INTERDEVCO, INC., INTERDEVCO-GROVE SQUARE, INC., ISSAC MILDENBERG, JANIN MILDENBERG, JOSE M. SURIOL AND CONXITA SURIOL, APPELLANTS,
v.
HOLLYWOOD FEDERAL SAVINGS AND LOAN ASSOCIATION, A SAVINGS AND LOAN CORPORATION ORGANIZED UNDER THE LAWS OF THE UNITED STATES, AND CONTINENTAL CASUALTY COMPANY, APPELLEES
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Hollywood Federal Savings and Loan sought a preliminary injunction to prevent disbursement of insurance proceeds from an escrow account, claiming entitlement as collateral for a construction loan. The court reversed, holding that under Florida's UCC Article 9, tort claim proceeds cannot be pledged as collateral and therefore Hollywood Federal had no valid claim to the funds.
Hollywood Federal has no valid claim to the escrow funds because the funds consist solely of proceeds from Interdevco's tort claim, and under Florida UCC Article 9, section 679.104(11), a security interest cannot be created in the proceeds of a tort claim.
[1] A preliminary injunction may be granted to preserve the status quo by restraining further disbursement of funds when a party asserts a claim to those funds.
[2] A mortgage encumbering real property and its appurtenances does not extend to proceeds from a tort claim arising from defects in construction on that property.
Previewing 2 of 4 headnotes on this case. FLexlaw’s editorially structured points of law — every proposition, pinpointed — are reserved for members.
Join FLexlaw to unlock all legal intelligence“one cannot pledge, as collateral, a tort claim or proceeds from such a claim”
Establishes the fundamental principle that tort claims and their proceeds are not subject to security interests
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Join FLexlaw to unlock all legal intelligenceInterdevco Grove Square financed a construction project through a loan from Brickellbanc, which assigned a participating interest to Hollywood Federal…
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FERGUSON, Judge.
The appellee, Hollywood Federal, commenced this action for a preliminary injunction to prevent the disbursement of insurance proceeds from an escrow account. The trial court granted the injunction, ruling that because Hollywood Federal asserted a claim to the funds the proper procedure was to preserve the status quo by restraining further disbursement of the funds. Substantively, Hollywood Federal’s claim is without a contractual basis.
Interdevco Grove Square entered into a Construction Loan Commitment with Brick-ellbanc Savings Association to finance the construction of a real estate project owned by Interdevco. Brickellbanc assigned to Hollywood Federal a participating interest in the construction loan.
Construction of the residential condominium and commercial shops project was delayed due to engineering defects found during the course of routine inspections. In-terdevco sued the project’s architect and engineer for professional negligence. The engineer’s insurer, Continental Casualty Company, paid for the substantial remedial construction needed to correct the defects and paid Interdevco for economic losses occasioned by the delay. The insurance payment was made to an escrow account from which $840,000 was paid for corrective construction. The amount left in the account, approximately $290,000, is the subject of this action for injunctive relief.
Hollywood Federal claims entitlement to the escrow funds as collateral for its construction loan, relying on certain provisions of the Construction Loan Commitment and Mortgage and Security Agreement which was filed as a UCC-1 security instrument. The lender contends that one such clause provides that the mortgage encumbers not only the real property associated with the project but also constitutes a lien on:
all structures and improvements now and hereafter on said land and the fixtures attached thereto, also together with all and singular the tenements, hereditaments, easements and appurtenances thereunto belonging, or in any wise appertaining, and the rents, issues, and profits thereof, and also all the estate, right, title, interest and all claims and demands whatsoever, as well in law as in equity of said Mortgagor in and to the same....
(Emphasis added.)
The appellant, Interdevco, claims entitlement to the funds as its economic losses occasioned by the construction delays arguing, persuasively, that one cannot pledge, as collateral, a tort claim or proceeds from such a claim.
The subject escrow account consists solely of proceeds from Interdevco’s tort claim against the engineers and architects. In Florida National Bank v. First National Bank of Palm Beach, 507 So. 2d 726 (Fla. 3d DCA 1987), we held that under article 9 of the UCC there could be no effective lien against the proceeds of a tort claim. The controlling provision is section 679.104(11), Florida Statutes (1985), which provides that article 9 does not apply to “a transfer in whole or in part of any claim arising out of tort_” See also In re Monroe County Housing Corp., 29 Bankr. 686 (S.D.Fla.1983) (section 679.104 precludes security interest arising from a tort claim).
There being no other basis in the record for granting an injunction against distribution of the escrow funds,1 the order on review is reversed.
. Although the appellees assert, as alternative grounds for a claim to the insurance proceeds, two alleged written assignments of the insurance funds to Hollywood Federal, it is clear from the record that the purported assignments do not give Hollywood Federal a right to the funds. First, any obligation on Interdevco’s part to assign the insurance proceeds to Hollywood Federal did not arise under the First Amendment to Agreement (for an additional loan) because Brickellbanc failed to advance funds as required by that Agreement. As to the second "assignment,” Interdevco fully performed that separate agreement by depositing 70% of the final settlement proceeds ($840,000) into the receiver’s account.
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Interdevco, Inc. v. Brickellbanc Sav. Ass'n & Hollywood Fed. Sav. & Loan Ass'n, 524 So. 2d 1087 (Fla. 3d DCA 1988)…which presently has a market value lower than the amount of the loan. Interdevco’s refusal to apply the escrow fund toward the project’s completion necessitated judicial intervention, see Interdevco, Inc. v. Hollywood Fed. Sav. & Loan Corp. Ass’n., 523 So. 2d 773 (Fla. 3d DCA 1988), and negated any equitable right which it may have had to market the building. In my view, these facts support the reasonableness of the trial court’s conferring on the receiver the authority to supervise the ultimate disposition…
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Chase Manhattan Mortg. Corp. v. Suarez, 732 So. 2d 394 (Fla. 3d DCA 1999)…terest in the recovery effected in that case. See Clay v. Girdner, 103 Fla. 135, 138 So. 490 (1931); Orlando Hyatt Assocs. v. Federal Deposit Ins. Corp., 629 So. 2d 975 (Fla. 5th DCA 1993); Interdevco, Inc. v. Hollywood Federal Savings & Loan Ass’n, 523 So. 2d 773 (Fla. 3d DCA 1988); VAC Dev. Corp. v. Abelleira, 330 So. 2d 791 (Fla. 3d DCA 1976). The appellant’s arguments that the claim falls within the provision which secures “replacements” of the mortgaged property and that, even in the absence of an explic…
Authorities Cited
- Fla. Nat'l Bank v. First Nat'l Bank OF Palm Beach & Skylake State Bank, 507 So. 2d 726 (Fla. 3d DCA 1987)