Case Title: Y-O INVESTMENTS, INC. V. ROSE EMKEN; ROSE EMKEN V. Y-O INVESTMENTS, INC.

Citation: 

Docket Number: 

State: wyoming

Court: Wyoming Supreme Court

Date: 2006-09-06T00:00:00Z

Document:
Y-O INVESTMENTS, INC. V. ROSE EMKEN; ROSE EMKEN V. Y-O INVESTMENTS, INC.2006 WY 112142 P.3d 1127Case Number: 05-168, 15-169Decided: 09/06/2006
APRIL TERM, A.D. 2006

Y-O 
INVESTMENTS, INC.,

Appellant

(Defendant),

v.

ROSE 
EMKEN,

Appellee

(Plaintiff).

ROSE 
EMKEN,

Appellant

(Plaintiff),

v.

Y-O 
INVESTMENTS, INC.,

Appellee

(Defendant).

Appeal from theDistrictCourtofPlatteCounty

Representing 
Y-O Investments, Inc.:

Frank J. 
Jones, Wheatland, Wyoming

Representing 
Rose Emken:

Cole N. 
Sherard and D. N. Sherard, Wheatland, Wyoming.  
Argument by Mr. Cole N. Sherard.

Before 
VOIGT, C.J., and GOLDEN, HILL,* KITE, BURKE, JJ.

* Chief 
Justice at time of oral argument

GOLDEN, 
Justice.

[¶1]      In an amended 
judgment and order following a bench trial in which neither party requested 
special findings as provided by W.R.C.P. 52(a), the district court ruled that 
Y-O Investments, Inc. (Y-O) did not breach the terms of a promissory note 
secured by a mortgage held by Rose Emken (Emken), but that Y-O must take several 
actions during the life of the note and mortgage to protect Emken's position and 
must pay her attorney fees in the sum of $2,000.  Each party now appeals that part of the 
amended judgment and order adverse to that party.  As explained below, we affirm the 
district court's ruling adverse to Emken and reverse the district court's ruling 
adverse to Y-O.

ISSUES

[¶2]      Emken asserts the 
district court erred in finding that Y-O was not in default on the note and 
mortgage when Y-O:

1) 
admitted converting Emken's security interest to itself to obtain loans from 
different lending institutions, depriving her of a part of her security 
interest;

2) 
caused Emken to sign blank, unacknowledged partial releases of lots covered by 
her mortgage and used them to convert numerous lots to Y-O's own use without 
Emken's authorization; and

3) 
failed to make timely payments as required by the terms of the note and 
mortgage.

Y-O 
states its appellate issues in these words:

A.  Can the district court judge award 
attorney's fees when he found no default existed in the parties' 
contract?

B.  Can the district court judge rewrite an 
unambiguous contract?

More 
specifically, Y-O asserts the district court erred in its ruling that, although 
Y-O was not in default on the note and mortgage as Emken alleged, 
Y-O:

1) shall 
provide information to Emken showing a plat of the property subject to the 
mortgage which designates the lots that have been sold and the lots and 
unplatted tracts that remain unsold;

2) shall 
provide Emken, within thirty (30) days after entry of the amended judgment and 
order, a full and complete accounting of all business activities of Y-O 
Investments, Inc., which involve the property which is the subject matter of the 
mortgage held by Emken; 

3) 
shall, upon each sale, exchange or transfer of any lot or tract of land 
contained within Emken's mortgage, make written request to Emken, through her 
attorney, for a release of that lot or tract from the mortgage, such request 
describing the property to be released, containing a copy of the sales documents 
which set forth in detail the total sales price and terms of payment of same, 
and listing in detail the transaction's expenses;

4) shall 
maintain a sufficient amount of property, subject to Emken's mortgage, of 
sufficient value, equal to one hundred and fifty percent (150%) of the then 
balance of principal and accrued interest on Emken's promissory note and 
mortgage; and

5) shall 
pay two thousand dollars ($2,000) in attorney's fees to 
Emken.

GENERAL 
BACKGROUND FACTS AND PROCEEDINGS

[¶3]      On July 13, 2004, 
Emken filed her complaint against Y-O in which she alleged that Y-O had 
defaulted on a promissory note that it had executed on July 12, 1997, by failing 
to make the payments required by the note's terms. In that regard, Emken alleged 
that Y-O had failed to apply one-half of the net proceeds of each sale of land 
to the outstanding balance of the loan evidenced by the note. Emken sought 
judgment for the outstanding balance together with accruing interest; reasonable 
attorney fees; costs; an accounting of all payments that Y-O had made to her and 
of all sales that Y-O had made since June 15, 1997; and foreclosure of the 
mortgage which secured the note.  
Answering the complaint, Y-O denied it had defaulted by failing to make 
the payments required by the note's terms and pleaded several affirmative 
defenses, including payment, accord and satisfaction, estoppel, and waiver.  

[¶4]      The case was 
bench tried.  At the beginning of 
the trial before the introduction of any evidence, neither party requested 
findings of fact and conclusions of law as provided in W.R.C.P. 52(a).  Four witnesses testified during the 
trial:  Emken; Cathy Weaver, a 
certified public accountant; James Greer, president of Y-O and Emken's brother; 
and Charlotte Greer, Y-O's secretary and James Greer's wife.  The witnesses presented evidence about 
Y-O's obtaining loans from several lending institutions, Y-O's having Emken sign 
partial releases containing no property descriptions and using those when Y-O 
obtained loans from lending institutions and when Y-O sold property to buyers, 
and Y-O's making payments to Emken from the summer of 1997 through the summer of 
2004. At the close of the evidence, Emken moved to conform the pleadings to the 
evidence based on the testimony of Emken and James Greer and moved to pierce 
Y-O's corporate veil and join the Greers as third-party defendants. The district 
court denied Emken's motion to pierce Y-O's corporate veil.  The district court did not rule on 
Emken's motion to conform the pleadings to the evidence. Concerning Y-O's 
compliance with the terms of the promissory note, the district court 
remarked:

            
Now, in terms of the promissory note itself, in reading through it, the 
way it is written, I believe that the terms and conditions of the  for the most 
part  the promissory note have been complied with.  If there were payments that were late, 
and if they were, they were early on, because there has always been a surplus of 
things made.  My view is that 
because of the course of dealing, any late payments early on  any complaints 
about that were waived. 

[¶5]      Although Emken's 
complaint had not alleged that Y-O had breached an implied covenant of good 
faith and fair dealing contained in the parties' promissory note and although 
Emken's end-of-trial motion to conform the pleadings to the evidence did not 
identify such a claim, the district court at trial's end 
remarked:

            
The part of the promissory note that I believe is not  there is not 
compliance with, I believe that every agreement under Wyoming law carries with 
it a covenant of good faith and fair dealing, and my belief is that when these 
releases were sought and when they were obtained, it was for the purpose  at 
least your sister, I believe, understood and fairly so, that those releases 
would be for the purpose of selling property so that she would be reimbursed so 
there would not be this administrative problem at the time.  That clearly wasn't done, and I think 
what you did while having  making some business sense and so forth  wasn't 
what was anticipated by your sister, and that was something that needed to be 
clearly and completely spelled out to her before it was done. 

Based 
upon these remarks, the district court ordered Y-O to take the several actions 
which Y-O now challenges on its cross-appeal.  We note also that the district court's 
amended judgment and order contains no explicit mention of Y-O's non-compliance 
with an implied covenant of good faith and fair dealing.  

[¶6]      Following these 
remarks, the district court asked Y-O's counsel to prepare and submit to Emken's 
counsel for approval an order. Apparently, Emken's counsel, not Y-O's counsel, 
submitted a proposed judgment and order to the district court. The district 
court signed and filed that judgment and order, and Y-O's counsel objected to 
same, on that submission date.  A 
few days later, Y-O filed a motion to alter and amend the judgment and order. 
Emken filed a response to that motion. Following a hearing on Y-O's motion and 
Emken's response, the district court filed its order granting Y-O's motion in 
part and denying Y-O's motion in part. The district court filed its amended 
judgment and order on May 13, 2005, and these cross-appeals were thereafter 
timely filed.

STANDARDS 
OF REVIEW

[¶7]      Before we discuss 
the issues raised in these cross-appeals and review the evidence adduced at 
trial in light of those issues, we shall identify the proper standards of review 
to be applied to those issues.  
Because the case was bench tried and neither party requested findings of 
fact and conclusions of law, this Court must consider that the amended judgment 
and order carries with it every finding of fact which is supported by the 
evidence.  Root v. Root, 2003 WY 36, ¶ 11, 65 P.3d 41, 45 (Wyo. 2003).  We accept the 
prevailing party's evidence as true, give to that evidence every favorable 
inference which may be drawn from it, and although we may examine all of the 
properly admitted evidence in the record, we will not interfere with the trial 
court's findings of fact unless they are clearly erroneous or manifestly wrong 
and totally against the evidence.  
Deroche v. R.L. Manning Co., 
737 P.2d 332, 336 (Wyo. 1987).  Although this standard of review is more 
often invoked in cases in which the trial court made specific findings of fact, 
it also applies in a case like the instant one in which the trial court made a 
general finding only.  Id.  This Court gives due regard to the trial 
court's opportunity to assess the credibility of the witnesses, and our review 
does not entail weighing disputed evidence.  Forshee, et ux. v. Delaney, et ux., 2005 
WY 103, ¶ 6, 118 P.3d 445, 448 (Wyo. 2005).

[¶8]      With respect to 
the parties' promissory note and mortgage, both parties agree that their terms 
are unambiguous and, therefore, the interpretation of those terms is a question 
of law, and that we review questions of law de novo.  We agree the terms are unambiguous and 
our standard of review is de novo.  
With respect to an appeal of an award of attorney fees, the parties agree 
that we subscribe to the American rule, under which a prevailing party may be 
reimbursed for its attorney fees when express statutory or contractual 
authorization exists for such an award.  
Alexander v. Meduna, 2002 WY 
83, ¶ 49, 47 P.3d 206, 220-21 (Wyo. 2002).

[¶9]      We recognize that 
the equitable remedy of an accounting may apply under various circumstances and 
that the trial court's decision to grant an accounting is within that court's 
discretion.  Patterson, et al. v. BP America Prod. 
Co., __ P.3d __, 2006 WL 1171957, at *8 (Colo. App. 2006); Mankert v. Elmatco Products, Inc., et 
al. 854 A.2d 766, 768-69 (Conn. App. 2004).  A trial court abuses its discretion, 
however, if it rules without regard to legal principles or without supporting 
evidence.  Id.; Welder v. Green, 985 S.W.2d 170, 180 
(Tex. App. 
1998).

DISCUSSION

[¶10]   We have carefully reviewed the 
trial transcript and, mindful of our standards of review, conclude that the 
evidence supports the following pertinent facts.  Y-O, a Wyoming corporation, operates a real estate development 
company east of Wheatland, 
Wyoming.  Its president is Jim Greer; its 
secretary, Charlotte Greer, Jim Greer's wife. Rose Emken is Jim Greer's sister. 
At one time, Emken was involved in the company, taking care of water bill 
collections. She paid $145,600 to buy a one-half interest in the company. 
However, within a few months, she wanted out; she and her brother turned her 
payment into a loan to the company, as evidenced by the promissory note and 
mortgage which are involved in this appeal. The mortgage covered about sixty 
lots owned by Y-O.  The pertinent 
terms of the promissory note provided:

(a)  Interest only shall be paid at the rate 
of $500.00 per month with the first payment being paid on the 15th 
day of June, 1997 and a like payment being due on the same date of each month 
thereafter until the entire obligation of this promissory note is paid in 
full.

(b)  The property sold consists of platted 
lots and unplatted land which Y-O Investments, Inc., intends to convey to third 
parties.  The remaining unpaid 
principal balance, and interest computed at 8% per annum on any unpaid principal 
balance, shall be paid as follows:

Upon the 
sale of each platted lot or unplatted parcel one-half (1/2) of the net proceeds 
(as determined by a representative of Y-O Investments, Inc.) received from any 
sale shall be paid to the holder of this promissory note.  Proceeds of any amount received shall be 
first applied to any unpaid interest and the balance to 
principal.

(c)  All unpaid principal balance and accrued 
interest shall be paid in full ten years from date.

(d)  Interest shall be computed from and 
after June 15, 1997.

            
Maker reserves the right to pay any or all of the unpaid principal 
balance and accrued interest in advance without being subject to any penalty 
whatsoever.

            
If any interest payment is not paid when due, the amount of such unpaid 
interest shall become a part of and shall be added to the principal sum due 
hereunder and draw like interest as the principal.  Should payment of any one or more 
installments become delinquent the entire balance shall, at the option of the 
Holder or payee hereof, to be exercised at any time after default, become at 
once due and payable.  In case 
payment shall not be made at maturity, and if placed with an attorney or any 
collector for collection, the Maker promises to pay a reasonable collection fee 
and costs, which shall be added to the principal of this promissory 
note.

[¶11]   The pertinent terms of the mortgage 
provided:

            
In case default shall be made in the payment of the above sum hereby 
secured, or in the payment of the interest thereon, or any part of such 
principal or interest, when the same shall become due, or in case default shall 
be made in any of the covenants and agreements hereof, then the whole 
indebtedness hereby secured, together with the interest thereon, shall become 
due and payable, and the morgagee . . . may proceed, pursuant to law, to 
foreclose on and sell said property, and out of the proceeds of such sale pay 
all sums due hereunder, together with all costs of sale and foreclosure, 
including attorney's fees equal to ten percent (10%) of the amount due and in no 
case less that $1,500.00.

[¶12]   Shortly after the execution of the 
promissory note, Emken signed thirty-five to forty partial releases which did 
not contain legal descriptions of the mortgaged property partially 
released.  When Y-O sold one of its 
lots, it used one of these partial releases, filling in the necessary legal 
description, and paid Emken one-half of the sale proceeds as required by the 
terms of the promissory note.  Y-O 
also used some of these partial releases to obtain from several banks financing 
for its expenses of operation and development.  Mr. Greer told Emken that Y-O was going 
to use these partial releases to obtain this financing. These partial releases 
were signed so Y-O could operate without having to contact Emken and have her 
sign a partial release every time a lot was sold or financing for operation 
expenses was obtained. Emken did not object to signing the partial releases so 
Mr. Greer would have them on hand when he sold a piece of land. Y-O never sold 
any of its lots to any of the three banks from which it obtained its operation 
financing.  

[¶13]   During the first year after Y-O 
executed the promissory note, it did not make its monthly interest payments to 
Emken promptly on the 15th of each month, but 
it did make the payments later in the month or in the following month.  Exhibits introduced by Y-O and received 
into evidence at trial showed that it was current with its monthly payments as 
of the date in July 2004 when Emken declared a default in the payments by filing 
her complaint.  Emken conceded that 
she had accepted late payments from time to time for the seven-year period from 
the execution of the promissory note to the filing of her complaint.  With respect to the sale of lots by Y-O 
to third parties, as provided in the promissory note, Y-O paid one-half of the 
net proceeds of each sale to Emken. 

[¶14]   Against the backdrop of these 
facts, Emken claims that the trial court erred in finding that Y-O was not in 
default on the promissory note and mortgage when it caused her to sign blank, 
unacknowledged partial releases of property covered by the mortgage, used those 
partial releases to obtain financing for various operating expenses without her 
authorization, and failed to make timely payments as required by the terms of 
the promissory note and mortgage.  
Y-O refutes those claims, relying on the unambiguous terms of the 
promissory note and mortgage and the facts that Emken historically accepted late 
interest payments; Y-O was current in those payments and net sales proceeds 
payments at the time Emken declared default in July 2004; and that Y-O had told 
Emken, and she understood, that it was going to use her partial releases on 
occasion to obtain financing for operation and development 
expenses.

[¶15]   Applying our standard of review to 
the facts, we affirm the trial court's decision that Y-O did not default on the 
note and mortgage.  No terms of that 
note and mortgage prohibited Y-O from obtaining and using Emken's partial 
releases as it did.  Y-O was current 
in both its monthly interest payments and its net sales proceeds payments under 
the terms of the note and mortgage when Emken declared default in July 
2004.  As the trial court found, 
Emken, by historically accepting late interest payments, had waived those as a 
default basis.  Given the facts in 
this record, we cannot say that the trial court's finding that Y-O did not 
default is clearly erroneous.

[¶16]   We now turn to Y-O's contentions in 
its cross-appeal.  Because the trial 
court found that Y-O was not in default on the note and mortgage, Y-O questions 
the trial court's ordering it to identify for Emken which lots have been sold 
and which have not; to provide Emken a full and complete accounting of all 
business activities involving the mortgaged property; to make written requests 
through Emken's attorney for future releases of lots being sold and to provide 
pertinent details about each lot sale; to maintain a sufficient amount of 
mortgaged property of a value of 150% of the then balance of principal and 
accrued interest on the note and mortgage; and to pay Emken the sum of $2,000 
for her attorney fees.  Y-O's 
position as to these requirements is straightforward:  the trial court has impermissibly 
rewritten the parties' note and mortgage.  
Lieberman v. Wyoming.com, LLC, 
2004 WY 1, ¶ 18, 82 P.3d 274, 282 (Wyo. 2004).  Y-O correctly points out that the note 
and mortgage do not contain any of these requirements.  In particular, Y-O correctly observes 
that the note and mortgage allow attorney fees only if Y-O was in default, which 
the trial court did not find.  In 
response, Emken concedes that the trial court's requirements are not 
specifically stated in the note and mortgage.  She contends, however, that they are 
impliedly contained therein.  Emken 
cites no authority for this proposition, but apparently relies for it on the 
trial court's end-of-trial remarks about Y-O's noncompliance with a covenant of 
good faith and fair dealing impliedly contained in the note and 
mortgage.

[¶17]   We do not think Emken's position is 
well-taken.  The trial court's 
end-of-trial remark about an implied covenant of good faith and fair dealing was 
made only in the context of Y-O's obtaining partial releases from Emken.  The trial court remarked that it 
believed Emken understood her partial releases would be "for the purpose of 
selling property so that she would be reimbursed so there would not be this 
administrative problem at the time;" and that "what you did while having  
making some business sense and so forth  wasn't what was anticipated by your 
sister [Emken], and that was something that needed to be clearly and completely 
spelled out to her before it was done."  
Emken claims that these trial court remarks are a ruling that Y-O's 
obtaining and using the partial releases not only for selling property but also 
for obtaining financing for operating and development expenses constituted a 
breach of an implied covenant of good faith and fair dealing contained in the 
note and mortgage.  We 
disagree.  Emken's complaint did not 
allege the existence of or a breach of an implied covenant.  Her end-of-trial motion to conform the 
pleadings to the evidence did not mention such a claim.  The trial court did not expressly make 
such a ruling in its remarks or in its amended judgment and order.  In its end-of-trial remarks after 
setting out the requirements for an accounting of Y-O's business activities 
involving property sales of the mortgaged property, the trial court remarked, 
"[a]nd part of this case, I believe, was justifiable, and so I'm going to add on 
$2,000 in attorney's fees because I believe the accounting was necessary and 
proper."  Emken's accounting claim 
was ancillary to her breach of contract claim because its main purpose was to 
facilitate an accurate calculation of damages once a breach was found.  The trial court ruled that Y-O had not 
breached the terms of the note and mortgage in any of the particulars alleged by 
Emken.  Moreover, with the exhibits 
and testimony admitted at trial, Y-O had shown what lots had been sold, what 
payments had been made to Emken, and that Y-O was current in its payments of 
monthly interest and of net sales proceeds for lot sales.  The trial court abused its discretion 
here on several counts.  By ruling 
that Y-O had not defaulted on the note and mortgage, Emken's ancillary 
accounting claim was without legal basis because an accurate calculation of 
damages was unnecessary.  By ruling 
that Y-O must perform the various requirements, including an accounting of 
business activities and sales, the trial court impermissibly rewrote the 
parties' note and mortgage.  By 
ruling that Y-O must pay attorney fees in the sum of $2,000, the trial court 
impermissibly rewrote the parties' note and mortgage which allowed attorney fees 
only in the event of default.  
Moreover, in carefully examining the record, we found no evidence to 
support the attorney fees award.

[¶19]   We affirm the amended judgment and 
order which found that Y-O was not in default on the promissory note and 
mortgage.  We reverse the amended 
judgment and order which imposed on Y-O requirements not contained in the 
promissory note and mortgage and which imposed on Y-O an attorney fee payment of 
$2,000 to Emken.