Harbel Oil Company v. Steele

Harbel Oil Company (plaintiff) had a 20-year lease on vacant property in Phoenix, Arizona. Harbel Oil obtained a $10,000 loan from Horace and Ethel Steele (defendant), copartners of Texas Independent Oil Company (defendant), to finance the construction of a gas station on the property. The loan was to be repaid in monthly installments with interest. Four different instruments were negotiated as security for the loan: (1) an assignment of the lease to the Steeles for four years and five months, or until the loan was repaid, (2) a sublease back to Harbel Oil for the term of the assignment, (3) a conditional sales and loan agreement for the equipment in the station, and (4) a products-contract purchase agreement whereby Harbel Oil would purchase products directly from the Steeles. Harbel Oil defaulted on three payments under the sublease and four payments under the conditional sales and loan agreement, and Texas Independent Oil issued notice of default. Harbel Oil voluntarily surrendered the premises. Texas Independent Oil then took possession, made improvements, and subleased the property to Blakely Oil Incorporated (defendant). In October 1952, Harbel Oil notified Texas Independent Oil that it wished to make full payment upon a complete accounting of its indebtedness and redeem the premises and its right to possession. Texas Independent Oil refused to make an accounting, and Harbel Oil filed suit. The lower court found the mortgage instruments to be a chattel mortgage that could be summarily foreclosed on without requiring an accounting or opportunity for redemption. Harbel Oil appealed the lower court’s determination.