Lead Opinion
This action was brought by plaintiffs-respondents Barry and Donna Minich, husband and wife, for specific performance of a contract to sell a suburban lot and custom-built house. Defendants-appellants are two corporations, Gem State Developers, Inc., and Thomas G. Smith, Inc., and three individuals, Frank Marcum, Bertha Mar-cum, and Thomas G. Smith. Gem State Developers, Inc. is an Idaho corporation engaged in residential real estate development. Thomas G. Smith, Inc., is an Idaho corporation engaged in constructing houses on property owned by Gem State Developers, Inc., with financing obtained by Gem State Developers, Inc. Frank Marcum and Bertha Marcum are officers, directors, and the controlling shareholders of both corporations. Thomas G. Smith, president and co-owner of Thomas G. Smith, Inc., at the time this dispute arose, has since left for California. He has never appeared in this action and is not involved in this appeal.
Two written contracts are involved here. The first was entered into in October 1974, and named as parties “Thomas G. Smith and Valana Sue Smith and Frank E. Mar-cum and Bertha Marcum” as the “Contractors” and respondents as the buyers. The contract was executed on behalf of the “Contractors” by Thomas G. Smith, Inc., without specifying which individual had signed it or in what capacity it had been signed. This contract provided for the construction of a custom-built home and the sale of the home and lot to respondents at
On May 1, 1975, the new home was not yet complete. But beсause the “temporary” house had already been sold to new owners who were to take possession May 1, 1975, respondents moved into the new house. In the attempt to finalize the transaction, respondents presented the April 1975 contract to Marcum. He repudiated this contract, contending that Thomas G. Smith had no authority to make such an agreement. Marcum instead insisted upon the earlier contract price of cost plus ten percent, which he claimed amounted to $70,223.45. He then ordered all work on the house stopped and refused to close the sale. Respondent’s lender thereafter can-celled its loan, and respondents brought this action to specifically enforce the April 1975 сontract at its price of $55,000.
After a trial to the court sitting without a jury, the court found that respondents and Thomas G. Smith, Inc., had entered into both contracts, with the April 1975 contract setting the final selling price. The court found that Thomas G. Smith had authority to enter into the contracts on behalf of the corporation. Specific performance was refused, however, because of the difficulties of judicial supervision over the completion of the custom built home. Instead the court rescinded the entire transaction and restored the parties to their precontract positions. Respondents were awarded restitutionary damages in the amount of $9,012.81 less the amount of $3453.42 for the reasonable rental value for the period in which they occupied the new house. The court also awarded respondents attorney fees in the amount of $4,250.00. Judgment was entered against Thomas G. Smith and Thomas G. Smith, Inc.; against Frank Marcum and Bertha Marcum individually for failing to properly incorporate Thomas G. Smith, Inc.; and against Gem State Developers, Inc., as the alter ego of Frank and Bertha Marcum.
On appeal, appellants challenge the personal liability of Frank and Bertha Mar-cum, the corporate liability of Gem State Developers, Inc., and the award of attorney fees to respondents.
The first issue on appeal concerns the district court’s conclusion that Frank and Bertha Marcum are personally liable for the obligations of Thomas G. Smith, Inc., under I.C. § 30-110, for failing to adhere to the statutory mandates regarding incorporation. I.C. § 30-110 provides that
Conditions precedent to beginning business — Penalty for violation. — 1. A corporation formed under this act shall not incur any debts or begin the transaction of any business, except such as is incidental to its organization, or to the obtaining of subscriptions to or the payment for its shares until a triplicate original of the articles of incorporation has been filed for record in the office of the county recorder as provided in section 30-108.
2. If a corporation has transacted any business in violation of this section, the officers who participated therein and the directors, except those who dissented therefrom and caused their dissent to be filed at the time in the registered office of the corporation, or who, being absent, so filed their dissent upon learning of the action, shall be severally liable for the debts or liabilities of the corporation arising therefrom.
The place of filing is controlled by I.C. § 30-108, which provides that a triplicate original of the articles of incorporation “shall then be filed for record in the office of the county recorder of the county in which the registered office of the corporation is situated . . . .” Appellants did
The first argument is that I.C. § 30-110 is unconstitutional as applied to Frank and Bertha Marcum. It is contended that Art. 11, § 17 of the Idaho Constitution
In ruling on this constitutional challenge to I.C. § 30-110, this court is guided by certain basic principles. In Caesar v. Williams,
In considering the question of the constitutionality of these acts, certain fundamental rules at all times must be kept in mind. The burden of showing the unconstitutionality of a statute is upon the party asserting it. Eberle v. Nielson,78 Idaho 572 ,306 P.2d 1083 ; Rich v. Williams,81 Idaho 311 ,341 P.2d 432 . This сourt is without power to invalidate or nullify a constitutional act of the legislature; if the legislation does not clearly violate the Constitution, this court must and will uphold it. Padgett v. Williams,82 Idaho 114 ,350 P.2d 353 . Every reasonable presumption must be indulged in favor of the constitutionality of a statute. Robinson v. Enking,58 Idaho 24 ,69 P.2d 603 ; Idaho Gold Dredging Co. v. Balderston,58 Idaho 692 ,78 P.2d 105 .
The court in State ex rel. Brassey v. Hanson,81 Idaho 403 , 409,342 P.2d 706 , 709, quoting from other opinions, stated:
“ ‘It is fundamental that, the judicial power to declare legislative action invalid upon constitutional grounds is to be exercised only in clear cases. . . ’ [citation] Petition of Mountain States Telephone & Tel. Co.,76 Idaho 474 , 480,284 P.2d 681 , 683.
“ ‘In the case of statutes passed by the legislative assembly and assailed as unconstitutional the question is not whether it is possible to condemn, but whether it is possible to uphold; and we stand committed to the rule that a statute will not be declared unconstitutional unless its nullity is placed, in our judgment, beyond reasonable doubt . . . [citatiоns]’ Keenan v. Price,68 Idaho 423 , 433,195 P.2d 662 , 667.”
In applying these principles to the case at bar, the court first notes that Idaho Const. Art. 11, § 17 relates only to stockholders, while the statute is narrowly drawn to impose liability only upon the directors and those officers who participated in the unlawful business. On its face, then, the statute could in no way be said to violate the prohibitions of Art. 11, § 17. But in those situations where, as here, the protagonists are at the same time officers, directors, and shareholders, the question arises as to the applied validity of the statute. Even in these situations, however, we conclude that I.C. § 30-110 is not repugnant to the Idaho Constitution. The statutory liability is predicated upon misconduct by a director or officer and is completely unrelated and irrelevant to ownership of stock in the corporation. The intent and purpose of the statute is to impose liability upon the officers and directors in their capacity as officers and directors for breach of their corporate duties regardless of whether or not they also hold stock. Accordingly, this court rejects appellants’ constitutional challenge to the statute, and we hold that whenever shareholders elect to actively participate in the corporate affairs as officers or directors, they will be responsible for their actions as officers or directors.
Appellants’ second argument in the assignment of error directed to the trial court’s conclusion that they were personally
In rejecting appellants’ suggested construction of the statute, it is important to emphasize that “[t]his Court has consistently adhered to the primary canon of statutory construction that where the language of the statute is unambiguous, the clear expressed intent of the legislature must be given effect and there is no occasion for construction.” State v. Riley,
Appellants’ third argument regarding this issue is that respondents are estopped to deny the corporate existence of Thomas G. Smith, Inc., since they knew at all times that they were dealing with the corporation as a corporation. Appellants rely upon Allen Steel Supply Co. v. Bradley,
In Allen Steel, this court held that there can be no de facto сorporation where the articles of incorporation had not been filed with the secretary of state and where no certificate had been issued. Thus there was no corporate existence either de jure or de facto. The purported “incorporators” had also failed to comply with the secondary filing requirements of I.C. § 30-110, but this was irrelevant to the court’s decision to hold the principals personally liable. Any mention in Allen Steel of the potential defense of estoppel to liability under I.C. § 30-110 is mere dictum and is to be disregarded.
Jolley was an action by an individual against a corporation for rescission of a contract to exchange deeds to real property. The corporation had failed to file a certified copy of its articles оf incorporation in the office of the county recorder of the county where the real property was situated as required by I.C. § 30-108(4), and in addition it had failed to comply with I.C. § 30-110. In affirming the trial court’s decision denying recission of the contract to exchange deeds, this court held that the failure to comply with I.C. § 30-108(4) did not render the corporate deed void. No discussion was necessary as to the impact of I.C. § 30-110, and none was given.
Since no prior decision stands to the contrary, this court today holds that the defense of estoppel has no application to liability asserted under I.C. § 30-110. This liability is not predicated upon the theory of piercing the corporate veil or upon distinctions between de facto or de jure corporations, tо which estoppel might in certain instances apply. Rather, the statute sets forth explicit requirements as conditions precedent to the transaction of corporate business and provides for definite penalties for failure to comply. The defense of es
[n]o estoppel arises in the case of statutory liability from the fact that creditors dealt with the corporation as such, to prevent them from suing under a statute imposing liability on stockholders or officers in addition to that resting on the corporation, for fаilure to perform certain things; to allow an estoppel in such a case would nullify the statute.
(Emphasis ours.) The Supreme Court of Illinois in Loverin v. McLaughlin,
[T]o say that the creditor is estopped from suing the officers and directors because he contracted with the corporation or pretended corporation is to make the [statutory] provision in his favor entirely nugatory. Section 18 imposes the liability upon the officers and directors, because, being prohibited from proceeding to business, they permit business to be commenced and liabilities to be incurred in violation of their duty.
Id.
Appellants next assign error to the district court’s conclusion that Gem State Developers, Inc., was the alter ego of Frank and Berthа Marcum. Appellants’ argument proceeds on two grounds: first, that as a matter of law the alter ego doctrine cannot be utilized in reverse so as to hold a corporation liable for the acts of its controlling shareholders; and second, that there was insufficient evidence for the trial court to disregard the corporate identity of Gem State Developers, Inc.
Regarding the trial court’s finding of fact that the Marcums treated the corporation as their alter ego, it is the elementary rule that such finding will not be disturbed on appeal if it is supported by substantial and competent evidence. See I.R. C.P. 52(a); Skelton v. Spencer,
From this finding the trial court concluded that Gem State Developers, Inc., is also
As this court stated in Tom Nakamura, Inc. v. G. & G. Produce Co.,
“ ‘To warrant casting aside the legal fiction of distinct corporate existence . it must also be shown that there is such a unity of interest and ownership that the individuality of such corporation and such person had ceased; and it must further appear from the facts that the observance of the fiction of separate existence would, under the circumstances, sanction a fraud or promote injustice.’ ”
The court has been able to find no situation in which the doctrine of alter ego has been applied to a fact situation such as is presented to the court in this case. Alter ego would appear to be limited to the situation where there is reason to disregard a corporate entity to reach individuals, it has no applicability in disregarding the existence of an individual to reach corporate assets.
In answer to appellants’ argument, we adopt reasoning of Central Nat’l Bank & Trust Co. of Des Moines v. Wagener,
The Olympic Capital Corporation’s case presented a Federal District Court venue problem arising out of a very complicated financial fact situation. Whatever validity the quoted observation may have had for the case in question, it cannot be accepted in this jurisdiction, for plaintiff’s argument that assets may be traced from a corporаtion to an individual but not vice versa. This court and other courts have disregarded the claimed corporate ownership of assets to satisfy individual debts where the facts dictated a necessity so to do.
Other cases which have pierced corporate ownership to satisfy individual debts include Rainbo Gold Mines v. Magnus,
Appellant’s final assignment of errоr is that the district court erred in awarding attorneys fees to respondents. Appellants contend that such award constitutes consequential damages and is inappropriate in light of the trial court’s decision to restore the parties to their pre-contract positions. Whatever the merit of this argument, we find it unnecessary to make an analysis of the substantive law of damages in answering this issue. Rather, we hold that the award of attorneys fees was properly made under the authority of I.C. § 12-121,
Finally there is the issue of attorneys fees sought by respondents on this appeal. Respondents maintain that I.C. § 12-121 provides the authority for this court to make an award to the prevailing party for reasonable attorneys fees incurred in preparing for this appeal. We agree.
The statute provides that “in any civil action, the judge may award reasonable attorney’s fees to the prevailing party . .” As an aid in construing this language, I.C. § 73-114 provides:
Statutory terms defined. — Unless otherwise defined for purposes of a specific statute, words used in these compiled laws in the present tense, included the future as well as the present; words used in the masculine gender, include the feminine and neuter; the singular number includes the plural and the plural the singular.
(Emphasis added.) See also State v. Holder,
In awarding reasonable attorney fees to the prevailing party on appeal, this court will be guided by the following general principles. Since the statutory power is discretionary, attorney fees will not be awarded as a matter of right. Nor will attorney fees be awarded where the losing party brought the appeal in good faith and where a genuine issue of law was presented. In normal circumstances, attorney fees will only be awarded when this court is left with the abiding belief that the appeal was brought, pursued or defended frivolously, unreasonably or without foundation. See I.R.C.P. 54(e)(1). Applying these considerations to the case at bar, this court declines to award attorney fees on appeal to respondents.
Judgment affirmed. Costs to respondents.
Notes
. § 17. Liability of stockholders — Dues.—Dues from private corporations shall be secured by such means as may be prescribed by law, but in no case shall any stockholder be individually liable in any amount over or above the amount of stock owned by him.
. Attorney’s fees. — In any civil action, the judge may award reasonable attorney’s fees to the prevailing party or parties, provided that this section shall not alter, repeal or amend any statute which otherwise provides for the award of attorney’s fees.
Concurrence Opinion
concurring specially:
I concur with the majority, although I wish to note my reasons for that concurrence with respect to the liability of defendant Gem State Developers, Inc. The separateness of the corporate entity will be disregarded only in exceptional cases, and the mere fact that a corporation is owned or controlled by one person is not in itself sufficient to warrant a disregard of the corporate personality. See 6 Z. Cavitch, Business Organizations § 120.05[2] and [7] (1977). Nevertheless, if necessary to promote the ends of justice the corporate entity may be disregarded if the corporation is
Here, the record indicates that the corporation, Gem State Developers, Inc., did not observe any of the corporate formalities in its dealings which were conducted by its president, Marcum. Indeed, at the trial Mr. Marcum did not even recall that his wife was vice-president of Gem State. Also, there was no evidence of any documented arrangement or agreement between the Marcums and Gem State for transferring ownership of the property which the Mar-cums had contracted to sell and to which Gem State held title. In sum, a clear inference from the evidence, presented to the trial court is that the Marcums themselves ignored the separateness оf the corporate entity and that Gem State was merely their alter ego. Therefore, I concur with the majority’s affirmance of the trial court’s findings.
Concurrence Opinion
specially concurring.
In holding that attorney fees for the appeal should not be allowed, I concur with
The legislature, in three times addressing the awarding of attorney fees under those statutes, has not once mentioned the award of attorney fees in an appellate proceeding. Such can only mean that the legislature clearly had in mind that a civil action is generally understood as a lawsuit, a trial or proceeding wherein rights and remedies are tried and decided in our district courts. I.C. § 5-101.
An appeal is not a civil action in any sense of being a trial, but is a review of the final judgment or dispositive order which has been entered in a civil action. I.C. § 13-101. An appellate court reviews a written record of that action to ascertain if the parties have had a fair trial free from prejudicial error. While a plaintiff commences or brings an action, I.C. § 5-101 (now repealed) and I.C. § 5-409, an appeal is taken. I.C. § 13-201;
There simply is no language whatever in either I.C. § 12-120 or I.C. § 12-121 which would justify a conclusion that this Court has been empowered to award attorney fees on the appeal of any civil action which has been taken to this Court.
A conclusion that the legislature did not have in mind the awarding of attorney fees on an appeal is fortified by an examination of previous legislative enactments and decisions of this Court. In 1951, the legislature passed the first statute which made insurance carriers liable for non-payment of amounts justly due under insurance contracts. As noted in Molstead v. Reliance Natn’l Life Ins. Co.,
In yet another context, i. e., thе legislature’s grant of attorney’s fees in a successful materialmen’s lien foreclosure action, this Court has ruled as it did in Molstead. In Hendrix v. Gold Ridge Mines, Inc.,
In those rare instances where an appeal has been taken solely for delay, perhаps there should be some remedy. Until just recently, when this Court prevailed upon the legislature to again repeal a number of statutes, I.C. § 13-220 specifically allowed for the assessment of damages to be added to the costs. This statute was in effect, and had been for over 90 years when the legislature enacted §§ 12-120 and 121. It is proper to assume that the legislature was aware of I.C. § 13-220 when it deliberately did not include in §§ 12-120 and 121 any provision for awarding attorney fees to the successful party on an appeal which might be taken. While the argument is advanced that the legislature could have specifically provided that attorney fees on appeals were not within the scope of I.C. § 12-121, it is more aptly said that the legislature could have resolved all doubt by saying that attorney fees on appeal were recoverable. To go the one way is to indulge in unwarranted surmise and conjecture; to go the other is to accept an unambiguous statute as written. It must be kept firmly in mind that the shifting of attorney fees so that the prevailing party is compensated for his fees at the expense of his losing adversary is a matter of substantive law. The making of substantive law is for the legislature, not for the Supreme Court. If attorney fees on appeals are to be awarded, the legislature has had, and continues to have, both the opportunity and the ability to say so, and its capability for doing so in clear and unequivocal language should not be doubted.
While touching upon thе question of substantive law, this is an appropriate time to state my belief that the Court improvidently adopted Rule 54(e), promulgated on January 2, 1979, by which this Court severely limited the scope and effect of I.C. § 12-121. In a proper case, not by “procedural” rule of court, this Court could be called upon to determine the construction to be placed upon I.C. § 12-121, and very well might hold, as many many cases have, that “may” is a discretionary word, thereby invoking the discretionary powers of a trial judge. This Court might hold with the view that use of the word “may” granted the district courts the very broad power to award attorney’s fees when the award and amount of attorney’s fees seemed proper to the court. Or, the Court might conclude that it should deсlare and set out guidelines and bounds for the exercise of that discretion. Such is not the proposition which needs to be now addressed.
I doubt both the wisdom and the lawfulness of a Court rule which essentially amends a substantive statute. In State v. McCoy,
I recognize, of course, our concern in the matter under discussion is not the constitutionality of I.C. § 12-121, but rather the scope and effect of this statute. It cannot be gainsaid that the awarding of attorney’s fees is a matter of substantive law. In all of the discussion that has been had on thе subject, no one has gone so far as to advocate for the view that the Court could have by rule accomplished that which the legislature did by statute. Yet, the rule clearly amends the statute, an important point which apparently escapes the observation of the other members of the Court. This is not too unexpected where the matter comes before the Court administratively rather than in a contested case, wherein we receive the benefit of the argument and authority of able counsel.
Basically, the Court needs to keep in mind that while it is composed of experts in constitutional law, the legislature is not. The legislature does have its experts in many and varied fields, but it is not to be expected that educators, bankers, insurance brokers, ranchers, and those in other non-legal fields are properly cognizant of the doctrine of separation of powers, including the right in the legislature, and it alone, to create, modify or repeal substantive law. The Court bears the ultimate responsibility of safeguarding the integrity of our Constitution.
. I.C. 13-201 commences with this language: “An appeal may be taken to the Supreme Court from a district court.” (Emphasis added.)
. Rule 11 commences with this language: “An appeal as a matter of right may be taken to the Supreme Court . (Emphasis added.)
Concurrence Opinion
concurring in part and dissenting in part.
The respondent requested attornеy fees on appeal pursuant to I.C. § 12-121 and the majority while denying them, states they may be awarded in an appeal under certain circumstances. I cannot agree with that part of the majority opinion that holds that I.C. § 12-121 authorizes attorney fees on appeal. This statute provides that a “judge” may award attorney fees to the prevailing party in any civil action. I do not believe that this statute empowers “justices” of the Idaho Supreme Court to award attorney’s fees on appeal to the prevailing party in a civil action. I am unable to find definitions in the Idaho Constitution or the Idaho Code of “judge” and “justice.” There are several sections in the Constitution
. Idaho Const, art. 5, §§ 6, 17, 25, and 27.
. E. g„ I.C. §§ 1-1903, -2001, -2002, -2004, -2005, -2006, -2007, -2009.
. Idaho Const, art. 5, §§ 6, 7, 8, 17, 25, and 27.
. Idaho Const, art. 5, §§ 6, 9, 11, 12, 17, 23, 25, and 27.