Capitol Federal Sav. and Loan Ass'n, Inc. v. Glenwood Manor, Inc., 56172

• Decision Date: 13 July 1984
• Docket Number: No. 56172,56172
• Citation: Capitol Federal Sav. and Loan Ass'n, Inc. v. Glenwood Manor, Inc., 686 P.2d 853, 235 Kan. 935 (Kan. 1984)
• Parties: CAPITOL FEDERAL SAVINGS AND LOAN ASSOCIATION, INC., Appellee, v. GLENWOOD MANOR, INC., and Lederman Enterprises, Inc., Appellants.
• Court: Kansas Supreme Court

Page 853

686 P.2d 853

235 Kan. 935

CAPITOL FEDERAL SAVINGS AND LOAN ASSOCIATION, INC., Appellee, v. GLENWOOD MANOR, INC., and Lederman Enterprises, Inc., Appellants.

No. 56172.

Supreme Court of Kansas.

July 13, 1984.

Syllabus by the Court

1. The doctrine of laches is discussed and distinguished from estoppel.

2. A federally chartered savings and loan institution may enforce a due-on-sale clause in a mortgage without being required to establish the ownership change has impaired its security. In this area federal law has preempted the field. Following Fidelity Federal Sav. & Loan Assn. v. De La Cuesta, 458 U.S. 141, 102 S.Ct. 3014, 73 L.Ed.2d 664 (1982).

3. A due-on-sale clause in a mortgage is not a restraint on alienation of property.

4. Transfers justifying acceleration under a due-on-sale clause of a real estate mortgage are discussed. Transfer of equitable title under installment land sale contract where purchaser had immediate right of possession held to be a conveyance within the due-on-sale clause of the mortgage.

Paul E. Vardeman, of Polsinelli, White & Vardeman, P.C., Kansas City, Mo., and David K. Fromme, of Weeks, Thomas & Lysaught, Chartered, Kansas City, were on the brief, for appellants.

John Anderson, III, of Anderson, Lastelic & Buchmann, Overland Park, argued the cause, and Brian C. McCormally, of the same firm, Overland Park, was with him on the brief, for appellee.

McFARLAND, Justice:

This is a mortgage foreclosure action. The trial court held plaintiff mortgagee, Capitol Federal Savings & Loan Association, Inc., was entitled to have its mortgage foreclosed and the subject property (commonly referred to as Glenwood Manor) sold with the proceeds therefrom applied to the debt, taxes and legal assessments. Defendants Glenwood Manor, Inc., and Lederman Enterprises, Inc., are the owners of certain interests in the mortgaged property and appeal from the judgment of the trial court. Inasmuch as one of the issues in the case concerns the exact legal status of the defendants' interests in the subject property, we refrain from specifying the nature of their interests at this point in the opinion.

The facts giving rise to this action are not in serious dispute. The controversy primarily concerns the applicable law and legal conclusions to be drawn from the facts. The trial court's factual statement of the case adequately sets the framework for the legal issues and will be set forth herein. It should be noted that, at the time of the trial court's memorandum opinion, there were a number of other defendants who are not parties to this appeal. For appellate purposes, Glenwood Manor, Inc., and Lederman Enterprises, Inc., are the only defendants herein. With this prefatory clarification, the trial court's factual statement is as follows:

"In northeast Johnson County on the west side of Metcalf Avenue north of 95th Street is an expanse of land containing what for years was known as the Glenwood Manor, a motor hotel, the Glenwood Theater, and some smaller facilities. Suffice it to say that the land occupied by these businesses is prime commercial property.

"On April 27, 1973, defendant Glenwood Manor, Inc., executed and delivered to plaintiff a first mortgage note in the total amount of $3,125,000 at 8 1/2% interest to be repaid in installments as provided therein and secured by a real estate mortgage duly made, executed and delivered on an even date therewith.

"The plaintiff is a federally chartered savings and loan association. Its principal place of business and correct post office address is located in Topeka, Kansas.

"At the time of the giving of the mortgage and as part of the same transaction, the defendants, Glen W. Dickinson, Jr. and Georgia Faye Dickinson, as partial consideration for the making of said loan by the plaintiff, gave to the plaintiff their joint and several personal guarantee for the repayment of said loan and all other terms of the said note. Mr. Dickinson is now deceased and his representative is not substituted in this action.

"On December 23, 1980, Glenwood Manor, Inc. entered into what was denominated a 'purchase agreement' with defendant Glenwood Hotel Partnership for the sale of the property which is the subject of this lawsuit which will be identified for the sake of clarity as the Glenwood Manor. The theater and other portions of the real estate were not included in the sale. The agreement was with a group entitled 'Glenwood Hotel Partnership' which is a defendant to this action. On or about February 23, 1981, pursuant to the terms and conditions of the 'Purchase Agreement' of December 23, 1980, defendant Glenwood Manor, Inc. received partial payment and consideration for the interest in the property in the amount of $2,500,000.

"On the 24th day of December, 1981, defendant Lederman Enterprises, Inc. purchased all interest of the defendant, Glenwood Hotel Partnership, in and to the property and did cause to be filed with the Register of Deeds of Johnson County, Kansas, an affidavit of equitable interest in and to the real property.

"A portion of the mortgage involved reads as follows:

" 'The loan evidenced by said note and secured by this mortgage has been made by said Lender by reason of the personal and financial responsibility of the Borrower. The real estate mortgaged to secure said note may be sold, conveyed or otherwise alienated by the Borrower at any time subject to the lien of this mortgage, provided, however, that in such event, the Borrower agrees that said Lender may, at its option and for any reason it deems sufficient, elect to declare all remaining principal and accrued interest remaining due on said note immediately due and payable and foreclose this mortgage.'

"The plaintiff is contending that since February 23, 1981, due to the actions of Glenwood Manor, Inc. and the Glenwood Hotel Partnership that the mortgage and note have been in default by reason of '... sales, conveyances or alienations of the real property, ...'

"The plaintiff contends it is entitled to interest from and after that date at the rate of 10% per annum as is set forth in the note and mortgage. The plaintiff contends that after just credit and application of all payments received, the unpaid principal balance on said note and mortgage is approximately $2,298,570.06.

"The transfer of interest between Glenwood Hotel Partnership and Lederman Enterprises, Inc. was accomplished through the defendant, Meadow Hills West Associates Ltd., which acted as a 'pass through' entity for purposes of attempting to effectuate a tax free exchange of the property for Lederman Enterprises, Inc. There was some evidence to the effect that the Internal Revenue Service of the United States was not recognizing that as a valid tax free exchange for tax purposes.

"At the time of the exchange between Glenwood Manor, Inc. and the Glenwood Hotel Partnership on February 23, 1981, the partnership paid to Glenwood Manor, Inc. over $1,000,000 in cash, delivered a promissory note in the amount of 1.5 million dollars, agreed to pay an additional sum of 1.3 million dollars on June 10, 1988, and agreed to pay the monthly mortgage payments evidenced by the note and mortgage held by plaintiff. In exchange for this consideration, the partnership obtained immediate possession of the hotel, acquired the sole right to manage and operate the business; acquired the right to receive all rents from business operations, obtained ownership of all equipment, fixtures, and furnishings located on the hotel premises, and acquired all outstanding contracts and leasing arrangements Glenwood Manor, Inc. had prior to the transaction.

"Between the time that there was a transfer of interest from the Glenwood Partnership to Lederman Enterprises, Inc., the Partnership made substantial improvements and repairs on the hotel in an amount of approximately $650,000.

"Since the transfer between Glenwood Hotel Partnership and Lederman Enterprises, the improvements have continued to the property. From the evidence it appears that the loan is well secured, and that the property, even if bulldozed, would be worth more than the outstanding debt balance.

"There was testimony received that at the time the Glenwood Hotel Partnership took over, there was an article in the Kansas City Star indicating that Mr. Ross had signed an operating agreement to manage the hotel as Catering Manager, General Manager and Executive Vice President.

"There was nothing in the article to suggest a change in ownership and Kent Dickinson, the former President of Glenwood Manor, Inc., was identified as the President in the article."

The trial court then concluded plaintiff was entitled to the relief sought--foreclosure of its mortgage and sale of the property. Defendants Glenwood Manor, Inc., and Lederman Enterprises, Inc., appeal from this judgment asserting various claims of error.

For their first issue defendants contend the trial court erred in not barring plaintiff's claim on the defense of laches.

The doctrine of laches is based upon the maxim that equity aids the vigilant and not those who slumber on their rights. It is defined as neglect to assert a right or claim which, taken together with the lapse of time and other circumstances causing prejudice to the adverse party, operates as a bar in a court of equity. Alternatively, laches has been described as the neglect for an unreasonable and unexplained length of time, under circumstances permitting diligence, to do what in law should have been done. Laches is the neglect or omission to assert a right as, taken in conjunction with lapse of time and other circumstances, causes prejudice to an adverse party. Black's Law Dictionary, 787 (5th ed. 1979). In Calkin v. Hudson, 156 Kan. 308, 133 P.2d 177 (1943), this court observed laches existed when there was undue delay in the assertion of a legal right before a tribunal competent to enforce it. The Calkin court further commented mere lapse of time...