Gleason v. Metro. Mortgage Company, 1521--II

• Citation: 551 P.2d 147,15 Wn.App. 481
• Decision Date: 18 May 1976
• Docket Number: No. 1521--II,1521--II
• Parties: C. Gale GLEASON et al., Respondents, v. METROPOLITAN MORTGAGE COMPANY, a Washington Corporation, et al., Appellants.
• Court: Court of Appeals of Washington

Page 481

15 Wn.App. 481 551 P.2d 147 C. Gale GLEASON et al., Respondents,
v.
METROPOLITAN MORTGAGE COMPANY, a Washington Corporation, et
al., Appellants. No. 1521--II. Court of Appeals of Washington, Division 2. May 18, 1976.

Page 482

[551 P.2d 149] James M. Martin, Landon & Martin, Seattle, James E. O'Hern, Tacoma, Evan E. Inslee, Inslee, Best, Chapin & Doezie, P.S., Bellevue, for appellants.

Harold T. Hartinger, Kane, Vandeberg & Hartinger, Tacoma, for respondents.

REED, Judge.

In June 1970, plaintiff C. Gale Gleason and Leonard Zink brought suit in Pierce County Superior Court against defendants [551 P.2d 150] J. D. Hone and Dorothy H. Hone, his wife, and Metropolitan Mortgage Company, seeking to establish a joint venture or partnership in the Ambassador House apartments located near Tacoma, Washington and for an accounting of the profits derived from their operation and sale. After a preliminary hearing the Honorable Bartlett Rummel determined on June 20, 1972, that the parties were joint venturers, and an accounting was ordered. The second, or accounting phase of the proceeding,

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took place before the Honorable John Cochran, who made addition findings of fact and conclusions of law and granted plaintiffs judgment in the sum of $93,445.96 on June 20, 1974. Defendants appeal from the judgments entered in both hearings, and Dorothy Hone separately appeals to the extent either judgment purports to impose liability on her as a former member of the marital community. We resolve all issues against the appellants and affirm.

During the latter part of 1964 Gleason and Donald Hays, ¹ real estate brokers, and Zink, a real estate promoter and developer, joined in an attempt to procure new mortgage financing for the financially troubled 106-unit apartment, complex known as Alpine Meadows which, together with the smaller Mall Apartments, was owned by Alpine Development Company. Hoping to gain a promised loan fee of $30,000, plaintiffs invested substantial funds in their procurement efforts, even to the extent of borrowing money and lending it to Alpine's owners. In April 1965, plaintiffs approached J. D. Hone, a mortgage broker and sole owner of Metropolitan Mortgage Company, a Washington corporation, the holder of a third mortgage for approximately $109,000 on the Alpine Meadows, with a proposal that Hone loan plaintiffs $33,250 to be used as a 'goodfaith' deposit for a Kansas firm's loan commitment of $950,000. Hone agreed to advance $35,000, the difference of $1,750 to be applied on interest owed Metropolitan by Alpine. The loan was evidenced by a promissory note and secured by an assignment of Gleason's seller's interest in a real estate contract known as the 'Ray-Mar' contract. The Kansas loan did not materialize but plaintiffs invested the $33,250 in further endeavors on behalf of Alpine. By August of 1965 all efforts to assist Alpine ceased, leaving plaintiffs holding unsecured claims of approximately $43,000 against its owners.

In August 1965, plaintiffs again approached Hone to discuss

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their mutual interests in salvaging money from an operation that was by now in receivership. Hone's mortgage was subject to a first mortgage to Connecticut Mutual Life Insurance Company of approximately $525,000, a second mortgage to Continental Incorporated, of approximately $100,000 and disputed materialmen's liens of $20,400. The second mortgage was in process of foreclosure and Hone was considering purchasing the apartments at the impending sheriff's sale, as there appeared to be a substantial equity despite the many claims. At this time Alpine had been delinquent on Hone's mortgage since September 1963, owed $18,500 to Hone on a mortgage on the Mall Apartments and approximately $6,000 for loan fees, penalty interest and 'late charges' on both mortgages. Hone testified he usually charged only one percent over his cost in making loans, looking to loan fees for his profit. Hone carried an established credit line at the Bank of California in Seattle. The parties discussed how their combined efforts might salvage their respective investments in the property and in Alpine's owners and possibly net a profit, and apparently came to some sort of understanding.

As a result of the August meeting, the $35,000 Gleason note was replaced by a $50,000 note signed by plaintiffs, reciting that their liability was limited to $33,250 and interest. The note was to be used as security by Hone to raise $15,300 at the [551 P.2d 151] Bank of California to purchase the lien claims at a discount. This new note was also secured by an assignment of Gleason's interest in the Ray-Mar contract and called for payments of $500 per month. ²

Pursuant to the oral understanding the parties had reached, Hone, financed by Bank of California, in whose name title was taken, purchased the apartment house and its furnishings at sheriff's sale for $104,000. The name was changed to the 'Ambassador House,' Gleason moved in immediately and the plaintiffs embarked on a program of

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active management, painting, refurbishing, making additions and improvements, upgrading tenants and otherwise working to improve the complex and increase its occupancy rate, rental receipts and overall worth. It is undisputed these efforts were directed to an eventual sale of the complex, at which time all parties would first recoup what each had 'invested' in the project and then share equally in the balance. The argument between the parties is as to the amount each had coming before division of any profit and whether that profit was to include rental receipts or was to be limited to net sale proceeds.

While Gleason invested all his energies and time to actual management of the complex, Hays and Zink devoted the majority of their time to efforts to procure either refinancing or a purchaser. From the outset plaintiffs and Hone met every Thursday in Tacoma to review and discuss the undertaking. They agreed that rental receipts were to be placed in a special account requiring the signature of Hone and one of the plaintiffs. Thereafter rental receipts were used to service the first mortgage debt, pay Gleason a resident manager's fee, pay maintenance and operation costs of the complex, pay a quarterly 'dividend' of $100 to each participant and discharge personal debts incurred by plaintiffs for additions and improvements to the complex. When the property was eventually sold, after payment of these items, there remained from rental payment the sum of $47,730. The parties operated in this fashion until September 29, 1966, at which time they met and signed an agreement prepared by Hone's attorney. ³ No schedules [551 P.2d 152] were

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then or subsequently attached to the agreement as recited, although both parties later produced schedules which they claimed were those referred to.

The enterprise continued as before the written agreement and finally bore fruit when the Ambassador House was sold in October 1967 to Frank Holert for $1,137,550,

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leaving approximately $530,000 for distribution after costs of sale and the assumption by Holert of the first mortgage balance. Closing of the sale was deferred until January 1968 to enable Hone to liquidate Metropolitan in order to save taxes. During the interim the parties specifically agreed to continue operating the complex 'as if owned' by the purchaser, resulting in an additional 'gain' for division of approximately $8,000. The sale was closed January 15, 1968 by an independent escrow agent who disbursed the funds remaining as follows: (1) $252,824.27 to Hone as principal and interest on Ambassador House and Mall Apartments, (2) $19,907.99 to discharge a Tacoma bank debt of plaintiffs, ⁴ (3) $63,434.19 cash to Hone and (4) $193,800 to Hone in the form of a promissory note from Holert.

While awaiting the final closing, Hone and his accountant met with Hays alone and later with Gleason and Zink, to discuss...