Barry C. MINICH and Donna J. Minich, husband and wife, Plaintiffs-Respondents, v. GEM STATE DEVELOPERS, INC., Frank E. Marcum and Bertha G. Marcum, Defendants-Appellants, and Thomas G. Smith and Thomas G. Smith, Inc., Defendants.
No. 12468
Supreme Court of Idaho
Feb. 16, 1979
911 Idaho 591, 591 P.2d 1078
Harold Q. Noack, Jr., Boise, for plaintiffs-respondents.
McFADDEN, Justice.
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 Marcum, 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. Marcum 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 contrаct 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 because 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. Rеspondent‘s lender thereafter cancelled its loan, and respondents brought this action to specifically enforce the April 1975 contract 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 Marcum, 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
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
The first argument is that
In ruling on this constitutional challenge to
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 court is without power to invalidate or nullify a constitutional act оf 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 (1959), 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 & Telegraph Co., 76 Idaho 474, 480, 284 P.2d 681, 683 (1955).
“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 . . . [citations]” Keenan v. Price, 68 Idaho 423, 433, 195 P.2d 662, 667 (1948).
In applying these principles to the case at bar, the сourt first notes that
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, 83 Idaho 346, 349, 362 P.2d 1075, 1076 (1961); Swensen v. Buildings, Inc., 93 Idaho 466, 463 P.2d 932 (1970). Since the statute clearly imposes liability upon “the officers who participated therein” and “the directors, except those who dissented therefrom,” there is no need for this court to speculate on whether or not a director must also participate in the unlawful business before he may be held liable. The statute does not require such participation, and this court is without power to read this requirement into the statute. Roe v. Hopper, 90 Idaho 22, 408 P.2d 161 (1965). This court therefore declines to accept appellants’ interpretation of
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, 89 Idaho 29, 402 P.2d 394, 403 P.2d 859 (1965), and Jolley v. Idaho Securities, Inc., 90 Idaho 373, 414 P.2d 879 (1966), for the proposition that estoppel constitutes an effective defense to personal liability under
In Allen Steel, this court held that there can be no de facto corporation where the articles of incorporation had not been filed with thе 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
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 of incorporation in the office of the county recorder of the county where the real property was situated as required by
Since no prior decision stands to the contrary, this court today holds that the defense of estoppel has no application to liability asserted under
[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 failure 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, 161 Ill. 417, 44 N.E. 99 (1896), was faced with the issue of the liability of officers and directors under a statutory provision making them рersonally liable for obligations of the corporation incurred prior to the recording in the recorders’ office of a completed certificate of incorporation from the secretary of state. The court declared:
[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. 44 N.E. at 105. Other cases adopting the rule that estoppel can not be asserted against a claim predicated upon statutory directors’ liabilities include Cook v. J. I. Case Plow Works Co., 85 Fla. 421, 96 So. 292 (1923); Charles v. Young, 74 Fla. 298, 76 So. 869 (1917); Ragland v. Doolittle, 100 Miss. 498, 56 So. 445 (1911); Hanson v. Martin, 192 Wis. 40, 211 N.W. 790 (1927). Since the requirements and duties of
Appellants next assign error to the district court‘s conclusion that Gem State Developers, Inc., was the alter ego of Frank and Bertha 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 sharеholders; 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
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., 93 Idaho 183, 457 P.2d 422 (1969), quoting with approval from Hayhurst v. Boyd, 50 Idaho 752, 300 P. 895 (1931):
“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.”
93 Idaho at 185, 457 P.2d at 424. See also Surety Life Insurance Co. v. Rose Chapel Mortuary, Inc., 95 Idaho 599, 514 P.2d 594 (1973); Jolley v. Idaho Securities, Inc., supra. The facts and circumstances of the instant case are sufficient to warrant casting aside of the separate corporate existence. Appellants contend, however, that this would be a misapplication of the alter ego doctrine, because such doctrine is only available to pierce the corporation to reach the individual and cannot be used to go beyond the individual to reach the corporation which he controls. For this proposition appellants cite but one authority, Olympic Capital Corp. v. Newman, 276 F.Supp. 646, 655 (D.C.Cal.1967), where it was said:
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, 183 N.W.2d 678, at 682 (Iowa 1971), the Supreme Court of Iowa‘s response to this identical issue:
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 corporation to an individual but not vice versa. This court and other courts have disregarded the claimed corporate ownership of assets to satisfy individual debts whеre 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, 371 F.2d 519 (10th Cir. 1966); Allied Chemical Corp. v. Randall, 321 F.2d 320 (7th Cir. 1963); Shamrock Oil and Gas Co. v. Ethridge, 159 F.Supp. 693 (D.C.Colo.1958); Kolmer-Marcus, Inc. v. Winer, 32 A.D.2d 763, 300 N.Y.S.2d 952 (1969); Platts v. Platts, 49 Wash.2d 203, 298 P.2d 1107 (1956); and Central Nat‘l Bank and Trust Co. of Des Moines v. Wagener, supra. This court can find no reason in law or logic to limit the application of the alter ego doctrine as appellants would have us. Therefore we affirm the trial court‘s decision and hold that Gem State Developers, Inc., as the alter ego of Frank and Bertha Marcum, is liable for the obligations incurred by the Marcums in this transaction.
Appellant‘s final assignment of error 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 decisiоn 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
Finally there is the issue of attorneys fees sought by respondents on this appeal. Respondents maintain that
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,
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, 49 Idaho 514, 290 P. 387 (1930); Houser v. Hobart, 22 Idaho 735, 127 P. 997 (1912). Since a “judge” is simply an officer or member of a tribunal assembled under authority of law for the administration of justice, we conclude that the singular “judge” should also be construed to mean the plural “judges” or “justices,” and we hold that the statutory power to award attorneys fees applies to the members of this court as well as to the district court judges throughout the state. This construction does no violence to the clear purpose of the statute which in a proper case is to reimburse the successful party for legal fees incurred in prosecuting his or her legal rights. Moreover, had the legislature intended to limit the statutory authority to any particular level of courts within the judicial system, it could easily and clearly have done so.
In аwarding 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
Judgment affirmed. Costs to respondents.
SHEPARD, C. J., BAKES and BISTLINE, JJ., concur.
BAKES, Justice, 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 Marcums 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 of 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.
DONALDSON, Justice, concurring in part and dissenting in part.
The respondent requested attorney fees on appeal pursuant to
The Idaho Constitution refers to members of the Supreme Court as “justices”3 and members of the district bench as “judges.”4 Also, Title 1, Ch. 2 of the Idaho Code, which pertains to the Idaho Supreme Court, refers to members of the Supreme Court as “justices.” Title 1, Ch. 7 of the Idaho Code, which pertains to the Idaho district courts, refers to members of the district bench as “judges.” The conclusion to be drawn from the examples cited above is that the term “judge” is not to be considered synonymous with the term “justice.” In addition, the statute states that “the judge” may award attorney‘s fees. The statute reads in the singular, i. e. one judge.
BISTLINE, Justice, 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 legislaturе 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.
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.
There simply is no language whatever in either
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., 83 Idaho 458, 465, 364 P.2d 883, 887 (1961),
In yet another context, i. e., the 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., 56 Idaho 326, 337-38, 54 P.2d 254, 258 (1936), a successful claimant was awarded attorney‘s fees in a trial court action adjudicating the validity of and foreclosure of his lien. The defendant appealed to the Supreme Court, whereupon, the judgment being affirmed, the materialman requested attorney‘s fees on the appeal, predicating his claim on the statute, I.C.A. § 44-513 (now
In those rare instances where an appeal has been taken solely for delay, perhaps there should be some remedy. Until just recently, when this Court prevailed upon the legislature to again repeal a number of statutes,
While touching upon the 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 doubt both the wisdom and the lawfulness of a Court rule which essentially amends a substantive statute. In State v. McCoy, 94 Idaho 236, 241, 486 P.2d 247, 252 (1971), Justice McFadden, though dissenting in that case, expressed concern over a majority opinion which held a statute “unconstitutional as being a legislative encroachment on the inherent powers of the judiciary.” Id. at 241, 486 P.2d at 252. The concern of Justice McFadden in that case was separation of powers. In his words: “[T]his court must exercise special caution in this area.” Id. (emphasis supplied).
I recognize, of course, our concern in the matter under discussion is not the constitutionality of
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 sаfeguarding the integrity of our Constitution.