Shades Ridge Holding Co., Inc. v. Cobbs, Allen & Hall Mortg. Co., Inc.

Decision Date15 August 1980
Citation390 So.2d 601
CourtAlabama Supreme Court

William M. Acker, Jr., and Susan E. Dominick, of Dominick, Fletcher, Yeilding, Acker, Wood & Lloyd and Ritchey & Ritchey, Birmingham, for appellant.

Hobart A. McWhorter, Jr., and Samuel H. Franklin of Bradley, Arant, Rose & White, Birmingham, for appellees.

EMBRY, Justice.

Shades Ridge Holding Company, Inc., plaintiff below, appeals from final judgment entered after an ore tenus trial in favor of defendant below, Mortgage Corporation of the South (formerly known as Cobbs, Allen & Hall Mortgage Company, Inc.).

In this action Shades Ridge Holding Company, Inc. (hereafter Shades Ridge) sought damages resulting from its loss of approximately 19 acres of land in Vestavia Hills, Alabama. Shades Ridge leased its land to Joseph Sandner who ostensibly was to be the owner of two apartment projects to be constructed on the land. Sandner was not, however, the sole owner of the projects. Instead, Jack Harrison had an undisclosed partnership interest in one of the projects and held the other in trust for the children of Dan Haralson. Haralson during this time was an officer of Mortgage Corporation of the South, Inc. (hereafter South). South, a mortgage loan broker, secured both construction and long-term financing for the apartment projects to be constructed on Shades Ridge's land.

Shades Ridge's land was pledged as security for both the construction loans and long-term loans for the apartment projects, with no personal liability upon the part of Sandner or anyone else.

Substantial amounts of money from the proceeds of the construction loans were misapplied and paid to, or for the benefit of Sandner, Harrison, and Haralson, or entities in which they had an interest.

Thereafter, Shades Ridge lost its property when the loan repayments went into default and the mortgages on the apartment projects were foreclosed.

The Case

Shades Ridge filed a total of thirteen counts in an amended complaint seeking damages because of causes of action arising out of transactions associated with the construction and financing of apartment projects on Shades Ridge's land. For purposes of this appeal we need not elaborate upon Shades Ridge's claims against other defendants below than Mortgage Corporation of the South. Shades Ridge's claims against South are found in the following counts of the complaint as amended: (1) count one alleging fraudulent misrepresentation; (2) count two alleging interference with contractual relations between Shades Ridge and Sandner; (3) count three alleging that South breached a contract between it and certain mortgage lenders and that Shades Ridge was entitled to recover for that breach as a third party beneficiary to the contract; (4) count four alleging fraud on South by its agent Haralson for which Shades Ridge was entitled to recover; (5) count five alleging breach of a provision in a mortgage contract whereby the mortgagee covenanted to notify Shades Ridge in the event of certain defaults upon the part of Sandner which in fact occurred and of which South was required to give notice to Shades Ridge; (6) count ten alleging South's breach of a fiduciary duty and of a duty to disclose; (7) count eleven alleging that South aided and abetted Sandner in his breach of a fiduciary duty; (8) count twelve alleging that a long-term mortgage on a portion of Shades Ridge's property was void because it was executed by Shades Ridge's officers containing terms not authorized by resolution of the board of directors of Shades Ridge; (9) count thirteen alleging fraudulent misrepresentations and nondisclosures upon the part of South. The latter count was added by amendment during trial.

Before trial on the merits the trial court rendered summary judgments in behalf of South as to counts three, five, ten, and twelve of Shades Ridge's complaint. As to those counts Shades Ridge asserts that entry of those summary judgments is reversible error.

Count five charges that the provisions of a mortgage placed upon South an obligation to notify Shades Ridge if the terms of the ground lease between Sandner and Shades Ridge were breached. Shades Ridge charges that South breached this contractual obligation by failing to monitor the ground lease and by not notifying Shades Ridge of certain violations that occurred.

Count ten charges South with a breach of fiduciary duty, or duty to disclose material facts arising from particular circumstances, owed Shades Ridge. Shades Ridge alleges it employed South as a mortgage broker to secure mortgage loans for the apartment projects to be located on Shades Ridge's land pursuant to the ground lease with Sandner. South, Shades Ridge alleges, breached this duty by its acts adverse to the interests of Shades Ridge in that an executive officer of South, Haralson, held an equity interest in one of the projects and made secret profits from the proceeds of the mortgage loans at Shades Ridge's expense. Moreover, South failed to communicate these material facts to Shades Ridge.

Count twelve alleges that Shades Ridge joined in the execution of a mortgage to South on an apartment project located on a tract of Shades Ridge's property that secured Sandner's note for.$2.3 million bearing interest at the rate of 83/4% per annum. South later transferred that note and mortgage to First Federal Savings and Loan of Miami which foreclosed on the mortgage and thereby acquired title to that tract previously owned by Shades Ridge. Shades Ridge alleges that the mortgage is void and of no effect because it was executed without proper authority because the board of directors resolution authorized execution of a mortgage securing a note at 81/2% per annum and not 83/4%.

The case proceeded to trial on counts one, two, four, and eleven. Count thirteen, added during trial, in essence restated claims for fraudulent misrepresentation and nondisclosure which were already the subject of other counts. The claims against South which were tried were based on: (1) its aiding and abetting Sandner in violating a fiduciary obligation he owed Shades Ridge; and (2) South's participation with Sandner in some of his fraudulent conduct as outlined in counts one, two, four, and eleven. The latter counts delineate various acts which are the bases of Shades Ridge's charges of fraud. The claims can be summarized to state: (1) that Sandner was the ostensible owner of the two apartment project buildings on Shades' land but that Jack Harrison had a secret partnership interest in one project and secretly held an interest in the other as trustee for Dan Haralson's children; (2) that substantial amounts from the proceeds of the construction loans obtained for the construction of the projects were misapplied and paid to or for the benefit of Sandner, Harrison, and Haralson, or entities in which they had interests; and (3) that as a result of the various frauds practiced by Sandner, South, and others, construction of the apartment projects was delayed, they were of inferior quality, the apartments were made more difficult to rent, and major repairs were required, resulting in foreclosure of the mortgages against the projects and the loss by Shades Ridge of its property. South was charged with vicarious responsibility for Haralson's conduct because he was its executive vice-president.

The trial court found and ordered as follows: (1) there was no fiduciary relationship between Sandner and Shades Ridge in connection with the projects, but, (2) there was a confidential relationship between Sandner and Shades Ridge concerning Sandner's use and application of the proceeds of the construction loans; (3) after an initial default in the ground lease Sandner agreed to assign his interest in both projects to Vestavia Park Company but obligated himself to remain responsible for performance under the terms of the ground lease for one year after the assignment; (4) because certain terms of the lease were not performed for the one year period judgment is entered against Sandner for $20,834 plus interest; (5) by consenting to and executing the assignment Shades Ridge released Sandner from contractual liability based on his failure to account to Shades Ridge with respect to the proceeds of the construction loans; (6) the diversion of the proceeds of the construction loans and the concealment or failure to disclose the same to Shades Ridge operated as a fraud on Shades Ridge; (7) South was guilty of fraud because when Haralson received and diverted part of the funds he was South's executive vice-president and it had placed him in a position where he was able to engage in the fraudulent conduct; and, (8) the fraudulent conduct was the cause of Shades Ridge's damages; therefore, judgment is rendered in South's favor.

On this appeal Shades Ridge complains of error in the final judgment by the trial court's misapplication of the law to the facts and by entry of partial summary judgments denying its right to proceed on the theories stated in counts five, ten, and twelve.

The Property

In August of 1970 Shades Ridge owned nineteen acres of land in the City of Vestavia Hills, in Jefferson County, separated by the Old Montgomery Highway so that one tract, lot 16-A contained approximately fourteen acres and the other tract, lot 12-A, contained approximately five acres. Both tracts were at that time zoned for single-family residences. Shades Ridge's attempt to have the property rezoned for a shopping center had failed.

The Negotiations

Charles L. Denaburg (an attorney representing Shades Ridge) and Jack Harrison (an attorney representing Sandner) discussed developing apartment projects on the land. This would necessitate a rezoning of the property. Denaburg negotiated with Harrison regarding terms of a ground lease to Joseph C. Sandner who was to be...

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    ...deception was intentional, and that even remote causation will be found in intentional torts. (Shades Ridge Holding Co. v. Cobbs, Allen & Hall Mortgage Co. (Ala.1980), 390 So.2d 601, 607, 609.) Plaintiffs note that intentional tortfeasors are commonly liable even for unforeseeable consequen......
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