This case is before us for consideration after reargument granted pursuant to the opinion and judgment filed herein on February 20, 1936. The question which it now appears necessary for us to determine is whether or not Bellaire Securities Corporation named as the assignee of a mortgage executed by Raymond P. Brown, et al., to Charles F. Cessna on July 1, 1925, in the sum of $63,000.00 under the facts and conditions set forth in the original opinion filed herein as above stated, may foreclose such mortgage against Raymond P. Brown and his wife, Pearletta Brown.
The decree of the Circuit Court from which this appeal was taken amongst other things adjudicated:
"That, as against the said Raymond P. Brown and William H. Brown, the mortgage on the premises hereinafter particularly described executed the first day of July, 1925, by the said Raymond P. Brown and Pearletta Brown, his *Page 89 wife, to Charles E. Cessna, recorded in Mortgage Book 21, pages 441 to 446, of the public records of said Walton County, and the indebtedness secured thereby, have been paid, and the said mortgage is hereby cancelled, and the Clerk of this Court is hereby directed to make entry upon the margin of the said record of said mortgage that the said mortgage has been cancelled by this decree with appropriate reference to this decree and its date and place of record."
This adjudication was necessarily based upon the finding that the money paid to Cessna by Howe as set forth in the original opinion herein constituted a payment of the mortgage upon the theory that Howe and his associates had become primarily liable for the payment of that obligation and the transaction did not constitute a purchase and an assignment. In the original opinion Mr. Justice BROWN, speaking for the Court, said:
"There is no need to consider the question of disregarding the corporate entity of the Bellaire Securities Corporation. Admittedly, it holds the title to the mortgage sought to be foreclosed for the use and benefit of those persons who furnished the money to buy the mortgage, all but one of whom were members of the Jones-Howe syndicate and stockholders in the Bayview Corporation. But there is a serious question here whether, under the evidence, the corporate entity of the Bayview company should be disregarded, and its stockholders who participated in the purchase held to have been personally bound to pay said first mortgage at the time they bought it from Cessna; and then, if they became so personally bound, whether Brown waived such personal liability and accepted the corporate liability instead.
"The first question to be considered is whether or not Jones, Howe, et als., became, by reason of the Adair contract *Page 90 with Root, personally obligated for the payment of the purchase price of the lands in question. If they did so become personally liable, and such liability continues, the law is well settled that the organization of a corporation for the purpose of evading an existing personal liability on the part of those who became its stockholders will not be allowed to achieve that purpose, for in such case the courts will `pierce the veil of the corporate fiction' and hold the stockholders of the corporation to their personal liability, even though the corporation was regularly organized in accordance with the statutes. Not that the law deems it reprehensible to form a corporation in order to limit one's risk to the amount of his investment in the stock, so far asfuture liabilities of the corporation are concerned; for this is legitimate and an every day occurrence."
Then further in the opinion, in reviewing the action of the stockholders in Bayview Improvement Company, it is said:
"We think that the foregoing, taken together with the whole record, indicates that Jones and his associates, while they did not, at the time of its execution, become legally bound by the Root-Adair contract to purchase the land, they subsequently ratified its execution by Bowen's sub-agent, Adair, and were, in the eyes of equity, the real purchasers; but, inasmuch as the property was deemed to be worth more than the proposed mortgages, they were in a position where they could lawfully form a corporation to take the deed to the property and execute the mortgages for the balance due on the purchase price, without personal responsibility on their part, provided this was consented to by the interested parties."
The opinion then says, "and this was exactly what happened." As we now see the record, that statement was not *Page 91 warranted because Cessna at no time agreed to waive the personal liability of those men whom the original opinion holds had become legally bound by the Root-Adair contract "and were, in the eyes of equity, the real purchasers."
Brown was not in position to waive the liability on behalf of Cessna, though we assume that Brown waived the liability of the individuals who had organized the corporation to take title to the property insofar as there was any liability to pay his second mortgage, or, in other words, the mortgage which was to be executed by the vendee corporation to Brown, the vendor, who was the vendee of Cessna.
And so it is, assuming that the adjudication of the Chancellor that the moneys paid by Howe to Cessna constituted a payment of the mortgage and not a purchase, although the mortgage was delivered by Cessna to Howe with a blank assignment which Howe afterwards filled in so as to make the assignment appear to be to Bellaire Securities Corporation, a corporation all of the capital stock of which was held by Howe, and although Howe raised the money evidently to reimburse himself for what he had paid Cessna (because the record shows that Howe procured the funds from his associates who were stockholders in Bayview Improvement Company, and one other person who was the wife of a stockholder in that company) after he had procured possession of the mortgage from Cessna, was a correct adjudication. And further assuming that the statement made in our opinion above referred to — "There is no need to consider the question of disregarding the corporate entity of the Bellaire Securities Corporation. Admittedly, it holds the title to the mortgage sought to be foreclosed for the use and benefit of those persons who furnished the money to buy the mortgage, all but one of whom were members *Page 92 of the Jones-Howe syndicate and stockholders in the Bayview corporation," and the further statement in that opinion as follows: "We think that the foregoing, taken together with the whole record, indicates that Jones and his associates, while they did not, at the time of its execution, become legally bound by the Root-Adair contract to purchase the land, they subsequently ratified its execution by Bowen's sub-agent, Adair, and were, in the eyes of equity, the real purchasers" — to be correct. It must then necessarily follow that Howe acquired no title as assignee to the mortgage executed by Brown and wife to Cessna and he, having acquired no title, could not create title by filling in a blank assignment so as to make a corporation of which he was sole owner appear to be the assignee of the mortgage which in law he was obligated to pay, and which had been paid by him.
But whether the gentlemen who organized Bayview Improvement Company, a corporation, were personally obligated to pay this first mortgage or not, they had personally negotiated the agreement on behalf of that corporation whereby that corporation as a part of the purchase price of the land involved assumed and agreed to pay the notes secured by the mortgage from Brown and wife to Cessna and by such agreement they in effect, acting in the name of the corporation, Bayview Improvement Company, agreed to hold Brown harmless on his $63,000.00 obligation to Cessna. Having entered into that agreement with Brown and Cessna they could not in equity and good conscience thereafter so contrive to have that obligation paid to Cessna in such a manner as to leave in them the power to destroy the entire value of the second mortgage made and executed by their corporation to Brown.
We must bear in mind that the record shows conclusively *Page 93 that Bayview Improvement Company did not pay any of the purchase price for the land. The record shows that the stockholders made such payments as were made direct to Brown. In this regard, Mr. Neely Bowen, who handled the transaction for the parties, testified as follows:
"Is it not a fact that Brown sold the Bayview tract to Jesse A. Root in July, 1925, for $263,385.00 and that in September, 1925, Root sold the property to Adair, the assignor of the Bayview Improvement Company, for $395,000.00?
"A. The amount called for in the contract between Brown and Root was $263,385.00 and the amount to be paid by Adair was Three Hundred and Ninety-five Thousand Dollars, approximately that.
"Has Bayview Improvement Company ever paid any money to any person on account of the mortgage involved in this cause?
"A. It has not.
"MR. DEVER: Wait a minute, are you sure that is the right answer?
"THE WITNESS: Yes, sir. I am still President of the Bayview Improvement Company. We never had a penny since.
"Did you ever see a letter from Cessna to Wm. H. Brown and Sons purporting to be dated May 7th, 1926, with reference to an extension of the interest payment due on the Sixty-three Thousand Dollar mortgage May 10th, 1926? If so, do you know where the original letter is? Do you know whether that letter was dated back at Brown's request, and was in fact written after Wm. H. Brown knew that Cessna had sold the mortgage?
"A. I have seen the letter or a copy of the letter, but I *Page 94 don't know where the letter is now. I know nothing other than what Dr. Cessna told me it was.
"Is it not a fact that $100,000.00 or more in cash was paid into Bayview Improvement Company for its capital stock?
"A. There was deposited $121,500.00 to my account in the American National Bank with which to handle the Bayview Improvement Company deal, made the initial payment and pay the commissions involved. This money remained in my personal account as `Neely Bowen, Trustee,' and was so disbursed, approximately Ninety-eight Thousand dollars of it being paid as down payment for the land which was deeded to the Bayview Improvement Company, and the remainder of it paid as commissions to three or four different ones. I do not know whose money it was. It was sent to me to buy this property. It was not done as a corporate transaction. The money did not go into the Improvement Company, but went to Wm. H. Brown, Frank S. Bond and Z.D. Adair. That is what went with the money and Adair was one who got the principal amount. I got Seven Thousand Dollars of it."
Now we find from the record that when the mortgage from Brown to Cessna was acquired by Howe he paid the money and took an assignment instead of a receipt. In Summer v. Osborne, et al.,
"If money paid to the owner of a first mortgage is advanced by one whose duty it is, by contract or otherwise, to pay and cancel the first mortgage and also a second mortgage, and relieve the mortgaged premises of the lien of the first mortgage, a duty in the proper performance of which the second mortgagee has an interest, the payment thereof shall be held, as to the maker of the first mortgage and as to the second mortgagee, to be a release and not an assignment *Page 95 although an instrument in form purporting to be an assignment is given to the one so advancing the money."
In Home Fire Insurance Co. v. Barber,
"To permit persons to recover through the medium of a court of equity that to which they are not entitled simply because the nominal recovery is by a distinct person through whom they receive the whole actual and substantial benefit, and that nominal person would, in ordinary cases, as representing beneficiaries having a right to recover, be entitled to relief, is a perversion of equity. It turns principles meant to do justice into rules to be administered strictly without regard to the result. It is contrary to the very genius of equity. When the corporation comes into equity and seeks equitable relief, we ought to look at the substance of the proceeding and if the beneficiaries of the judgment sought have no standing in equity to recover, we ought not to become befogged by the fiction of corporate individuality, and apply the principles of equity to reach an inequitable result.
"Hence, we think the rule to apply to such cases is this: Where a corporation is proceeding at law, or where it is asserting a title to property, or the title to property is involved, the corporation is regarded as a person separate and distinct from its stockholders, or any or all of them. But where it is proceeding in equity to assert rights of an equitable nature, or is seeking relief upon rules or principles of equity, the court of equity will not forget that the stockholders are the real and substantial beneficiaries of a recovery, and if the stockholders have no standing in equity, and are not equitably entitled to the remedy sought to be *Page 96 enforced by the corporation in their behalf and for their advantage, the corporation will not be permitted to recover."
See also Ayer Lord Tire Co. v. Commonwealth,
So, I think the decree appealed from should be affirmed.
