Pope v. National Aero Finance Co.

• Decision Date: 20 August 1965
• Citation: 236 Cal.App.2d 722,46 Cal.Rptr. 233
• Court: California Court of Appeals Court of Appeals
• Parties: Peter T. POPE, John T. Phillips, Thomas Crowley, Jr., and W. L. Dixon, Jr., Plaintiffs and Appellants, v. NATIONAL AERO FINANCE CO., Inc., a corporation, Defendant and Respondent. Civ. 22488.

Page 233

46 Cal.Rptr. 233

236 Cal.App.2d 722

Peter T. POPE, John T. Phillips, Thomas Crowley, Jr., and W. L. Dixon, Jr., Plaintiffs and Appellants, v. NATIONAL AERO FINANCE CO., Inc., a corporation, Defendant and Respondent.

Civ. 22488.

District Court of Appeal, First District, Division 1, California.

Aug. 20, 1965.

Rehearing Denied Sept. 14, 1965.

Hearing Denied Oct. 13, 1965.

William M. Brinton, San Francisco, for appellants.

John Felton Turner, Oakland, for respondent.

SULLIVAN, Presiding Justice.

Plaintiffs appeal from an adverse judgment, entered after a nonjury trial, in favor of defendants National Aero Finance Co., Inc. (NAFCO) and Harper Aviation Sales, Inc., (Harper, Inc.). ¹

Alleging that they were judgment creditors of Harper, Inc. all four plaintiffs sought by the first four causes of action of their complaint and amended complaint ² to set aside certain conveyances of nine aircraft made on March 28, 1961, and May 24, 1961 as being fraudulent under the Uniform Fraudulent Conveyance Act (Civ.Code §§ 3439.01-3439.12). By the fifth and sixth causes of action plaintiffs Pope, Crowley and Dixon sought to recover damages in the sum of $14,500 for the unlawful detainer and conversion respectively on May 24, 1961 of a certain Cessna Skylane No. N8562T, one of the above nine aircraft, in respect to which said three plaintiffs had both title and the right of immediate possession at the time of the conversion. ³

It was stipulated at the pretrial conference that the aforementioned Cessna Skylane was purchased by Harper, Inc. on January 20, 1960 and at all pertinent times until May 24, 1961 was registered in Harper, Inc.'s name; that said purchase had been financed by a promissory note in the sum of $15,200 and a chattel mortgage as security therefor, executed and delivered by Harper, Inc. to NAFCO which mortgage was filed for record with the Federal Aviation Agency on February 2, 1960; ⁴ that on March 28, 1961, said Cessna aircraft (along with eight other aircraft by simultaneous refinancing arrangements) was refinanced by a promissory note in the sum of $13,521.12 and a chattel mortgage as security therefor, executed and delivered by Harper, Inc. to NAFCO and that said mortgage was thereafter duly recorded; that on May 24, 1961 NAFCO took possession of the Cessna Skylane; and that on August 23, 1961, NAFCO sold said aircraft to another buyer for $12,031.80.

In substance the trial court found: On August 31, 1961 plaintiffs recovered judgment against Harper, Inc. for $15,305.80 and costs, no part of which had been satisfied. On March 28 and May 24, 1961, Harper, Inc. was the owner of the nine specifically described aircraft including the Cessna Skylane subject to chattel mortgages to NAFCO. Between February 6, 1959 and November 30, 1960, Harper, Inc. executed and delivered to NAFCO promissory notes and chattel mortgages on each of said nine aircraft, each of said chattel mortgages having been recorded immediately thereafter with the Civil Aeronautics Administrator or its successor the Federal Aviation Agency. On March 28, 1961, at the request of Harper, Inc., NAFCO agreed to and did refinance the nine aircraft by extending the time for payment thereon and receiving from Harper, Inc. new and substitute promissory notes and chattel mortgages for full consideration and good value, each of said new chattel mortgages having been recorded immediately thereafter with the Federal Aviation Agency. After March 28, 1961 and prior to May 24, 1961 Harper, Inc. became in default in the payment of said obligations and on May 24, 1961, NAFCO declared the unpaid balances on each of the notes to be immediately due and payable and took possession of the aircraft.

The essential basis of the judgment denying relief, as disclosed by the findings of fact and conclusions of law and the trial court's memorandum of decision was that in respect to the first four causes of action none of the conditions necessary for the application of the pertinent sections of the Uniform Fraudulent Conveyance Act existed so as to render fraudulent the transfers made by Harper, Inc. to NAFCO on March 28, 1961 and May 24, 1961; and that in respect to the last two causes of action, plaintiffs Pope, Crowley and Dixon ⁵ did not acquire any interest in the Cessna Skylane superior to the interest of NAFCO.

Plaintiffs are licensed private pilots who had been flying at the San Carlos Field for several years. Harper, Inc., a California corporation, was at all material times engaged in the business of buying, selling and chartering airplanes, including Cessna airplanes, for which it was a dealer. It conducted operations at San Carlos Field where it organized and managed a number of flying clubs. Prior to January 1960, each of the plaintiffs had become a member of one of these flying clubs for a membership fee of approximately $1,000 which entitled them, in conjunction with the other members of their respective clubs, to fly a specific Cessna 172 airplane. In January 1960, Pope, Crowley and Dixon were each offered the opportunity by Mr. Pritchard, the general manager of Harper, Inc., to replace their memberships in the clubs which flew Cessna 172 planes with shares in a new flying club to be called the Carlos Club. This would be composed of only four members instead of ten and would fly a larger aircraft, namely a Cessna Skylane 182. They accepted the offer and each signed an agreement of purchase of a share of stock in the Carlos Club for $3,826.45, ⁶ which was represented by a credit of $950 for the membership in the old club and by a payment by check for the difference. Crowley and Dixon executed their agreements with Harper, Inc. on January 31, 1960 and paid the balance of their purchase prices on the same date. Pope's agreement is undated but he testified that it was executed on February 1, 1960, the same date he took the first flight in the Cessna Skylane, and he paid the balance due on February 29, 1960. Doctor Phillips did not purchase his membership in the Carlos Club until February 1961 and flew the Cessna Skylane for the first time on February 9, 1961. He too was credited with $950 for relinquishment of his membership in another club, and he paid an additional $2,800 for his membership in the Carlos Club. ⁷ None of the four plaintiffs discovered the existence of any encumbrances on the Cessna Skylane until May 1961.

Despite the provisions of the agreement and the testimony of some of the plaintiffs that they were buying a one-fourth interest in the particular Cessna, the record shows that they never received any documents of title to the airplane or any certificates of stock in the club and never requested any. No articles of incorporation for the Carlos Club were ever filed with the Secretary of State, nor was any permit to issue securities ever issued by the Division of Corporations to the Carlos Club. Moreover, although the agreements recited that the club was the owner of the Cessna Skylane, Dixon and Pope knew that the airplane was registered in the name of Harper, Inc. at all pertinent times. In the meantime plaintiffs continued to fly the Cessna plane off and on over a period of approximately sixteen months until May 1961.

Howard Harper, president of Harper, Inc., testified that the purpose of the flying clubs was to provide new airplanes for the members from time to time but that it was not his understanding that under their method of operation title to the aircraft was to be transferred from Harper, Inc. to the respective club when the last member bought his interest in the club. He explained that during the period from November 1960 to March 1961, Harper, Inc. was not current on its monthly payments to NAFCO under the financing then in effect because at that time the aviation business was a little slow and accordingly in March 1961 arranged with NAFCO for refinancing in order to extend the time for paying the various obligations on the nine airplanes which had been bought at different times. He further testified that when he executed the new notes and chattel mortgages on March 28 1961, he did so in order to improve the financial condition of Harper, Inc. and that he did not intend or attempt to defraud creditors.

Plaintiffs contend that the evidence in the record not only fails to support the findings material to the first four causes of action laid under the Uniform Fraudulent Conveyance Act but even compels contrary findings supportive of a judgment granting plaintiffs the relief sought.

With respect to the first three causes of action, in order to establish that the conveyances made or the obligations entered into on March 28, 1961 were fraudulent under Civil Code sections 3439.04, 3439.05 and 3439.06 respectively, it must appear (1) that plaintiffs were creditors of Harper, Inc. on said date; (2) that the conveyances were made or the obligations were entered into when Harper, Inc. was insolvent or thereby rendered insolvent (§ 3439.04) or when it was thereby left with an unreasonably small capital (§ 3439.05) or when it intended or believed that it was incurring debts beyond its ability to pay as they matured (§ 3439.06); and (3) that the conveyances were made or the obligations entered into without a 'fair consideration.' (Civ.Code §§ 3439.04-3439.06; ⁸ see TWM Homes, Inc. v. Atherwood Realty & Inv. Co. (1963) 214 Cal.App.2d 826, 842-843, 29 Cal.Rptr. 887.)

It is clear from the record, and defendant does not dispute, that plaintiffs were creditors on the crucial date. As we have already pointed out, the trial court found that the various obligations and conveyances involved in the refinancing of the nine aircraft were entered into and made for a full consideration and that it was not true that 'all or any of said obligations were incurred without fair consideration.'

'Fair consideration' is defined by Civil Code section 3439.03 ⁹ as the exchange of property or the satisfaction of an antecedent debt which is...