Hirsch v. Lincoln Securities Co. , 118 Fla. 164 ( 1934 )

This Court having been divided on its first opinion in this case filed herein on September 10, 1934, whereby the decree of the lower court was reversed and the Chancellor directed to enter a final decree in accordance with the findings of the general master, a rehearing was granted and a reargument of the whole controversy had before the Court en banc in order that it might be determined whether or not, as alleged in the petition for rehearing filed by the appellee, this court in deciding this case as it did on its first hearing, has overlooked or departed from the established authorities and precedents of this jurisdiction relating to the doctrine of subrogation. A reconsideration of this appeal in the light of what has been urged in argument on rehearing has failed to convince a majority of the court that any departure should be made from the views previously expressed in the majority opinion of this court in this case.

Subrogation, as an equitable right, is not capable of being so asserted as to work inequitable consequences to innocent third party lien-holders whose rights are entitled to protection against being wiped out by an attempted manipulation of dummy corporations in such manner as to permit first mortgagees to twice use and apply their mortgage debt — once as a part of the purchase price of the mortgaged land to which they take title and then again as a prior lien on the land for the purpose of defeating the outstanding rights of an intervening mortgagee as to whom the prior mortgages have been extinguished by payment so as to make the intervening mortgage a superior lien to new mortgages and a deed to dummy corporation mortgagors.

A mortgagee, knowing of the existence of a later mortgage, will not be permitted to directly acquire from the mortgagor the title to the property, using as the greater part of the purchase price his own first notes and mortgage, and later set up his notes and mortgage as a bar to the later mortgage, when the holder of the later mortgage attempts to assert his rights as a superior lien on the land as against the owner who acquired title with knowledge of the unsatisfied outstanding later mortgage. See Hilton v. Northern Central Trust Company,114 Fla. 796, 154 Sou. Rep. 328; Smith v. Metzler, 104 Fla. 315,139 Sou. Rep. 823; Thompson on Real Property, Vol. 5, Sec. 4264; 1 Jones on Mortgages, Par. 738, and cases there cited.

In a case such as this, equity will not permit a first mortgagee to escape the burdens of a transaction wholly favorable to his own interests, by attempting to shield himself from the ordinary legal consequences of what he intended to do, by resorting to the use of dummy corporations and the making of what purports to be other mortgages in lieu of and in substitution of the original ones which have been satisfied and discharged as part of the mortgagee's transaction with his own mortgagor, so as to defeat the exaltation of a later mortgage to a first position that would otherwise be the case. "In equity the conception of a corporate entity is used merely as a formula for working out the rights and equities of the real parties in interest." Morawetz on Private Corporations, par. 227. And see Biscayne Realty Ins. Co. v. Ostend Realty Co., 109 Fla. 1, 148 Sou. Rep. 560, Home Fire Ins. Co. v. Barber, 67 Neb. 644, 93 N.W. 1024; 60 LRA 927; Swift v. Smith 65 Md. 428, 5 A. 524; Buie v. Chicago R.I. P. R. Co., 95 Tex. 51, 65 S.W. Rep. 27; 55 LRA 861; Milbrath v. State, 138 Wis. 354, 120 N.W. 252, 131 ASR 1012; In re Scrimger's Estate, 188 Cal. 158, 206 P. 65; Ayer Lord Tie Co. v. Commonwealth 208 Ky. 606, 271 S.W. 693.

The appellees in this case could not have directly taken the title in themselves after first arranging for the satisfaction of their prior mortgages as part of the consideration for the transaction and then when sued by the later mortgagee have set up the satisfied first mortgages as a bar to the third which had been by the cancellation of the earlier mortgages elevated to first position, and they cannot do so indirectly by using the names of dummy corporations apparently organized for the purpose of destroying the identity of the holder of the legal title with that of the first mortgagees. Clermont-Minneola Country Club, Inc., v. Coupland, 143 Sou. Rep. 133, 106 Fla. 111.

If the conclusions the master arrived at, and which we approved in our first opinion, are correct, as we hold that they are, on the question of notice and the fact that the corporations are dummy corporations, then the allowance of subrogation to appellees in this case as against the appellant third mortgagee would amount to the grossest injustice and thereby violate all principles of equity and justice — a thing that is never allowed in order to sustain a claim of subrogation.

In the present case the situation is simply that of joint holders of a first and second mortgage, who affected a compromise with their mortgagor whereby the property was sold and conveyed to a corporation organized by the mortgagees for that express purpose, with the understanding that in consideration thereof, together with a large sum paid to the mortgagor, the mortgagor's obligations would be cancelled and surrendered, and satisfied of record, which was done; thereafter, when the new corporation had executed three new mortgages, aggregating a much larger sum, to one of the first mortgagees and the nominee of the other, the first of which mortgages contained a clause that it is in lieu and substitution of the original first mortgage, the officers and organizers of the new corporation being employees of the mortgagees, who had implied actual notice, if not actual notice, of an unrecorded third mortgage on the same property at the time, it attempted to be claimed under the cloak of the doctrine of conventional subrogation that as against the third mortgagee the legal effect of the transactions had between the holders of the first and second mortgagees with the mortgagor whereby the title was sold and conveyed as a part of the transaction in consideration of the cancellation of the first two mortgages, is not to extinguish the original mortgages but is to continue the lien thereof a superior lien to that of the third mortgagee, despite the fact that the first mortgages have been duly satisfied of record. A majority of the Court agree with the general master below that under such circumstances the doctrine of conventional subrogation is not applicable. Boley v. Daniel, 72 Fla. 121, 72 Sou. Rep. 644, LRA 1917A 734.

The opinion and judgment of this Court entered and filed herein on September 10, 1934, as explained and supplemented by this opinion on rehearing, is therefore reinstated and adhered to as the judgment of this Court on rehearing, mandate to issue in accordance herewith in due course under the rule.

ELLIS, BROWN, BUFORD, and DAVIS, J. J., concur.

WHITFIELD, C. J., and TERRELL, J., dissent.