Horizon Resources Bethany Ltd. v. Cutco Industries, Inc.

• Decision Date: 10 May 1994
• Docket Number: CA-CV,No. 1,1
• Citation: 881 P.2d 1177,180 Ariz. 72
• Parties: HORIZON RESOURCES BETHANY LTD., an Arizona limited partnership, Plaintiff-Appellant, v. CUTCO INDUSTRIES, INC., a New York corporation, formerly known as Cut & Curl, Inc., Defendant-Appellee. 92-0047.
• Court: Arizona Court of Appeals

Page 1177

881 P.2d 1177

180 Ariz. 72

HORIZON RESOURCES BETHANY LTD., an Arizona limited partnership, Plaintiff-Appellant, v. CUTCO INDUSTRIES, INC., a New York corporation, formerly known as Cut & Curl, Inc., Defendant-Appellee.

No. 1 CA-CV 92-0047.

Court of Appeals of Arizona Division 1, Department D.

May 10, 1994.

Review Dismissed July 18, 1994.

[180 Ariz. 73] Larry G. Haddy, Phoenix, for plaintiff-appellant.

Gallagher & Kennedy, P.A. by Michael W. Sillyman, Bruce A. Giles, Deborah J. DePaoli, Phoenix, for defendant-appellee.

OPINION

GERBER, Judge.

Horizon Resources Bethany Ltd. (Horizon) filed suit against Cutco Industries, Inc. (Cutco) for enforcement of a lease guaranty agreement. Horizon appeals from a summary judgment in favor of Cutco. The primary issue on appeal is this: does a guarantee of the performance of a lease for a specific term continue into a successive term when the guarantor consents to alter the lease to allow an extension or to exercise an option to renew provided in the original lease?

FACTS AND PROCEDURAL HISTORY

Cutco is the successor in interest to an entity named Cut & Curl, Inc. Cutco is a New York corporation, as was Cut & Curl, Inc. Horizon is the successor in interest to H.D.C. Phoenix Bethany Corp. (H.D.C.) and J.E.H. Development Company (J.E.H.), affiliated entities operated by the Hansen family. In April 1978, H.D.C. and J.E.H. entered into several lease agreements wherein Cut & Curl, Inc., or its subsidiaries, leased space across the country from the Hansen entities.

On or about April 3, 1978, H.D.C. as landlord entered into a specific subject lease with the tenant, Cut & Curl of Bethany Square, Inc., an Arizona corporation which was a wholly owned subsidiary initially of Cut & Curl, Inc. and later of Cutco. Under the lease, Cut & Curl of Bethany Square, Inc. rented space at Bethany Square shopping center located at 43rd Avenue and Bethany Home Road in Phoenix, Arizona. The lease had a ten-year term. It did not provide for extensions. Marvin W. Marcus, as treasurer of Cut & Curl of Bethany Square, Inc., executed the lease. It was attested to by John C. Marchal, the director of real estate for the parent corporation. The tenant's address in the lease was not an Arizona address but the same New York address as that of the parent corporation. The lease also contained a number of references to the parent corporation.

The parent corporation guaranteed payment of the lease, providing H.D.C. with a written guaranty agreement which stated as follows:

In the event of default in the payment of rent hereunder, CUT & CURL, INC. hereby guarantees the prompt payment of rent payable under this lease provided that the total guarantee of such rent shall not exceed the sum of $10,000.00 with respect to the lessee hereunder; and in no event shall such guarantee extend beyond the sum of $50,000.00 during any consecutive twelve (12) month period for all leases between Cut & Curl, Inc., its subsidiaries, and licensees, as Lessees and J.E.H. Development Company, its subsidiaries and affiliates, as Lessors.

(footnote omitted). The guaranty was part of the overall arrangement between Cut and Curl, Inc. and the Hansen entities for the leasing of the various properties throughout the country. Marchal and Marcus signed the guaranty for Cut & Curl, Inc. Marcus was treasurer not only of the subsidiary but also of the parent corporation.

During 1985, Douglas C. Stock headed a company that managed the Bethany Square shopping center for the landlord. Michael Kramer, who had become treasurer of both the parent corporation and its Arizona subsidiary, contacted Stock to discuss certain modifications to the lease. Stock and Kramer negotiated the proposed modifications and eventually executed an addendum to the lease on July 5, 1985. Stock believed that all of the requested modifications were being requested not only by the subsidiary but also by the parent since he dealt solely with persons connected to the parent corporation at its New York offices.

The resulting addendum contained several modifications of the original lease including the addition of options to renew the lease. The terms of the addendum were contained in a letter written on the letterhead of Cutco Industries, Inc. Kramer signed the addendum in his capacity as treasurer of Cut & Curl of Bethany Square, Inc.

During 1988, Randolph Strada managed the Bethany Square shopping center for the landlord. Strada never dealt with the tenant, Cut & Curl of Bethany Square, Inc., but always dealt with persons in Cutco's New York office. Early in the year, he received a letter from Marchal, who identified himself as Cutco's director of real estate and construction, seeking to confirm the expiration date of the lease at Bethany Square. Strada confirmed that the expiration date of the original lease was May 31, 1988 with two five-year options remaining.

In April 1988, Cut & Curl of Bethany Square, Inc. exercised the first option to renew the lease. Kramer, still treasurer of both the parent and the subsidiary, advised Strada by letter that the option was being exercised. Although Kramer signed the letter merely as "treasurer," the letter contained no reference to the parent corporation but instead referred solely to the subsidiary.

Two years into the option term, Cut & Curl of Bethany Square, Inc. ceased operations and vacated the premises. When Cutco refused a demand to take over the payments due under the lease, Horizon, which had succeeded to H.D.C.'s interest in the lease, filed suit to enforce the guaranty agreement.

After the parties filed cross motions for summary judgment, the trial court granted summary judgment for Cutco. The trial court found no basis for finding Cutco liable on the underlying lease. It concluded that the express terms of the guaranty did not indicate that it was of a continuing nature regarding any successive lease terms and, therefore, Cutco was entitled to judgment under Westcor Co. Ltd. Partnership v. Pickering, 164 Ariz. 521, 524, 794 P.2d 154, 157 (App.1990) (holding that for a guarantee of the performance of a written lease for a specific term to continue into a successive term, the "express terms" of the lease must show it is of a continuing nature). The trial court found no merit to Horizon's argument that Westcor should be distinguished because of the evidence of the guarantor's knowledge and consent to extension of the lease.

DISCUSSION

A reviewing court must view the evidence most favorably to the party opposing the motion for summary judgment, taking all inferences from the evidence in favor of the opposing party. Johnson By and Through Johnson v. Svidergol, 157 Ariz. 333, 335, 757 P.2d 609, 611 (App.1988).

To the extent Horizon may be arguing that Cutco bound itself on the underlying lease along with its subsidiary, we agree with the trial court that the evidence fails to support that contention. Even though persons who were officers of both the parent and the subsidiary signed the lease, the addendum, and the option to extend the lease, the documents consistently stated that they were being signed on behalf of the subsidiary. Although Cutco may have involved itself in negotiations at various stages on behalf of its subsidiary, the record does not indicate that the parties meant Cutco to be a party to the lease agreement. Its liability was only that of a guarantor.

In its appellate briefs, Horizon argues that Cutco should be held liable on the lease executed by its subsidiary because the subsidiary was a mere instrumentality of the parent corporation. A parent corporation is responsible for actions of its subsidiary when the subsidiary has become a mere instrumentality, so overshadowed by the parent corporation that the separate corporate identity should be disregarded to prevent perpetration of a fraud. Oldenburger v. Del E. Webb Dev. Co., 159 Ariz. 129, 134, 765 P.2d 531, 536 (App.1988).

Horizon has not offered any evidence to show that the affairs of Cut & Curl of Bethany Square, Inc. were conducted as a mere instrumentality of Cutco, other than to show that the subsidiary was owned by the parent and that they shared many of the same officers. As the Nevada Supreme Court said in Bonanza Hotel Gift Shop, Inc. v. Bonanza No. 2, 95 Nev. 463, 596 P.2d 227 (1979), a mere showing that one corporation is owned by another or that the two share...