Title: MacArthur v. North Palm Beach Utilities, Inc.

State: florida

Issuer: Florida Supreme Court

Document:

202 So. 2d 181 (1967)
John D. MacARTHUR, Petitioner,
v.
NORTH PALM BEACH UTILITIES, INC., a Florida Corporation et al., Respondents.
No. 35677.

Supreme Court of Florida.
July 26, 1967.
Rehearing Denied October 2, 1967.
*183 Fisher, Prior, Pruitt & Schulle, West Palm Beach, and Sam Daniels, Miami, for petitioner.
Alley, Maass, Rogers, Lindsay & Chauncey, Palm Beach, and Bedell, Bedell, Dittmar & Smith, Jacksonville, for respondents.
ROBERTS, Justice.
By conflict certiorari we review a decision of the District Court of Appeal, Fourth District, affirming a decree of the chancellor below which denied a decree of specific performance to the plaintiff, the petitioner here. The District Court set forth the history and facts in the following language: 
The cases cited by the District Court do not apply to the facts in this case. Here was a complex business transaction, not uncommon to the financial community, where a seller agreed to (1) sell a large tract of land for a subdivision, and (2) to finance a water and sewerage disposal system. As a part of the overall transaction, he received an option from the purchasers to purchase the water and sewer system for its construction cost, which obviously was a minor part of the entire deal. He performed his part of the contract, but when he called upon the purchasers to sell the water and sewer *184 system back to him, they reneged. This court is committed to the proposition that A can sell a tract of land to B and reserve an option to re-purchase a part of it. See Rosenthal v. Le May (Fla.) 72 So. 2d 289, 44 A.L.R.2d 336, and Blair v. Kingsley (Fla. App.2d Dist.), 128 So. 2d 889.
The Rosenthal case involved a transaction where the seller sold an interest in land and reserved an option to re-purchase. The option was upheld. The Blair case involved the sale of a tract of land reserving an option of refusal for twelve years. The option was upheld.
Thus, if MacArthur had sold the land and reserved an option to re-purchase, but had not made the accommodation loan to finance the construction, there would be no doubt under the foregoing decisions that his option would be good; or if he had sold the land, and arranged for a bank to finance the construction, there would be no doubt, although the result to the purchasers would be exactly the same. Then, where is the logic that, merely because he held the mortgage, his option would be unenforceable? Is he to be penalized for accommodating the purchasers? I think not. This is not to be confused with a typical debtor-creditor relationship, which was in general the subject matter of the cases relied on by the District Court. This is a complex transaction with abundant consideration moving between all the parties to support all phases of it. There is no showing of fraud or overreaching. The purchasers made a fair contract to resell for a valid consideration but refused to perform.
All parties to the transactions were sui juris, were represented by counsel, and no showing of lack of disclosure or other disadvantage is made or urged.
The decision sub judice produces a legal result in head-on direct conflict with the Rosenthal and Blair cases.
It is noteworthy that the option was not to purchase the utility company, but by the very language of the agreement, dated June 22, 1955, applied to
The same agreement in paragraph 7 provided:
There should be no difficulty in making determination from this option as to what was to be included in the sale or the price to be paid, and in the event the price should be in dispute a settlement of that matter was provided by arbitration. Within life of the option the optionee MacArthur, on August 31, 1962, wrote North Palm Beach Utilities, Inc. stating
Thus, the offer to sell, as outlined in the option, together with the acceptance by MacArthur on August 31, 1962, ripened into a binding contract between the parties, leaving the cost of the utility system to be either agreed upon by the parties or determined by arbitration, as agreed upon in the agreement. It is our opinion, and we hold, that the letter of August 31, 1962 was adequate to exercise the option by MacArthur.
The option was at all times a burden on the utility systems and the land on which it was partially located, and that whatever interest in the land was acquired and held by the utility company was subject to the option, just as the property might have been acquired subject to a lease or outstanding mortgage.
It is also noteworthy that the question of clogging did not develop until after the parties were unable to agree on the cost of the utility system. When the Utility Company found itself unable to agree with MacArthur on a purchase price, it became its duty to activate the arbitration clause in the contract, but rather than doing so they injected for the first time a defense of clogging, making an attack on the equity of the contracts. The option price was not limited to the amount of the loan, but was fixed at the actual cost of the system and provided what the cost should include.
The transaction sub judice was an involved overall transaction where the seller agreed to sell land under circumstances where there was no compulsion to sell, and no compulsion on the part of the buyer to buy. Also involved in the transaction was an agreement by the seller to provide development funds for a utility system which were required only by the desire of the purchasers to buy and develop the land. It was not an instance where a debtor "under pressing necessities, will submit to ruinous conditions waiving the equity of redemption allowed him on breach of his obligation, in the expectation and hope of repaying the loan at the stipulated time and thus preventing forfeiture".
The doctrine against clogging the equity of redemption of a mortgage estate is an old English doctrine brought forward in this Country to prevent lenders taking an inequitable advantage of distraught borrowers. The doctrine would prevent the *186 mortgagee from taking through any trick, scheme or contrivance the equity of redemption from the borrower. Out of the doctrine developed the proposition that when the borrower repays his loan he is entitled to a return of that which was mortgaged as security for the loan  but no more. In the case at bar, the buyer of the land, who was the borrower of the money, acquired the land incumbered by the option, and thus when the borrower repaid the loan, as was done in this case, he was entitled to a return of the mortgage estate still subject to the burden of the option  (if the land had been subject to a lease when mortgaged to the lender, as soon as the borrower repaid the debt he would be entitled to a return of the land but it would still be subject to the lease). Here, the buyer-borrower never owned the land in fee simple, it was incumbered by the option at the same time the buyer-borrower acquired it. To force the lender to give back to the borrower more than the lender received would be grossly inequitable. It would require the lender to give to the borrower a clear title which is something the borrower never had and does not now have because of the existence of the option.
Furthermore, in "The Equity of Redemption" by Turner, published as a part of the Cambridge Studies in English Legal History, we find this interesting observation: 
All of the agreements are executed under seal and the utility agreement recites: 
Any question of lack of consideration therefore must fall by the wayside.
In consideration of all the agreements, considerations and mutual covenants by and between the parties, and the exercise of the freedom of contract in the market place in developing a commercial transaction, it is our opinion, and we hold, that the doctrine of clogging does not apply to the circumstances here present. We further hold that the letter of August 31, 1962 was adequate in form to activate the option and we find no equitable consideration that would dictate to a court of equity to refuse to require performance of the contracts.
In summary we hold: (1) That the option was and is in a solemn and binding obligation on the part of the respondents to negotiate and agree, if possible, with MacArthur on the cost of the water sewage and utility system; (2) If agreement could not be reached between the parties it became their duty to arbitrate the item of cost as provided in the utility agreement. (3) Upon appropriate determination of the costs of the system, it becomes and is the obligation of MacArthur to purchase same for the price so determined, and the duty of the utility company to convey, unincumbered ownership of the assets to MacArthur.
*187 Accordingly, the decision here under review is quashed, with directions that the District Court of Appeal reverse the decision of the lower court and enter an appropriate decree not inconsistent with this opinion.
It is so ordered.
O'CONNELL, C.J., and DREW, THORNAL and CALDWELL, JJ., concur.
ERVIN, J., dissents with opinion.
THOMAS, J., dissents and agrees to the conclusion of opinion of ERVIN, J.
ERVIN, Justice (dissenting):
As grounds for jurisdiction in his petition for writ of certiorari to this Court, Petitioner cites as conflicting with the decision of the District Court in the instant cause the cases of Rosenthal v. Le May (Fla.), 72 So. 2d 289, 44 A.L.R.2d 336, and Blair v. Kingsley (Fla.App.2d), 128 So. 2d 889. Upon studied analysis of these cases I fail to perceive any conflict.
As is related in the opinion of the majority, the instant situation involves a "purchase and sale agreement" and a contemporaneous "utility agreement." The purchase and sale agreement entered into by the Petitioner and Respondents clearly involved the taking back of a purchase money mortgage by the Petitioner-vendor. Inasmuch as the total purchase price was recited as $2,870,000.00 and the purchase money mortgage was for the amount of $2,470,000.00 (which was purchase price less payments made prior to and at the closing), it is evident that the resulting mortgagee-mortgagor relationship is not to be classified de minimis. When Rosenthal, supra, is examined, however, it is noted that the real property transaction there did not involve a mortgage. We held in that case that at the time of the transaction involved, the parties thereto intended a sale subject only to the right of repurchase as set out in the option simultaneously executed as a part of the same transaction. We specifically held that the transaction did not involve a mortgage. Thus there is a very real and pertinent distinction between Rosenthal and the instant case; in Rosenthal there was no consideration given as to the effect of an option on the right of redemption under a mortgage.
Blair, supra, may be distinguished from the instant case on the same basis as Rosenthal is. Blair is concerned with and discusses the validity of options to repurchase or pre-emptions made contemporaneously with a deed or agreement and supported by a consideration. A mortgage is not involved. It seems that it would be less than logical or reasonable to say that this is not a vital distinction. It is my opinion that inasmuch as the facts and the rule of law applied were different, there is no direct conflict between the decision of the District Court and the Rosenthal and Blair cases. As we said in Trustees of Internal Improvement Fund v. Lobean, Fla., 127 So. 2d 98.
Thus this is a case of first impression and presents no conflict of appellate decisions. I would hold that the writ should be discharged as having been improvidently issued.
Even when the issue of jurisdiction is screened out of consideration, I find that I must disagree with the conclusion of the majority of the Court regarding the merits of the instant case.
The "purchase and sale agreement" involved in the instant transaction provided *188 that Petitioner would convey to Resopndents an 1100 acre tract of undeveloped land in Palm Beach County. In the "utility agreement" which was executed simultaneously with the aforementioned "purchase and sale agreement" the Petitioner, individually, agreed to loan Respondents $800,000.00 toward the cost of constructing a water supply and sewage disposal system. In return for this loan Respondents agreed to give Petitioner a first mortgage encumbering the entire system so constructed. This "utility agreement" also provided that Petitioner should have an option to purchase the system, to be exercised during the period from when the first note became due until full payment by Respondents of any moneys advanced by Petitioner under the loan agreement. The aforementioned facts regarding the transaction under consideration are related for the purpose, and I think have the effect of showing that the instant case is not merely an example of "A" selling land to "B" and taking an option to repurchase all or a part of the land from "B."
The option was exacted and given contemporaneously with and as an integral part of the loan transaction and has the effect of permitting the optionee to defeat the borrower's right to redeem the mortgaged property. The "utility agreement" was contracted between the parties at the time of the loan, and the option, a part of the utility security agreement, was not supported by any independent consideration. When the transaction is examined in toto and consideration given the actual practical effect thereof, I find cogent logic in the able Chancellor's finding that:
The District Court correctly held that such an arrangement conflicted with the following general rule in regard to clogging the equity of redemption:
See also, Jones on Mortgages, § 1329, where, relating to the aforementioned principle, it is said:
It is argued that the rule against clogging should not apply to Petitioner primarily because it would have been easy to have handled the transaction differently  that he should not be "penalized" because the financing of the water supply and sewage disposal system could just as well have been financed through a bank without Petitioner's option to purchase being affected by the rule. But this begs the question; such were not the facts.
The majority opinion would create a new exception in the law on the basis that in order for an equity of redemption to prevail *189 over an option to purchase or other agreement designed to defeat redemption, there must be a situation where a debtor is under pressing necessities and submits to ruinous conditions to procure credit or loan consideration, waiving his equity of redemption. The rule does apply in such situations but is not limited only to instances where such conditions are found to exist. It applies in all mortgage transactions where a contemporaneous agreement such as the option claimed here is entered into unsupported by a consideration other than the mortgage loan which would defeat redemption. In order for this rule to be effective it is made to operate preventively rendering all clogging agreements invalid.
Our Court has long followed the rule announced in Stovall v. Stokes, 94 Fla. 717, 115 So. 828:
In its review the District Court applied the general rule of equity applicable to the transaction. It found the "option" to be a contemporaneous agreement that was part and parcel of the mortgage transaction; and that the "option" was not a subsequent agreement based upon a further consideration.
Under the rule adopted today, lenders in Florida may legally bargain in mortgage transactions that borrowers give them options to purchase mortgaged property during the period the debt is outstanding. Thus under the rule of this case lenders will be permitted to receive, in addition to repayment of the mortgage loan with interest, the extra advantage of lopping off the equity of redemption by the exercise of an option to purchase. To me, this innovation opens many avenues for overreaching and oppression. The rule against clogging, like laws against usury, should be scrupulously maintained to insure fair dealing in the business community. Rapacious conduct and unequal bargaining in the money lending field should be frowned upon in Florida.
The argument that consideration for the option is present because the instrument reflecting the option is under seal is completely lacking in merit. Formality rather than substance should not prevail.
In the words of the Chancellor, "* * * the exercise of specific performance in this instance would be inequitable." It appears that the utilities system entailed an investment of the mortgagor of more than $3,800,000.00, but Petitioner-mortgagee attempted to exercise the claimed option by notifying the mortgagor that he would negotiate and close for only $1,648,059.68. This finding of inequity does not seem illogical or erroneous. Rather, it appears that the Chancellor was cognizant of and acting in accordance with the following equitable principles:
Even if the option to purchase had been valid, it does not appear Petitioner effectively exercised it. Instead of maintaining his original offer to exercise the option to purchase the system at its actual cost to mortgagor and going to arbitration if he disputed the cost figure submitted by the mortgagor, Petitioner subsequently unilaterally departed from the terms of the option by only offering said amount of $1,648,059.68 for the system. It thus appears the *190 option offer was not effectively exercised and maintained by Petitioner as the law relating to options requires. See 33 Fla. Jur., Vendor and Purchaser, § 20, and 55 Am.Jur., Vendor and Purchaser, § 39.
In sum, it appears: (1) There is no conflict; this is a case of first impression where factually and resultwise there is no conflict of appellate decisions, nor is there any conflict of legal principles. Therefore, a second appeal should not be granted, contrary to our constitutional jurisdiction. (2) The option to purchase was a mere clogging device defeating the equity of redemption. To allow options to purchase as an added advantage to lenders in mortgage transactions opens avenues for oppression hitherto unrecognized in our state. (3) The option was not effectively exercised and the manner in which it was sought to be exercised was found by the Chancellor to be grossly inequitable.
THOMAS, J., agrees to conclusion.