Exeter Company v. Holland Corporation

ON REHEARING. [En Banc. July 6, 1933.] This cause was heard in a department of the court and a decision was reached. Thereafter, a rehearing was granted, and the cause has been heard En Banc.

The controversy arises out of a lease, dated February 5, 1927, executed by the Exeter Company, a corporation, as lessor, to the Moon Realty Company, a corporation (afterwards Holland Corporation, a corporation), to certain improved business property in Seattle for the term of ninety-nine years. The lessee took possession of the property and operated it.

Under the contract, the lessee agreed to pay a monthly rental in advance and all taxes, charges and assessments, general and special, on the property. Two other provisions of the lease of special importance here are as follows:

"(6) The lessee has, at the time of the execution of these presents, paid to the lessor the sum of thirty-five thousand dollars ($35,000) in cash as security to the lessor for the full performance on the part of the lessee of all the terms, covenants and conditions in this lease on the part of the lessee to be performed."

"(11) The whole amount of rent reserved and agreed to be paid hereunder, and each and every installment thereof, and all sums agreed hereunder to be treated as rent, and all reasonable costs and expenses, including attorney's fees which may be incurred in enforcing the provisions of this lease, or on account of any delinquency of the lessee in carrying out any of the provisions of this lease, or incurred in defending claims or liens based upon acts of the lessee and asserted against the lessor's interest in said demised premises, shall be and they are hereby declared to be a first and valid lien upon all sub-rent or other income, issues and profits of the demised premises . . ."

The lessee failed to pay the monthly rent due June 1, 1931, and also failed and neglected to pay real property taxes due May 31, 1931; whereupon, on June 5, 1931, the Exeter Company brought this action to collect for such delinquencies. The Holland Corporation and its sub-tenants were made parties defendant. At the commencement of the action, the plaintiff obtained an order appointing a receiver, which order, upon a later hearing, was continued until the further order of the court, to collect, hold, and from time to time pay out, as the court ordered, the rents due and paid by the sub-tenants of the Holland Corporation. The receiver made such collections.

Later, the complaint was amended, among other things, by bringing in First Leasehold Corporation, a corporation, First Realty Corporation, a corporation, Realty Investment Corporation, a corporation, M. Ross Downs and his wife, and William Edris and his wife, as additional defendants. The amended complaint was supplemented, so that at the trial it included complaints as to other defaults and delinquencies at that time on the part of the lessee under the terms of the lease. The Holland Corporation and those spoken of as additional defendants filed answers, and the Holland Corporation a cross-complaint to which a reply was filed, and upon these issues trial was had without a jury.

Findings of fact, conclusions of law and judgment were entered for the plaintiff. The Holland Corporation has separately appealed; First Leasehold Corporation, First Realty Corporation and M. Ross Downs and wife have jointly appealed; and Realty Investment Corporation and William Edris and wife have jointly appealed.

The essential findings, in substance or in the language of the court, are as follows:

(3) That the corporations involved are doing business in this state; and there are further findings as to the marital relations of Mr. and Mrs. Downs and Mr. and Mrs. Edris.

(4) That, on February 5, 1927, the respondent leased the real property, describing it, to the Holland Corporation for ninety-nine years, according to the contract referred to and made a part of the findings.

(5) That the Holland Corporation has failed to pay any part of the monthly rentals for June, 1931, to July, 1932, in the total sum of $42,000, and failed to pay real property taxes on the property for 1930 and the first half of 1931; that David W. Baldwin has been appointed receiver for collecting sub-rentals of the property, so that the same might be subjected to respondent's lien under the lease, and to save them from being dissipated by the appellants; that the receiver has collected sub-rentals in the sum of $38,215.11, out of which, by order of court, he has paid taxes on the property in the sum of $6,015.47, and also paid $24,471.53 for the purpose of repaying expenses and charges of operating the real property involved, leaving in the hands of the receiver the sum of $7,758.11 up to July 5, 1932, and also expended still another sum of $1,654.51.

(6) This paragraph sets out paragraphs 6 and 11 of the lease already mentioned above, and then states that respondent is in possession of the thirty-five thousand dollars, and has a first and valid lien thereon.

"(7) That the entire capital stock of the defendant Holland Corporation, a corporation, was at all the times herein referred to owned by the additional defendant, First Leasehold Corporation, a corporation; that the capital stock of the additional defendant First Leasehold Corporation, a corporation, was at all the times herein referred to owned by the additional defendants, First Realty Corporation, a corporation, and Realty Investment Corporation, a corporation, said additional defendant First Realty Corporation owning 51% thereof and the additional defendant Realty Investment Corporation owning 49% thereof; that additional defendant William Edris was at all the times herein referred to president of additional defendant Realty Investment Corporation, a corporation, and a member of the board of trustees of the defendant Holland Corporation, a corporation; that additional defendant M. Ross Downs was at all the times herein referred to president of additional defendant First Realty Corporation, a corporation, president of additional defendant First Leasehold Corporation, a corporation, and president of defendant Holland Corporation, a corporation . . ."

(8) That, in April, 1931, and prior thereto, the Holland Corporation was unable to earn sufficient sub-rentals to meet the payments required to be made by it, that it had no other assets with which to pay its obligations under the lease, and would continue to be unable to pay such obligations, which facts were known to the additional defendants First Leasehold Corporation, First Realty Corporation, Realty Investment Corporation, M. Ross Downs and William Edris, all of whom at that time knew of the provision in paragraph 11 of the lease that the Exeter Company had a lien on all sub-rents and income from the property for all unpaid rents or other obligation; and that, at that time, the Holland Corporation's leasehold interest in the premises had been conveyed by it to the Bank of California, N.A., as trustee under a mortgage, for the purpose of securing an issue of bonds, all of which bonds were then and at all times during the transactions herein involved owned by additional defendant Realty Investment Corporation.

"(9) That during the month of April, 1931, and prior to the 25th day thereof, defendant Holland Corporation, a corporation, having been unsuccessful in previous endeavors to secure from plaintiff an agreement reducing the monthly rentals specified in said lease or a moratorium therefor, decided to abandon the premises so leased by it and to pay no further rent or other obligations under said lease; that at said time Henry P. Russell, Lawrence Miller, C.R.C. Steers, Harry B. Butcher, William G. Devereaux, George G. Bass, John Clark Burgard and W.G. Van Pelt, copartners doing business as Russell, Miller Company were tenants of the defendant Holland Corporation, a corporation, occupying the second floor of said demised premises under a written indenture of lease executed March 31st, 1930, said lease providing for a monthly rental of $550 and running for a period of eight years and ten months from the date of the execution thereof. That said copartnership doing business as Russell, Miller Company are and were entirely solvent and that said lease between said copartnership and said defendant Holland Corporation, a corporation, had on the 25th day of April, 1931, a fair cancellation value of $10,000. That for the purpose of fraudulently voiding and thwarting and causing plaintiff to lose its lien upon the sub-rents, issues and profits of said demised premises, and with the further object of effecting a cancellation of said sublease with said copartnership doing business as Russell, Miller Company, to the end that the lease of the defendant Holland Corporation, a corporation, with the plaintiff and the premises therein described might be abandoned by said defendant Holland Corporation, a corporation, in a debilitated and worthless condition, and with knowledge of the priority of plaintiff's claim of lien upon the sub-rents, issues and income of said demised premises, the defendant Holland Corporation, a corporation, and the additional defendants herein, did on the 25th day of April, 1931, acting in concert and in conspiracy, caused to be cancelled by the defendant Holland Corporation, a corporation, for the sum of $10,000, said sublease with said copartnership doing business as Russell, Miller Company, said sum of $10,000 being paid said defendant Holland Corporation, a corporation, on said date.

"(10) That thereafter and on, towit, the 26th day of May, 1931, pursuant to said conspiracy and in furtherance of the objects thereof, the additional defendants Realty Investment Corporation, a corporation, First Leasehold Corporation, a corporation, First Realty Corporation, a corporation, William Edris and M. Ross Downs, and the defendant Holland Corporation, a corporation, paid and caused to be paid said sum of $10,000 received from said copartnership doing business as Russell, Miller Company, to the Bank of California, N.A., as trustee under the mortgage hereinabove referred to; that thereafter and on to-wit, the 2nd day of June, 1931, said additional defendants pursuant to said conspiracy and in order to effect the objects thereof, caused said Bank of California, N.A., to pay said sum of $10,000 to additional defendant Realty Investment Corporation, a corporation, ostensibly for the purpose of redeeming ten of the bonds owned by said Realty Investment Corporation, a corporation, and secured by a mortgage upon the leasehold interest of the defendant Holland Corporation, a corporation, but in reality for the purpose of placing said cancellation moneys beyond the reach of plaintiff's lien and unlawfully converting the same.

"(11) That defendant Holland Corporation, a corporation, caused the rental due plaintiff under said lease on May 1st, 1931, to be paid plaintiff upon said date for the purpose of facilitating and carrying out its plan and the plan and scheme of the additional defendants herein of converting and disposing of said cancellation moneys in the manner aforesaid, and that said Holland Corporation, a corporation, on said date and at all times thereafter had no intention of paying any further rent under said lease or of performing any of the other obligations required by it to be performed under the terms thereof and intended to and did abandon said premises. That the appointment of the receiver herein on June 5th, 1931, solely for the collection of the sub-rentals, was necessary for the purpose of preventing the defendant Holland Corporation, a corporation, and the additional defendants herein from dissipating said subrentals and for the purpose of preserving the same so that they might be subject to plaintiff's lien for unpaid rent and other obligations and that defendant Holland Corporation, a corporation, having previously abandoned said premises, was not evicted by the appointment of said receiver. That on the 17th day of June, 1931, defendant Holland Corporation, a corporation, although it had previously and during the month of April, 1931, decided to abandon said premises and give up said lease, as hereinabove recited, actively carried out said intention by discharging its employees on said premises and by delivering the keys thereof to plaintiff, The Exeter Company, a corporation, and that at all times subsequent to the 17th day of June, 1931, plaintiff The Exeter Company, a corporation, has been in possession of said premises and collecting the rentals thereof through the receiver, David W. Baldwin, for the account of said defendant Holland Corporation, a corporation, for the purpose of minimizing the loss sustained and to be sustained by plaintiff under said lease by reason of the continuing breaches of the terms thereof by defendant Holland Corporation, a corporation."

Upon an examination of the testimony, we are convinced that, while there are some conflicts, it clearly preponderates in favor of the findings made by the trial court, and, in addition to the facts just enumerated, the testimony clearly shows:

(1) That the Holland Corporation and the additional corporations who were associated with it and each other in this whole transaction had interlocking directorates; (2) that the bank knew, when it received the ten thousand dollars, that it was the compromise rent money paid by Russell, Miller Company to the Holland Corporation; (3) that, according to the understanding of, and by direction of, the parties interested (other than the Exeter Company), the bank paid the ten thousand dollars over to the Realty Investment Corporation, which still has the money, for aught the record shows; and (4) that the bonds paid off with the ten thousand dollars were the obligations of First Leasehold Corporation and others.

The judgment, in accordance with the findings of fact, is, in substance, that the Exeter Company have judgment against the Holland Corporation in the sum of $43,654.51 (less $7,758.11, which the receiver is directed to pay the Exeter Company to be applied on the judgment), and an attorney's fee of four thousand dollars; that such judgment constitutes a first lien on the ten thousand dollars paid the Holland Corporation by Russell, Miller Company; that the Exeter Company have judgment in the sum of ten thousand dollars against the additional defendant corporations and Downs and wife and Edris and wife, which, upon collection, shall be applied on the judgment awarded against the Holland Corporation; and that the judgment against the Holland Corporation constitutes a first lien on the security deposit of thirty-five thousand dollars, made by the Holland Corporation under the lease, which, or so much as may be necessary to satisfy the judgment, the Exeter Company is authorized to apply on the judgment and to retain the balance of the security deposit as security for future breaches and failures under the lease.

[6] It is claimed by appellants Holland Corporation, First Leasehold Corporation, First Realty Corporation, and Downs and wife, that the court erred in holding the respondent had a lien in the sum of $39,896.40 on the thirty-five thousand dollar lease deposit and the sub-rents of the building. However, there was that amount due the respondent, under the terms of the lease, at the date of the judgment, and the thirty-five thousand dollars was placed in the hands of the respondent as security for the performance, on the part of the lessee, of all the terms and covenants in the lease on the part of the lessee to be performed; also, the lease contract, in so many words, provides for a lien on the sub-rents.

[7] The same appellants further contend that the court erred in refusing to hold that the Holland Corporation was evicted by the respondent by the appointment of a receiver on June 15, 1931, at the instance of the respondent. The receiver, however, was appointed for a limited purpose only, to receive the rents and income subject to the order of the court. It was an orderly judicial proceeding to keep the Holland Corporation, the lessee, from dissipating and diverting such income from payments due the respondent under the terms of the lease. The respondent did not seek to either cancel the lease or get possession of the building. The respondent or any of its agents did not attempt to take possession of any portion of the building, nor in any manner deprive the sub-tenants of their rights of occupancy. The procedure was not personal, but through the courts, as was clearly contemplated by the provision in the lease giving the lessor a lien on all the sub-rents and income — a remedy in the court wholly inconsistent with an eviction.

Upon further consideration since the former hearing, we are satisfied that to treat the appointment by the superior court, a court of general jurisdiction, of a receiver for the limited purpose mentioned in this case as constituting an eviction, would be going too far, and would, in effect, destroy the provision in the contract giving the landlord a lien on the sub-rents and income. The exercise, in a case of this kind, through judicial proceedings, of a remedy or right given by a contract does not amount to an eviction. To the extent of the receiver's limited services as collector of the rents, he was the agent of the court and not of the lessor. Rem. Rev. Stat., § 740. "He is but an arm of the court, and his acts and doings as receiver are the acts and doings of the court." Cole v. Washington Motion PictureCorporation, 112 Wn. 548, 192 P. 972.

The authorities cited by appellants are not in point. None of them involved an act or remedy authorized by the contract. InWusthoff v. Schwartz, 32 Wn. 337, 73 P. 407, the landlord materially altered the building leased, greatly depriving the tenant of the beneficial use of it. Tennes v. AmericanBuilding Co., 72 Wn. 644, 131 P. 201, was a case of a landlord suing out an injunction that prohibited the tenant from the use and enjoyment of a substantial part of the premises. InBrewster Cigar Co. v. Atwood, 107 Wn. 639, 182 P. 564, the owner of the property materially changed it so as to interfere with the substantial enjoyment of it by the tenant. In NorthernBrewery Co. v. Princess Hotel, 78 Ore. 453, 153 P. 37, Ann. Cas. 1917C, 621, the tenant in possession was evicted by the receiver "pursuant to the order of the court." In Telegraph Ave.Corporation v. Raentsch, 205 Cal. 93, 269 P. 1109, 61 A.L.R. 366, an unlawful detainer action, the receiver took actual possession of the premises by order of the court. Here, as already stated, the receiver in no way disturbs the use of the building, but only collects and preserves the rents.

After the appointment of the receiver, the Holland Corporation, without right, abandoned the premises, whereupon the respondent, expressly without intending or attempting to terminate the lease, took charge of the building, in order to keep the rooms rented, for and on behalf of the Holland Corporation, so as to reduce as much as possible the damages for breach of the lease by the Holland Corporation. Martin v. Siegley, 123 Wn. 683,212 P. 1057; Crescent Mfg. Co. v. Friedenthal, 124 Wn. 682,215 P. 19; Washington Securities Co. v. Oppenheimer Co.,163 Wn. 338, 1 P.2d 236. During this time, the receiver collected the rents, and, by order of the court, paid taxes on the property and charges and expenses in the operation of the property. The holding of the trial court that there was no eviction in this case was proper.

[8] The Realty Investment Corporation and William Edris and wife assign as errors the denials of motions and the overruling of demurrers that a number of causes of action were improperly united in the amended complaint. We think not. A similar contention was made in Headrick v. Martin, 158 Wn. 238,290 P. 994, of which the court said:

"But we think this contention is without substantial merit. There seems to be but one cause of action, i.e., that for the recovery of money; and if, by reason of the peculiar facts, the claimant has also lien rights of an equitable nature, it would seem to be for the benefit of all concerned that the whole controversy be decided in one action."

See, also, Stewart v. Pacific Finance Co., 87 Wn. 484,151 P. 1092.

[9] All of the appellants assign as error the holding that the respondent had a lien on the ten thousand dollars received from Russell, Miller Company, and the giving of judgment therefor against those who assisted in misappropriating it. That fund was property, not of an intangible sort, already received by the lessee as income from the premises demised. The lease in specific language gave a lien on all income, a provision which was well known to every one of these judgment debtors, and it is difficult to appreciate a claim of error because the judgment recognizes that lien.

As to the complaint of giving judgment against the appellants, the evidence shows, without contradiction, that the officers of all of these corporations, acting together for their pecuniary benefit, as the trial court found, passed this money through the bank by special control and direction of appellants, including the Realty Investment Corporation, whose president testified at the trial as follows:

"Q. What did the Realty Investment Corporation do with the $10,000 it received in the redemption of these bonds? A. I have no idea. Q. Have they still got that $10,000? A. I cannot answer that, either."

The tortious acquisition of property by one or more persons gives to neither any right or title to it. In this case, surely some one or more is responsible; and if the Realty Investment Corporation, to which the fund has been traced, refuses or fails to restore it, those responsible must suffer judgment against them.

[10] Personal judgment against the lessee is proper because of its contract with the respondent, while, as to the other appellants, the applicable rule was announced in American StateBank v. Sullivan, 134 Wn. 300, 235 P. 815: "Where," as tersely stated in the appropriate syllabus,

". . . a lessee and a bank appropriated the landlord's portion of a crop of wheat, both having notice of the landlord's lien for rent and liable for the conversion, the bank cannot complain of a personal judgment against it."

To the same effect, see 37 C.J. 342, § 67, as follows:

"Where property subject to a lien is taken and converted by a third person, the lienor's proper remedy is to proceed in equity to fix his lien on the property or its proceeds in the hands of the wrongdoer, unless he had the right to immediate possession of the property, in which case he may sue at law for the conversion."

To the contrary, appellants cite Nelson v. Nelson Neal LumberCo., 171 Wn. 55, 17 P.2d 626, and contend that the right to an equitable lien is insufficient to maintain an action for conversion of goods covered by such lien. That case, however, is easily distinguishable from the present one. That action was brought by stockholders of the Nelson Neal Lumber Company to recover for themselves and the corporation, and was determined by the sustaining of a demurrer to the second amended complaint, in which it was alleged, in substance, that the Nelson Neal Lumber Company, by conditional sale contract, reserving title, sold its mill, machinery and logging equipment to the Montborne Lumber Company; that the contract provided that the vendee should keep the property, including the buildings, insured, loss, if any, to be payable to the vendor as its interest might appear; that the vendee and its officers refused to provide such insurance, but wrongfully took out insurance simply payable to itself, the vendee; that the property was destroyed by fire, and the vendee, the insured, collected the money; that the vendee and its officers refused, upon demand, to turn the insurance money over to the Nelson Neal Lumber Company; and hence the suit to declare in favor of plaintiff an equitable lien on the insurance moneys and for judgment against the officers of the Montborne Lumber Company, who collected the money. The Montborne Lumber Company was not made a party to the action.

The lien claimed in that action was purely equitable, and required oral proof and a decree to establish it. In the present case, no proof was needed to establish the lien. It was a contract lien, as was known by all of the appellants. In that case, there was no change of possession, the funds at all times being in the hands of those the insurance company had contracted to pay in case the property was destroyed by fire; here, there was a change of possession of the fund from the Holland Corporation, who rightly received it from Russell, Miller Company, by wrongfully diverting it through the bank to the Realty Investment Corporation.

But, whatever may be the distinctions and refinements in remedies elsewhere, or at the common law, in this state there is but one form of action for the enforcement or protection of private rights and the redress of private wrongs (Rem. Rev. Stat., § 153); and it is the general rule, applicable here, that, if one prevails, he is entitled to that relief demanded by the proof. Accordingly, in this case, whether treated as technical conversion or impairment of the right of a contract lien by those having knowledge of the lien (in legal effect the same asAmerican State Bank v. Sullivan, 134 Wn. 300, 235 P. 815), the result is the same — those who have committed the wrong must be held responsible.

[11] It is further argued that there should be no judgment against Mr. and Mrs. Downs and Mr. and Mrs. Edris. However, the record and evidence in this case abound with admissions on the part of Mr. Downs and Mr. Edris, and proof from other witnesses to the same effect, from which it is certain that Mr. Downs and Mr. Edris took an active part in the whole plan relating to the ten thousand-dollar-fund, which resulted, as it manifestly was intended to result, in benefit to corporations of which they were and are officers and stockholders, thus creating personal obligations against themselves and community obligations against them and their wives.

The Departmental opinion in this case is overruled and set aside. The judgment appealed from is affirmed.

BEALS, C.J., BLAKE, TOLMAN, HOLCOMB, MILLARD, STEINERT, and MAIN, JJ., concur.