Royal Oak Realty Trust v. Mordita Realty Trust

• Decision Date: 02 July 2001
• Docket Number: 99–826.,Nos. 99–380,s. 99–380
• Citation: Royal Oak Realty Trust v. Mordita Realty Trust, 146 N.H. 578, 777 A.2d 860 (N.H. 2001)
• Court: New Hampshire Supreme Court
• Parties: ROYAL OAK REALTY TRUST and another v. MORDITA REALTY TRUST and another.

146 N.H. 578

777 A.2d 860

ROYAL OAK REALTY TRUST and another

v.MORDITA REALTY TRUST and another.

Nos. 99–380

99–826.

Supreme Court of New Hampshire.

July 2, 2001.

Raymond P. Blanchard, P.A., of Portsmouth (Raymond P. Blanchard on the brief and orally), for the plaintiffs.

Shaines & McEachern, P.A., of Portsmouth (Robert A. Shaines and Alec L. McEachern on the brief, and Mr. McEachern orally), for the defendants.

DUGGAN, J.

The plaintiffs, Royal Oak Realty Trust (Royal Oak) and Ernest M. and Carole M. Cherry, filed a petition to terminate and dissolve Royal Oak. In these cases consolidated for appeal, the defendants, Mordita Realty Trust (Mordita) and Charles B. and Beverly P. Mutrie, appeal the Rockingham County Probate Court's (O'Neill , J.) order ruling that the Cherrys were entitled to a priority distribution for loans they made to the trust and $100,000 paid to Charles Mutrie. We affirm.

In 1994, Mordita, a realty trust established by Charles Mutrie, and Lone Pine Realty Trust (Lone Pine), a realty trust established by Ernest Cherry, entered into a joint venture agreement (agreement) to complete a real estate development in Raymond known as Onway Lake Village. As part of the agreement, the parties established Royal Oak to acquire and hold the business interest, including the real property. Mordita and Lone Pine each held a fifty-percent beneficial interest in Royal Oak and Ernest Cherry was appointed trustee. The agreement states that the parties would make the following contributions for purposes of the joint venture:

"Cherry" 1) $250,000 in direct cash payment to the "Mutrie" Joint Venturer. This payment represents a portional [sic ] contribution to "Mutrie" in recognition of an agreed upon amount of the current value of the base project value land and approvals of the "Onway Village" Project in Raymond, New Hampshire. However, this does not reflect the net current value of said property and does not give recognition to the fact that there are outstanding real estate taxes against said property. It is agreed between the parties that these taxes will be a charge against the priority payments of business profits realized in the business that would have accrued to the "Mutrie" Joint Venturer. This is to be accounted for by direct payment from "Mutrie" or by an accounting reduction before any "priority distribution" of profits.

2) The "Financing" of the joint venture is part of this party's contribution and at the present time it is believed to be estimated at $500,000 direct development funds and the possible payment of up to approximately $330,000 in estimated real estate taxes owing on the existing project. The real estate taxes, again, can be paid by a reduction in the accelerated payout of the profits to the "Mutrie" interest.

3) An initial deposit of $50,000 shall be made upon the signing of this Agreement. The remaining $200,000 due under the Agreement shall be due upon the "Cherry" interest being secure in their ability to redeem the past due taxes from the Town, thereby securing the Business interest's ownership of the land component of this agreement.

"Mutrie" 1) "Mutrie" shall assign to the Royal Oak Realty Trust an existing $3,000,000 mortgage held against the project for purposes of allowing the Royal Oak Realty Trust to foreclose on the property in order to get the property and title free and clear for purposes of developing it in a manner satisfactory to the lender on the project as it is the obligation of this Joint Venturer to deliver a clean title to the property as part of his contribution.

2) In the foreclosure process, if a non Joint Venture bidder bids in excess of $3,000,000 for the property, it is agreed between the parties that this agreement is null and void and the proceeds of the foreclosure auction shall be the property of the "Mutrie" interest. In the event of this occurring, all expenses to date for the foreclosure process shall be borne by the Mutrie interest, which includes preparation and foreclosure expenses and any other expense related to this agreement.

In accordance with the agreement, Ernest Cherry first paid Charles Mutrie the $50,000 due at closing and Charles Mutrie assigned a first mortgage on the premises to Royal Oak. Then, Ernest Cherry paid Charles Mutrie the remaining $200,000. Finally, Royal Oak foreclosed upon the mortgage and purchased the property for $25,000 at auction. After the auction, the only lien remaining on the property was a disputed tax lien of approximately $350,000.

In 1995, the town agreed to extinguish this lien in order to settle a lawsuit that arose during Charles Mutrie's prior ownership of the property. Although this settlement released the property from the tax lien and benefited the current owner, Royal Oak, Charles Mutrie would not receive a direct monetary benefit from the settlement. Charles Mutrie agreed to settle the suit with the town if Ernest Cherry paid Charles Mutrie an additional $100,000.

To finance the project, Ernest and Carole Cherry obtained a bank loan commitment for $900,000 secured by a mortgage on real estate they owned in Massachusetts. These funds were used to complete development and marketing of Onway Lake Village. During the development of the project, the Cherrys issued promissory notes to account for over $1,134,000 in funds advanced by the Cherrys and spent on Royal Oak.

The project never became the financial success the parties expected. After the parties were unable to agree upon their respective rights under the agreement, Ernest Cherry, as trustee of Royal Oak and individually, and Carole Cherry filed a petition to terminate and dissolve the trust. Following a hearing, the probate court found that after Ernest Cherry's initial payments totaling $250,000, the funds the Cherrys advanced to complete the project were loans and not capital contributions. Consequently, upon sale of the property, the court ordered that the loans from the Cherrys to Royal Oak, including the $100,000 payment to Charles Mutrie to clear the tax lien, should be paid before the proceeds are divided between the beneficiaries of Royal Oak.

On appeal, the defendants argue the trial court erred by interpreting the agreement to provide that...