Case Name: The Prudence Company, Inc., a New York Corporation, and Warren Corner Holding Company, a corporation, et al., v. Thomas E. Garvin and J. E. Lind, as Trustees, and M. A. Smith, as Liquidator of the Meyer-Kiser Bank of Miami
Court: Florida Supreme Court
Jurisdiction: Florida
Decision Date: 1936-04-11
Citations: 130 Fla. 680
Docket Number: 
Parties: The Prudence Company, Inc., a New York Corporation, and Warren Corner Holding Company, a corporation, et al., v. Thomas E. Garvin and J. E. Lind, as Trustees, and M. A. Smith, as Liquidator of the Meyer-Kiser Bank of Miami.
Judges: Ellis, P. J., and Buford J., concur.
Reporter: Florida Reports
Volume: 130
Pages: 680–702

Head Matter:
The Prudence Company, Inc., a New York Corporation, and Warren Corner Holding Company, a corporation, et al., v. Thomas E. Garvin and J. E. Lind, as Trustees, and M. A. Smith, as Liquidator of the Meyer-Kiser Bank of Miami.
179 So. 127.
Division B.
Opinion Filed April 11, 1936.
Oh Petition for Reargument January 20, 1937.
On Reargument December 21, 1937.
Milam, Mcllvaine & Milam, and E. T. Mcllvaine, for Appellants;
Richard H. Hunt and Carlos L. Edwards, and Geo. H. Salley for Appellees.

Opinion:
Terrell, J.
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 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 MeyerKiser 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 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 pent ente lite.
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 unpaij 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 motrgage 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.
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 Méyer 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 dr consulted with reference to it and that the alleged conveyance was not consum mated 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 bona fide 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 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 annd 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 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 Pac. 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 redase 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.
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.
Per Curiam.
After repeated conference in regard to final disposition of the above entitled cause in this Court, it has been determined by the Court to order a reargument, the reargument to be confined and addressed to the question as to whether or not the title to the property involved in this suit after being conveyed by the Master in Chancery pursuant to sale under foreclosure to J. J. Kiser and Sol Meyer as Trustees, thereafter passed from J. J. Baser and Sol Meyer as Trustees so as to become vested in the Puritan Company in such manner that the Puritan Company could execute a valid trust deed, to secure its. bonds whereby the purchasers of such bonds should be construed to be holders thereof without notice of the claim of The Prudence Company the cestui que trust in whose behalf J. J. Kiser and Sol Meyer as trustees foreclosed the trust deed resulting in the sale of the property and the conveyance by the Master to J. J. Kiser and Sol Meyer as Trustees as first herein stated. And upon the further question as to whether or not after the foreclosure of the trust deed executed by Alter Kótte and wife to Sol Meyer and J. J. Kiser as Trustees to enforce the payment of the bonds held by the Prudence Company and the conveyance of the property involved in this suit by the Master in Chancery in that foreclosure suit to J. J. Kiser and Sol Meyer as Trustees, Prudence Company waived its right to rely upon its security and elected to look for the payment of its bonds to J. J. Kiser and Sol Meyer as guarantors.
The Court will hear argument on these questions on the 9th day of February, 1937, at 9:30 o'clock A. M.
So ordered.
Ellis, C. J., and Whitfield, Brown, Buford and Davis, J. J., concur.
On Reargument
Division A.
A reargument of this case was heard February 9, 1937, by order of the Court limited to the following questions:
"1. . Whether or not the title to the property involved in this suit after being conveyed by the Master in Chancery pursuant to sale under foreclosure to J. J. Kiser and Sol Meyer as Trustees thereafter passed from J. J. Kiser and Sol Meyer as Trustees so as to become vested in the Puritan Company in such manner that the Puritan Company could execute a vaild trust deed to secure its bonds whereby the purchasers of such bonds should be construed to be holders thereof without notice of the claim of the Prudence Company, the cestui que trust in whose behalf J. J. Kiser and Sol Meyer as Trustees foreclosed the trust deed resulting in the sale of property and the conveyance by the Master to J. J. Kiser and Sol Meyer as Trustees as first herein stated.
"2. Whether or not after the foreclosure of the trust deed executed by Albert Kotte and wife to Sol Meyer and J. J. Kiser as Trustees to enforce the payment of the bonds held by the Prudence Company and the conveyance of the property involved in this suit by the Master in Chancery in that foreclosure suit to J. J. Kiser and Sol Meyer as Trustees, Prudence Company waived its right to rely upon its security and elected to look for the payment of its bonds to J. J. Kiser and Sol Meyer as guarantors."
In an opinion filed April 11, 1936, a full statement of the essential, facts will be found. These facts will be drawn from as a basis for the present opinion rather than attempting a restatement of them.
The questions as stated are verbose but after argument and a thorough consideration of them in the light of the record, we find no reason to reverse or modify our opinion filed April 11, 1936. Both questions should be answered in the affirmative for the following reasons:
1. The Trustees of the Mortgage securing the Kotte bonds were empowered to purchase at the foreclosure sale the lands securing said bonds in their individual or official capacity. When so purchased, they could sell the said lands and convey, a good and indefeasible title in them. Nay Aug Lumber Co. v. Scranton Trust Co., 240 Pa. 500, 87 Atl. 843; Watson v. Scranton Trust Co. 240 Pa. 507, 87 Atl. 845; Smith v. Mass. Mutual Life Ins. Co., 116 Fla. 390, 156 So. 498; 95 A. L. R. 508.
2. The record discloses and it was in effect held by the Chancellor that the Prudence Company waived its right to rely on the Kotte bond security and elected to rely on Meyer-Kiser Corporation of Indiana for security.
3. It was admitted at the oral argument by counsel for appellant that Smith, as liquidator, was a holder for value and in due course of his Puritan Company bonds to the same extent as if they had been purchased and held by the Atlantic National Bank of Jacksonville.
4. Even if Appellants and Appellee Smith could both be classed as innocent parties, Appellants would in equity by reason of their conduct be required to suffer because of their silence when conscience required them to speak.
We do not deem it essential to discuss and cite authorities supporting these reasons. They in part arrive from an interpretation of the evidence and facts as disclosed from the record. We have given the whole case a thorough consideration on reargument and find no reason to recede from our former opinion.
It is accordingly reaffirmed.
Ellis, C. J., and Whitfield, Terrell and Chapman, J. J., concur.
Brown, J., concurs in the conclusion.
Buford , J., dissents.