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Patrick v. Cochise Hotels, Inc.

Supreme Court of Arizona

July 17, 1953

PATRICK et ux.

Page 570

[76 Ariz. 139] Richey & Herring, of Tucson, for appellants.

Jerman & Jerman, of Phoenix, and Wesley E. Polley, of Bisbee, for appellees.

WINDES, Justice.

Suit by Walter W. Patrick, appellant, to foreclose a real estate mortgage on the Gadsden Hotel in Douglas, Arizona, against Cochise Hotels, Inc., appellee, hereinafter referred to as Cochise Hotels. Unless otherwise designated, all dates mentioned refer to the year 1950.

We have read the entire record, and while the court made very voluminous findings, some of which are not necessary to a correct decision, there is no substantial dispute concerning the essential facts. There is some conflict in the evidence as to certain conversations by the interested parties, but the important undisputed facts, and those upon which the court had ample evidence to find and did find, are substantially as follows:

In the year 1948, Cochise Hotels became the owner of the Gadsden Hotel, upon which there was a first mortgage in favor of the Connecticut Mutual Life Insurance Company. Cochise Hotels executed a second mortgage, with the Valley National Bank of Phoenix as mortgagee, in trust for Patrick, Ben Williams, and Ezra Warner as beneficiaries. The mortgages provide that in the event taxes are not paid and are delinquent, the whole amount of the principal sum may become due at the option of the mortgagee. Simultaneously with the execution and delivery of the note and mortgage to the bank, it and the beneficiaries Patrick, Williams and Warner executed a trust agreement, the corpus of the trust being the second mortgage.

In August, 1950, Cochise Hotels employed Patrick as manager with full and complete power to operate the hotel without

Page 571

interference and to collect and expend its funds in connection with the operation thereof. It was understood that in the event funds from the operation of the hotel were insufficient, they would be furnished upon the request of Patrick; and on several occasions he requested certain sums of money, which sums or a portion thereof satisfactory to him were immediately supplied. At the time of Patrick's employment he had purchased Williams' and Warner's interest in the second mortgage, and the officers of Cochise Hotels at all times during said employment knew he was thus beneficially interested, and they [76 Ariz. 140] did not intend that he surrender his rights as second mortgagee when he became employed.

Taxes on the hotel would become delinquent on November 7th, and Cochise Hotels, through its officers, knew this situation and knew that failure to pay such taxes before that date could cause a breach of the conditions of both the first and second mortgages. One J. Edwin Goldman, an officer of Cochise Hotels, after December 11th secured from the first mortgagee an extension of time of January 1, 1951, to pay the taxes before breach of condition of the first mortgage could be declared, and prior to December 22nd Patrick knew of this situation.

On December 22nd, Max Hofmann, an officer of Cochise Hotels, phoned Patrick from Safford, Arizona, making inquiry concerning affairs of the hotel and was advised that everything was progressing satisfactorily, no mention being made concerning the delinquent taxes or that Patrick had any intention of paying the same with his personal funds. Hofmann advised Patrick he would be in Douglas the following day, the 23rd. On the morning of the 23rd and before Hofmann arrived, Patrick, in company with Mr. Richey, his counsel and the assistant secretary and statutory agent of Cochise Hotels, went to the county seat and paid the taxes with Patrick's individual money, taking the tax receipt in the name of the Valley National Bank, Patrick being at this time the agent of the Cochise Hotels. Upon Hofmann's arrival on the afternoon of December 23rd, he was advised by Patrick that the latter had paid the taxes out of his own money. Instantly Hofmann, as an officer of the Cochise Hotels, produced his check and offered to make full and complete reimbursement direct to Patrick, Patrick stating in response thereto that he did not desire to be reimbursed but he wanted to accelerate his mortgage. The refusal to accept the check was for the sole reason that he desired to take advantage of such acceleration, and the fact that a check was offered was not the reason of such refusal.

On December 26th, an attorney for Cochise Hotels offered to pay to the Valley National Bank as trustee holding the second mortgage, the full amount of the taxes, penalties and interest. This offer was refused upon the ground that the bank was not interested in the matter further since the taxes had been paid and any default had been cured. This offer was not refused because cash was not offered or because of the form of the offer, the bank indicating that a tender of cash if made would be refused.

The court further found as follows: that the Cochise Hotels relied upon Patrick to pay the taxes as managing agent of the hotel; that on November 7th and on many occasions both before and thereafter Patrick had sufficient funds in the account with the Cochise Hotels to pay the taxes but not sufficient funds therefor and at the [76 Ariz. 141] same time to meet all current expenses; that Patrick deliberately failed to pay the taxes with the intention of creating a breach of the second mortgage contract so that he as the second mortgagee would be in a position to benefit personally from the default at the expense and to the detriment of Cochise Hotels; that the bank resigned as trustee and delivered the second mortgage to Patrick on January 22, 1951; that Patrick knew the officers of Cochise Hotels had the utmost faith and confidence in his ability and good faith to manage the complete operation of the hotel, but that Patrick breached this confidence and deliberately concealed from the officers of Cochise Hotels his intention to pay the taxes from his own funds and to accelerate the second mortgage.

Page 572

Judgment was in favor of Cochise Hotels and after denial of a motion for new trial, this appeal is presented with thirteen extensive assignments, most of which are technical and are not prejudicial. We shall consider such assignments in the order deemed advisable.

In addition to the foregoing findings, there are a few evidentiary matters worthy of mention. In the negotiations leading up to Patrick's employment, Hofmann by letter advised Patrick that he, Hofmann, was the one that was always obliged to furnish the money and that he would furnish whatever was necessary and Patrick was to be the exclusive manager with power to sign checks. It also appears that as a result of a conversation between Goldman and Patrick that Goldman was to attempt to get an extension of time to pay the taxes. In this he was successful and Patrick was so advised on December 18th. On December 23rd, when Hofmann arrived in Douglas and was advised that the taxes had been paid Patrick testified that he, Hofmann, was shocked and surprised to learn of this fact and immediately offered reimbursement in the form of a check and he told Hofmann, 'I do not want a check, Mr. Hofmann. I want to accelerate my mortgage.' Also at that time Patrick, contrary to the truth, advised Hofmann that Richey and Herring were not his attorneys, giving as a reason for so doing that they were representing the Cochise Hotels and he did not think it would be proper for them to represent both sides. Thereafter Stanley Jerman came into the picture as attorney for Cochise Hotels, and without success made several attmpts through contacting the bank, Patrick and the attorneys for Patrick, to refund whatever had been expended in payment of taxes, penalties, and interest, but such attempts were refused because of the insistence on the part of Patrick that the mortgage be accelerated.

From the foregoing lengthy statement of facts and evidentiary matters, we are presented with this situation: we have a manager of a hotel with complete authority in that respect, including control of its funds derived from the operation thereof [76 Ariz. 142] and any other funds that the officers of the owners might deliver to him for such purposes. This manager with the knowledge of his employer was the owner of the beneficial interest in a sizable second mortgage on the hotel in the approximate sum of $179,000. The mortgage was in favor of the Valley National Bank as trustee for the manager. There was a first mortgage in favor of an insurance company. Taxes became delinquent, and the manager and agent of the hotel company, under the circumstances heretofore related, paid the taxes with his own funds and declared the entire indebtedness immediately due under the acceleration clause of the second mortgage, for the asserted reason that the Cochise Hotels did not furnish adequate funds to pay both the current expenses of the hotel and taxes. This was done without giving the principal, the employer, notice of his intention to pay the taxes for himself personally and to declare acceleration of his mortgage. The cardinal point in this lawsuit is whether the plaintiff, while he was the agent of the hotel company in ...

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