in pursuance of the contract with Callahan, and by this contract the insurance company agreed directly with the committee that the insurance company would carry out its contract with Callahan. The committee hesitated to recommend to the court the confirmation of the contract, and demanded of Callahan that there either be more land included in the mortgage, or that the amount of the loan by the insurance company be increased from $215,000 to $240,000. On September 7, 1927, the insurance company agreed to increase the loan to $240,000 on the land conveyed, as the basis of the $430,000 mortgage, and on that date the insurance company delivered to the committee the appraisals and other information which Callahan had contracted to present not later than the date of the hearing before the court.

On the evening of September 8, 1927, Callahan had a long interview with the New York attorneys of the committee, as a result of which, and at the suggestion of the committee's attorneys that he "put in writing his statement as...