I dissent. The prevailing opinion holds contrary to the unanimous decision heretofore handed down in this matter on the former appeal but does not attempt to overrule that decision.99 Utah 240, 104 P.2d 632. In my opinion, the former decision is correct and should not be overruled. The contract under which the defendant Ostler purchased the land required the plaintiff to give a warranty deed to all of the land except the 320 acres belonging to the State of Utah, upon the payment of the $8,000 installment. Upon giving the warranty deed, the contract was fulfilled, and any rights that the defendant thereafter would have against the plaintiff would be upon the warranty. His possession was never interfered with by any adverse claimant, and his damages, therefore, could only be nominal.
If the law permits an offset of an unliquidated claim against a mortgage foreclosure, contrary to the holding of *Page 549 this court on the former appeal, then that offset should have been exercised by the defendant Ostler against some of the notes that he was paying during the period of the running of the statute of limitations following the transfer of the land by warranty deed; and I do not understand that he might have offset, against the last note he was to pay, a claim for damages that had been outlawed several years before the note in question became due.
The defendant had an option of rescinding the contract or of suing for damages for the breach of warranty, but he did not exercise either of these rights. Instead, he elected to allow his claim to become stale before the debt he attempts to offset against was even due.
Before cross-demands are deemed to be compensated, it must appear that they were so related between persons and under such circumstances that if one person had brought an action against the other, a counterclaim could have been set up. Now, if at any time prior to the maturity date of the last note in question here the defendant had sued the plaintiff for a breach of warranty, it is quite apparent that the plaintiff herein could not have offset and defeated this claim by offering the unmatured note as a counterclaim or offset thereto.
The second amended answer under which this case was tried differs only in two particulars from the amended answer which this court on a former hearing held did not state a defense in favor of any defendant. These differences are:
(1) It is alleged that the second mortgage of the First National Bank of Salt Lake City has been paid and discharged and that party no longer has any interest in this case.
(2) That the defendant J.S. Ostler organized the defendant Ostler Land Livestock Company and transferred and conveyed to said corporation all of his right, title, and interest in and to the contract for the purchase of the property *Page 550 and to all of the property which is subject to be foreclosed in this action; and in consideration for the transfer thereof to the corporation of said property he received all of its capital stock with the exception of four shares, which four shares were transferred to other parties for the purpose of qualifying them as directors of said company, and that in fact and in law the said J.S. Ostler and the said Ostler Land Livestock Company are one and the same and their interests and rights in the action are identical.
The first change does not justify the court in holding that the second amended answer states a defense where the amended answer failed to do so, and the only question that should be considered in the determination of this appeal is whether or not the allegation that the defendant J.S. Ostler and the Ostler Land Livestock Company are one and the same and that the corporation is the alter ego of J.S. Ostler states a defense where no defense is stated without this allegation.
One of the most distinctive attributes of a corporation is its existence as a legal entity distinct and separate from the stockholders who compose it. It is a distinct entity, an artificial person, and as such is capable of suing and being sued, of contracting, of acquiring, owning, and disposing of property within the objects of its creation, the same as a natural person, and one may deal with it respecting its corporate property the same as with an individual owner. This is because the law has endowed it with a legal existence as a juridical person, independent of any or all of its stockholders. For instance, if A owns one-tenth of the capital stock of a corporation, he by no means owns one-tenth of the corporate property. True, his interest is directly linked with the interests of the corporation because he prospers in the form of dividends only as the corporation prospers. Neither would A and all other stockholders of the corporation jointly own the assets of the corporation. These assets are owned by the corporation solely. Title is vested in the corporation and not in the stockholders. *Page 551
It is elementary that if a corporation breaches its contract the stockholders may not be sued therefor. It is also elementary that if A, B, and C own all of the stock of the X corporation and also own all of the stock of the Y corporation, the X corporation and the Y corporation are not one and the same but are separate corporations.
In the case of Baldwin v. Canfield, 26 Minn. 43,1 N.W. 261, 276, one King, the owner of all the stock in a corporation, executed and delivered a deed of certain real estate owned by it. An action was subsequently brought to have the deed declared void as a cloud upon the title of the corporation. It was held that the action would not lie, that the deed was void upon its face, and therefore not a cloud upon the title, being the deed of a total stranger to the title. Also in Parker v. Bethel HotelCompany, 96 Tenn. 252, 34 S.W. 209, 31 L.R.A. 706, the same result was reached when all of the stockholders individually joined in a deed of the corporate property.
The case of Button v. Hoffman, 61 Wis. 20, 20 N.W. 667,668, 50 Am. Rep. 131, was a case where the sole owner of all of the capital stock of a corporation attempted to maintain an action of replevin to recover property unlawfully taken from the corporation. The Supreme Court of Wisconsin decided that he could not maintain the action since title was not in him but was in the corporate entity. Judge Orton in the course of the decision said:
"The owner of all the capital stock of a corporation does not, therefore, own its property, or any of it, and does not himself become the corporation, as a natural person, to own its property, and do its business in his own name. While the corporation exists he is a mere stockholder of it, and nothing else."
There are cases which permit the piercing of the corporate entity when that corporate entity is employed as a shield to defraud creditors, to evade an existing obligation, to circumvent unfairly a statute, to achieve or perpetuate illegal monopoly, or generally to protect knavery and dishonesty. *Page 552
When such circumstances are made to appear by the person who has been wronged by the shield of corporate entity, the courts will draw aside the veil and will regard the acts of the flesh and blood human associates instead of permitting them to work through the corporate entity and will compel them to do justice under the circumstances.
It has likewise been held that where a corporation is so organized that its affairs are so conducted as to make it a mere instrumentality of another corporation, its separate existence as a distinct corporate entity may be ignored; but in no case that the writer has been able to find have the organizers and stockholders of a corporation been permitted to hide behind the screen of corporate entity when it suited their purpose and to take off their mask and reveal themselves in their flesh and blood when it did not.
Since there are no new issues raised by the second amended answer that were not heretofore determined on the former appeal to be no defense against the mortgage foreclosure, and since the defendant J.S. Ostler may not show that he and the Ostler Land Livestock Company are one and the same person, it is apparent that the former appeal is decisive of the questions presented here. The demurrer to the second amended answer, on the ground that the said second amended answer does not state an available defense, was well taken and should have been sustained. The judgment should be reversed and the cause remanded to the District Court with directions to sustain the demurrer to the second amended answer without leave to amend.
WADE, J., being disqualified, did not participate herein. *Page 553