Old Stone Capital Corp. v. John Hoene Implement Corp.

On December 10, 1979, Old Stone Capital Corporation (Old Stone) (plaintiff) and John Hoene Implement Corporation (JHIC) (defendant) entered into an agreement whereby Old Stone would loan JHIC $250,000 for operating capital expenses for commercial property that JHIC leased from Philomena Davis (defendant). The loan was secured by a leasehold deed of trust in favor of Old Stone on JHIC’s leasehold estate. On that same day, Davis and JHIC entered into a new 10-year lease agreement that would run concurrently with the term of JHIC’s loan with Old Stone. Davis also entered into a subordination agreement with Old Stone and signed an estoppel certificate. The subordination agreement did not deed or otherwise convey the property to Old Stone. Sometime later, JHIC defaulted on the loan. Old Stone took possession of the property and filed for foreclosure, asserting that it had acquired a fee interest in the property through the subordination agreement. Old Stone further contended that the subordination agreement was an inducement for the loan and was not intended to serve as security. Davis challenged the foreclosure, asserting that Old Stone had no standing to file for foreclosure because Old Stone did not have a fee interest in the property. Specifically, Davis noted that because the deed between JHIC and Old Stone was a leasehold deed of trust, the subordination agreement only subordinated her leasehold interest in the property. Davis maintained that the scope of the subordination agreement was limited to the subordination of Old Stone’s interest through the leasehold deed of trust, which was in the leasehold estate. Each party filed a partial motion for summary judgment.