Ames v. Central Bank of Birmingham

Citations: 460 So. 2d 1213; 1984 Ala. LEXIS 4301Docket: 82-529, 82-576 and 82-607

Court: Supreme Court of Alabama; July 13, 1984; Alabama; State Supreme Court

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The appeals arise from the Dallas County Circuit Court's resolution of cross-claims in a case linked to Ames v. Pardue, 389 So.2d 927 (Ala.1980). In 1977, John and Mae Ames approached Central Bank of Birmingham regarding the purchase of a parcel of land owned by J. Bruce and Mary Jane Pardue, which was set for foreclosure. Central Bank approved a payment plan involving a $150,000 cash payment and the creation of a purchase money mortgage. The Ameses established a trust for the Pardue land, benefiting their minor children, with Central Bank and Ruth Binford as trustees. Following the foreclosure, the trust acquired the property and assumed a $675,000 purchase obligation, guaranteed by the Ameses, who made the initial cash payment, reducing the debt to $525,000. The trust conveyed portions of the land to Mae Ames and the Ameses in exchange for promissory notes. 

After taking possession, the Ameses made payments until a lawsuit was filed by the Pardues in January 1978, challenging the foreclosure’s validity. The trial court subsequently prohibited the Ameses from improving the land or harvesting timber, which hindered their ability to service the debt. The Ameses allege that Central Bank agreed to suspend interest accrual on the debt during the litigation, while Central Bank contends it only allowed a moratorium on collections. Central Bank later demanded payment of accrued interest after the court reinstated the foreclosure sale. The Ameses attempted to sell the land to cover the debt, successfully selling one parcel, but the other sale did not finalize. Ultimately, the trial court denied all relief sought by the Ameses and the trust, including a claim for rent from the trust, citing "impossibility of performance."

The trial court ruled in favor of Central Bank, allowing interest on the trust’s obligation during the ongoing Pardue litigation but required Central Bank, as the Trustee, to cover the trust's attorneys' fees for defending against the Pardues’ challenge. The Ameses, the trust, and Central Bank have appealed, raising several issues: 

1. Whether the trial court erred in rejecting the Ameses’ claims of fraudulent misrepresentation against Central Bank.
2. Whether the trial court erred in denying claims for attorneys' fees and damages related to the defense against the Pardues’ challenge.
3. Whether the trial court erred in ruling that interest on the trust’s promissory note continued to accrue during the litigation.
4. Whether it was erroneous to apply partial payments first to the principal before accrued interest.
5. Whether assessing attorney’s fees against Central Bank as Trustee was appropriate.

In the Ames v. Pardue case, it was determined that John Ames relied on Central Bank’s assessment of the mortgage balance as $675,000 but had not sustained injury from this reliance. The trial court found that the Ameses failed to prove damage from alleged misrepresentations by Central Bank, supported by conflicting testimonies regarding the bank's bidding decisions. 

The court referenced the rule established in Goulding Fertilizer Co. v. Blanchard, noting that sales by a trustee under power are quasi-judicial and that the rule of caveat emptor applies, shielding Central Bank from liability for title failures. Central Bank argues that this rule prevents the Ameses and the trust from recovering attorneys' fees and damages and necessitates that they pay the purchase price with accrued interest, contending that they could have avoided this outcome by including protective measures in their agreement with the bank.

In Alpine Construction Co. v. Water Works Board, the court determined that requiring Central Bank to pay the attorneys’ fees incurred by the trust and the Ameses in defending the foreclosure sale would be inequitable, as the bank had warranted that the sale was conducted properly. Central Bank successfully defended the foreclosure's validity, and its warranty suspended the trust's and Ameses' absolute liability for the purchase price and interest during the litigation with the Pardues. Consequently, no interest accrued on the trust's obligation to Central Bank while the lawsuit was pending. The trial court's directive to utilize sale proceeds to settle the principal debt and agreed interest remained intact, as the proceeds were not fully consumed by these payments. The trial court's enforcement of Code 1975. 8-8-11 regarding the order of payments was not deemed erroneous. However, the court found an error in the trial court’s order requiring the Trustee to pay fees for attorneys representing the trust in the Pardue action, as this contradicted the provisions of Code 1975. 19-3-281, which governs the payment of expenses related to trust estates. The code specifies that ordinary expenses should be paid from income, while other expenses, including those for legal defense, should come from the principal unless caused by tenant fault.

Taxes imposed by any federal, state, or foreign authority on profit or gain categorized as principal under subsection (b) of section 19-3-272 must be paid from the principal, regardless of the tax's designation as income. The term "action" in subsection (b) is interpreted as a "court proceeding," which applies to the Pardues' claim. Consequently, attorneys' fees incurred by the trust in defending against the Pardues' challenge to its title are to be paid from the trust principal. As a result, the previous award of attorneys' fees against “the Trustee, in its corporate entity” is vacated. The decision is affirmed in part and reversed in part, with the cause remanded. The ruling aligns with the trial court's order that the trust, the Ameses, and Central Bank each bear their respective attorneys’ fees for defending the title to the Pardue land. Additionally, a loan officer from Central Bank indicated that if the foreclosure was invalid, the loan to the Ameses would also be invalid or nonexistent.