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Sandia Development Corp. v. Allen

Supreme Court of Arizona

June 3, 1959

Carey ALLEN, Appellee.

Page 194

[86 Ariz. 42] Stahl, Murphy & Blakley, and Flynn, Stewart & Allen, Phoenix, for appellant.

George M. Sterling and Leslie C. Hardy, Phoenix, for appellee.

JOHN F. MOLLOY, Superior Court Judge.

Carey Allen, the appellee, recovered a judgment in the sum of $30,400 against M. C. Lundgren, his wife Beulah, and La Mar Homes, Inc. Writ of garnishment after judgment issued against appellant, Sandia Development Corporation. In the interest of the elimination of confusion, the appellee will be designated herein as the plaintiff; the Lundgrens and La Mar Homes, Inc., as defendants or by individual name, and the appellant as garnishee.

Garnishee answered it was not indebted to defendants and did not have any effects of defendants in its possession. Plaintiff controverted this answer and filed tender of issue which, after trial amendments allowed by the court, states in effect that garnishee was indebted to defendants under a written agreement of August 6, 1951; that garnishee had in its possession moneys, property and things of value belonging to defendants in pursuance of said agreement; on or about June 29, 1950, defendant La shares of capital stock of garnishee; that during the year 1951 garnishee converted to its own use all of defendants' assets; that on or about June 29, 1950, defendnat La Mar Homes, Inc., wrongfully and illegally entered into a joint venture agreement with garnishee and thereby transferred to the joint venture all of the assets of La Mar Homes; that this transfer was illegal and void for the reason that garnishee had not complied with Arizona laws relative to the qualificiation of foreign corporations to do [86 Ariz. 43] business in this State and that by reason of the premises garnishee became the trustee of the properties of La Mar Homes for the stockholders and creditors of La Mar Homes. Trial before the court was had and the garnishee requested findings of fact and conclusions of law. No findings of fact were signed and filed, the court merely ordering the clerk to place in the minutes the following (in addition to five conclusions of law):

'(1) That the defendant garnishee Sandia Development Corporation, a corporation, was at the time the garnishment herein was served upon it, indebted to the defendants, M. L. Lundgren and Beulah Lundgren, his wife, and La Mar Homes, Inc., a corporation, or had in its possession things of value belonging to said defendants in excess of $30,400.00, together with interest thereon at the rate of 6% per annum from the 30th day of December, 1950;

'(2) The Court further finds that at the time of the service of said writ of Garnishment upon said defendant-garnishee that said defendant-garnishee was a corporation, and that the defendant M. L. Lundgren was the owner and holder of shares of stock in said corporation;'

and entered judgment against garnishee in the sum of $30,400 with interest and costs.

The evidence discloses that the garnishee is a New Mexico corporation which was first qualified to do business in the State of Arizona on August 6, 1951. Prior to this time it had entered into a written agreement with the defendant, La Mar Homes, Inc., dated June 29, 1950, by which the parties agreed to enter into a joint venture or partnership to be known as La Mar-Sandia Company for the purposes of 'tract development'. The parties agreed

Page 195

to construct a minimum of 130 residential homes and to construct such additional homes as might be mutually agreeable. The contract recited that La Mar Homes, Inc., referred to in the contract and hereinafter as 'La Mar', was a qualified builder and was then engaged in construction work in and around Phoenix, Arizona and that Sandia Development Corporation, referred to in the contract and hereinafter as 'Sandia', desired to participate in 'tract development' with La Mar.

The contract provided that La Mar would do all of the construction work, at cost and without any fee or compensation, for the joint venture; that Sandia should immediately pay to the joint venture $100,000 in cash; that La Mar should transfer to the joint venture materials and equipment then used by it in the construction business and would assign to the joint venture net proceeds from certain escrows pertaining to sales of houses previously constructed by La Mar, so that 'the credit' to be received by La Mar for materials and equipment so transferred and the net proceeds of escrow[86 Ariz. 44] so assigned would equal a contribution to the joint venture of $100,000.

After these capital contributions of Sandia and La Mar should be 'used up', the contract provided that Sandia should advance to the joint venture an additional sum of $100,000 cash. M. L. Lundgren, one of the defendants in the action, was a party to this agreement, though he was to have, as an individual, no share in the profits of the joint venture nor was he to be 'a party to such joint venture.' At the time of the execution of this agreement, Mr. Lundgren was the president of both La Mar and Sandia, and was financially interested, to a greater or lesser extent, in both corporations. In the contract, M. L. Lundgren agreed to devote his time and best efforts to the interests of the joint venture, without compensation. Funds realized from the joint venture operations were to be first used to repay to Sandia its second $100,000 contribution and thereafter distribution should be made on an equal basis between Sandia and La Mar, each to receive one-half of any profits.

Lundgren, according to his own undisputed testimony, was the only investor in the La Mar corporation and, though he spoke of three stockholders in the corporation (the other stockholders presumably being token shareholders), his undisputed testimony was also to the effect that no certificates of stock had ever been issued by La Mra. The interest of Lundgren in Sandia was disputed in the evidence. It was Lundgren's contention that he had transferred into Sandia at its inception assets of the worth of $20,00, for which he was to receive $20,000 in stock. It was undisputed, however, that Lundgren did not receive any stock certificate and that his certificate of stock remained with the corporate records. Lundgren remained the president of Sandia until his written resignation dated August 4, 1951, was accepted by its board of directors on August 6, 1951. The by-laws of Sandia, Art. IX, Sec. 8 thereof, provided that the President was the 'chief executive' of the corporation, and 'subject to the control of the board of directors', in charge of its business and affairs.

Initially, a book transaction was made whereby all or part of the assets of La Mar (the evidence is conflicting as to whether or not all or only part were involved) were 'transferred' from La Mar to the joint venture. La Mar, however, continued to hold title to all real property involved and there was, as far as evidence discloses, no formal assignment of bill of sale made of any such property so 'transferred'. A Mr. Richard Burgess, a certified public accountant, was employed to set up the books for the joint venture and he continued to be in charge of these books until October 31, 1951, at which time the joint venture had been substantially liquidated.

[86 Ariz. 45] Statements of accounts prepared by Mr. Burgess disclose that, while Sandia contributed the capital required of it by the joint venture agreement, La Mar did not. As of December 31, 1950, these accounts

Page 196

show that La Mar had contributed to the joint venture $38,454.58 in excess of La Mar's liabilities transferred to the joint venture and assumed by the joint venture. This was the high water mark of La Mar capital account in the joint venture according to these accounts. From then on, the capital account was continuously drawn upon, and an account receivable was set up on the joint venturers' books, to keep a record of indebtedness incurred by La Mar on the joint venture books. For a time, La Mar's capital account was kept separate from this account receivable but the account receivable increased until it exceeded the capital account of La Mar and, in March of 1951, Mr. Burgess applied the capital account of La Mar against the account receivable of La Mar, liquidating its capital account. The account receivable continued to increase so that by October 31, 1951, the books showed that La Mar owed the joint venture $25,734.77. After this date the joint venture accounts were taken over by another certified ...

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