Zellerbach Paper Co. v. Valley Nat. Bank

• Citation: 13 Ariz.App. 431,477 P.2d 550
• Decision Date: 03 December 1970
• Docket Number: No. 1,CA-CIV,1
• Parties: ZELLERBACH PAPER COMPANY, a California corp., and Sinclair & Valentine Co., a Division of Martin-Marietta Corporation, a Maryland corp., Appellants, v. The VALLEY NATIONAL BANK of Arizona, a national banking association, Appellee. 1136.
• Court: Arizona Court of Appeals

Page 550

477 P.2d 550

13 Ariz.App. 431

ZELLERBACH PAPER COMPANY, a California corp., and Sinclair & Valentine Co., a Division of Martin-Marietta Corporation, a Maryland corp., Appellants, v. The VALLEY NATIONAL BANK of Arizona, a national banking association, Appellee.

No. 1 CA-CIV 1136.

Court of Appeals of Arizona, Division 1, Department A.

Dec. 3, 1970.

Rehearing Denied Dec. 30, 1970.

Review Denied Feb. 9, 1971.

Lewis & Roca, by John P. Frank and Peter D. Baird, Phoenix, for appellants.

Rawlins, Ellis, Burrus & Kiewit, by Chester J. Peterson and Michael S. Milroy, Phoenix, for appellee.

DONOFRIO, Presiding Judge.

This is an appeal by Zellerbach Paper Company and Sinclair & Valentine Company seeking to reverse a judgment entered against them in favor of the appellee Valley National Bank, which judgment upheld the validity of certain mortgages executed by West-Coast Printing, Inc. on its corporate property as against appellants' judgment liens. West-Coast was a corporation owned and run by Leopold Ackerman III. Hereafter we shall refer to the Valley National Bank as the bank, and to West-Coast Printing, Inc. as West-Coast. Leopold Ackerman III will be referred to as Ackerman. Sinclair & Valentine Company will be referred to as Sinclair.

At the outset we shall very briefly set forth certain pertinent facts. Later, when necessary, supplemental facts will be added. On December 11, 1964, the bank loaned $17,000 to West-Coast which was evidenced by an installment promissory note. On June 16, 1965, the bank loaned $47,500 to Ackerman personally, also evidenced by a note due September 14, 1965. On September 7, 1965, two documents were executed. One was an agreement between the bank, Ackerman and West-Coast called 'Revision Agreement'. Under this agreement Ackerman was to receive a two-month extension on his $47,500 personal note; West-Coast was to receive a two-month extension on $11,000 it still owed to the bank; and West-Coast was to give the bank mortgages on six parcels of corporate property which were to secure both Ackerman's and West-Coast's debts to the bank. Five parcels of realty were located in four different counties of this state and the other parcel was in Nevada. The mortgages were executed and recorded. The second document was called a 'Continuing Guaranty'. In this document West-Coast promised to guaranty the bank's extension of credit to Ackerman.

Appellant Zellerbach had been selling printing paper to West-Coast on credit during 1964 and 1965, and obtained a judgment against West-Coast in January 1966 for $27,548.39. Sinclair & Valentine Company obtained a judgment against West-Coast on January 28, 1966, for $3,393. These judgments form the basis for the judgment liens.

Both Ackerman and West-Coast failed to make payments on the loans to the bank. The bank then brought this action to foreclose all the mortgages except one which was on the property in Nevada, joining Zellerbach and Sinclair because of their judgment liens on the properties. It is to be noted that the bank obtained a foreclosure judgment on the Nevada property, which is of no concern to the issues herein. On September 23, 1968, default judgment was entered against Ackerman along with other defaulting parties under Rule 54(b), Rules of Civil Procedure, 16 A.R.S. In the foreclosure suit Zellerbach filed a counterclaim and both it and Sinclair asserted affirmative defenses to the bank's complaint. On February 17, 1969, the judgment with findings and conclusions was entered and filed against the remaining defendants, Zellerbach and Sinclair. Some corrections were made by a judgment filed on March 20, 1969. It is from these instruments that this appeal filed April 18, 1969, was taken.

Appellee bank first raises the question that the appeal was not timely filed because more than sixty days had elapsed from the entry of the default foreclosure suit judgment against Ackerman. The bank contends appellants Zellerbach and Sinclair had to appeal from that judgment which was entered under Rule 54(b), otherwise it became res adjudicata and binding upon them. We cannot agree.

The September 23, 1968 judgment against defaulting defendants was against all of the defendants except Zellerbach and Sinclair. It contained the following language: 'It Is Further Ordered, Adjudged and Decreed that the Court expressly retains jurisdiction over this matter to determine the rights, if any, of the Defendants, Zellerbach Paper Company and Sinclair & Valentine Co.' Since Zellerbach and Sinclair appeared, contested, and did not default in the action, the judgment dating from February 17, 1969, (corrected March 20, 1969) was the only judgment in which they were expressly made parties and from which the time to appeal began to run. It is to be noted that when Zellerbach objected to the form of the default judgment the bank in its response thereto contended that inasmuch as the judgment was entered against only the parties in default, which did not include Zellerbach, that Zellerbach had no right or standing before the court. The trial court entering judgment under Rule 54(b) in the manner it did and ruling favorably on this contention of the bank, leaves no doubt of the court's position that it was not in any way foreclosing any of the rights of the appellants by the default judgment of September 23, 1968. The appellee cannot now say that this appeal is from the wrong judgment.

Appellants have urged several grounds for reversal. We believe the question that is determinative of this appeal is the one involving the Fraudulent Conveyance Act.

On the fraudulent conveyance issue the trial court made findings that the appellants failed to show insolvency of West-Coast on September 7, 1965, and that a 'valuable consideration' was given to West-Coast for the conveyances on September 7, 1965. We may not set aside the trial court's findings unless they are shown to be clearly erroneous. We are not, however, bound by the trial court's conclusions of law and may draw our own legal conclusions from the undisputed facts. 16 A.R.S., Rules of Civil Procedure, Rule 52(a); Sanders v. Brown, 73 Ariz. 116, 238 P.2d 941 (1951). If a finding of fact by the court is clearly erroneous, it is the duty of the reviewing court to set it aside. Brand v. Elledge, 101 Ariz. 352, 419 P.2d 531 (1966).

A.R.S. § 44--1004 provides that every conveyance made and every obligation incurred by a person who is or will thereby be rendered insolvent is fraudulent as to creditors without regard to his actual intent if the conveyance is made or the obligation is incurred without fair consideration.

Three basic elements must be shown, namely, a conveyance, a present or ensuing insolvency, and the absence of fair consideration. If, as contended by appellants, the uncontradicted evidence clearly shows these elements, then the conveyance must be set aside or annulled to the extent necessary to satisfy their judgment liens.

As to the first element, conveyances are defined in A.R.S. § 44--1001(2) and mortgages are specifically provided for therein, therefore the mortgages herein are properly considered conveyances.

The second question as to whether West-Coast was rendered insolvent as a result of the continuing guaranty and the mortgages is more difficult. The statutory test for insolvency is found in A.R.S. § 44--1002, subsec. A. This statute provides that a person is insolvent when the present fair salable value of his assets is less than the amount that will be required to pay his probable liability on his existing debts as they become absolute and matured. The effect of the conveyances (mortgages) was to transfer (mortgage) the corporation's realty to the bank to stand good for Ackerman's personal debt. We believe the evidence, hereinafter discussed, cannot be interpreted in any way other than that West-Coast was rendered insolvent by virtue of the continuing guaranty and the accompanying mortgages.

The trial of this cause consisted of one afternoon and one morning session in court. Only two witnesses testified, Mr. Ackerman and Mr. Vogel, the latter being the accountant for West-Coast. In addition, there was the pretrial statement, along with stipulations and the various exhibits. From our reading of this record there appears to be no conflict of any significance in the evidence. We believe the evidence is uncontradicted that West-Coast was going out of business as a result of financial difficulties; that during this period it ceased normal operation, liquidated fixed printing assets, reduced receivables, and made only $9,000 in sales during the second half of 1965, as opposed to $121,000 for the first half of 1965. It appears from the record that at the end of 1965 West-Coast was down to 'zero inventory' and had a deficit of over $40,000.

It is sound to say that on September 7, 1965, West-Coast's liabilities increased $47,500 because it guaranteed Ackerman's personal debts in that amount. While the liabilities increased by $47,500, the assets decreased by at least $35,000.

The decrease was shown by the following evidence. Ackerman was asked about the value of the Nevada property as of September 1965. This...