The Prudence Co., Inc. v. Garvin

This case grows out of these facts: In July, 1930, Puritan Investment Company, a Florida Corporation, being the owner of thirty parcels of real estate in Dade County, determined to float a first mortgage loan of $1,900,000 for the purpose of "raising funds with which to liquidate certain mortgages encumbering certain of its properties," being among the parcels heretofore referred to. To effectuate this determination it executed a deed of trust dated July 1, 1930, in favor of J.J. Kiser and Ferd B. Meyer as trustees and the bonds were issued and sold to persons and companies in Miami and Indianapolis, including the Meyer-Kiser Bank of Miami. Among the properties described in the deed of trust dated July 1, 1930, was included what was known as the Palmetto Apartments property which was encumbered by a mortgage dated September 15, 1928, in the sum of $82,500.00. Upon the sale of the bonds secured by the trust deed Puritan Investment Company satisfied of record this mortgage by instrument dated July 1, 1930, but filed August 20, 1930. The trust deed then became a prior encumbrance on the Palmetto Apartments property. Kiser and Meyer were later removed as the trustees named in the *Page 682 trust deed for breaches of trust and appellees, Thomas E. Garvin and J.E. Lind, were appointed as their successors. Garvin and Lind, finding that four of the original properties described in the trust deed had been released therefrom by Kiser and Meyer before their removal as trustees and conveyed to appellants without consideration, instituted this suit in the Circuit Court of Dade County to cancel said conveyance and to impress the released lands with the lien of the mortgage and to recover them for the trust fund by placing them in the custody of a receiver previously appointed by the court in a matter ancillary to this. To the bill of complaint, appellants, Prudence Company, Inc., and Warren Corner Holding Company, a corporation, filed their answer under oath in which they asserted that a valid consideration was paid by them to Kiser and Meyer for the release of said four properties from the deed of trust, that as to three of said properties Prudence Company, Inc., owned first mortgages in its own name, that as to the Palmetto Apartments property during the year 1925 the Prudence Company purchased certain first mortgage bonds which had been issued by one Albert Kotte to J.J. Kiser and Sol Meyer as trustees, secured by a first mortgage or deed of trust, that J.J. Kiser and Sol Meyer continued to act as trustee of the Albert Kotte bonds until 1927 when they brought suit to foreclose them and by the foreclosure decree they came in possession of the Palmetto Apartments property. At this juncture M.A. Smith as liquidator of the Meyer-Kiser Bank of Miami, having first secured the consent of the court filed his cross bill to intervene. The cross bill alleges that the liquidator is the holder of 48 bonds purchased under and secured by the Puritan Trust deed, being between two and three per cent of the total issue, that the *Page 683 properties described in the cross bill were released from the trust deed without the knowledge or consent of the liquidator as owner of said bonds and in fraud of his rights as such therein. It prayed foreclosure of the trust deed as against the property described in the bill of complaint to effectuate the payment of said bonds. It also prayed for the appointment of a receiver to take charge of said property and to collect and impound the rents, issues, and profits to be derived therefrom pententelite. To the cross bill of Smith as liquidator, Prudence Company, Inc., filed its answer which was substantially the same as its answer to the original bill with the addition that it claimed ownership to $50,000 of unpaid Albert Kotte bonds. The answer further averred that Meyer and Kiser upon purchasing the Palmetto Apartments property at the master's sale in 1928 had no power of authority to convey, transfer, or mortgage the same and that their attempted conveyance "was void or voidable at the instance of the Prudence Company, Inc." and that the effect of said transfer and release was merely to place the Palmetto Apartments property where it rightfully belonged, that is to say it affected the cancellation of a voidable instrument (Puritan Investment Company trust deed) which could have been done by suit in equity. On the issues made by the cross bill and the answer a master was appointed to take testimony and make report of his findings. Testimony was taken and the master entered a very comprehensive report in which he found for the cross complainant. Exceptionists thereto were filed which after argument and consideration were overruled and a final decree was entered as prayed for in the cross bill. From that final decree the instant appeal was prosecuted. *Page 684 Appellants and appellees are at variance as to the questions drawn from the pleadings. Appellants urge five questions for adjudication, but on account of the variance of the parties as to what questions are presented we have elected to treat such as we conceive to be presented. All of the facts alleged in the answer and the cross bill are not detailed in this opinion but there appears to be no dispute as to the material ones. The real question presented is whether or not R.A. Smith as liquidator had a right to the relief prayed for in his cross bill. In a former consideration of the case Prudence Co., Inc., v. Garvin, 118 Fla. 96, 160 So. 7, we were confronted with an appeal from an order appointing a receiver and declined to consider the merits because of the condition of the record. We held that the "answers interposed contained sufficient allegations, which, if proven to be true, were sufficient to constitute a good defense to the allegations both of the bill of complaint and of the cross bill." The Palmetto Apartments is the only property involved in this litigation, all the other parcels described in the pleadings having been liquidated. Appellant, Prudence Company, Inc., contends that at the time Smith's 48 bonds accrued and before the cross bill was filed it held a fee simple title to the Palmetto Apartments property said title being by deed and release from the Puritan Investment Company mortgage by Kiser and Meyer as the trustees thereof and that said deed and release were known to Smith and his predecessors when his bonds were acquired. If Smith and his predecessors had been on knowledge of this transaction as Prudence Company, Inc., contends, it would have been a good defense but the record discloses that they were never approached or consulted with reference to it and that the alleged conveyance was not consummated *Page 685 as the trust deed required. Both the master and the chancellor so found and there is evidence to support their findings. The trustees had no authority to execute the release without the consent of the bondholders and it is shown that neither Smith nor his predecessors were approached about the matter. Not only should the bondholders have been consulted, but Sections One, Two, Three, and Four of the trust deed provide in detail the manner in which releases may be secured from it and the record shows conclusively that these provisions were not complied with. Appellants excuse failure in this by asserting that they gave up a valuable consideration for the releases, such consideration being the cancellation of $90,500.00 of unissued bonds. We find no authority for this and it is shown that the release yielded nothing of value to the bondholders as the trust deed in terms requires. Appellants were bound as a matter of law to know that a trustee has no authority to deal with a trust estate or to bind the beneficiary, except such as is expressly conferred by the instrument creating the trust or such as is necessarily incident thereto. Weldon v. Tollman, 67 Fed. 986; Connecticut General Life Ins. Co. v. Eldredge, 102 U.S. 545 26 L.E. 245; Tyler v. Herring,67 Miss. 169, 19 Am. St. Rep. 263; Reed v. Jennings, 196 Ill. 472, 63 N.E. 1005; Hibbett v. Charleston Heights Co.,163 S.C. 327, 161 E.E. 499; Lehman Mfg. Co. v. Jewett, 90 Ind. App. 12,168, N.E. 46; Geitner v. Jones 176 N.C. 542, 97 S.E. 494. From the law and the facts as thus detailed there was ample warrant for the chancellor to hold that Smith was a bonafide holder of bonds under the trust deed, that in making the conveyance to Prudence Company, Inc., the trustees did not comply with the terms of the trust deed, that *Page 686 appellants received the property with knowledge of Smith's outstanding claim, that nothing was paid to the trustees for the release of the title, that Puritan Investment Company received nothing for the release and that consequently the claim of appellants was subordinate to Smith's claim under the trust deed. We have examined appellants' contention to the effect that they have a superior lien against the Palmetto Apartments property to the extent of $27,000 of unpaid bonds because of a fraudulent foreclosure, fraudulent master's sale, and a fraudulent conveyance of the title to said property, but no proof was offered in support of the material allegations supporting said claim neither is it otherwise supported by the record. Appellants were on notice of the alleged fraudulent foreclosure and master's sale but made no attempt at the time nor afterwards to protect itself until this suit was instituted though years elapsed in which the situation of the parties affected materially changed. Appellants next contend that they have a right in the Palmetto Apartments property superior to Smith's claim not only by virtue of the deed from Puritan Investment Company and release to it by the Puritan mortgage trustees but by its lien acquired as a result of the foreclosure of the Albert Kotte bonds. The Albert Kotte Trust deed was foreclosed in 1927 and 1928 and was participated in by appellants. Their asserted lien was consequently discharged and extinguished by the foreclosure. 2 Jones on Mortgages Sec. 1216, 953; Stevens v. Pearson, 202 Ill. App. 22; Hood v. Adams, 124 Mass. 481, 26 Am. Rep. 687; Trimmier v. Vise, 17 S.C. 499, 43 Am. Rep. 624. It appears that appellants waived their right to bid in the property at this foreclosure and elected to look to its *Page 687 guarantor for satisfaction of its claim. It now appears that the rights of innocent parties have intervened and they are estopped to assert any claim. Saunders v. Richard, 35 Fla. 28, 16 So. 679; Baillarge v. Clark, 145 Cal. 589, 79 P. 268. In view of the lapse of time and the change of circumstances appellants' claim was not only extinguished by foreclosure, but they are now estopped to assert it by reason of laches and because of their election to rely on their guarantor for satisfaction. The concluding question essential to be adjudicated has reference to the power of the majority bondholders to bind the minority under the circumstances precipitating this cause. Appellants contend that despite the terms of the trust deed providing for releases a majority of the bondholders can direct the conduct of the trustees as to releases for any portion of the mortgage security upon receipt of the appraised value as provided in the trust deed. Shaw v. Little Rock Fort Smith Railway Co.100 U.S. 605, 25 L. Ed. 757, and First Nat'l Bank of Cleveland v. Shedd, 121 U.S. 74, 7 Sup. Ct. 807, 30 L. Ed. 877, are relied on to support this contention. An examination of these cases discloses that they are in essential respects unlike the case at bar. No provision in the trust deed involved in them provided for release but in each case they were accomplished and the reorganization was effected by decree of the court, the object being to preserve and enhance the value of the trust. In the case at bar the trust deed in unequivocal terms carried provisions for releases and when such is the case the parties are bound by them. The final decree of the chancellor finds ample support in the record and is, therefore, affirmed. *Page 688 Affirmed. ELLIS, P.J., and BUFORD J., concur. WHITFIELD, C.J., and BROWN, and DAVIS, J.J., concur in the opinion and judgment. ON PETITION FOR REARGUMENT. Division A.