Case Title: Miles v. CEC Homes, Inc.

Citation: 

Docket Number: 

State: wyoming

Court: Wyoming Supreme Court

Date: 1988-04-13T00:00:00Z

Document:
Miles v. CEC Homes, Inc.1988 WY 58753 P.2d 1021Case Number: 86-284Decided: 04/13/1988Supreme Court of Wyoming
MAURICE MILES AND MEADOWBROOK DEVELOPMENT, INC., A WYOMING 
CORPORATION, APPELLANTS (DEFENDANTS),

v.

CEC HOMES, INC., A 
WYOMING CORPORATION, AND INBERG SURVEYING, INC., A WYOMING CORPORATION, 
APPELLEES (PLAINTIFFS).

Appeal from theDistrictCourtofFremontCounty, Elizabeth Kail, 
J.

Robert O. 
Anderson and F.M. Andrews, Jr. (argued) of Andrews and Anderson, Riverton, for appellants.

Richard Kraemer 
of David B. Hooper, P.C., Riverton, for 
appellees.

Before BROWN, C.J., and THOMAS, CARDINE, URBIGKIT 
and MACY, JJ.

CARDINE, 
Justice.

[¶1.]     In this contract 
action, appellants Maurice Miles and Meadowbrook Development, Inc. appeal from 
judgments entered against them in favor of appellees CEC Homes, Inc. and Inberg 
Surveying, Inc. Appellants present the following issues on appeal: (1) Whether 
there was sufficient evidence to pierce the corporate veil of Meadowbrook 
Development, Inc.; (2) Whether Meadowbrook Development, Inc. should have been 
excused from its duty to pay CEC Homes, Inc. because of the failure of a 
condition precedent; (3) Whether the trial court erred in finding Maurice Miles 
personally liable to Inberg Surveying, Inc. on an open account; (4) Whether the 
trial court erred in granting attorney fees to CEC Homes, Inc.; and (5) Whether 
the trial court erred in granting Inberg Surveying, Inc. prejudgment interest in 
the amount of 1.5 percent per month.

[¶2.]     We affirm in part, 
reverse in part, and modify.

[¶3.]     Appellant Meadowbrook 
Development, Inc. (Meadowbrook) and appellee CEC Homes, Inc. (CEC) are 
Wyoming corporations which were engaged in the 
development of residential homes in Fremont 
County, Wyoming in the early 1980's. The two 
corporations owned subdivisions located on opposite sides of 18th 
Street in 
Riverton, Wyoming, and on December 3, 1980, they entered 
into an agreement to share the costs of developing the street. The common 
improvements contemplated by the agreement were the domestic water line, storm 
sewers, street construction and paving, and curb, gutter and sidewalk 
construction. The contract provided that there was "no priority as to which of 
the parties shall develop which common improvement" and that either party could 
proceed with development of the common improvements "as may be necessary for the 
development of the party's subdivision."

[¶4.]     Early in 1981, Stanley 
Smalley, acting for CEC, and appellant Maurice Miles, president and majority 
shareholder of Meadowbrook, held discussions concerning the start of 
construction on the common improvements. CEC began developing the improvements 
in May 1981 and completed them in October or November of that year. On July 19, 
1984, CEC billed Meadowbrook for its share of the costs, which amounted to 
$25,587.90. Meadowbrook failed to pay the bill.

[¶5.]     Appellee Inberg 
Surveying, Inc. (Inberg) provided engineering services for both the Meadowbrook 
and CEC projects. The initial engineering and plat work for the Meadowbrook 
subdivision was completed by Inberg in 1981. Meadowbrook paid Inberg for those 
services in October 1981. In March 1983, market forces prompted a decision to 
replat the Meadowbrook land. The cost of Inberg's services for the replatting 
was $8,203.11. Meadowbrook never paid for those services.

[¶6.]     On February 15, 1985, 
appellees CEC and Inberg filed an action to recover payment on CEC's contract 
with Meadowbrook and payment on the Inberg account. Both Meadowbrook and Maurice 
Miles were named as defendants. Appellees' claim against Miles was predicated on 
a theory of piercing the corporate veil.

[¶7.]     After a bench trial, 
the court entered judgment against Meadowbrook and Miles. CEC was awarded 
$25,587.90, which represented the amount due under the cost-sharing contract, 
and $6,201.12 for attorney fees. Inberg was awarded $8,203.11 for services and 
$5,364.23 in interest on its account with Meadowbrook.

PIERCING THE CORPORATE 
VEIL

[¶8.]     Appellants first 
contend that the trial court's decision to pierce the corporate veil of 
Meadowbrook was not supported by sufficient evidence. The standard of review we 
apply when evaluating such claims is well established:

"We have said that where 
the separate-entity doctrine is relied upon, each case must be governed by its 
own facts, Opal Mercantile v. Tamblyn, Wyo., 616 P.2d 776 (1980). Fact questions 
must be decided by the trier of fact, Aetna Casualty and Surety Company v. 
Stover, 327 F.2d 288 (8th Cir. 1964); H.A.S. Loan Service, Inc. v. McColgan, 21 Cal. 2d 518, 133 P.2d 391, 145 A.L.R. 349 (1943); Opal Mercantile v. Tamblyn, 
supra. We will not substitute our judgment for that of the trier of fact, 
findings of fact will be presumed to be correct and we will set them aside on 
appeal only where such findings are `clearly erroneous or contrary to the great 
weight of evidence,' Kvenild v. Taylor, Wyo., 594 P.2d 972, 976 (1979); see 
also, Plains Tire and Battery Company v. Plains A to Z Tire Co., Inc., Wyo., 622 P.2d 917, 920 (1981); Shores v. Lindsey, Wyo., 591 P.2d 895, 899 (1979). 
Additionally, in examining a fact issue,

"`"We must assume that 
evidence in favor of the successful party is true, leave out of consideration 
entirely evidence of the unsuccessful party in conflict therewith, and give to 
the evidence of the successful party every favorable inference which may 
reasonably and fairly be drawn from it."' Peters Grazing Association v. 
Legerski, Wyo., 544 P.2d 449, 455 (1975), reh. denied, 
546 P.2d 189 (1976), quoting from Stock v. Roebling, Wyo., 459 P.2d 780, 784 
(1969).

"See also Overcast v. 
Baldwin, Wyo., 544 P.2d 464, 465 (1976)." Yost v. 
Harpel Oil Company, Wyo., 674 P.2d 712, 716 
(1983).

[¶9.]     In Opal Mercantile v. 
Tamblyn, Wyo., 616 P.2d 776, 778 (1980), we discussed 
the circumstances under which a corporate entity may be 
disregarded:

"Ordinarily, a 
corporation is a separate entity distinct from that of individuals comprising 
it. State ex rel. Christensen v. Nugget Coal Co., 60 Wyo. 51, 144 P.2d 944 (1944); Durlacher v. Frazer, 8 
Wyo. 58, 55 P. 306 (1898). This is true although all or a majority of the stock is owned by a 
single individual. Durlacher v. Frazer, supra; W.D. Miller Lumber Corporation v. 
Miller, 225 Or. 427, 357 P.2d 503 (1960). However, in an appropriate case and in 
furtherance of public policy or the ends of justice, the doctrine will be 
disregarded. Peters Grazing Association v. Legerski, supra; State ex rel. 
Christensen v. Nugget Coal Co., supra; Caldwell v. Roach, 44 Wyo. 319, 12 P.2d 376 (1932)."

In AMFAC 
Mechanical Supply Co. v. Federer, Wyo., 
645 P.2d 73, 77 (1982), we said that

"`"[b]efore a 
corporation's acts and obligations can be legally recognized as those of a 
particular person, and vice versa, it must be made to appear that the 
corporation is not only influenced and governed by that person, but that there 
is such a unity of interest and ownership that the individuality, or 
separateness, of such person and corporation has ceased, and that the facts are 
such that an adherence to the fiction of the separate existence of the 
corporation would, under the particular circumstances, sanction a fraud or 
promote injustice."'" Quoting Arnold v. Browne, 27 Cal. App. 3d 386, 103 Cal. Rptr. 775 (1972) (overruled on other grounds). See also Minifie v. Rowley, 
187 Cal. 481, 
202 P. 673 (1921).

We went on to 
list the following factors to be considered in determining whether a corporate 
entity may be disregarded:

"`Among the possible 
factors pertinent to the trial court's determination are: commingling of funds 
and other assets, failure to segregate funds of the separate entities, and the 
unauthorized diversion of corporate funds or assets to other than corporate 
uses; the treatment by an individual of the assets of the corporation as his 
own; the failure to obtain authority to issue or subscribe to stock; the holding 
out by an individual that he is personally liable for the debts of the 
corporation; the failure to maintain minutes or adequate corporate records and 
the confusion of the records of the separate entities; the identical equitable 
ownership in the two entities; the identification of the equitable owners 
thereof with the domination and control of the two entities; identification of 
the directors and officers of the two entities in the responsible supervision 
and management; the failure to adequately capitalize a corporation; the absence 
of corporate assets, and undercapitalization; the use of a corporation as a mere 
shell, instrumentality or conduit for a single venture or the business of an 
individual or another corporation; the concealment and misrepresentation of the 
identity of the responsible ownership, management and financial interest or 
concealment of personal business activities; the disregard of legal formalities 
and the failure to maintain arm's length relationships among related entities; 
the use of the corporate entity to procure labor, services or merchandise for 
another person or entity; the diversion of assets from a corporation by or to a 
stockholder or other person or entity, to the detriment of creditors, or the 
manipulation of assets and liabilities between entities so as to concentrate the 
assets in one and the liabilities in another; the contracting with another with 
intent to avoid performance by use of a corporation as a subterfuge of illegal 
transactions; and the formation and use of a corporation to transfer to it the 
existing liability of another person or entity [citation].'" 645 P.2d  at 77-78 
(quoting Arnold v. Browne, supra, 103 Cal.Rptr. at 781-82). See also Yost v. 
Harpel Oil Company, supra 674 P.2d  at 717.

A number of 
these factors are present in this case.

[¶10.]  There was evidence of inadequate 
corporate records and failure to maintain minutes. Miles' son, Matthew, 
testified that he took "notes" at annual meetings; these notes were never 
produced. Typewritten minutes of the meetings were prepared only after the 
lawsuit was filed. Apart from these "minutes" and several corporate tax returns, 
no other corporate records were produced.

[¶11.]  The record also demonstrates a 
commingling of funds and other assets. The "minutes" of the corporation's 1983 
annual meeting indicate that Miles "gave" the corporation funds to purchase two 
trucks which the corporation later gave to Miles and his son Matthew for 
unspecified services. In addition, Miles frequently infused his own funds into 
the corporation's accounts. Although Miles characterized these transactions as 
loans, he never produced any evidence of any notes or other similar 
documentation to support this assertion, despite repeated discovery requests. 
Miles also withdrew funds from the corporate account when he "felt like the time 
was appropriate." He characterized these withdrawals as either "draws" or 
reimbursements for expenses. Again, the record contains no corporate records to 
support his assertions. Given the absence of corporate records to substantiate 
Miles' characterization of the challenged transactions, the trial court was 
entitled to disbelieve his testimony.

[¶12.]  Miles used the corporation to procure 
labor and services for himself. The corporation built storage units in Gillette 
and a retail office building in Jackson for Miles, without profit. The projects 
were not authorized by the corporation until four months after construction 
began. The corporation also built a garage on Miles' property. Miles maintained 
that he "reimbursed" the corporation for wages, materials and expenses for the 
garage, but again no records existed which would support this 
explanation.

[¶13.]  There was evidence of unauthorized 
diversion of funds or assets to other than corporate uses. Miles testified that 
he gave away a corporate dump truck in exchange for snow plowing services at his 
personal residence. 

[¶14.]  In short, the evidence provided a 
sufficient basis for the trial court to find an absence of individuality or 
separateness between Miles and Meadowbrook. In addition, adherence to the 
limited liability concept under these circumstances would promote injustice. The 
existence of the corporation was entirely dependent on whether Miles wished to 
add to the corporate account or withdraw from it. This total domination of the 
corporation allowed Miles to use it as a conduit for his own affairs, then 
deplete its assets and ignore the claims of creditors. We will not sanction 
Miles' abuse of the corporate form.

[¶15.]  We affirm the trial court's conclusion 
that Meadowbrook's corporate identity should be 
disregarded.

CONDITION 
PRECEDENT

[¶16.]  The cost-sharing contract between 
Meadowbrook and CEC contained the following provision:

"4. DEVELOPMENT: The 
parties agree that there is no priority as to which of the parties shall develop 
which common improvement. It is agreed, however, that the party taking on the 
activity of contracting for supplies, labor, and equipment for installation of 
any common improvement shall, prior to entering into any binding contract, 
inform the other party of the specifications of such proposed contract. The 
non-active party shall withhold its permission to proceed with the proposed 
contract only if such fails to present a reasonable cost and quality of 
supplies, labor, and equipment or a reasonable delivery and completion 
day."

Meadowbrook 
contended that this provision created a condition precedent to its obligation of 
payment, that the condition did not occur, and therefore it could not be liable 
on the contract.

[¶17.]  A condition precedent is "`an act or 
event, other than a lapse of time, which must exist or occur before a duty of 
immediate performance of a promise arises.'" Robert W. Anderson Housewrecking 
and Excavating, Inc. v. Board of Trustees, School District No. 25, Fremont 
County, Wyoming, Wyo., 681 P.2d 1326, 1331 (1984) (quoting Calamari and Perillo, 
Law of Contracts § 11-3 (1977)). The distinction between conditions and 
promises, and the significance of this distinction, is succinctly discussed by 
Corbin as follows:

"A promise is always made 
by the act or acts of one of the parties, such acts being words or other conduct 
expressing intention; a fact can be made to operate as a condition only by the 
agreement of both parties or by the construction of the law. The purpose of a 
promise is the creation of a duty in the promisor; the purpose of constituting 
some fact as a condition is always the postponement or discharge of an instant 
duty (or other specified legal relation). The non-fulfillment of a promise is 
called a breach of contract, and creates in the other party a secondary right to 
damages; it is the failure to perform that which was required by a legal duty. 
The non-occurrence of a condition will prevent the existence of a duty in the 
other party; but it may not create any remedial rights and duties at all, and it 
will not unless someone has promised that it shall occur." 3A Corbin on 
Contracts § 633, p. 26 (1960).

It is possible 
that a single contractual provision may operate as both a condition and a 
promise:

"Of course a contract can 
be so made as to create a duty that the fact operative as a condition shall come 
into existence. * * * The non-performance would then have double operation, on 
the one hand preventing any instant duty in the [promisee] * * * and on the 
other creating a secondary duty in the [promisor] to pay damages. Such a 
condition might be described as a promissory condition." Id. at 
27-28.

[¶18.]  In the present case, paragraph four of 
the cost-sharing contract clearly contains an exchange of promises. CEC, the 
party initiating construction, promised that it "shall" inform Meadowbrook of 
the specifications of any contract prior to entering such a contract. These 
"specifications" are identified as the "cost and quality of supplies, labor, and 
equipment" and a "delivery and completion day." In exchange, Meadowbrook 
promised that it "shall" withhold its permission to proceed with the proposed 
contract only if those specifications were unreasonable.

[¶19.]  Appellants contend that these words of 
promise also created an implied condition precedent. They apparently feel that 
because the contract gave Meadowbrook the right to review specifications and 
withhold its permission to proceed if those specifications were unreasonable, it 
necessarily followed that Meadowbrook's duty to pay its share of the proposed 
contracts did not arise unless and until CEC informed Meadowbrook of the 
specifications. While we question this premise, CEC never seriously challenged 
Meadowbrook's interpretation of paragraph four. Instead, it attempted to show 
that it had performed its duty of informing Meadowbrook of the contract 
specifications. The parties have treated the obligation of CEC as a condition 
precedent to Meadowbrook's duty to pay; we will do the same for purposes of this 
appeal.

[¶20.]  The traditional rule is that conditions 
precedent are to be strictly complied with. Frank v. Stratford-Handcock, 13 
Wyo. 37, 77 P. 134 (1904). More recently we have held that substantial performance in good 
faith is sufficient in most cases to meet the harsh rule of complete and exact 
performance of a condition precedent. Leitner v. Lonabaugh, Wyo., 402 P.2d 713 (1965). Even applying the 
substantial performance standard, it is clear from the record that CEC did not 
comply with paragraph four. Smalley testified that he informed Miles of the cost 
of the excavating contractor. Meadowbrook was never informed of the cost and 
quality of supplies, labor and equipment, or a specific delivery day and 
completion day for any other contract.

[¶21.]  As previously stated, the general rule is 
that a non-occurrence of a condition precedent excuses a party's duty of 
performance. This general rule is not without exceptions. One exception is 
stated in § 229 of the Restatement, Second, Contracts:

"To the extent that the 
non-occurrence of a condition would cause disproportionate forfeiture, a court 
may excuse the non-occurrence of that condition unless its occurrence was a material part of the agreed exchange." 
(Emphasis added.)

Section 241 of 
the Restatement, supra, describes circumstances to be considered in determining 
whether a failure to render performance is material:

"(a) the extent to which 
the injured party will be deprived of the benefit which he reasonably 
expected;

"(b) the extent to which 
the injured party can be adequately compensated for the part of that benefit of 
which he will be deprived;

"(c) the extent to which 
the party failing to perform or to offer to perform will suffer 
forfeiture;

"(d) the likelihood that 
the party failing to perform or to offer to perform will cure his failure, 
taking account of all the circumstances including any reasonable 
assurances;

"(e) the extent to which 
the behavior of the party failing to perform or to offer to perform comports 
with standards of good faith and fair dealing."

Applying these 
considerations to the present case, we conclude that occurrence of the condition 
must be excused. It appears that appellants were deprived of a benefit which 
they reasonably expected - they were not given an opportunity to review contract 
specifications before construction began. But if any of the contract 
specifications were unreasonable, and appellants suffered any harm in this 
respect, they could be adequately compensated in damages for breach of contract. 
Appellants have made no such claim. In fact, throughout the course of this 
litigation, appellants have never contended that the quality and cost of labor 
and materials or the start up and completion dates were unreasonable. Yet 
appellants seek to totally avoid their obligation to pay their share of the cost 
of the improvements. This would amount to a total forfeiture of CEC's rights 
under the contract. 

[¶22.]  Appellants should not escape liability 
under the contract because of the failure of a non-material condition. We affirm 
the trial court's finding of liability.

OPEN 
ACCOUNT

[¶23.]  Both CEC and Inberg claimed that 
Meadowbrook's corporate veil should be pierced. In the alternative, Inberg 
contended that Miles was personally liable because it dealt with Miles 
personally and not with Meadowbrook. Appellants assert that the trial court 
erred in finding Miles liable under this latter theory. We need not address this 
argument because the court specifically found Miles personally liable to both 
appellants by piercing the corporate veil:

"The court finds 
specifically that the defendant Maurice Miles, under authority as set forth by 
the Wyoming Supreme Court in Amfac Mechanical Supply Company v. Federer (Wyo.), 
645 P.2d 73, and the cases therein cited, and indeed under Wyoming case law as 
early as 1932 in the Case of Caldwell v. Roach, 12 P.2d 376 is personally liable 
for monies due and owing the plaintiffs * * *." (Emphasis 
added.)

We have already 
affirmed the trial court's conclusion that Meadowbrook's corporate identity 
should be disregarded because adherence to the limited liability concept would 
produce an unjust result. This principle applies equally to the claims of CEC 
Homes and Inberg. Therefore we will not address appellants' alternative 
argument.

ATTORNEY 
FEES

[¶24.]  The cost-sharing agreement between CEC 
and Meadowbrook contained the following attorney fee 
clause:

"If the non-defaulting 
party is required to place this document in the hands of an attorney for 
enforcement, the defaulting party agrees to pay the non-defaulting party's 
reasonable attorney's fees and costs incurred thereby."

At trial CEC 
sought to recover attorney fees pursuant to this provision. Inberg was not 
entitled to attorney fees and did not seek them.

[¶25.]  CEC and Inberg were represented by the 
same attorney. In support of its claim for attorney fees, CEC introduced an 
affidavit of its attorney which provided an itemization of services and expenses 
incurred in representing both CEC and Inberg. This itemization did not separate 
the fees and expenses relating to CEC's claim from those relating to Inberg's 
claim. The court attempted to solve this problem by simply awarding CEC one-half 
of the total amount:

"The court further finds 
that there is due plaintiff CEC Homes, Inc. the sum of $25,587.90, and attorney 
fees in the amount of $6,201.12, such sum representing one-half of the amount as 
set forth in plaintiffs' Exhibit No. 10 and as testified to by witness Phifer; 
this court being unable to allocate specific work of plaintiffs' attorneys to 
specific plaintiffs and, therefore, dividing the sum 
equally."

Appellant 
contends that the attorney fee award was erroneous. We 
agree.

[¶26.]  In addressing the subject of attorney 
fees, we have said that an award of attorney fees "necessarily carries with it a 
considerable amount of discretion in the trial court" and that this discretion 
"is based upon the court's experience and knowledge in that professional field 
in which it is deemed to have peculiar competence." Lebsack v. Town of 
Torrington, Wyo., 698 P.2d 1141, 1148 (1985). There must, 
however, be some proof or evidentiary basis for determining a reasonable fee. 
Anderson v. Meier, Wyo., 
641 P.2d 187 (1982). We cannot discern from the record an evidentiary basis for 
the trial court's determination that CEC should receive one-half of the total 
amount of attorney fees. As far as we can tell, the only evidence to support 
this division of fees is the fact that there were two plaintiffs. This alone 
does not provide a sufficient evidentiary basis for the 
award.

[¶27.]  The burden of proving the amount of an 
attorney fee award rests on the party seeking the award. See Downing v. Stiles, 
Wyo., 635 P.2d 808 (1981). Because CEC failed to carry this burden, we must reverse the 
attorney fee award. 

PREJUDGMENT 
INTEREST

[¶28.]  Inberg was awarded interest on its claim 
at a rate of 1.5 percent per month, which was the rate that it customarily 
charged on its past due accounts. Appellants contend that the interest award was 
excessive, and that it must be limited to the statutory rate of 7 percent per 
year pursuant to § 40-14-106(e), W.S. 1977.

[¶29.]  When a contract is silent with respect to 
interest, prejudgment interest may be awarded at the statutory rate. Rissler 
& McMurry Company v. Atlantic Richfield Company, Wyo., 559 P.2d 25 (1977). 
When the parties have entered an agreement which provides for the payment of 
interest, a different rule applies:

"Some contracts 
specifically provide for interest. Those cases can be decided upon their 
contract terms and regarded as compensation for the use of money or for the 
extension of credit. The contract in such instance itself governs interest by 
way of compensation or damages for breach." Id. at 31.

At trial, Inberg 
contended that its account with Miles constituted a contract which specifically 
provided for interest. In support of this argument, Inberg relied on the 
following provision which appeared at the bottom of each page of its billing 
statement to Miles:

"Accounts unpaid, 30 days 
past date of billing, will accrue service charges at the rate of 1 1/2% per 
month. This constitutes an annual rate of 18% per year."

In addition, 
Inberg introduced evidence that Miles had previously complied with this 
provision by settling his account in 1981 with a single payment which included 
amounts attributable to the 1.5 percent service charge. The last service charge 
reflected on the account was waived at the time by Inberg. Inberg contends that 
these facts establish an agreement to pay interest on the amount due for the 
replatting services performed in 1983. We cannot agree.

[¶30.]  An agreement to pay interest can be 
express or implied. See generally 47 C.J.S. Interest and Usury § 11 (1982). But 
the mere appearance of a provision imposing interest on an invoice or billing 
statement is insufficient to establish an implied agreement for the payment of 
interest. Scott v. Strickland, 10 Kan. App. 2d 
14, 691 P.2d 45 (1984); The Research Group, Inc. v. Sharp, La. App., 430 So. 2d 165 
(1983).

[¶31.]  We reject Inberg's suggestion that the 
prior interest payment by Miles in 1981 demonstrates a course of dealing which 
established an implied agreement for the payment of interest. The payment of the 
prior bill, which included interest charges, was merely a settlement of the 
contract for the initial platting services, which in our view was separate and 
divisible from the contract entered some 18 months later for replatting 
services. The record contains no evidence to support a conclusion that Miles 
agreed to pay interest on the replatting contract, which was the debt for which 
this action was brought. Accordingly, Inberg cannot be awarded interest above 
the statutory rate.

[¶32.]  Affirmed in part, reversed in part, and 
modified as to interest.