Johnson v. Smith
| Decision Date | 02 June 1969 |
| Docket Number | No. 3738,3738 |
| Citation | 455 P.2d 244 |
| Parties | Earl R. JOHNSON, Sr., Earl R. Johnson, Jr., and Gladstone Hotel, Inc., Appellants (Defendants below), Harry E. Stuckenhoff, Jack W. Perry, Center Street Investment Co. (Defendants below), v. Phyetta SMITH and C. Hampton Smith, Appellees (Plaintiffs below), Wyoming National Bank of Casper, Appellee (Defendant below). |
| Court | Wyoming Supreme Court |
R. R. Bostwick, of Murane, Bostwick, McDaniel & Scott, Casper, for appellants.
Ernest Wilkerson, William E. Barton, Brown, Drew, Apostolos, Barton & Massey, Casper, for appellees.
Before GRAY, C. J., and McINTYRE, PARKER, and McEWAN, JJ.
The property around which this dispute revolves is the Gladstone Hotel, Casper, Wyoming, built about 1923 by C. A. Smith and his wife, Phyetta, and financed by the Massachusetts Mutual Life Insurance Company. In the 1930's the Smiths were joined in the operation of the hotel by their son, C. H. Smith, and following the repeal of prohibition added a bar and lounge to their enterprise. By 1948 the Smiths had paid off their indebtedness to Massachusetts Mutual but in 1954 planned a new addition and borrowed from Massachusetts Mutual $500,000, delivering to that company promissory note and securing the note by a real estate mortgage against the real estate and a chattel mortgage against the personalty and chattels. Later than same year the Smiths formed an operating corporation called Gladstone Hotel, Inc., which was to be the operating arm of the Smith venture. Into this corporation was placed all chattels, supplies, etc., having to do with the hotel operation. From 1956 to the time of this suit the liquor license, previously in the Smiths' name, was issued annually to Gladstone Hotel, Inc. In 1961 the Smiths completed negotiations with Dr. Harry Stuckenhoff and Mr. Jack Perry to sell the hotel property to them. These buyers formed a corporation called Center Street Investment Company, which took title to the Gladstone Hotel property, executed a second real estate mortgage in favor of the Smiths, and assumed and agreed to pay the Massachusetts Mutual indebtedness. On the day following its execution of the real estate mortgage for $310,000 in favor of the Smiths, the Center Street Investment Company conveyed the real property it had purchased from the Smiths to Dr. Stuckenhoff and Jack Perry. The corporation stock was transferred to these two individuals directly from the Smiths. In January 1965, Jack Perry quitclaimed his interest in the property and transferred his shares of stock to Dr. Stuckenhoff, who continued individually to make payments to the Smiths and Massachusetts Mutual. In December 1965 he conveyed his interest in the hotel property to Earl Johnson, Sr., and Earl Johnson, Jr., also signing over to them the capital stock of Gladstone Hotel, Inc. Following purchase by the Johnsons they issued a lease from themselves as owners of the real estate to Gladstone Hotel, Inc., to 'continue operating * * * to carry on operating of the hotel.' The Johnsons made payments to the Smiths until some time in 1966 and to Massachusetts Mutual through February 1967. On September 27, 1967, Massachusetts Mutual commenced foreclosure of their real estate mortgage by advertisement, and the action in the instant case was commenced October 4, 1967, by Phyetta and C. H. Smith's proceedings to foreclose their second mortgage. In their complaint they prayed that a receiver be appointed to assume the operation and control of the Gladstone Hotel property and to maintain it as a going business. Massachusetts Mutual, whom the Smiths had named as one of the defendants, also prayed for the appointment of a receiver. The court thereafter issued its order appointing a receiver and also entered summary judgment in favor of Dr. Stuckenhoff and Jack Perry (Center Street Investment Company not appearing).
Prior to the scheduled first mortgage foreclosure sale the Smiths secured a loan from the Wyoming National Bank and the total amount of the indebtedness was paid to Massachusetts Mutual. That company endorsed the note without recourse to the Wyoming National Bank under date of October 30, 1967, and also on that date assigned to the bank the real and chattel mortgages, that bank then being substituted as a party defendant for Massachusetts Mutual. Thereafter various motions were made and hearings had. The Johnsons were denied dissolution of the receivership and the Smiths were put into possession of the hotel for the purpose of its operation under the general unbrella of the receivership. On December 8, 1967, the court granted the Smiths' motion for summary judgment and decree of foreclosure as to the second mortgage and C. H. Smith bid in for the principal amount of that mortgage. The final hearing was conducted in March 1968 pursuant to the Johnsons' and the corporation's motion:
'1. That a full and complete hearing of entitlement be held whereby all matters in regard to chattels within the Gladstone Hotel property can be determined with respect to ownership thereof and with respect to mortgage claims thereon, if any.
'2. The determination of whether or not the Wyoming National Bank of Casper who is present holder of a real property mortgage and a chattel mortgage by assignment, which mortgage is not now in default and on which no action is pending with respect thereto, has any grounds for complaint as alleged by plaintiffs.
'3. For an order authorizing these defendants to move from premises instanter all chattels not within the purview of the existing mortgage.
the Wyoming National Bank's motion:
'* * * for an order, after hearing, declaring, and determining the assets, properties, rights and appurtenances which are covered by and are subject to the liens of that certain mortgage dated April 23, 1954, between Charles A. Smith, Phyetta Smith, C. Hampton Smith and Dorothy E. Smith * * *, as mortgagors, and Massachusetts Mutual Life Insurance Company * * *, as mortgagee, recorded in the office of the County Clerk, Natrona County, State of Wyoming on April 29, 1954, in Book 146 of Mortgages at page 193, * * * and that certain even dated chattel mortgage between the Smiths, as mortgagors, and Massachusetts, as mortgagee, recorded in the office of said County Clerk on April 29, 1954, in Book 13 of Chattel Mortgages at page 477 * * *,'
and the court's direction that 'evidence and argument be presented as to the status of the liquor license * * * the subject of previous proceedings in this cause.'
The court found general in favor of the security holders, C. H. Smith, Phyetta Smith, and the Wyoming National Bank; against Earl R. Johnson, Sr., Earl R. Johnson, Jr., and Gladstone Hotel, Inc.; and, inter alia, that under the provisions of the real estate and chattel mortgages all personal property in or on the Gladstone Hotel buildings or grounds was subject to the lien of the real and chattel mortgages with the exception of food and liquor inventories, that the liquor license was appurtenant to the hotel property, historically having always passed through transfer of title or by security agreement with the property into and out of the hands of mesne title holders or security holders, that the preservation of the liquor license in the premises was necessary to prevent invasion and destruction of the security interest holder's rights in its security as afforded by the real and chattel mortgages, that the first real estate mortgage and the chattel mortgage owned by the Wyoming National Bank and the promissory note which the mortgages secured were, as to the then title holders of the property, in default, and that the second real estate mortgage held by the Smiths and the promissory note which it secured, were as to the then title holders of the property, in default, and that, as to the second real estate mortgage, sale of the real property under right of foreclosure in said mortgage occurred January 11, 1968, at which time the property was bid 'on' by the Smiths for the principal amount of their second mortgage.
From this order the Johnsons and Gladstone Hotel, Inc., have appealed, arguing: 1
1. The receiver was improperly appointed.
2. The complaint as originally filed was for the purpose of foreclosing a second mortgage held by the Smiths and given by the Center Street Investment Company, which mortgage did not contain a provision for the appointment of a receiver.
3. The Massachusetts Mutual Life Insurance Company had commenced foreclosure by advertisement and was joined in the case as a party defendant and the Smiths relied upon the provisions in this real property mortgage for the appointment of the receiver.
4. During the course of the receivership, the Smiths paid off the Massachusetts Mutual mortgage by borrowing funds from the Wyoming National Bank and then failed to release the mortgage, and this mortgage has been assigned to the Wyoming National Bank.
5. Various items of property were improperly made subject to the control of the receiver:
a. Real property mortgage contained a provision for the appointment of a receiver during foreclosure.
b. The chattel mortgage contained no provision for the appointment of a receiver.
c. The chattel mortgage had a list of equipment appended to it and considerable property not contained in the appendage nor within the general scope of replacement has been forced under the wing of the receiver.
6. The corporate property was not subject to the debt and at the time of the receivership action, the corporation assets were owned by a bona fide purchaser without notice of any encumbrance on the corporate property nor of any claims against the assets and there were none of record on which to put the present owners on notice.
7. The Smiths transferred personal property in the hotel to the ...
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