North Arlington Medical Bldg., Inc. v. Sanchez Const. Co.
| Citation | 86 Nev. 515,471 P.2d 240 |
| Decision Date | 24 June 1970 |
| Docket Number | No. 5994,5994 |
| Parties | NORTH ARLINGTON MEDICAL BUILDING, INC., John W. Isbell and Norma D. Isbell, Appellants, v. SANCHEZ CONSTRUCTION COMPANY, Respondent. |
| Court | Supreme Court of Nevada |
Hawkins, Rhodes & Hawkins, and F. DeArmond Sharp, Reno, for appellants.
John Sanchez, Reno, for respondent.
This appeal is from a joint and several judgment entered against two officers and directors and the corporation, resulting from a conclusion by the trial court that the corporation was their alter ego.
In the month of September, 1961, Vogue Properties, Inc., purchased a parcel of property located at 674 North Arlington Street, Reno, Nevada, from Robert and Wallace Byassee. Part of the purchase price was a note for $12,000 made by Vogue, which was secured by a first deed of trust on the property. On July 31, 1962, Sanchez Construction Company, hereinafter referred to as Sanchez, or the respondent, acquired the Arlington property from Vogue and assumed the Byassee note.
In October of 1962, Sanchez granted to Isbell Industries, Inc., a Nevada corporation, an option to purchase the Arlington property.
Isbell Industries exercised its option on January 14, 1963. On January 17, 1963, North Arlington Medical Building, a Nevada corporation, hereinafter referred to as North Arlington, as the nominee of Isbell Industries, entered into an escrow for the purchase of the Arlington property. On January 23, 1963, the property was conveyed by Sanchez to North Arlington. Sanchez received as the net proceeds of the sale the sum of $10,672.62.
North Arlington was officially incorporated on January 23, 1963. The first officers were John W. Isbell, President; John W. Isbell, Jr., Secretary; Norma D. Isbell, Vice-President and Treasurer. They were also the only directors.
On January 30, 1963, 71 shares of the capital stock of North Arlington were issued to Suzanne K. Isbell, and 71 shares to William Christopher Isbell, the minorchildren of John W. Isbell and Norma D. Isbell. William and Suzanne Isbell each paid $7,100 to North Arlington for their stock, but the shares of stock were not physically delivered to them. This money came from their savings accounts at Nevada Bank of Comerce, which were created by gifts to them from their parents.
John W. Isbell testified that North Arlington was originally conceived to be used to acquire the Arlington property for the purpose of the construction of a medical building as an investment for his minor children. As president he managed North Arlington, however, Norma D. Isbell never owned stock in North Arlington and did not participate in managing the corporation.
In order to construct a building on the real property, North Arlington obtained a construction loan from the Nevada Bank of Commerce in the amount of $102,000. That loan was secured by a deed of trust on the property to which the deed of trust securing the obligation owed to Robert and Wallace Byassee was subordinated. In addition, the Nevada Bank of Commerce required John W. Isbell to personally guarantee the loan.
The contract for the construction of a building on the Arlington property was let to Isbell Industries. John W. Isbell was the president of Isbell Industries. Glen Williams supervised the construction of the building on the Arlington property for Isbell Industries. During the course of construction, progress payments to Isbell Industries were handled by North Arlington through the Nevada Bank of Commerce.
About the time the building was being completed, and for a period of time thereafter, Isbell Industries advanced funds to North Arlington which were used to finish the building, pay taxes, and the interest on the construction loan. These advances created an account receivable on the books of Isbell Industries from North Arlington. John W. Isbell had advanced funds to North Arlington which it used to pay its debts. For these funds he received 61 shares of stock in North Arlington. On behalf of North Arlington, he also personally repaid to Isbell Industries the funds which it had advanced.
Unable to lease or sell the building, North Arlington defaulted on the note to Nevada Bank of Commerce. A notice of breach and election to sell under the deed of trust was recorded February 15, 1967. In due course, the foreclosure was completed. In the meantime, the note of Robert and Wallace Byassee lapsed into default, so they commenced an action against Vogue and Sanchez for the unpaid balance. Sanchez then filed a third party claim against North Arlington and John W. Isbell, Norma D. Isbell and John W. Isbell, Jr., 1 alleging that the corporation had assumed the Byassee note when it acquired the North Arlington property from Sanchez Construction Company, and that the corporation was the alter ego of the individual defendants. Sanchez stipulated with Byassee that judgment could be entered against it in the amount of $9,611.73.
The third party complaint was tried before the district court, without a jury, upon the depositions appearing in the record. The trial court found John W Isbell and Norma D. Isbell to be the alter ego of North Arlington and entered a joint and several judgment against all of them, and also allowed attorney fees and interest at the rate of 8% per annum on the judgment.
The appellants contend that the trial court erred in (1) concluding that North Arlington Medical Building, Inc., is the alter ego of John W. and Norma D. Isbell; (2) in allowing interest at the rate of 8% per annum, and (3) in allowing the respondent an attorney's fee.
We agree that the trial court erred when it found North Arlington to be the alter ego of John W. and Norma D. Isbell.
The respondent, Sanchez, argues that the evidence set forth in the deposition testimony supports the findings of the trial court. Here the trial court made no findings of fact, but instead only reached the conclusion that John W. and Norma D. Isbell were the alter ego of North Arlington. The failure to specifically find facts as required by NRCP 52(a) 2 can constitute reversible error. Lagrange Construction Inc. v. Del E. Webb Corp., 83 Nev. 524, 435 P.2d 515 (1967). Because this case was decided by the trial court on deposition testimony and exhibits, we have the same evidence before us that was reviewed by the trial court. Rather than reverse for failure to comply with NRCP 52(a), we have examined the evidence to determine whether or not the conclusions reached by the trial court were clearly wrong. Garaventa v. Gardella, 63 Nev. 304, 169 P.2d 540 (1946); Sisson v. Sisson, 77 Nev. 478, 367 P.2d 98 (1961); Finnell v. Bromberg,79 Nev. 211, 381 P.2d 221 (1963); cf. Adams v. Lawson, 84 Nev. 687, 448 P.2d 695 (1968).
In Baer v. Walker, 85 Nev. 219, 452 P.2d 916 (1969), we said: In McCleary Cattle Co. v. Sewell, 73 Nev. 279, 317 P.2d 957 (1957), this court adopted from Minifie v. Rowley, 187 Cal. 481, 202 P. 673 (1921), the following requirements for the application of the alter ego doctrine: (1) The corporation must be influenced and governed by the person asserted to be its alter ego. (2) There must be such unity of interest and ownership that one is inseparable from the other. (3) The facts must be such that adherence to the fiction of separate entity would, under the circumstances, sanction a fraud or promote injustice.
Each of these requirements must be present before the alter ego doctrine can be applied. Hollywood Cleaning & Press. Co. v. Hollywood Laundry Service, 217 Cal. 124, 17 P.2d 709 (1932); Continental Securities and Investment Co. v. Rawson, 208 Cal. 228, 280 P. 954 (1929); Minifie v. Rowley, supra; Erkenbrecher v. Grant, 187 Cal. 7, 200 P. 641 (1921).
It is admitted that John W. Isbell, as president, completely influenced and managed North Arlington. On the other hand, Norma D. Isbell, as a nominalofficer and director, had virtually no influence or control over that corporation. In no way did she govern it. She owned no stock; had no right to share in any of the profits; nor was she paid a salary or any other remuneration. There was absolutely no unity of interest on ownership between Norma and North Arlington. She was not the alter ego of the corporation. Riddle v. Leuschner, 51 Cal.2d 574, 335 P.2d 107 (1959).
Although John W. Isbell influenced and governed North Arlington, there is no such unity of interest and ownership between him and the corporation that their identities are inseparable.
At the outset, when North Arlington was formed and Sanchez conveyed the real property to the corporation, all the stock was owned by William Christopher Isbell and Suzanne K. Isbell. The corporation was organized as an investment for them. The funds used to pay for the stock were withdrawn from bank accounts previously created by...
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