Stowers v. Wheat, 7649.

• Decision Date: 31 May 1935
• Docket Number: No. 7649.,7649.
• Citation: 78 F.2d 25
• Parties: STOWERS v. WHEAT et al. FRED T. LEY & CO., Inc., v. SAME. WHEAT v. COMEAU et al.
• Court: U.S. Court of Appeals — Fifth Circuit

78 F.2d 25 (1935)

STOWERS v. WHEAT et al.^*

FRED T. LEY & CO., Inc., v. SAME.

WHEAT v. COMEAU et al.

No. 7649.

Circuit Court of Appeals, Fifth Circuit.

May 31, 1935.

J. Field Wardlaw, of West Palm Beach, Fla., for appellant.

Dan MacDougald, of Atlanta, Ga., E. T. McIlvaine, of Jacksonville, Fla., and Frank D. Upchurch, of St. Augustine, Fla., for appellees.

Henry P. Adair, of Jacksonville, Fla., for appellee and cross-appellant Wheat and others.

Joseph F. McPherson, of Miami, Fla., for appellee and cross-appellant Fred T. Ley & Co., Inc.

C. D. Blackwell, of West Palm Beach, Fla., for appellees A. J. Comeau and A. J. Comeau, Inc.

Before BRYAN, FOSTER, and HUTCHESON, Circuit Judges.

HUTCHESON, Circuit Judge.

When this case was here before,¹ only Ley, the contractor, was appealing from the decree awarding the trustee foreclosure with priority. Miss Stowers, though her interests were subjected to the foreclosure, did not appeal. Miss Stowers is the appellant on this appeal, and both trustee and contractor have filed cross-appeals. On this trial the questions raised on the former appeal, whether there was jurisdiction, and whether the contractor's lien on Comeau's interest primed the lien of the mortgage, were treated as settled. The contests were over questions not raised before, but brought into the case by amendment.

On the former trial Miss Stowers did not, as she did on this trial, contest the foreclosure as to her interests. On this trial she vigorously asserted that her interests, standing as surety for the mortgage, were released from the lien of the mortgage by fraudulent concealments and agreements of the principal and the trustee in the mortgage, resulting in diverting the bond funds and by their neglecting to file the mortgage promptly, thus letting in the contractor's lien. It is from the denial of this claim that she appeals. On the former trial the contractor did not, as he did on this trial, claim and undertake to charge a lien on Miss Stowers' interests. One of the grounds of his cross-appeal is the denial of this claim. On the former trial the trustee, relying on the primacy of the mortgage lien, did not, as he did on this trial, claim subrogation to and seek to foreclose the $32,000 first mortgage he took up with bond funds. On this trial, because the bond mortgage had been subrogated by our decision to the contractor's lien, the trustee sought, but was denied, subrogation. His cross-appeal is from that part of the decree.

On the former trial the trustee, relying on the primacy of the bond mortgage, did not assert the priority over the contractor's lien of the rental lien on both lots, reserved in Stowers lease to Comeau. On this trial he asserted it and prevailed. Ley cross-appeals from this ruling.

A careful reading of the voluminous record, with the aid and in the light of the thorough and excellent briefs, convinces us that the decree was right, and should be affirmed, except as to the trustee's cross-appeal. While the claims made on the appeal and the cross-appeals are in their last analysis independent of each other, they are so related that a brief but comprehensive statement of the situation as a whole, as it is material to the appeal and cross-appeals, in supplement of that in our former opinion, will suffice to show at once as to each claim its grounds and its merits.

Statement.

The property covered by the deed of trust is lots 15 and 16, block 13, of the city of West Palm Beach. Comeau owned lot No. 16; Miss Stowers, lot 15. By a 99-year lease, dated January 1, but executed March 26, and recorded May 11, 1925, she leased lot No. 15 to Comeau. This lease was made for the purpose of enabling Comeau to erect a building on the two lots. The provisions of this lease, which are regarded by the parties as pertinent to this appeal, are to be found in paragraphs 11, 12, 16, 29, 30, and 31.²

On March 27, 1925, the day after the execution of the lease, Comeau and Adair Realty & Trust Company entered into an underwriting agreement in which it was agreed that Comeau would construct an office building on the lots to cost not less than $650,000, the underwriter to sell the bonds, and to pay upon the order of Comeau a total net sum of $578,500, the balance to be retained as compensation and expenses. The Palm Beach Guaranty Company also signed the agreement. Thereafter, in May, 1925, Comeau and Adair Realty & Trust Company and Forrest Adair, the trustee, and Palm Beach Guaranty Company made a further agreement. This agreement provided, among other things not material here, that a $32,000 first mortgage on lot 16 should be paid out of the proceeds of the bonds. After this agreement had been made, the bond mortgage and deed of trust was duly signed and acknowledged by Miss Stowers on June 4, 1925. It did not include the proviso of clause XVI of the 99-year lease, that all proceeds derived from the sale of the bonds should be expended in the construction of the building. On the contrary, it provided: "Whereas the Owner has determined to issue nine hundred and fifty seven (957) of his first mortgage bonds aggregating the total sum of six hundred and fifty thousand ($650,000.00) dollars, said bonds when so issued to be negotiated, sold or pledged by the Owner for the purpose of raising money for his general purposes and for the erection and equipment of an office building on certain real estate held by him in the City of West Palm Beach, Florida, hereinafter described."

It did not provide, as clause XXX of the lease had provided, that the interest of Comeau in the property should first be sold.

Though executed by some of the parties to it before that date, the deed of trust, as more fully appears in our former opinion, was not finally executed and delivered until after June 16, when the lien of the contractor had already arisen against Comeau's interest. Among other things, the deed of trust contained these recitals: That it was made between Comeau, thereinafter called owner, joined by Miss Stowers, for the purposes thereinafter stated only, as parties of the first part, and Forrest Adair, trustee; that the owner has determined to issue mortgage bonds for the purpose of raising money for general purposes, and for the erection of an office building; that the owner mortgages lots 16 and 15, and covenants to pay the bonds secured by the mortgage. Article V, section 1, of the deed of trust provided: "The Owner covenants as to Lot 16 that he owns the property in fee simple, and the Owner and Frances Miriam Stowers covenant as to Lot 15 that the Owner is lawfully seized and possessed of a leasehold estate and has full power and authority to mortgage the fee simple title to the same; that this instrument constitutes a valid first lien against both parcels of land; that the Owner has the right and power and is lawfully authorized to mortgage and convey the same and that Owner, as to Lot 16, and Owner and Miss Stowers as to Lot 15, will warrant and defend the title to said parcels of realty against all persons."

Section 13 of article VIII, "Miscellaneous Provisions," set out in full in note,³ declares that Miss Stowers had executed the 99-year lease for the purpose of enabling the owner to erect a building on lot 15 and the adjoining lot, and that she gave the "owner" full power and authority to convey and mortgage the fee of lot No. 15 for the purpose of securing notes, bonds, etc. It further recites that she conveys the fee-simple estate for these purposes, and that she recognizes the right of Comeau to mortgage the land and make it a first lien against lot 15 superior to all other liens.

The concealments and diverting agreements Miss Stowers claims are with reference to the use of the proceeds of the bonds for commissions, the payment of interest and amortization and the purchase of the first mortgage. As to this, it will be noted that article 16 of the lease on which she relies does not provide, as she claims, that the full principal amount of the bonds would be used in the building. It provides that all of the proceeds derived from the sale of the notes or bonds shall be used in the construction of the building. A statement of the account for the building shows that the amount spent in connection with it by the underwriter was $732,949.61, of which $71,500 was commissions and expenses for selling the bonds at 90, $32,000 took up the first mortgage, $73,250 for interest and amortization of bonds during construction, the balance, $555,259, went directly into the building. It thus appears that at least $650,000 went into the building, and to take up the first lien and discharge interest and sinking fund constituting a lien on the building. The additional money used for these purposes over that realized on the bonds was furnished by the Palm Beach Guaranty Company and the underwriter. In connection with the making of the lease and the mortgage, and the construction of the building on the property, Mr. D. F. Dunkle, president of the Palm Beach Guaranty Company was the friend and adviser of Miss Stowers. He took part in the negotiations, was fully advised of the terms and provisions of all the agreements, and was consulted by and advised with Miss Stowers throughout. If anything that was done was not explained to her, this was not the fault of either the trustee or Comeau, but of her representative and adviser, who succeeded Miss Stowers' father as president of the Palm Beach Guaranty Company. From the voluminous record, no other conclusion can be gathered than that the building enterprise was a joint adventure in which, while Comeau took the lead, Miss Stowers was a directly interested party.

Proceeding now to a discussion of the claims the parties make, we take up first:

The Trustee's Claim to Subrogation to the $32,000 Mortgage.

When the bond mortgage was filed and the contractor's lien was fixed, the mortgage was a first lien on lot 16 ahead of both of these liens, and it was money of...