In re Nash
| Decision Date | 09 April 1986 |
| Docket Number | AZ-85-1047-MAbV,Bankruptcy No. B-83-2590-PHX-GBN,BAP No. A2-85-1046-MAbV |
| Citation | 60 BR 27 |
| Parties | In re Albert W. NASH, aka A.W. Nash; Joyce H. Nash; and Albert W. Nash, as Trustee for the A.W. Nash Family Trust, Debtors. PALO VERDE MANAGEMENT AND FINANCIAL SERVICES CO., an Arizona corporation, Movant/Appellee, v. Albert W. NASH, aka A.W. Nash; Joyce H. Nash; and Albert W. Nash, as Trustee for the A.W. Nash Family Trust; Robert Busch, Trustee in Bankruptcy, Respondents, and Mary L. Ward, secured creditor, Intervenor/Appellant. In re WARE PROPERTIES, INC., Debtor. PALO VERDE MANAGEMENT AND FINANCIAL SERVICES CO., an Arizona corporation, Movant/Appellee, v. WARE PROPERTIES, INC., and Robert Busch, Trustee in Bankruptcy, Respondents, and Mary L. Ward, secured creditor, Intervenor/Appellant. |
| Court | U.S. Bankruptcy Appellate Panel, Ninth Circuit |
Norman D. James, Ryley, Carlock & Applewhite, Phoenix, Ariz., for intervenor/appellant.
Robert S. Porter, Ellis, Baker, Lynch, Clark & Porter, Phoenix, Ariz., for movant/appellee.
Before MEYERS, ABRAHAMS and VOLINN, Bankruptcy Judges.
I
These are two appeals from the granting of parallel motions for relief from the automatic stay on a single-family residence owned by one of the Debtors, Albert Nash, who controlled the other debtor, Ware Properties, Inc. Both debtors are in separate Chapter 7 proceedings. Nash had issued a note to Ware Properties which was negotiated to the Appellee, Palo Verde Management and Financial Services Company ("Palo Verde"). This note is secured by a lien on the residence. Palo Verde moved in each bankruptcy proceeding to lift the automatic stay.
Mary Ward intervened to challenge the validity of Palo Verde's lien. Ward originally owned the residence, which is the subject of this appeal. In danger of foreclosure, she agreed to sell her home to Nash, who agreed to assume the existing first trust deed of $14,100, pay Ward $8,000 in cash on or before close of escrow and to give her a promissory note secured by the property for the balance of $14,170. This note carried a 10% interest rate and was for a 15-year term. An addendum to the contract provided that Nash could obtain a new loan on the premises in an amount sufficient to at least return his investment and costs. Ward agreed that such a new loan would have priority over her trust deed.
On July 21, 1982, after executing escrow instructions and a deed, Ward received a $1,000 advance on the downpayment, which she used to move into an apartment.
Neither Nash nor his company, Ware Properties, had enough cash to consummate the deal with Ward. Thus, Nash and Ware Properties entered into a deal with Palo Verde. Nash and Ware Properties created a note to discount to Palo Verde. Ware Properties was payor and Albert and Joyce Nash, payees, on a $18,500 promissory note. Albert Nash signed both as payor in his capacity as president of Ware and as payee in his individual capacity. No cash changed hands. Nash later testified that the consideration for the note was a ledger entry which could not be found at trial. However, Nash testified at trial that he routinely and indiscriminately had commingled personal and corporate funds since 1981.
A separate escrow account was opened between Nash and Palo Verde with the same escrow officer used by Ward. Palo Verde agreed to pay Nash $16,334 for the $18,500 note and deed of trust, plus a commission.
In July, Ward went to the title office where she learned that Nash had taken out an $18,500 loan on the property. Although expressing concern about the amount of the loan, Ward signed an escrow amendment subordinating her lien to third position rather than terminate the sale. Escrow closed on August 20, 1982. Ward received a check for the balance of the downpayment.
After paying Ward, Nash retained $8,593.50, the balance of the proceeds of the sale of the Ware-Nash note, which he deposited in the Ware corporate account.
On September 13, 1983, separate bankruptcy proceedings were commenced by Nash and Ware Properties. Each filed identical schedules stating that the debtor owned the single-family residence, which is the subject of this appeal.
On February 17, 1984, Palo Verde Management filed motions in each bankruptcy case for relief from the automatic stay. The Debtors and the Trustee did not object to the lifting of the stay. However, the Appellant, Ward, was allowed to intervene. Ward alleged that the Appellee's lien was invalid and unenforceable against the property as a matter of Arizona law.
The trial court held Palo Verde's lien was valid and lifted the stay in both bankruptcy proceedings. 49 B.R. 254. Notices of appeal were filed in both cases on May 24, 1985.
We AFFIRM the trial court's order granting relief from the automatic stay.
II
Ward argues that Palo Verde's lien is void because the note on which it is based is invalid. Four arguments have been advanced to this end by Ward. First, the note is invalid because the identities of Ware Properties and Nash had totally merged prior to this transaction, which rendered any contract between them a nullity. Second, no consideration was given by Nash for the issuance of the note by Ware Properties. Third, the note was not the new loan to which Ward had agreed to subordinate her lien. Lastly, Palo Verde was not a holder in due course and, thus, took the note subject to all defenses. These arguments are not persuasive.
Ward's first argument fails because under Arizona law corporate form will not be lightly disregarded. Chapman v. Field, 124 Ariz. 100, 602 P.2d 481, 483 (1979). Therein, the Supreme Court of Arizona held that disregard for the corporate form coupled with a constant course of commingling of personal and corporate funds would not justify piercing the corporate veil. 602 P.2d at 484. The Supreme Court held that fraud must be shown in order to disregard corporate form. 602 P.2d at 484. That a party does not receive the full benefit of her bargain does not alone constitute evidence of fraudulent conduct. Indeed, in Chapman v. Field, there was conduct that could be seen as even more egregious than that complained of here. There the defendants lent money to the corporation without taking promissory notes, failed to file annual reports with the Arizona Corporation Commission and failed to keep proper books of account. 602 P.2d at 484.
The trial judge found that there was no fraud in the instant case. After a close examination of the record on appeal, we cannot say that this finding is clearly erroneous. See In re Bialac, 712 F.2d 426, 429 (9th Cir.1983); In re Teichman, 774 F.2d 1395, 1397 (9th Cir.1985). Nash paid $8,000 to Ward by closing, assumed the first trust deed of $14,100, invested $3,000 in improvements to the house and made all the payments required during the first year on the note owed to Ward.
There was disclosure of the fact and amount of the new loan. More importantly, Ward did receive a valid lien which attached to at least some equity in the home which the trial court valued at $39,000. Therefore, the trial court's finding that there was no fraudulent intent was not clearly erroneous.
As a result, nothing prevented Nash from entering into a valid contract with a corporation that he controlled.
The Dissent relies heavily on dicta by several Arizona courts that in the absence of a finding of fraud, injustice may also be a factor in disregarding corporate form. Home Builders & Suppliers v. Timberman, 75 Ariz. 337, 256 P.2d 716, 721 (1953); Employer's Liability Assurance Corporation v. Lunt, 82 Ariz. 320, 313 P.2d 393, 395 (1957); Honeywell, Inc. v. Arnold Const. Co., Inc., 134 Ariz. 153, 654 P.2d 301, 307 (1982); Youngren v. Rezzonico, 25 Ariz.App. 304, 543 P.2d 142, 144 (1976). Not every court has mentioned injustice as a factor in piercing the corporate veil. See Chapman v. Field, supra, 602 P.2d at 484; Ferrarell v. Robinson, 11 Ariz.App. 473, 465 P.2d 610, 613 (1970). However, virtually every court has noted that there is a great reluctance under Arizona law to disregard corporate form. See Chapman v. Field, supra, 602 P.2d at 483. A careful examination of Arizona case law reveals that no modern Arizona court has ever pierced the corporate veil unless it found that fraud existed. A better statement of the test actually used in practice by Arizona courts is that fraud, or injustice amounting to fraud, must be found to exist. The Dissent uses the "injustice" dicta to create new Arizona law in the guise of following established law.
Further, assuming arguendo that the injustice test is used in Arizona, there was no injustice in this case; it was simply a bad business deal. The Dissent admits that Mrs. Ward received $8,000 at the time of closing while ignoring that Mrs. Ward also received a year's payments from Nash on her note as well as having her equity protected by $3,000 in repairs made by Nash. This is valuable consideration in a deal gone sour, not fraud, and does not strike the majority as being manifestly unjust treatment.
Ward's next argument also fails. There was consideration for the note between Nash and Ware Properties. Ware Properties gave its note and deed of trust to Nash. Nash in return provided financing for the purchase of Ward's house. This financing was essential to the deal's completion. As the trial court found, at least $7,396 of the note's proceeds went to fund the escrow with Ward. The remainder was deposited in Ware Properties' account. Later Ware Properties benefited from Nash's expenditure of $3,000 to make improvements in the home.
The fact that Nash did not provide financing for Ware Properties simultaneously with the execution of the note does not render the note a sham. A promise to provide future financing for a real estate...
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