Harbel Oil Co. v. Steele

• Decision Date: 20 November 1957
• Docket Number: No. 6155,6155
• Citation: 318 P.2d 359,83 Ariz. 181
• Parties: HARBEL OIL COMPANY, a corporation, Appellant, v. Horace STEELE, Ethel Steele, Texas Independent Oil Company, a corporation, Blakely Oil, Incorporated, a corporation, Appellees.
• Court: Arizona Supreme Court

Page 359

318 P.2d 359

83 Ariz. 181

HARBEL OIL COMPANY, a corporation, Appellant, v. Horace STEELE, Ethel Steele, Texas Independent Oil Company, a corporation, Blakely Oil, Incorporated, a corporation, Appellees.

No. 6155.

Supreme Court of Arizona.

Nov. 20, 1957.

Herbert B. Finn and Stephen S. Gorey, Phoenix, for appellant.

Langmade & Sullivan, Phoenix for appellees.

JOHNSON, Justice.

This is an appeal from a judgment in favor of Horace Steele and Ethel Steele, Texas Independent Oil Company, a corporation, Blakely Oil, Incorporated, a corporation, defendants-appellees, and against Harbel Oil Company, a corporation, plaintiff-appellant. The plaintiff-appellant will hereafter be referred to as plaintiff. The defendants-appellees, Horace Steele and Ethel Steele, will be referred to as defendants (Steele), and the defendant-appellee, Texas Independent Oil Company, a corporation, as defendant (Texas). It was agreed in the pre-trial order that the defendant (Texas) is the successor in interest to the assets and liabilities of Texas Independent Oil Company, a copartnership, composed of the defendants (Steele). The parties further stipulated that defendant (Texas) and defendant Blakely Oil, Incorporated, a corporation, for the purpose of this proceeding, stand in the same position as the other defendants.

The material facts briefly stated are: Plaintiff had acquired a twenty-year lease of vacant land located in Phoenix, Arizona, from Dr. E. A. Cruthirds, for the purpose of erecting and operating a gasoline service station. In order to finance the construction thereof the defendants (Steele) agreed to loan plaintiff the sum of $10,000 which was to be repaid in monthly installments with interest. The cost of the station in excess of $10,000 was to be paid by plaintiff but the record is silent as to the actual cost. As security for the loan the parties executed four instruments; (1) an assignment of the Cruthirds lease for a term of four years and five months (or until the loan was repaid), (2) a sublease back to plaintiff, (3) a conditional sales and loan agreement (covered the equipment in the station), and (4) a products contract whereby plaintiff agreed to purchase the products of defendants (Steele).

The sublease provided that upon the failure of plaintiff to observe the terms and conditions of the Cruthirds lease and of the sublease, or to pay the monthly rent, then the defendants (Steele) may declare the buslease at an end and recover possession as if said premises were held by forcible detainer. The conditional sales and loan agreement provided that defendants (Steele), in case of default, shall be entitled, at its option, to take possession of the equipment and retain any monies paid as liquidated damages.

Thereafter, plaintiff was in default in the payment of rent under the sublease for the months of May, June and July, 1950, and in default of four monthly payments under the conditional sales and loan agreement (less than $500 having been paid). On July 7, 1950, defendant (Texas) served upon plaintiff a letter setting forth the above defaults, declaring the sublease at an end and requesting possession of the premises and equipment. On July 15, 1950, plaintiff voluntarily surrendered and defendant (Texas) took possession of the premises and equipment. Subsequently, defendant (Texas) made improvements to the premises and sub-leased to defendant, Blakely Oil, Incorporated.

On October 24, 1952, plaintiff by letter advised defendant (Texas) it desired to redeem the premises and its possession by full payment and satisfaction of the existing mortgage indebtedness upon defendant (Texas) rendering a complete accounting. No accounting was made and this suit was instituted.

The complaint seeks a finding that the instruments in question are a mortgage, for an accounting, and other related relief.

The trial court properly found from the admissions in the joint answer and the stipulations of the parties that said instruments were executed as security for the loan. However, plaintiff makes six assignments of error, all of which will be resolved upon a determination of the issue as to whether the trial court erred in holding the instruments to be chattel mortgage, and that such mortgage had been foreclosed in compliance with section 62-527, A.C.A.1939 (A.R.S. § 33-757).

The instruments having been admitted to be a mortgage we are not confronted with the question of whether documents which on their face appear absolute are in fact a mortgage. We are, however, presented with the issue of whether the mortgage in question is a real property mortgage or a chattel mortgage. The assignment of the Cruthirds lease to defendants (Steele) is the basic instrument securing the loan. One of the estates in land less than a freehold is an estate for years. Section 71-101, A.C.A.1939 (A.R.S. § 33-201). Estates for years are chattels real. Section 71-103, A.C.A.1939 (A.R.S. § 33-202). The assignment of the Cruthirds lease for a term of four years and five months (or more if the loan remains unpaid) is a chattel real. At common law a lease for years, being a chattel real, is personal property; and unless it has been modified by statute, a leasehold interest, though a chattel real, is personal property and subject to the rules governing personal property.

We do not think, as urged by plaintiff, it is necessary to determine the question of whether our legislature, in enacting the various statutes involving real property, intended to abolish the common law rule as applied to chattels real. The real question in issue is whether a leasehold estate for a term of years is an interest in real property capable of being transferred under the provisions of the statute, section 62-501, A.C.A.1939 (A.R.S. § 33-701). This section provides as follows:

'Interest in real property mortgageable-Formalities in making.-Any interest in real property capable of being transferred may be mortgaged. The mortgage can be created, renewed, or extended, only by writing, executed with the formalities required of a grant of real property, and may be acknowledged certified and recorded, in like manner and with like effect.' (Emphasis supplied.)

A leasehold estate for a term of years is an interest in land capable of being transferred. It possesses many characteristics of an ordinary chattel, and has some aspects of real property as it passes a present interest in land. Vol. 1, Thompson on Real Property (Perm.Ed.) 67, section 61; 3 ibid., 8 section 1018; Abraham v. Fioramonte, 158 Ohio St. 213, 107 N.E.2d 321, 33 A.L.R.2d 1267; State Savings & Loan Ass'n v. Bryant, 159 Or. 601, 84 P.2d 116; cf. Intermountain Realty Co. v. Allen, 60 Idaho 228, 90 P.2d 704, 122 A.L.R. 647; Robinson v. Merchants Packing Co., 66 Ariz. 22, 182 P.2d 97; Hood v. Fletcher, 31 Ariz. 456, 254 P. 223.

We have...