Adair v. Freeman

Decision Date06 March 1969
Docket NumberNo. 10171,10171
Citation451 P.2d 519,92 Idaho 773
PartiesE. Virgil ADAIR and Norma Adair, Plaintiff-Respondents, v. W. E. FREEMAN, Delphia Freeman, Wallace R. Egland, Kathleen Egland and Kenneth Poe, Defendants-Appellants.
CourtIdaho Supreme Court

Rapaich & Knutson, Lewiston, for defendants-appellants.

J. H. Felton, Lewiston, for plaintiffs-respondents.

McFADDEN, Justice.

On November 1, 1961, Mr. and Mrs. E. Virgil Adair, plaintiffs-respondents, leased the second floor dining room area of the City-County Airport Building in Lewiston, Idaho from the City of Lewiston and Nez Perce County. This lease was to terminate December 31, 1966, but contained an optional renewal clause for an additional term. The Adairs operated the Tailwind Restaurant on these premises until August 1965, when with the lessors' consent they assigned the lease to Mr. and Mrs. James L. Brush.

Brushes purchased the assets of the restaurant as a going business for $25,000, paying Adairs $10,000 cash and giving Adairs a note and mortgage for the balance of $15,000. The brushes raised the $10,000 cash payment by a loan of that amount from Mr. and Mrs. W. E. Freeman, defendants and appellants. The Brushes, Adairs and Freemans agreed that the Freemans would have their loan evidenced by Brushes' promissory note to them, secured by a first mortgage on the property of the restaurant, including all equipment, stock in trade, fixtures, and beer and liquor licenses issued by the City, County and State. On August 25, 1967 the Brushes executed the notes and chattel mortgages to the Freemans and Adairs, in accordance with the agreement, the Freeman's mortgage being a first chattel mortgage and Adairs' mortgage being junior and secondary to Freemans'. Both chattel mortgages itemized the personal property and specifically described the various beer and liquor licenses as being covered by the mortgage. The first mortgage to the Freemans was in customary terms and after providing for foreclosure in event of breach of its terms by non-payment of the note, then contained a provision that before the Freemans exercised any of the options for foreclosure, they were to serve the Adairs, personally or by mail, a written notice specifying the default of the Brushes, and 'requiring compliance with the terms of this mortgage within thirty days * * *.' The Freemans also agreed that if the Adairs complied with the notice and terms of the mortgage the default would be deemed corrected, but if they did not comply within the thirty day period the Freemans could proceed with the foreclosure.

Brush then opened and operated the restaurant, and after obtaining necessary beer and liquor licenses, opened the Regal Lounge on the same premises and in conjunction with the Tailwind Cafe, purchasing under a conditional sales contract other equipment not involved herein. Brush encountered financial difficulties and requested Freeman to reduce the monthly payments provided on his note from $400.00 per month to $200.00 per month, which request was granted on May 13, 1966, with Adairs' consent. This did not alleviate Brush's problems and on August 19, 1966 he contacted Freeman for the purpose of turning all the property over to him. At this time, while not in default, Brush owed $7,457.00 on the Freeman note and mortgage, and $13,233.68 on the Adair note and mortgage.

On August 31, 1966, Freeman purchased for $1.00 all the Brushes' interest in the property, including all licenses. This transfer was specifically made subject to the Adair mortgage. On September 16, 1966, Freemans, by their attorney, notified the Adairs' attorney of the purchase from Brush and gave Adairs thirty days within which to pay the balance due on the first mortgage. This notice was purportedly in compliance with the provisions for notice in the first mortgage of Brushes to the Freemans.

Pursuant to the agreement of sale between Brush and Freeman, Freeman paid Brush for his stock of merchandise and liquor and obtained the keys to the premises. Freeman gave one set of keys to the airport manager, who, without the consent of either Freeman or Adair, let defendant Kenneth Poe and Mr. and Mrs. Wallace R. Egland into possession of the premises and the mortgaged property.

On the same day that the agreement between Brush and Freeman was executed (August 31, 1966), the Lewiston City Manager, purporting to act for the City and County, gave written notice to Adair and Brush that the lease was terminated and that $2900.00 in rentals were past due from Brush. Another notice was served on Freeman and Adair to remove all the mortgaged property from the premises. On September 25, 1966, the City issued a notice of a hearing to revoke Brushes' beer license.

The Adairs did not pay the balance due from Brush to Freeman on the frist mortgage within the thirty days mentioned in the notice by Freeman. Under date of October 24, 1966, the Freemans entered into a conditional sales contract with Mr. and Mrs. Wallace R. Egland, defendants-appellants, and Kenneth Poe, an unmarried man, pursuant to which the Freemans sold to Egland and Poe, without mention of the Adair mortgage, all the equipment, fixtures, and beer and liquor licenses of the Tailwind Cafe, for the agreed price of.$8,302.41, payable in monthly installments. The sale price exceeded the balance due from Brush to Freeman on the first fmortgage. Both the Eglands and Poe knew of the existence of the Adair chattel mortgage at the time they entered into this agreement. Egland and Poe later obtained a new lease on the airport premises and obtained new liquor and beer licenses, for the balance of that year, with Freeman paying one-half of the fees.

The Adairs instituted this action on November 29, 1966, alleging a conversion of the mortgaged assets by the Freemans, the Eglands, and Poe, all of whom were named as defendants. The defendants moved for summary judgment which the court denied, and the case came on for trial before the court in September 1967. Subsequently findings of fact, conclusions of law and judgment were entered in favor of the Adairs. The trial court concluded that the Freemans, instead of foreclosing their mortgage, took over the property in an unauthorized manner and were liable for the conversion. The court also concluded that Eglands and Poe, in purchasing the property from Freeman with knowledge of Adairs' mortgage, were equally liable for the conversion. The trial court further found that

'XIII

'On August 31, 1966, which is the date that must be taken for the purpose of determining damages (This being the date that Freeman first took over the property.) all of the mortgaged assets were reasonably worth the sum of $21,000.00. Deducting therefrom $7,500.00, being the amount of principal and interest owing to Freeman on said date, there remains $13,500.00 which is the amount plaintiffs have been damaged by the conduct of Freeman and the concurring conduct of the defendants, Poe and Egland.'

Judgment was entered in favor of Adairs for $13,500.00 and jointly and severally against all defendants, who have appealed from the judgment.

The first issue to be considered is whether the trial court correctly held that Freeman's conduct in purchasing the mortgaged assets from Brush and later selling them to Poe and Egland without first foreclosing his mortgage in the customary method, either by notice and sale or judicial foreclosure, constituted an unlawful conversion.

This court has previously defined 'conversion' as an act of dominion wrongfully exerted over the personal property of another in denial or in unwarranted interference with his rights therein. Klam v. Koppel. 63 Idaho 171, 118 P.2d 729 (1941); Schlieff v. Bistline, 52 Idaho 353, 15 P.2d 726 (1932). See also Kee v. Becker, 54 Cal.App.2d 466, 129 P.2d 159 (1942); George W. Brown & Sons State Bank v. Polen, 132 Okl. 121, 270 P. 9 (1928); Watkins v. Layton, 182 Kan. 702, 324 P.2d 130 (1958). I.C. § 45-1117 provides:

'If the mortgagor of any property mortgaged in pursuance of the provisions of this chapter, while such mortgage remains unsatisfied in whole or in part, wilfully removes from the county or counties where the mortgage is recorded, destroys, conceals, sells or in any manner disposes of, the property mortgaged, or any part thereof, without consent of the holder of said mortgage, he is guilty of larceny, and such sale or transfer is void.'

While not discussing the foregoing section, this court has repeatedly held that one who purchases chattel property from the mortgagor, without the consent of the mortgagee, is liable to the mortgagee in conversion for the reasonable value of the property so purchased up to the amount due and unpaid on the mortgage. Adams v. Caldwell Milling and Elevator Co., 33 Idaho 677, 197 P. 723 (1921); Twin Falls Bank & Trust Co. v. Weinberg, 44 Idaho 332, 257 P. 31, 54 A.L.R. 1527 (1927); Smith v. Holmquist, 47 Idaho 611, 277 P. 574 (1929); Bodenhamer v. Pacific Fruit & Produce Co., 50 Idaho 248, 295 P. 243 (1931). Freeman, therefore, in purchasing the mortgaged property from Brush, the mortgagor, without first obtaining the consent of Adair, converted the property and became liable to the Adairs. I.C. § 45-1117 specifically proscribes any sale of mortgaged property by a mortgagor without the consent of the mortgagee. 1 The record in the present case fails to disclose that the Adairs ever consented to the sale to Freeman or to the subsequent sale by Freeman to the Eglands and Poe. Freeman became liable for conversion of the mortgaged property at the time he purchased it from Brush without Adairs' consent. The Eglands and Poe subsequently also became liable when they purchased the property from Freeman knowing of the existence of Adairs' mortgage and without obtaining his consent. United States v. White, 143 F.Supp. 754 (D.C.Idaho 1956); Adams v. Caldwell Milling and Elevator Co., supra; Twin Falls Bank & Trust Co. v....

To continue reading

Request your trial
5 cases
  • Thompson v. Dalton
    • United States
    • Idaho Supreme Court
    • March 22, 1974
    ...§ 6-101. These were the exclusive methods for foreclosure of a chattel mortgage under the law applicable to this case. Adair v. Freeman, 92 Idaho 773, 451 P.2d 519 (1969); Peterson v. Hailey Nat. Bank, 51 Idaho 427, 6 P.2d 145 (1931); Garrett v. Soucie, 46 Idaho 289, 267 P. 1078 The distric......
  • Church v. Roemer
    • United States
    • Idaho Supreme Court
    • June 20, 1972
    ...may not be held liable for conversion. Hansbrough v. D. W. Standrod & Co., 49 Idaho 216, 286 P. 923 (1930); cf. Adair v. Freeman, 92 Idaho 773, 451 P.2d 519 (1969). In regard to the alleged conversion of the proceeds of the crop sale, a reading of I.C. § 45-302 discloses that it was not the......
  • Rowe v. Burrup
    • United States
    • Idaho Supreme Court
    • February 19, 1974
    ...cause of action for the conversion of real property. Conversion in the legal sense applies only to personal property. Adair v. Freeman, 92 Idaho 773, 451 P.2d 519 (1969); Klam v. Koppel, 63 Idaho 171, 118 P.2d 729, (1941); Carver v. Ketchum, 53 Idaho 595, 26 P.2d 139 (1933). It is clear tha......
  • Erhardt v. Leonard, 13820
    • United States
    • Idaho Court of Appeals
    • January 19, 1983
    ...over the personal property of another in denial of, or in unwarranted interference with, his rights therein. Adair v. Freeman, 92 Idaho 773, 777, 451 P.2d 519, 523 (1969). The grandson invites our consideration of Warm Springs Properties, Inc. v. Andora Villa, Inc., 96 Idaho 270, 526 P.2d 1......
  • Request a trial to view additional results

VLEX uses login cookies to provide you with a better browsing experience. If you click on 'Accept' or continue browsing this site we consider that you accept our cookie policy. ACCEPT