Fry v. D. H. Overmyer Co., Inc.

• Decision Date: 01 August 1974
• Citation: 525 P.2d 140,269 Or. 281
• Parties: George F. FRY, Jr., Trustee, Respondent, v. D. H. OVERMYER CO., INC., an Oregon corporation, Appellant.
• Court: Oregon Supreme Court

Page 140

525 P.2d 140

269 Or. 281

George F. FRY, Jr., Trustee, Respondent, v. D. H. OVERMYER CO., INC., an Oregon corporation, Appellant.

Supreme Court of Oregon, In Banc.

Argued and Submitted June 4, 1974.

Decided Aug. 1, 1974.

J. Terrence Bittner, Portland, argued the cause for appellant. On the briefs were T. Leonard O'Byrne and McMenamin, Jones, Joseph & Lang, Portland.

James H. Clarke, Portland, argued the cause for respondent. With him on the brief were Dezendorf, Spears, Lubersky & Campbell, Portland, and John P. Bledsoe, Laurence F. Janssen and Vawter Parker, Portland.

TONGUE, Justice.

This is an action for forcible entry and detainer for possession of a warehouse in Washington County for the failure of defendant to pay rent. Defendant was the original owner of the warehouse, but then sold it to plaintiff and leased it back. The court entered judgment for the plaintiff. Defendant appeals. We affirm.

Defendant has assigned 20 errors, and has asked that this court decide the following questions: (1) Was defendant entitled to either abate or continue the action? (2) Was parol evidence admissible to show that this purchase and leaseback was a 'hidden loan' transaction? (3) Is California law controlling in this case? (4) Was this transaction a 'hidden loan' transaction and did plaintiff's conduct result in a prohibited 'forfeiture'? (5) Was the availability of equitable defenses dependent upon a showing that defendant had an ownership interest, rather than that of a tenant? (6) Was a tender of rent made after the filing of this action a defense? and (7) Was the notice of deficiency 'inadequate'? ¹

The facts.

This warehouse was built by defendant in 1965. Defendant is an Oregon corporation and is one of 30 state corporations which lease warehouses to Overmyer Distribution Services, which operates nearly 300 warehouses in various parts of the United States. D. H. Overmyer was the 'chief executive officer' of these corporations.

In 1968 interest rates were high, money was 'tight' and the Overmyer operations were in need of funds. D. H. Overmyer then embarked upon a 'sale and leaseback' program. As a part of that 'program' defendant entered into a 'sale and leaseback' transaction with plaintiff under which defendant deeded this warehouse to plaintiff, subject to a mortgage. Plaintiff then leased it back to defendant. A 'Conditional Assignment of Leases and Rental' was also signed at the same time.

At plaintiff's request, the contract of sale included a provision that 'this contract shall be construed according to the laws of the State of California.' All of the documents were signed simultaneously in Los Angeles. Plaintiff lived in Pasadena. Defendant's executive offices were in New York.

Also at plaintiff's request, a provision was included in the contract to the effect that the transaction was subject to a ruling by the Internal Revenue Service approving it as a bona fide purchase and lease for federal income tax purposes. The transaction was attractive to plaintiff as an investment because, in addition to 'tax benefits,' the lease would provide a good 'cash flow' and the depreciation was 'favorable.'

At the time of the transaction there were no conversations between plaintiff and Mr. Overmyer and there was nothing in plaintiff's conversations with the representatives of Mr. Overmyer to suggest that there was any agreement other than as set forth in the various documents.

Plaintiff paid defendant $325,000 for its interest in the warehouse, which was subject to a mortgage balance of $532,000. He carried it on his books at $855,000 and testified that at that price he probably paid as much as $50,000 over the cost of the warehouse. It was appraised for defendant as having a value of $1,304,900.

As a result of the transaction, defendant continued to operate the warehouse as it had before. It also paid the taxes and insurance and maintained the building. There was no change in the relationship with subtenants. Plaintiff, however, undertook to make the mortgage payments and the rental payments from defendant were sufficient in amount to provide funds for that purpose.

In late 1972, plaintiff became concerned that the rental payments were being paid late and the real estate taxes were delinquent. He then called Mr. Overmyer by telephone about the late rental payments. He also called Mr. Overmyer's treasurer about the delinquent taxes, after receiving notice from the holder of the mortgage that they had not been paid. He testified that he was promised that the taxes would be paid immediately, but that those promises were not kept. One of plaintiff's attorneys then wrote to defendant demanding that two then-delinquent rental payments be paid within 10 days, as well as the delinquent real property taxes, and saying that otherwise plaintiff would exercise 'any and all legal remedies available to him under the * * * lease as at law or in equity.' Apparently the taxes were then paid, but not the rental payments.

By letter dated January 15, 1973, plaintiff wrote to defendant stating that he was 'flabbergasted' by defendant's 'apparent lack of honoring commitments'; that defendant had been 'consistently late in your rental payments' and had 'not paid your property taxes when they were due.' That letter then demanded payment by January 20th of the rental payments for November, December and January (due January 20th), as well as accrued interest, accounting and legal fees, and $7,250 as 'income tax loss not available for carryback' because of 'two months rent loss in 1972.' That letter also included a demand 'to exercise the trust rights per a guarantee executed by D. H. Overmyer Co., Inc. (of Ohio).' Apparently rental payments for November and December were then made, but not the rent for January.

It appears that a Mr. Hoda, a representative of defendant, then called plaintiff to say that he had been authorized by Mr. Overmyer to negotiate the repurchase of the warehouse. On February 20, 1973, plaintiff again wrote to defendant saying that he 'was not prepared to react on that alternative on this date,' but that 'as of this date I have not received the rental check which was due on 20 January, nor the one which is due today,' and that while he realized that defendant was 'having your problems,' he wanted to 'see you get out of this continuing position of default and resume timely payments to me * * *.' Apparently plaintiff received no response to that letter.

On March 5, 1973, a registered letter was mailed to defendant by plaintiff's Oregon attorneys, stating that defendant was 'in default by reason of nonpayment of rent due January 20, 1973, and rent due February 20, 1973,' and giving 'notice of the landlord's intention to terminate the terms of said lease on April 9, 1973,' and to then 'retake possession of the leased premises.'

Nothing was done by or on behalf of defendant, however, until April 5, 1973, when one of defendant's attorneys called plaintiff by telephone. According to that attorney, plaintiff was told that defendant was prepared 'to deliver to him all the money that is due' and that defendant wanted 'to compose differences and avoid litigation.' Plaintiff told the attorney to call his Portland attorney. Defendant's attorney testified that he did so, made the same offer and was told that plaintiff's Los Angeles attorney would then call him. ²

Plaintiff's Los Angeles attorney then called back. Defendant's attorney testified that he then offered plaintiff's attorney 'the two checks' for the January and February rent payments by telephone on April 5, 1972, but that plaintiff's attorney declined to accept them. By then defendant's attorneys had already prepared 'papers' for a suit for a declaratory judgment and for an injunction, which they filed on that same day. Late on that afternoon they also obtained a temporary restraining order.

On April 9, 1973, the complaint in this action was filed. On the next day, April 10th, a copy of the temporary restraining order was served on one of plaintiff's Los Angeles attorneys. On April 13th defendant deposited $21,991.22 in a bank in plaintiff's name for the then delinquent rental payments for January, February and March, with a further deposit on April 20th for the April rent.

On May 15, 1973, the California court vacated its temporary restraining order and declined to enjoin plaintiff from prosecuting this action.

On July 6, 9 and 10, 1973, the equitable issues arising from defendant's amended answer, alleging affirmative defenses and a plea in abatement, were tried. That trial was followed by a trial of the legal issues arising from the complaint in this action. The court had previously denied defendant's motion for a continuance pending determination of defendant's suit against plaintiff in California. The court had also previously sustained plaintiff's demurrer to defendant's previous plea in abatement asking that this action be abated because of the pending suit in California.

1. The trial court did not err in denying defendant's motion for a continuance or its plea in abatement.

Defendant contends that this action was filed 'in direct violation of a California restraining order'; that "comity' dictates that the action should have been stayed'; and that 'failure to stay the action was an abuse of discretion which prejudiced the defendant by requiring it to litigate complex issues on short notice in a summary proceeding.'

The California temporary restraining order, taken ex parte, enjoined plaintiff from 'interferring with the possession and use of the subject property * * * during the pendency of this action.' As contended by plaintiff, these provisions were limited to direct interference with possession by self-help in the absence of a prior judicial determination, as described in the California complaint and did not enjoin him from filing of these legal proceedings the next day. ³ Indeed, the California court subsequently...