Minton v. Cavaney
364 P.2d 473
Cal.
1961
Check Treatment

*1 Sept. 5, 1961.] A. No. 25881. Bank. [L. al., WILLIAM MINTON et Plaintiffs and Respondents, CAVANEY, Executrix, MAUDE N. etc., Defendant Appellant. *2 McIntyre Appellant. for Defendant and William E. pro. Cavaney, per., as Amicus Curiae William M. Appellant. behalf Defendant and Sidney Lanning and L. Michael K. Manaugh, Charles H. Respondents. for Plaintiffs Gelber Springs Corporation, Hot TRAYNOR, J. The Seminole incorporated duly Seminole, to as referred hereinafter public swimming a 1954. conducted on March plain 24, 1954, from owner. On June pool that it leased its pool, daughter in the recovered drowned tiffs’ wrongful for her $10,000 remains unsatisfied. death. *3 brought present January plaintiffs 30, 1957, On for Cavaney personally liable hold defendant Cavaney May 28, his 1958, and died against Seminole. estate, as of was substituted defend- the executrix widow, plaintiffs for for entered trial court ant. The appeals. $10,000. Cavaney awas director that introduced Plaintiffs that and on November secretary treasurer of and Seminole and Cavaney drowning, as after the months 1954, about five 15, president of Kraft as and Edwin A. secretary of Seminole permission to issue three shares for applied Seminole another Kraft, issued to stock, to be one share Seminole Cavaney. The Commissioner the third to and Wettrick F. J. shares permission to issue these unless Corporations refused application The was was furnished. information additional issued. There was no were ever and shares then abandoned Cavaney’s office used a time for that also evidence Cavaney Before his death mail. keep and to receive records if He was asked interrogatories. certain answered my own that “insofar He stated assets?” had “ever corporation is concerned said and belief knowledge personal in the return also stated any assets.” not have attempted to an execution that know, nsofar as I [I] corporation had no assets of kind or character. The cor poration duly organized but never functioned as a ’’ corporation. Defendant introduced evidence that anwas attor- ney law, approached by that he was Kraft and Wettrick Seminole, to form attorney he was the for Seminole. Cavaney’s Plaintiffs introduced interroga- answer to several post tories that he held the and treasurer and temporary capacity director in and as an accommodation to his client. Defendant contends that the support evidence does not court’s determination1 that personally is liable for Seminole’s debts ego” the “alter inappli doctrine is “ ‘ cable because failed to show that (1) there was . .. unity such ownership interest and separate per corporation sonalities of the and the individual no longer (2) that, exist and if the acts are treated as those of the ’ ” corporation alone, inequitable result will follow. (Riddle Leuschner, v. 574, P.2d ; [335 107]

Automotriz etc. De Resnick, v. 792, 63 A.L.R.2d 1042]; v. Rowley, 187 Cal. Minifie 481, 487 673].) P. figurative terminology ego” “alter and “disre corporate entity” gard generally is used to refer to the various situations that are abuse of the (Ballantine, Corporations (rev. privilege. 1946) ed. Corporations, p. 292-293; Lattin, 66; Latty, The Cor porate Entity Legal Problems, as a Solvent 34 Mich.L.Rev. (1936).) equitable owners of a corporation, example, personally they are liable when treat the assets capital of the as their own add or withdraw (see at will Leuschner, from the Riddle v. 51 Cal. Roney 2d Thomson v. L. C. & Cal.App.2d 1017]) ; they when being hold out as themselves liable for the debts corporation (Stark Coker, of the 847 [129 they 390]); provide inadequate capitalization or when *4 actively participate in the conduct of affairs. request findings 1Defendant did not that the must be of the trial court in be appeal. presumed cluded in record It therefore that findings support judgment. Witkin, (See Procedure, 3 California 2238-2239.) pp. Resnick, (Automotriz supra, De v. etc. Cal.2d Leuschner, 796, 797; 580; Riddle v. supra, Cal.2d Coker, 390]; Stark v. 846-849 Shaf Inc., Cal.App.2d 428, v. Otto Sales Co. ford Schwebel, Cal.App.2d 428]; see Carlesimo v. Ballantine, Corporations (rev. 167]; 1946) ed. Lattin, 302-303; pp. 68-72; Fuller, Corporations, § Incorporated Study Individual: A the One-Man Com 1373, 1381-1383.) pany, 51 Harv.L.Rev. undisputed In the instant is ease that there attempt provide adequate capitalization. nowas any pool had leased never substantial assets. that it operated, pay and the lease was forfeited failure “ compared capital ‘trifling Its was with rent. the business ” (Automotriz risks of .’ to be done and the loss. .. etc. De Resnick, supra, 792, 797.) v. 47 Cal.2d California evidence is also undisputed only that not was and treasurer but also a director. The evidence that was to receive one-third supports an of the shares to be issued inference that he was (see equitable owner Leuschner, supra, Riddle v. 574, 580), and the evidence that for a time the records of kept Cavaney’s supports were office actively participated inference in the conduct of the required The trial business. court was not to believe his state only “temporary” ment he was director and officer merely it “for accommodation.” event raised a conflict adversely in the evidence that was resolved to defendant. More Corporations section provides 800 of Code over, every corporation “. . . the business and affairs of shall be by, a of not controlled board less than three directors.” De fendant does not claim that was a director with specialized (see 668). duties 5 U.Chi.L.Rev. It is im accepted material or not he the office director understanding as an with “accommodation” that he not would exercise of a duties director. A may responsibilities this manner divorce the of a direc statutory powers tor from the duties and of that office. no There merit in is defendant’s contentions that ego” applies only “alter doctrine to contractual debts (Mirabito tort claims San Dairy Francisco Corporations see Ballantine, ed, p. plaintiffs’ (rev. 1946) 127, 298); that cause

581 Cavaney (Civ. Code, 956; abated when died see Damiano v. § Cal.App. 566, or Bunting, 232]), 40 567 P. the [181 against plaintiffs judgment in action the bars (Dillard bringing present action. v. McKnight, from 34 209, 387,11 835].) 214 P.2d A.L.R.2d De Cal.2d [209 fendant waived the defense the statute limi by plead to failing that defense in tations the answer complaint by specifying or the statute of limitations as a ground general (Union Sugar of its demurrer. v.Co. Hollister 740, Estate 273]; 3 Cal.2d Co., 741-745 Miller v. [47 Cal.App. Parker, 775, 89]; 128 776 see Burke v. 456, Maguire, 154 21]; Witkin, P. Cal. §§489, Procedure, 1476-1477, 1541; Cal.Jur.2d, 243, p. 659.) Actions, Limitations of § action to hold defendant liable against upon judgment allege present any or on the negligence issue Seminole’s damages by plaintiffs. on the amount of or sustained They solely judgment against relied on the Seminole. Defendant correctly contends or estate cannot be held opportunity liable the debts Seminole without an relitigate (Motores Superior these issues. De Mexicali v. Court, 172,176 see also McKnight, Dillard v. supra, 209, 214.) party not a to the against corporation, in that binding upon action is therefore not him unless controlled litigation leading (Motores judgment. to the De Mexicali v. Superior Court, supra, 175; Cal.2d Thomson v. L. C. Roney supra, Cal.App & .2d 427; Mirabito v. San Dairy Co., Cal.App.2d Francisco ; see 530] Rest., Judgments, §84.) Although Cavaney filed answer against complaint attorney, to the as its he with trial participate drew before the and did thereafter filing of an participa therein. tion is not answer without other Cavaney. sufficient bind “In order that in the rule stated this section in control [that litigation by judgment] apply is bound should it is neces sary in that the one whose or favor whom the rules judicata operate participate res the control of the action if is adverse, be able to determine or appeal not an supplies should be is not taken. sufficient that he that he prosecution defense, for the funds or appears cooperates having as a or witness without control.” e; see De Mexi (Rest., Judgments, comment Motores Superior Court, supra, 172, 176.)

cali judgment is reversed. J., White, J., Dooling, J., con- Gibson, J., Peters, C. curred. Dissenting. J., Concurring and I concurin

SCHAUER, ground (as judgment of reversal stated p. *6 majority ante, 581) “In this action to opinion, hold upon against the personally liable defendant allege present any not or evidence on negligence on or the of dam issue of amount the Seminole’s They solely by plaintiffs. judg relied the ages on sustained correctly against contends Seminole. ment held liable or his estate cannot be for the debts of opportunity relitigate an to these without issues. party Cavaney was not a to the action [Citations.] judgment in that corporation, and the action is therefore binding upon him. ...” not implication any professional that mere activ- I dissent from attorney law, such, organization in ity by as of a an finding for a constitute basis corporation, can attorney’s ego or alter that he is corporation is otherwise debts, for its whether based on contract or liable attorney in such circumstances does incur That tort. liability corporation for of the any personal debts remains attorney’s professional not the whether or services include true qualifying stock, him of a share of to the attend- the issuance organization meeting in participation or at and meet- ance preliminary holding for such purposes, and exercise ings, professional services, of an offices, of his officeor in the course presiding or or officer or treasurer corporation. in offices of combination performed organizing corporation in acts and a services carrying by corporation. a constitute the on of business do respect corporation properly regarded a cannot be as In begin carrying ready to even on business organized until and qualifying issued, of have a shares stock been stock- at least by-laws adopted meeting held, and directors and holders’ permit from Furthermore, a elected. Commissioner officers require- have and Corporations must been secured minimum of agency met of that before can secure ments may (possibly impounded for which its stock issue to be assets (at conditions) which it cannot nor- and without least scope lawyer’s of a in mally) commencebusiness. services may organization often include advice and direction legal of not, architecture financial structures but as to the does encompass responsibility securing such, assets. developing an idea a process persons In of or embryonic corporation finally legal entity and to full into an permit issued, elected, a directors officers status with ready begin may in business, hand there and assets delays. often be qualifying may such event share stock stand attorney organizing periods the name for substantial none of the indicated is the time. In activities actually engaging lawyer in business. And the who handles determining directing participating task steps appropriate transforming compe- the idea into a entity legal ready engage ego tent in business is not an alter corporation. By professional of the acts he has not been engaging in business in the name corporation; has merely practicing been law.

McComb, J., concurred.

Respondents’ petition rehearing for a was denied October 4, 1961. *7 Sept. 5, 1961.] F. No. 20269. Bank.

[S. al., et ROBERT LUCAS Plaintiffs and Appellants, HAMM, L. S. Respondent.