Ferree v. Doric Co.

• Decision Date: 18 July 1963
• Docket Number: No. 36602,36602
• Citation: 62 Wn.2d 561,383 P.2d 900
• Parties: L. N. (Ray) FERREE, Trustee in Bankruptcy of Von's, Inc., a corporation, Appellant, v. The DORIC CO., a corporation, and Cirod, Inc., a corporation, Respondents.
• Court: Washington Supreme Court

Page 561

62 Wn.2d 561

383 P.2d 900

L. N. (Ray) FERREE, Trustee in Bankruptcy of Von's, Inc., a corporation, Appellant, v. The DORIC CO., a corporation, and Cirod, Inc., a

corporation, Respondents.

No. 36602.

Supreme Court of Washington, Department 2.

July 18, 1963.

Croson, Johnson & Wheelon, Willard Hatch, Herman S. Siqueland, Seattle, for appellant.

Rosling, Williams, Lanza & Kastner, Joseph J. Lanza, Robert H. Lorentzen, Seattle, for respondents.

RYAN, Judge. ^*

Appellant, as trustee in bankruptcy, brought this action to recover either the possession of the leasehold interest, chattels, name, and good will of Von's Cafe, or the value of that property. In order to fully understand the problems presented to us, it is necessary that we examine the facts which gave rise to the present controversy.

In September, 1955, Crossroads, Inc., (now Cirod, Inc.), a wholly-owned subsidiary of the respondent, The Doric Company, was the owner of the leasehold interest, chattels, and good will of a going restaurant busioness known as Von's Cafe, located in Seattle, Washington. The Doric Company managed this restaurant under an agreement with Crossroads, Inc., and Mr. Clifford Warling was The Doric Compnay's employee who supervised the operation.

In late September, 1955, Mr. Warling made an offer, individually, to purchase Von's Cafe, through Ed C. Metzger, Inc., a broker, representing the seller. His offer was not accepted, but a counter offer was made by The Doric Company and was accepted. Mr. Warling advised the employees and suppliers of Von's Cafe on October 1, 1955, that he was assuming personal management of the business.

October 4, 1955, articles of incorporation of Von's, Inc., the purpose of which was to become the purchaser of Von's Cafe, were filed with and approved by the Secretary of State. On that same day, Ed C. Metzger, Inc., the broker representing the seller, sent to the seller, The Doric Company, a check for $46,250, representing the purchaser's down payment of $50,000, less the broker's commissin. The balance to be paid on contract was $100,000. There was enclosed with the broker's check to the seller, a letter stating that delivery had been made as of October 1, 1955, and that the inventory had been taken. It further stated that the only thing remaining to be done was the drafting of a contract by the seller's attorney.

The original plan was that the purchase was to be made by Mr. Warling, individually, but, on October 10, 1955, Mr. Warling informed the seller's attorney that Von's, Inc., was to be the purchaser, and a contract was drawn accordingly. Mr. Warling continued as an employee of The Doric Company after he regotiated this purchase, and his salary was continued as it had been previously, until December 1, 1955, when it was reduced.

October 4, 1955, The Doric Company assigned and transferred its Class H liquor license for the operation of Von's Cafe to Von's, Inc., subject to the approval of the State Liquor Control Board. The operation of the restaurant continued without interruption during all of the times with which we are here concerned.

After October 1, 1955, The Doric Company charged a management fee for bookkeeping, ordering supplies, and a charge to central overhead and, when the transaction was finally completed, the accounts were adjusted as of October 1, 1955. During this period, all receipts of the restaurant were deposited in a checking account in the name of Von's Cafe, an account belonging to Crossroads and used exclusively for Von's Cafe. This was done until November 22, 1955, and all disbursements were made by Crossroads until November 17, 1955. Von's, Inc., opened its own account on November 25, 1955. There was testimony that the purchaser damanded the transfer of the liquor license be completed, and also that the lease be assigned before the property would be accepted.

After November 22, 1955, The Doric Company submitted a closing summary to Von's, Inc., accounting for receipts through November 22, 1955, for disbursements through November 17, 1955, and debiting the purchaser for the management fee through November 22, 1955. The seller's attorneys prepared the conditional sale contract which was signed on November 28, 1955, as of October 1, 1955. It included the leasehold interest, chattels, and good will. The lease assignment, consent to assignment, and acceptance of assignment were also signed and executed November 28, 1955, as of October 1, 1955. The contract of conditional sale was filed with the King County Auditor on November 30, 1955.

On November 29, 1955, the seller gave Von's, Inc., a check for sums due for operation of the cafe from October 1, 1955, through November 22, 1955. A bill of sale for the chattels, dated November 30, 1955, was delivered, together with the lease assignment, to an attorney to hold in escrow until complete performance of the conditional sale contract. The application for transfer of license was made to the Washington State Liquor Control Board and received by it October 6, 1955. The Board indicated its approval of this transfer prior to the execution of the conditional sale contract on November 28, 1955, but it was not until December 9, 1955, that the transfer was formally approved and a new license issued.

In April, 1960, Von's, Inc., advised the respondents that it was insolvent, after having fallen behind in rental and contract payments. The contract was thereafter declared forfeited, and the respondents repossessed the business. Later, a receiver was appointed by the King County Superior Court and demand was made by him for the possession of the leasehold, good will, and chattels of Von's, Inc., but this demand was refused. Subsequently, the appellant was appointed trustee in bankruptcy, qualified as such, and secured authority to institute this action.

The appellant assigns error to the trial court's findings of fact, conclusions of law, and judgment, which determined that the conditional sale contract was valid in its entirety and was timely filed. These assignments of error may be divided into two parts. Appellant's first contention is that a leasehold interest, the name, and good will of a business are not proper subjects of the conditional sale contract, as a matter of law, and, consequently, these were sold absolutely, and appellant is entitled to judgment for possession of them or for their value.

The second part of appellant's argument is that, even if a leasehold interest, the name, and good will are proper subjects of a conditional sale contract, the trial court's determination that the contract was timely filed and its judgment are not supported by any finding or evidence relative to the date of possession. Referring to apppellant's first contention, we are satisfied that leasehold interests and the name and good will of a business are proper subjects of a conditional sale contract.

In 1955, the time with which we are concerned, RCW 63.12.010 provided in part as follows:

'[That] all conditional sales of personal property, or leases thereof, containing a conditional right to purchase, where the property is placed in the possession of the vendee, shall be absolute as to all bona fide purchasers, pledgees, mortgagees, encumbrances and subsequent creditors, whether or not such creditors have or claim a lien upon such property, unless within ten days after the taking of possession by the vendee, a memorandum of such sale, stating its terms and conditions, * * * shall be filed in the auditor's office of the county, wherein, at the date of the vendee's taking possession of the property, the vendee resides. * * *.'

In the case of In re Barclay's Estate, 1 Wash.2d 82, 85, 95 P.2d 393 (1939), which was concerned with determining the nature of a leasehold interest for tax purposes, as to whether it is real or personal property, it was said:

'There can be no question but that, under our statutes and decisions, a leasehold interest in real estate for a term less than life is personal property. * * *

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'See Taylor v. Basye, 119 Wash. 263, 205 P. 16; Myers v. Arthur, 135 Wash. 583, 238 P. 899; Salisbury v. Alskog, 144 Wash. 88, 256 P. 1030; Sakris v. Eagle Indemnity Co., 176 Wash. 73, 28 P.2d 316; Irons Inv. Co. v. Richardson, 184 Wash. 118, 50 P.2d 42. We cite the foregoing cases as showing that a leasehold has generally been considered as personal property in this state.'

In Smith v. Larson, 36 Wash.2d 236, 243, 217 P.2d 326, 331 (1950), the plaintiff brought action to recover possession of certain personal property and a leasehold interest that had been sold under a conditional sale contract, as to...