Court Opinion

ID: 3385900
Source: CourtListenerOpinion
Date Created: 2016-07-05 18:40:18.772392+00
Date Added: 2024-06-11T13:43:16.235175
License: Public Domain

In the original opinion filed on April 11th, 1936, there was set forth a statement of the facts out of which this litigation developed.
A rehearing was granted.
I am convinced that the conclusion reached in opinion above referred to is not well founded. The controlling facts, as they appear to me, are as follows:
On June 4, 1926, the Prudence Company purchased $62,500.00 of first mortgage bonds, the payment of which bonds was secured by a trust deed on Palmetto Apartments. These bonds should be referred to as the Kotte bonds. The trust deed was executed by Albert Kotte and wife to Sol Meyer and J.J. Kiser as Trustees. The $62,500.00 of bonds purchased by the Prudence Company constituted all the bonds issued under the trust deed. Meyer-Kiser, a corporation of Indianapolis, Ind., which corporation was owned by Sol Meyer and J.J. Kiser, guaranteed the payment of both principal and interest of the bonds purchased and owned by the Prudence Company. On January 2, 1928, the Prudence Company, at the request of Meyer-Kiser Bank of Miami, Florida, forwarded $50,000 *Page 692 
of the issue of $52,500.00 of bonds to the Bank of Bay Biscayne for the purpose of being exhibited in foreclosure proceedings brought by Meyer and Kiser as Trustees to foreclose the Kotte trust fund. At this time $12,500 of the bonds had been paid off and discharged.
On Rule Day in September, 1928, J.J. Kiser and Sol Meyer as Trustees and complainants in the foreclosure suit foreclosing the Kotte trust deed for the Prudence Company, as the Prudence Company was the holder of all the bonds outstanding, the payment of which was secured by that trust deed, bought in the property known as Palmetto Apartments for the sum of $42,000.00 and received a Master's deed from William T. McCaffrey as General Master to J.J. Kiser and Sol Meyer as Trustees, dated August 16, 1928. Under the record this deed vested the title in the Trustees for the use and benefit of the Prudence Company. There has never been a conveyance of the beneficial interest vested thus in the Prudence Company.
The record shows that the bonds secured by the Kotte trust deed were returned to The Prudence Company uncanceled; that no other proceeds of the Master's Sale were paid over to the Prudence Company. It is, therefore, evident that Meyer and Kiser as Trustees in the foreclosure suit brought in the property as Trustees for the Prudence Company and that the Prudence Company bonds was the consideration paid for the property. Neither J.J. Kiser nor Sol Meyer acquired any title as individuals to the property under the Master's Deed, but the only title which they thereby acquired was as Trustees for the Prudence Company, all of which is shown by the record of the original trust deed, the foreclosure suit in the name of the Trustees *Page 693 
and the purchase at the Master's Sale in the name of the Trustees.
It, therefore, follows that the provisions of Section 3793 R.G.S., 5666 C.G.L., cannot be held to apply to the Master's Deed to J.J. Kiser and Sol Meyer so as to vest the fee simple estate with full power and authority in and to the grantees therein named to sell, convey and grant both the legal and beneficial interest in that estate so acquired. It is too well settled to require any citations of authorities that a Trustee once assuming to act in the trust capacity, will be held to continue to act in that trust capacity and he cannot acquire through his action as Trustee a title adverse to his cestui que trust. See Smith v. Mass. Mutual Life Ins. Co., 116 Fla. 390, 156 So. 498, 95 A.L.R. 508.
On September 25, 1928, Kiser and Meyer as individuals, joined by their wives, respectively, deeded this property to Pan-Palmetto Corporation. This corporation was the creature of, and officered and controlled by, Sol Meyer and J.J. Kiser. The deed did not purport to convey the beneficial interest of the Prudence Company. Thereafter, Pan-Palmetto Corporation executed a trust deed or mortgage to J.J. Kiser and Ferd S. Meyer, purporting to secure a bonded indebtedness of $82,000.00. This was done without any authority whatever from the Prudence Company and the record shows the Prudence Company knew nothing about this transaction until sometime in October, 1932. Pan-Palmetto Corporation was the creature of Meyer and Kiser.
On July 1, 1930, the Pan-Palmetto Corporation mortgage was satisfied of record. On January 28, 1929, Pan-Palmetto Corporation pretended to convey by warranty deed the property involved to Puritan Investment Co. and *Page 694 
July 1, 1930, Puritan Investment Co., made a trust deed to J.J. Kiser and Ferd S. Meyer as Trustees, securing a bond issue in the sum of $1,900,000.00. The Prudence Company knew nothing about either of these transactions.
The following facts are shown: J.J. Kiser and Sol Meyer were the owners of Meyer-Kiser Corporation of Indianapolis, Ind. J.J. Kiser and Sol Meyer were the owners and in management of Meyer-Kiser Bank of Miami. Kiser and Meyer were the Trustees under the trust deed of Pan-Palmetto Corporation. J.J. Kiser and Sol Meyer were the sole owners and officers in active direction of Puritan Investment Co. The officers of Puritan Investment Co. were J.J. Kiser, Sol Meyer and W.C. Chadwick, directors. Sol Meyer was President and W.C. Chadwick was Secretary. Meyer-Kiser Bank of Miami in some way undisclosed by the record acquired 48 of the Puritan Investment Co. bonds. That bank was owned and dominated by J.J. Kiser and Sol Meyer and these bonds were found in the Bank when it was taken over by the Liquidator.
Meyer and Kiser were officers of both the Puritan Investment Co. and Meyer-Kiser Bank of Miami. It, therefore, follows that Meyer-Kiser Bank of Miami acquired no greater rights than Meyer and Kiser acquired under the Master's Deed. The Liquidator of the Bank acquired no better title than the Bank held.
After the foreclosure sale under the Kotte trust deed Meyer and Kiser continued to discharge their guarantee to The Prudence Company by paying off the maturities on the 13th day of January of each year until the 13th of January, 1931, when there was a balance due The Prudence Company of $27,000.00. Thus they lulled the Prudence Company into inaction. When maturities of The Prudence Company were no longer met the Prudence Company became active in the *Page 695 
endeavor to get the money due it and soon thereafter discovered the attempted fraud and demanded restitution of its security.
On October 17, 1932, J.J. Kiser and Ferd S. Meyer released the property involved in this suit from the Puritan Investment Co. mortgage and on the 13th day of October, 1932, Puritan Investment Co. by Ferd S. Meyer, its President, and W.C. Chadwick, its Secretary, conveyed the property to Warran Corner Holding Corporation. This release and conveyance was authorized by corporate resolutions and copies of these resolutions were furnished by Puritan Investment Co. to the Prudence Company. This conveyance was ratified in writing by the holders of 97.86 per cent. of the $1,900.00 Puritan mortgage bonds issued against this and other property. The remaining 2.14 per cent. of such bonds was at the time in the hands of Duncan as Liquidator of Meyer-Kiser Bank of Miami.
Warran Corner Holding Corporation was a corporation created by The Prudence Company for the purpose of taking title to this property on behalf of The Prudence Company and the conveyance was made to Warren Corner Holding Corporation by direction of The Prudence Company.
Again, let it be noted that J.J. Kiser and Sol Meyer were the owners and officers of Puritan Investment Co.
The record shows that at all times Puritan Investment Co., through its officer and director, J.J. Kiser, recognized the interest of the Prudence Company in and to the property here involved. More than two years after the foreclosure of the Kotte trust deed J.J. Kiser wrote The Prudence Company in part as follows:
"The Palmetto Apartments covered by the other Kotte mortgage were rented last year for $7,000. We feel reasonably *Page 696 
confident we will be able to rent them for the coming season at around this figure, which will permit the payment of all interest on the loan besides the payment of $1,000 or $2,000 on the principal, or more. Our idea on this is to allow us to refund this with you, making a five year loan with a sinking fund arrangement whereby all net earnings in excess of taxes, operating expenses, upkeep and interest be applied to the reduction of principal. We should be glad to have you advise us in regard to this.
"We think the same arrangement could well be made on the two Norwood Investment Company loans.
"The only real problem is the $4,000 balance due on the Rifkin loan, known as the Molida Apartments. This property did well two years ago, but had a very poor season last year. We will be glad to continue to operate it for you through the Puritan Investment Company and turn over any income that may be received to the payment of principal and interest, or if you prefer we think we could arrange with the Puritan Investment Company to deed the property to you in satisfaction of your mortgage, which could probably be the most sensible thing to do under the circumstances. Even if we did this we would still be glad to operate it for you, and in this connection we want to again call your attention to the operation of some of the properties you have in Miami which our Mr. F.S. Meyer discussed with you when he was in New York a few weeks ago."
Again, on September 12, 1931, Mr. Kiser wrote The Prudence Company as follows:
"I, of course, realize you do not want to have any more mortgages in default than is necessary, but I assume that any house that holds as many real estate mortgages as you do must necessarily have a considerable amount of them in *Page 697 
default, and the small amount of mortgages herein involved added to others would not make a great deal of difference.
"What we want to do on the mortgages is to cure the defaults as to interest as soon as possible, which we think can be done after the winter season, and make arrangements with you for the extension of principal so that there will then be no default.
"We regret that it will be impossible for us to arrange to give you a deed for any of these except the Rifkin, as stated in our last letter. If you want us to prepare a deed we will be very glad to do so and send it to you.
"It would, of course, be obviously impossible to obtain deeds for the Kotte Linden Apartments mortgage as we do not control this and there is no default on it. The same thing is true of the Bagley Mortgage.
"As to the Kotte Palmetto mortgage, we feel reasonably confident this will be leased for the coming season at an amount sufficient to pay interest and something on the principal, and we want to arrange an extension on the balance."
And, in the same letter, he said:
"We, of course, understand that the Meyer-Kiser Corporation of Indiana is still responsible on its guarantee on these mortgages and that any refunding arrangements of any kind that are made would not release their guarantee, as we are confident the receiver for this company will join in any necessary papers in connection with these refundings so that their guarantee will not be released."
On November 30, 1931, Puritan Investment Co. by J.J. Kiser, Its Vice-President, advised the Prudence Company as follows:
"We understand you are the holder or guarantor of the *Page 698 
following mortgages at Miami, Florida, title to which real estate is in our name.
"1. (Norwood Investment Company) 1447 S.W. Fifth Street, Miami.
"2. (Norwood Investment Company) 1452 S.W. Fifth Street, Miami.
"3. (Kotte) 1224 Pennsylvania Avenue, Miami Beach.
"4. (Rifkin) 253 N.E. Fourteenth Street, Miami.
"In consideration of your taking no action toward foreclosing the mortgages on the above properties at the present time, we as owner of said property hereby assign to you all rents, income and profit from these properties subject to a prior assignment made by us of the rental, income and profits of all our properties to J.J. Kiser and Ferd S. Meyer, Trustees on account of advancement heretofore made by them.
"We understand that we are to act as your agents in the collection of these rentals, which agency is revocable at your pleasure. All funds collected shall be used to pay operating expenses and taxes only and the balance will be held for your account to be paid you upon your request, subject to the prior assignment above referred to. Any monies so paid you shall be applied on account of interest and principal on the mortgage covering the property affected."
The record not only shows that Puritan Investment Co. at all times recognized the beneficial interest of the Prudence Company in this property, but it also shows that J.J. Kiser and Sol Meyer deliberately withheld from The Prudence Company knowledge of the fact that The Trust deed securing its bonds had been foreclosed and the property sold under decree to Kiser and Meyer as Trustees for The Prudence Company; that on the contrary they procured the *Page 699 
return of the bonds uncancelled to The Prudence Company and thereafter in correspondence with the Prudence Company referred to the matter as it originally stood until the Prudence Company, upon making an independent investigation, discovered the true condition. It was then that the Puritan Investment Company took necessary steps to convey such title as it might have acquired to Warren Corner Holding Corporation, the nominee and alter ego of The Prudence Company.
In the making of the release from the mortgage and in the execution and delivery of the conveyance by Puritan Investment Co., it was doing no more than it could and should in equity and good conscience have been compelled to do. See Smith v. Mass. Mutual Life Ins. Co., supra.
It is apparent that Meyer and Kiser were fully advised that the attempt which they had made to divest their cestui que trust of its interest in the property was abortive and of no force and effect and that as each and every transaction which was consummated after the Master's Sale and deed to Meyer and Kiser as Trustees was consummated between Meyer and Kiser as officers of one corporation, or as individuals, and Meyer and Kiser as officers of another corporation, or as individuals and that, therefore, there were no intervening innocent purchasers and that they continued to hold title to the property purchased at the foreclosure sale for the benefit of The Prudence Company and not otherwise, and therefore, they caused the conveyance to the nominee of The Prudence Company to be made for the purpose of avoiding litigation and being required by decree of court to do that which they were bound to do under the principles of law as clearly stated by this Court in the splendid opinion by Mr. Justice Brown in Smith v. Mass. Mutual Life Ins. Co., supra. *Page 700 
It is quite true, as is stated in the opinion prepared by Mr. Justice Terrell after re-argument of the case, that the Trustees of the Puritan Investment Company as bondholders therefor 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. But the record shows that Meyer and Kiser elected to and did make the purchase "as Trustees and not as individuals." As Trustees they could have conveyed a good title. Having elected to take title "as Trustees" and having so accepted the title they thereby fixed their character in that regard and a deed from them as individuals was ineffective to convey title divesting The Prudence Company of its beneficial interest.
Aside from this, however, there appears to me to be another reason why the decree should be reversed, even though it should be held that the deed from Meyer and Kiser as individuals was effective to convey the beneficial interest vested in The Prudence Company. As is hereinbefore stated, on October 17, 1932, J.J. Kiser and Ferd S. Meyer released the property involved in this suit from the Puritan Investment Co. mortgage and on the 13th day of October, 1932, Puritan Investment Co. by Ferd S. Meyer, its President, and W.C. Chadwick, its Secretary, conveyed the property to Warren Corner Holding Corporation. This release and conveyance was authorized by corporate resolutions and copies of these resolutions were furnished by Puritan Investment Co. to The Prudence Company. This conveyance was ratified in writing by the holders of 97.86 per cent. of the $1,900,000.00 Puritan mortgage bonds issued against this and other property. The remaining *Page 701 
2.14 per cent. of such bonds were at the time in the hands of Duncan as Liquidator of Meyer-Kiser Bank of Miami.
It therefore appears that at most the appellees are entitled to only 2.14 per cent. of the proceeds of a foreclosure sale of the property involved, while Warren Corner Holding Corporation which is shown to be only a conduit to receive assets for the benefit of The Prudence Company, is entitled to receive the balance under subrogation of the rights of the holders of 97.86 per cent. of the bonds who ratified and confirmed the release and conveyance of the property here involved by Puritan Investment Co. to Warran Corner Holding Corporation. Certainly it cannot be reasonably contended that the holder of 2.14 per cent. of the bonds, the payment of which was secured by the mortgage, is entitled to receive any greater portion of the proceeds of the sale of the pledged property under the peculiar facts of this case than such holder would have been entitled to receive if all bondholders had retained such right as they may have originally had to participate in the proceeds. See First National Bank of Cincinnati v. Rudolph B. Flershman, 78 Law. Ed. 465,290 U.S. 504.
It may be that under other conditions a non-assenting bondholder would profit by the release of security by other bondholders but the factual conditions in this case will not permit such result here. To reach such a conclusion in this case would mean that the chancery court, which is a court of conscience, will lend its hand to aid the wrongdoer. The Liquidator stands in the shoes of Meyer-Kiser Bank of Miami. The officers of that Bank, Sol Meyer and J.J. Kiser, were the dominant parties in all these transactions. As officers of Puritan Investment Co., J.J. Kiser and Ferd S. Meyer issued bonds of Puritan Investment Co. with Sol Meyer and J.J. Kiser as its officers, *Page 702 
Meyer-Kiser Bank of Miami acquired forty-eight of these bonds. As an officer of Puritan Investment Co., J.J. Kiser caused the release and conveyance of certain property which was pledged, validly or not, to secure the payment of that bond issue. As an officer of Puritan Investment Co., he procured the ratification and confirmation of that release and conveyance by holders of 97.86 per cent. of the bonds but withheld ratification and confirmation of such release and conveyance by the Bank which Sol Meyer and J.J. Kiser controlled. It would be unconscionable to allow them to so enhance the value of the bonds held by the Bank under their control.
So, I am of the opinion that the decree appealed from should be reversed and the cause remanded with directions.