Deer Creek, Inc. v. Clarendon Hot Springs Ranch, Inc.

• Decision Date: 11 July 1984
• Docket Number: No. 14089,14089
• Citation: 688 P.2d 1191,107 Idaho 286
• Parties: DEER CREEK, INC., an Idaho corporation, Plaintiff-Counterdefendant-Appellant, v. CLARENDON HOT SPRINGS RANCH, INC., an Idaho corporation, Defendant-Counterclaimant-Respondent, and Lloyd Walker, Defendant-Respondent.
• Court: Idaho Court of Appeals

Page 1191

688 P.2d 1191

107 Idaho 286

DEER CREEK, INC., an Idaho corporation, Plaintiff-Counterdefendant-Appellant, v. CLARENDON HOT SPRINGS RANCH, INC., an Idaho corporation, Defendant-Counterclaimant-Respondent and Lloyd Walker, Defendant-Respondent.

No. 14089.

Court of Appeals of Idaho.

July 11, 1984.

As Modified on Denial of Rehearing

Sept. 27, 1984.

Petition for Review Denied

Dec. 21, 1984.

SWANSTROM, Judge.

This appeal arises from a suit brought by Deer Creek, Inc. (DCI) against Clarendon Hot Springs Ranch, Inc. (Clarendon) and Lloyd Walker. DCI asked the district court to (1) declare a deed from DCI to Clarendon void or, in the alternative, require Clarendon to convey certain real property to DCI; and (2) reform a second deed to Clarendon excluding a one-acre parcel with its appurtenant water rights. DCI also requested (3) damages for injuries allegedly caused by Clarendon's interference with a right-of-way; and (4) an injunction to prevent Clarendon from interfering with that right-of-way in the future. Clarendon counterclaimed for damages caused by DCI's allegedly willful, malicious and deliberate conduct in demanding a greater payment than actually due under their agreement. The district court denied relief on both the claim and counterclaim. ¹ DCI appeals. We vacate the judgment and remand the cause for further proceedings.

DCI presents four issues on appeal. Did the district court err in (1) concluding that Clarendon could not be required to convey certain real property to DCI; (2) refusing to join Patrick Ryan, the majority stockholder in Clarendon, as an indispensable party; (3) ruling that Clarendon was not the alter ego of Ryan; and (4) concluding that Walker's conduct had no prejudicial effect on DCI?

The case was submitted to the district court upon a written record which included exhibits, affidavits and depositions. This record revealed, not always clearly, a complex series of business transactions revolving around efforts by Ryan to purchase some real property for himself or for his corporation, Clarendon. We commend the district judge for the ability and energy he exhibited in deciphering the sometimes murky dealings of the parties.

The pertinent facts are as follows. Sometime before June 1969, Patrick Ryan communicated to his friend, William Burt, president of DCI, his desire to purchase 200 acres of land (hereinafter designated as parcels I, II and III) then owned by R.B. Randell. Burt volunteered to negotiate a purchase for Ryan using DCI as the purported buyer. Accordingly, on June 20, 1969, Randell deeded parcels I, II and III to DCI and took a mortgage back from DCI to secure payment of the purchase price. DCI in turn deeded the property to Ryan's attorney, Lloyd Walker, as trustee. ² Ryan was to supply all the money for this purchase and had some control over the trustee. The district court found that under the parties' agreement the deed to Walker was to remain unrecorded until Ryan satisfied DCI's obligation to Randell for the purchase price or Walker received instructions from DCI and/or Ryan.

In December 1970 Ryan and DCI executed a second agreement (hereinafter referred to as "exchange agreement"). Under the exchange agreement, Ryan was to give DCI his beneficial interest in parcel I plus $50,000 in exchange for land designated as parcels IV and V, and the surface rights to eighty acres of mining claims. For purposes of the exchange, parcel I and parcel IV were valued nearly equally, while the cash represented payment for parcel V and the surface rights.

Ryan's corporation, Clarendon, was formed in April 1970 with Walker as president and Ryan as the majority stockholder. Before any of the events occurred which would entitle Walker to record his deed, Walker conveyed parcels I, II and III to Clarendon and two days later, on December 31, 1971, recorded the warranty deed for these parcels running from DCI to himself. On January 5, 1972 the deed from Walker to Clarendon was recorded. DCI did not receive notice of any of these transactions until much later. At this point in time, therefore, Clarendon held legal title to parcels I, II and III, while DCI remained liable to Randell for the purchase price. Ryan thereafter failed to make regular payments causing DCI to default on its mortgage to Randell. Randell commenced an action against DCI and ultimately received a judgment in excess of $100,000.

Burt sent a letter from DCI in January 1975 suggesting to Ryan that the exchange agreement be cancelled, at least in part, because Ryan still owed $45,343 principal and accrued interest to DCI. Burt stated that DCI could not be fairly compensated by adhering to the original terms of the exchange agreement. The letter purported to cancel the exchange agreement and requested Walker, as escrow agent, to return the deed for parcels IV and V running from DCI to Ryan. The district court made no findings concerning whether the exchange agreement was cancelled as a result of DCI's letter or was otherwise rescinded or modified by DCI and Walker. The parties highly dispute the status of the exchange agreement as of September 1975, when Clarendon was able to obtain a sizeable development loan to be used in part to pay off the Randell judgment against DCI (a lien against parcels I, II and III) and to pay off DCI so Clarendon could acquire title to parcels IV and V.

In September 1975 Walker wrote DCI about the loan closing. Apparently not knowing that its June 1969 deed to Walker, as trustee, for parcels I, II and III had already been recorded and that Walker had then conveyed the same property to Clarendon, DCI gave another deed to Clarendon covering parcels II, III, IV and V. In exchange DCI wanted $86,000 and the original "unrecorded" deed to Walker, covering parcels I, II and III. The cash payment was greatly in excess of what was due DCI under the exchange agreement (if this agreement still existed), but Clarendon allegedly consented to disbursement of the $86,000 to DCI under protest so that Clarendon could receive the balance of the development loan proceeds.

It is apparent that Burt expected the net effect of this transaction would be to vest title to parcels II, III, IV and V in Clarendon and parcel I in DCI. The deed to Clarendon was delivered and recorded, but the return of the original deed running to Walker did not result in vesting title to parcel I in DCI. As previously noted, it had already been recorded and the property transferred to Clarendon. Although DCI received the requested cash payment from Ryan, Clarendon denied that it was required to convey parcel I to DCI. Currently therefore, title to all five parcels is vested in Clarendon.

In count one of its complaint, DCI requested the court to set aside the conveyance of parcels I, II and III from Walker, as trustee, to Clarendon. DCI claimed that since the obligation to Randell had not been satisfied by the date of the transfer the conveyance was in violation of the terms of the trust agreement. On September 17, 1975, however, Clarendon had belatedly satisfied the Randell judgment against DCI. The district court held that this action entitled Walker, albeit after the fact, to record the deed to him and convey the property to Clarendon. The court indicated that under these circumstances Walker might be liable for breach of trust, but that Clarendon, in this action, could not be compelled to turn over title to parcels I, II and III.

The district court also held that Clarendon had no duty to convey parcel I to DCI under the exchange agreement since that agreement was between DCI and Ryan. Clarendon had not signed the exchange agreement and was not bound by its terms. Furthermore, although Ryan was bound, he was not a named party and therefore no judgment could be entered against him. DCI moved to amend the findings of the court and amend its pleadings to conform to the proof. First, DCI argued that "a transferee of property from a trustee takes no title from the trustee if the transferee knows that the transfer is contrary to the trust." This principle, it was claimed, supported DCI's request to set aside the conveyance to Clarendon. Second, DCI argued that Clarendon was required to convey parcel I to DCI on the basis of a unilateral contract created by a letter to an escrow company and the ensuing conduct of the parties. Third, Clarendon could also be required, DCI contended, to convey parcel I under the exchange agreement because Clarendon was nothing but the alter ego of Ryan, who was bound by the exchange agreement. In response to the district court's findings, DCI also moved to join Ryan as an indispensable party under I.R.C.P. 19(a)(1).

The district court granted the motion to join Ryan upon the condition that he either file his own pleadings or agree to be bound by Clarendon's pleadings and stipulations. Ryan did neither and judgment was entered denying DCI's motion to amend the findings and amend the pleadings, denying DCI relief on counts one and two of its complaint and denying relief on Clarendon's counterclaim. DCI then moved to amend the judgment under I.R.C.P. 59(e), basing its argument on substantially the same grounds as its earlier motions. This motion was also denied.

Clarendon moved to certify the judgment as a final judgment from which an appeal may be taken. I.R.C.P. 54(b). The court granted the motion. DCI thereafter appealed. Neither Clarendon nor Walker, however, filed a respondent's brief. Therefore, this case is before us solely upon the brief of the appellant and upon oral argument, limited to the issues raised by DCI.

A

The first issue we shall discuss is whether Clarendon should have been required to convey parcel I to DCI. As noted above, the district court held that Clarendon was not bound by the exchange agreement to convey parcel I because that agreement was signed only by DCI and Ryan as an individual. DCI makes a somewhat mixed argument: that the exchange agreement was...