Ned Nastrom Motors, Inc. v. Nastrom-Peterson-Neubauer Co., NASTROM-PETERSON-NEUBAUER

• Decision Date: 04 August 1983
• Docket Number: No. 10336,NASTROM-PETERSON-NEUBAUER,10336
• Citation: 338 N.W.2d 64
• Parties: NED NASTROM MOTORS, INC., formerly Nastrom-Peterson Motors, Inc., Plaintiff and Appellee, v.COMPANY; N.P.N., Inc.; and David Neubauer, Defendants, Donald Peterson, Defendant and Appellant. Civ.
• Court: North Dakota Supreme Court

Page 64

338 N.W.2d 64

NED NASTROM MOTORS, INC., formerly Nastrom-Peterson Motors, Inc., Plaintiff and Appellee, v. NASTROM-PETERSON-NEUBAUER COMPANY; N.P.N., Inc.; and David

Neubauer, Defendants,

Donald Peterson, Defendant and Appellant.

Civ. No. 10336.

Supreme Court of North Dakota.

Aug. 4, 1983.

Lundberg, Conmy, Nodland, Lucas & Schulz, Bismarck, for plaintiff and appellee; argued by Patrick A. Conmy, Bismarck.

Fleck, Mather, Strutz & Mayer, Bismarck, for defendant and appellant; argued by Steven A. Storslee, Bismarck.

ERICKSTAD, Chief Justice.

Ned Nastrom Motors, Inc., formerly Nastrom-Peterson Motors, Inc., brought an action against Nastrom-Peterson-Neubauer Company, N.P.N., Inc., Donald Peterson, and David Neubauer alleging that the defendants were liable to the plaintiff under the terms of seven lease agreements. The trial court adjudged in a bench trial that defendant, Nastrom-Peterson-Neubauer Company (hereinafter "Equipment"), was liable to Ned Nastrom Motors, Inc. (hereinafter "Motors"), pursuant to the specific contractual agreements in question and that defendant, Donald Peterson, had personally guaranteed Equipment's indebtedness under such agreements. A judgment ¹, dated October 26, 1982, in the amount of $129,793.21, was entered in accordance therewith from which Peterson now appeals. For the reasons hereinafter stated, we affirm.

The issues to be adjudicated on appeal are two-fold:

(1) Whether or not Nastrom-Peterson-Neubauer Company was obligated to Ned Nastrom Motors, Inc., under the specific financial transactions in question; and, if so, whether or not Equipment was obligated in the amount of $129,793.21; and,

(2) Whether or not Peterson personally guaranteed Nastrom-Peterson-Neubauer Company's indebtedness to Ned Nastrom Motors, Inc.

For purposes of clarity, we will divide this opinion into two distinct sections.

I.

Nastrom-Peterson-Neubauer Company's Obligation to Ned

Nastrom Motors, Inc.

The facts relevant to this aspect of the case are not in dispute and thus can be briefly summarized. Nastrom-Peterson Motors, Inc., was owned jointly by Ned Nastrom and Donald Peterson when it was formed in 1972. Nastrom-Peterson-Neubauer Company was owned equally by Ned Nastrom, Donald Peterson, and David Neubauer when it was organized in 1976. On April 24, 1978, pursuant to a stock exchange agreement, Nastrom transferred his stock in Equipment to Peterson in exchange for Peterson's stock in Motors. As a result, Nastrom became the sole owner of Nastrom-Peterson Motors, Inc., which became known as Ned Nastrom Motors, Inc., and Peterson became the controlling shareholder in Equipment.

Throughout 1976, 1977, and 1978, Motors and Equipment entered into approximately 70 lease agreements. These contractual agreements in which Motors was the lessor and Equipment was the lessee covered cars, trucks, construction equipment, telephone equipment, radio equipment, tools and furniture. This lawsuit is premised upon seven such leases which were received into evidence as Exhibits 1-7:

Exhibit 1: Tools and Furniture

Exhibit 2: Furniture

Exhibit 3: Six radios

Exhibit 4: Twelve radios

Exhibit 5: (Tony Boehm)

Exhibit 6: (A & B Construction)

Exhibit 7: (Kyro Construction)

The lease agreements covering the tools and furniture were executed by Motors and Equipment on October 21, 1977. The items covered by these two leases were originally purchased by Equipment. However, Equipment gave the invoices evidencing these purchases to Motors who prepared, based upon these invoices, lease agreements covering the items. Motors assigned such leases to the First National Bank and Trust Company for value. With the proceeds it received from First National, Motors paid Equipment for the tools and furniture. The end result of these financial arrangements was that Motors was obligated to pay the bank certain monthly payments and Equipment was obligated to pay Motors the same monthly payments. The circumstances surrounding the leases covering the radios were similar in nature to those concerning the tools and furniture.

On July 27, 1976, Equipment leased certain pieces of machinery to Tony Boehm, A & B Construction, and Kyro Construction. Motors did not prepare any leases evidencing that it was in fact leasing the machinery covered by such leases to Equipment; nevertheless, invoices, dated July 27, 1976, reveal that such machinery was sold by Equipment to Motors as of that date. To finance these purchases, Motors assigned its interest under the Boehm, A & B, and Kyro leases to the First National Bank and Trust Company and the State Bank of Burleigh County for value. Motors paid Equipment for such machinery with the funds it received from First National and State. Summarily described, these financial arrangements created a situation where the original lessee, either Tony Boehm, A & B Construction, or Kyro Construction would pay Equipment; Equipment would then remit this same sum to Motors who would pay the financial institution involved.

Upon analyzing these seven transactions, it is evident that Motors was in essence a "funnel" through which Equipment obtained financing. This complicated method of financing was embarked upon because Equipment did not have "legitimate credit available at the bank."

Preliminary to our adjudication of the merits of this appeal, we must ascertain whether or not Exhibits 1-7 were properly admitted into evidence through the testimony of David Graham. Peterson contends that Graham was not employed at Equipment when the Boehm, A & B Construction, and Kyro Construction leases were consummated, and therefore the plaintiff failed to lay a proper foundation for such exhibits.

Nevertheless, whether or not an exhibit should have been excluded on the basis that it lacked adequate foundation is primarily within the sound discretion of the trial court, the exercise of which will not be disturbed on appeal in the absence of a showing that it affected the substantial rights of the parties. Fox v. Bellon, 136 N.W.2d 134, 142 (N.D.1965). In the case at bar, the financial arrangements in question were ongoing during the time Graham was employed at Equipment. Hence, Graham became familiar with both the documentation and the circumstances surrounding these transactions through servicing such accounts. Accordingly, we conclude that Exhibits 5, 6, and 7 were properly admitted into evidence. Peterson has neglected to enlighten this court as to why Exhibits 1, 2, 3, and 4 lacked adequate foundation. Hence, we conclude that such exhibits were also properly received into evidence. ²

The remainder of Peterson's assertions involve the trial court's findings of fact. It is elementary that a trial court's findings of fact "shall not be set aside unless clearly erroneous." Rule 52(a), N.D.R.Civ.P. A finding is clearly erroneous only when, although there is some evidence to support it, the reviewing court is left with a definite and firm conviction that a mistake has been made. United States v. United States Gypsum Co. 333 U.S. 364, 395, 68 S.Ct. 525, 542, 92 L.Ed. 746 (1948); Wilhelm v. Berger, 297 N.W.2d 776, 779 (N.D.1980); Alumni Association of University v. Hart Agency, Inc., 283 N.W.2d 119, 121 (N.D.1979); In Re Estate of Elmer, 210 N.W.2d 815, 820 (N.D.1973). That we may have viewed the facts differently if we had been the initial trier of the case does not entitle us to reverse the lower court. United States v. National Association of Real Estate Boards, 339 U.S. 485, 495-96, 70 S.Ct. 711, 717, 94 L.Ed. 1007 (1950); Nee v. Linwood Securities Co., 174 F.2d 434, 437 (8th Cir.1949); In Re Estate of Elmer, supra, 210 N.W.2d at 820. Our function is not to decide factual issues de novo. Zenith Radio Corp. v. Hazeltine Research, Inc., 395 U.S. 100, 123, 89 S.Ct. 1562, 1576, 23 L.Ed.2d 129 (1969); In Re Estate of Elmer, supra, 210 N.W.2d at 820.

The first factual issue to be resolved on appeal is:

Whether or not the trial court was clearly erroneous in concluding that Motors was a secured creditor, not a capital investor, of Equipment.

Peterson's specific contention is that the monies Motors advanced to Equipment pursuant to the aforementioned agreements constituted capital contributions.

The intent of the participating parties is the salient factor in determining the true relationship between parties to a monetary transaction. Wood Preserving Corp. of Baltimore v. United States, 347 F.2d 117, 119 (4th Cir.1965); Mosebach v. Blythe, 282 N.W.2d 755, 761 (Iowa 1979). A party's intent is ascertained not only from his testimony but also from the circumstances surrounding the transaction. Wood Preserving Corp. v. Baltimore, supra, 347 F.2d at 119; Mosebach, supra, 282 N.W.2d at 761.

Upon scrutinizing the evidence, it is clear that the trial court correctly concluded that these financial transactions did not constitute capital contributions. The reasons underlying our conclusion are threefold. First, Equipment dutifully remitted payments to Motors on the basis of these seven transactions until April 19, 1979. Second, such transactions were reflected in Equipment's general ledger as liabilities. It is highly unlikely that the parties involved intended the monies in question to be injections of capital if such transactions were entered on Equipment's books as obligations. And, thirdly, the parties executed written lease agreements with regard to the "tools", "furniture", and "radios." Although the parties did not execute any written leases with regard to the Tony Boehm, A & B Construction, and Kyro Construction transactions, such transactions were structured in the same manner as those concerning the "tools", "furniture", and "radios" and, accordingly, we believe the parties intended these transactions to be construed in a similar manner (i.e. as leases).

Peterson next attacks the trial court's determination of the amount of damages suffered by Motors:

"Motors sustained damages as follows:

                     Lease payments due

...