Douglas v. Vancouver Plywood Co.

• Decision Date: 03 February 1972
• Docket Number: No. 2,CA-CIV,2
• Citation: 16 Ariz.App. 364,493 P.2d 531
• Parties: George DOUGLAS et ux., Appellants, v. VANCOUVER PLYWOOD CO., a Washington corporation, Appellee. 1002.
• Court: Arizona Court of Appeals

Page 531

493 P.2d 531

16 Ariz.App. 364

George DOUGLAS et ux., Appellants, v. VANCOUVER PLYWOOD CO., a Washington corporation, Appellee.

No. 2 CA-CIV 1002.

Court of Appeals of Arizona, Division 2.

Feb. 3, 1972.

Rehearing Denied Feb. 24, 1972.

Review Denied April 4, 1972.

Hughes, Hughes & Conlan, by Coit I. Hughes, Phoenix, for appellants

Robertson & Fickett, P.C., by Michael J. Meehan and Charles D. Wahl, Tucson, for appellee.

KRUCKER, Chief Judge.

Plaintiff, Vancouver Plywood Co., brought an action in the Superior Court of Pima County, to recover on a promissory note for $33,090.47. It was tried before the court without a jury, the Honorable Ben C. Birdsall presiding. The court entered 26 Findings of Fact and six Conclusions of Law on October 15, 1970. Judgment was entered for plaintiff on November 30, 1970, in the amount of $32,290.47, plus reasonable attorneys' fees of $8,000. This Judgment was amended on January 19, 1971 to the amount of $47,305.47, plus $8,000 in attorney's fees. From this Judgment the defendants, George Douglas and his wife, Cynthia Douglas, bring this appeal.

The facts out of which this action arose are, briefly, as follows. The plaintiff, Vancouver Plywood Co., is a Washington Corporation represented by Frost Snyder as president from 1935 to 1965. In April, 1959, Mrs. Frost Snyder was interested in developing a cattle operation in Mexico, specifically an area of Mexico where aliens are prohibited from owning property. To accomplish this, Mr. Frost Snyder caused a Limited Partnership to be known as Ganadera Mercantil R.C.L. to be The partnership secured a 10-year lease on each of the two ranches known as Los Alisos and El Pozo. The proposed operation was to consist of bringing cattle from what are known as 'dirty' zones to ranches in the 'clean' zone where they would be held for a period of 60 days before being shipped to the United States.

formed of three Mexican Nationals. Mrs. Snyder and the plaintiff then made loans to the three limited partners for which the three gave promissory notes payable only out of partnership assets. The notes in like amounts to Mrs. Snyder and plaintiff were as follows: Pedro Del Villar, $20,000; Ernesto Camou, Jr., $10,000; Guillermo Cabrera, $10,000. The notes represented the ownership interests of Ganadera Mercantil and its properties and were only collectable from ranch properties with no personal liability on the part of the makers.

In 1962 the cattle operation was having trouble, the Snyders thought because of a lack of experienced management. In searching for someone to purchase plaintiff's half of the operation, Snyder was directed to defendant, George Douglas, as an experienced rancher who might be interested. An agreement was then reached for defendant to purchase half of plaintiff's half interest and for a Bill Wootton to purchase the other half. An agreement was then drawn up among Mrs. Snyder with a half interest in the operation, Mr. Wootton with a fourth interest and defendant with a fourth interest. For the one-fourth interests, defendant and Mr. Wootton both signed notes to plaintiff in the amount of $33,090.47. This consideration was determined by an inventory and valuing (by Mr. Snyder, defendant Douglas and Mr. Wootton) of the liquid assets of the business (cattle, feed, equipment, cash, prepaid rent on the ranches, etc., but no value was given to the notes of the Mexican partners) and a deduction therefrom of all liabilities, leaving a total net value of $132,361.89. Defendant understood that the consideration paid represented one-fourth of this amount.

It is this note of defendant and the promise therein to pay reasonable attorneys' fees for any action necessary to collect that is the basis for this action and the Judgment.

In consideration for defendant's note, plaintiff delivered to defendant possession and operation of the business which defendant had retained until the time of this trial. In addition, plaintiff asssigned all of its interest in the notes of the Mexican partners to enable defendant to control the business. Defendant understood that the purpose of the notes was to control the company (T 371).

Defendant-appellant's contentions on appeal are:

(1) Defendant's agreement to purchase plaintiff's business is void because it violates Art. 27 of the Constitution of Mexico which specifically provides that no alien shall own property within certain prohibited zones;

(2) There was a failure of consideration by plaintiff's failure to properly assign the promissory notes of the Mexican partners to the defendant;

(3) Defendant alleged as affirmative defense and in its counterclaim that plaintiff (a) misrepresented the size of Los Alisos ranch, (b) misrepresented that the notes of the Mexican partners carried personal liability and (c) failed to inform the defendant of a tax liability existing against the business at the time of the purchase and sale, and therefore the trial court erred in finding contrary to the evidence that this was not so;

(4) The trial court erred in failing to admit a survey map by which defendant sought to establish the actual size of the Los Alisos ranch.

I. The Agreement Violates the Constitution of Mexico

While appellee's brief on appeal has dealt with and we think successfully refuted this contention by appellant, we think appellant-defendant's failure to raise the issue at the trial level makes judicial

abstention appropriate. This court has previously noted that appellate review of a case will ordinarily be limited to the theories tried in the court below. In re Estate of Taylor, 5 Ariz.App. 144, 424 P.2d 186 (1967). It is also recognized that the appellate court may raise the illegality of a contract Sua sponte, Nutter v. Bechtel, 6 Ariz.App. 501, 433 P.2d 993 (1967), but where it would require our court's going outside the record to determine the applicable Mexican Law we are extremely reluctant to do so and believe the rule in Taylor, supra, applies. County of Cochise v. Beckman, 11 Ariz.App. 19, 461 P.2d 498 (1969).

II. Assignment of the Notes of the Mexican Partners

With regard to this issue, the trial court found:

'17. In addition to the interest in the business, plaintiff assigned defendant and Mr. Wootton all of its interest in the notes of the Mexican partners, which Said assignment was sufficiently in compliance with Mexican law to enable defendant to control the business through this vehicle. Such control never became necessary, since the three Mexican partners never interfered with defendant's ownership or operation of the business or made any claim therein.' (Emphasis added).

The Court of Appeals is bound by the trial court's findings of fact unless they are Clearly erroneous. Dietel v. Day, 16 Ariz.App. 206, 492 P.2d 455 (filed January 6, 1972); Zellerbach Paper Co. v. Valley National Bank, 13 Ariz.App. 431, 477 P.2d 550 (1970). We think this finding is entirely correct under the circumstances. Testimony by the parties to the agreement, including defendant Douglas (T 371), was that the purpose of these notes was to enable Mrs. Snyder, Mr. Wootton and defendant to control the company. The notes carried no personal liability of the makers and were only enforceable against the properties of the ranch. No demand was ever made by the defendant on the notes and there was no reason for such a demand since at all times after this agreement defendant has been in possession and control of the assets of Ganadera Mercantil. There was no lack of consideration to defendant since the tangible assets represented by the notes have continued to be in his possession.

Even without regard to the...