Opinion
Rehearing Denied June 22, 1971.
Bailey Belfor, Robert Pitler, Denver, for defendant in error.
Robert A. Lehman, Denver, for plaintiff in error.
White & Steele, Lowell White, Denver, for West America Industrial Bank, formerly Westland Industrial Bank upon rehearing and remand.
DUFFORD, Judge.
This case was transferred from the Supreme Court pursuant to statute.
This action was first instituted in the trial court in May of 1968. In the trial court action, Mediterranean Spa, Ltd., which company is the defendant in error here, and also Westland Industrial Bank (now the West America Industrial Bank) were the plaintiffs. The principal defendant in the original trial court proceedings was F. C. Coe, the plaintiff in error here. His wife and the Public Trustee for the City and County of Denver were also defendants. The action was instituted to enjoin the Coes and the Denver Public Trustee from proceeding with foreclosure proceedings which had been brought to foreclose a deed of trust securing a promissory note requiring the payment of $75,000 at the rate of $500 per month, with the entire balance being payable upon the 'resale' of certain real property originally owned by Mediterranean Spa, Ltd., and described in the deed of trust.
In seeking the injunctive relief, it was the position of the plaintiffs, Mediterranean Spa, Ltd., and Westland Industrial Bank, that a certain quitclaim deed executed and delivered by Mediterranean Spa, Ltd., to Westland Industrial Bank on November 16, 1967, conveying the realty covered by the Coes' deed of trust, did not represent a 'resale' of that property within the meaning of the terms of the promissory note.
At the trial of this matter, the trial court determined that the quitclaim deed of November 16, 1967, had been executed for security purposes; that there had not been a resale of the subject property; and that the execution of the deed did not operate to make the entire balance of the $75,000 promissory note due and payable. For such reasons, the trial court issued its order enjoining the foreclosure proceedings which had been instituted by the Coes.
The decision of the trial court granting such injunction was thereafter appealed to this court. By decision announced December 1, 1970, we affirmed the action of the trial court.
Thereafter there were filed in this Court certain motions and also a petition for rehearing. In these pleadings it was alleged that certain essential and necessary facts relative to this matter had not been revealed to the trial court nor to this Court, thereby resulting in a substantial injustice. Pursuant to the petition for rehearing, the opinion of this Court which had been announced December 1, 1970, was withdrawn by order dated January 12, 1971. Following additional hearings in this matter, this Court entered its order of January 21, 1971, directing that a substantial showing had been made that essential and necessary facts may not have been revealed to the trial court nor to this Court, and ordering that the case be remanded to the trial court for the purpose of receiving motions and hearing evidence from the parties (including the West America Industrial Bank) on the question of whether evidence essential to this cause was concealed from this Court and the trial court. Following remand, the trial court held full and complete hearings with respect to such matter, and the entire record comprised of such hearings and the original record has now been recertified to this Court.
From the entire record now existing in this cause, the following facts appear without contradiction:
1. Prior to the commencement of this action in May 1968, the then President and one of the directors of Westland Industrial Bank, Donald S. Cooper, was also an officer and director of Mediterranean Spa, Ltd. The Westland Industrial Bank and Mediterranean Spa, Ltd., were both established by Donald S. Cooper and members of his immediate family, and his family owned the controlling interests in both companies.
2. The initial interest which the Westland Industrial Bank acquired in the real property involved in this case and which was primarily owned by Mediterranean Spa, Ltd., was in the nature of a security interest which it purchased from the North Denver Bank. However, the Bank Commissioner for the State of Colorado advised Mr. Cooper and the Westland Industrial Bank that the bank's holding of a security interest in such property was in violation of the Colorado Industrial Bank Act.
3. Because of the State Bank Commissioner's position, Donald S. Cooper, in his capacity as President of Westland Industrial Bank, advised the State Bank Commissioner by letter dated January 4, 1968, that the investment of that bank in the property owned by Mediterranean Spa, Ltd., was evidenced by the quitclaim deed of November 16, 1967, to the Bank. Such letter advised the Bank Commissioner that the deed had always been in the possession of the bank, but that the same was not recorded until November 20, 1967.
4. By letter dated February 2, 1968, from the State Bank Commissioner to Donald S. Cooper as President of Westland Industrial Bank, the Bank Commissioner advised Mr. Cooper in detail as to the reasons the Mediterranean Spa, Ltd., property could not be dealt with by Westland Industrial Bank on the basis of a loan transaction. The Bank Commissioner in such letter then stated that, upon the basis of Mr. Cooper's January 4, 1968, letter, it was the Bank Commissioner's understanding that the property was owned by the Westland Industrial Bank. Additional information as to the scope and nature of the Bank's ownership was also requested by the Commissioner.
5. Notwithstanding these occurrences involving the Banking Department of the State of Colorado from which the Bank Commissioner concluded that the Westland Industrial Bank's ownership of the Mediterranean Spa, Ltd., property was absolute in nature, and notwithstanding the fact that the Bank's subsequent financial reports submitted to the Bank Commissioner reflected its ownership of such property on that basis, neither Donald S. Cooper nor any other officer or director of Westland Industrial Bank or of Mediterranean Spa, Ltd., advised the legal counsel, who was representing both companies, of such facts, and such legal counsel then proceeded to institute this action on the theory that the quitclaim deed from Mediterranean Spa, Ltd., to Westland Industrial Bank was solely a security transaction. Upon such theory the trial court based its original order enjoining the foreclosure proceedings which had been instituted by the Coes, and upon the basis of such theory, this court affirmed by its now withdrawn opinion of December 1, 1970.
The quitclaim deed from Mediterranean Spa, Ltd., to Westland Industrial Bank was utilized, in the first instance, for the purpose of satisfying the State of Colorado Bank Commissioner that the effect of the deed was to transfer to that Bank an absolute title to the property described in the deed. This was the normal and obvious effect of the deed, and it was the effect which was accepted by and relied upon by the Commissioner. However, in this action the parties to the deed asserted to the trial court that the true effect of the deed was to create a security transaction.
In this State, it has been ruled that a party to a legal instrument cannot avoid the normal and usual legal consequences of that instrument on the basis that the purpose for which the instrument was drawn in a particular legal form was to deceive a public official, charged with a public trust. Rogers v. First State Bank, 79 Colo. 84, 243 P. 637; Linger v. Rocky Mountain Bank and Trust Co., Colo.App., 486 P.2d 29 (announced 3/30/71). Considering the nearly identical ownership of Mediterranean Spa, Ltd. and Westland Industrial Bank, this is the rule of law which would have been applied by the trial court and by this Court if all of the above facts had been known in the first instance. In the face of such rule of law and the public policy rationale upon which it rests, no injunction could or would have issued in this case.
We, accordingly, rule that the order of injunction which was issued by the trial court and affirmed by this Court, and which is now known to have been entered in derogation of the law of this State and at odds with the public good, is hereby reversed and the injunction dissolved.
This cause is remanded to the trial court with the direction that the complaint filed herein be dismissed with prejudice.
DWYER and PIERCE, JJ., concur.