Flemmer v. Ming

No. 80-73 I N THE St1PRE:ME COURT O THE STATE G MONTANA F F 198C: EVELYN M. F1,EMMER , P e r s o r r a l R e p r e s e n t a t i v e o f t h e E s t a t e o f J a c k Flemrner, Deceased, P l a i n t i f f and Resportdent, -VS- J O H N J. M I N G , I n d i v i d u a l l y , J O U N J , M I N G , I N C ., and INCOME PROPERTIES,INC., D e f e n d a n t and A p p e l l a n t . Appeal from: C i s t r i c t Court o f t h e Mineteenth J u d i c i a l D i s t r i c t , I n and f o r t h e County o f L i n c o l n , The H o n o r a b l e Rclbert M. H o l t e r , J u d g e p r e s i d i n g . Counsel o f Record: F o r Appellant:: Murray, Kaufman, V i d a l & Gardon, K a l i s p e l l , Montana F o r Respondent : F e n n e c s y , C r o c k e r , Harnan 6 B o s t o c k , L i b b y , Montana Submitted a n B r i e f s : August 1 3 , 198Cc ~ecide: d D EC 11 19&) -P* Clerk Mr. J u s t i c e Daniel J. Shea delivered the Opinion of the Court. Defendants appeal the judgment of t h e Lincoln County D i s t r i c t Court, entered a f t e r a jury v e r d i c t for p l a i n t i f f s , i n t h e amount o f $ 3 4 , 8 0 6 i n a c t u a l and p u n i t i v e damages and $7,727 i n c o s t s and a t t o r n e y f e e s w i t h i n t e r e s t t o a c c r u e a t 10 percent per year until paid. Plaintiffs Evelyn M. Flemmer , individually, and a s t h e p e r s o n a l r e p r e s e n t a t i v e o f her late husband, Jack Flemmer, sued the defendants for breach of contract and fraud for the nonpayment of a promissory note. On appeal, defendants allege that the trial court erred i n d e n y i n g t h e i r m o t i o n s t o d i s m i s s and f o r summary judgment and i n a d m i t t i n g e v i d e n c e t o v a r y t h e terms of the promissory note. Defendants a l s o urge that there is insufficient evidence to support the jury's verdict. W f i n d no e r r o r and a f f i r m . e I n 1 9 6 8 , t h e Flemmers l i s t e d t h e E v e r g r e e n M o t e l , w h i c h t h e y had owned and o p e r a t e d s i n c e 1 9 4 8 , w i t h d e f e n d a n t J o h n J . Ming, a r e a l e s t a t e a g e n t i n L i b b y . After attempting for several months to sell the motel, Ming approached the Flemmers a b o u t b u y i n g i t h i m s e l f . The p a r t i e s a g r e e d on a p u r c h a s e p r i c e o f $110,000. Ming had h i s a t t o r n e y d r a w up a contract for deed and a p r o m i s s o r y n o t e f o r $ 1 0 , 0 0 0 w h i c h represented the downpayment. The c o n t r a c t l i s t e d John J. Ming, Inc., a s b u y e r and t h e p r o m i s s o r y n o t e was s i g n e d by J o h n J . Ming a s p r e s i d e n t o f J o h n J . Ming, I n c . Before t h e c o n t r a c t was prepared, Ming had not informed the sellers that he was not buying the property in his individual c a p a c i t y , b u t r a t h e r t h a t t h e b u y e r would b e a c l o s e l y - h e l d , family corporation of which he was the president. Mrs. Flemmer testified at trial the designation "Inc." after M i n g ' s name on t h e c o n t r a c t had h e l d no s p e c i a l s i g n i f i c a n c e to either her or her husband and that t h e y were lead to b e l i e v e t h a t Ming would make p a y m e n t s u n d e r t h e c o n t r a c t . A f t e r c l o s i n g t h e s a l e , t h e Flemmers moved f r o m Montana to Lodi, California, where they intended to retire. In March 1970, Ming wrote to the Flemmers and informed them t h a t t h e m o t e l was n o t a s p r o f i t a b l e a s had b e e n a n t i c i p a t e d and t h a t h e would h a v e t o d e f a u l t u n l e s s t h e Flemmers w e r e willing to renegotiate the purchase price and lower the monthly payments. J a c k Flemmer was i n p o o r h e a l t h and d i d n o t want t o t a k e t h e m o t e l b a c k . C o n s e q u e n t l y , t h e Flemmers a g r e e d t o reduce t h e s e l l i n g p r i c e from $110,000 t o $85,000. Ming's attorney drew up the renewal contract and the new a g r e e m e n t was e x e c u t e d on A p r i l 1, 1 9 7 0 . When t h e Flemmers received t h e new c o n t r a c t i n t h e m a i l , i t showed t h e b u y e r t o be Income P r o p e r t i e s , Inc., and was s i g n e d by J o h n J . Ming, a s p r e s i d e n t o f t h a t c o r p o r a t i o n . Ming had a t no t i m e disclosed that a different buyer would be named in the contract. Moreover, the 1970 Corporation Annual Report filed by the corporation with the Secretary of S t a t e and introduced into evidence at trial by plaintiffs does not show t h a t Ming was a c o r p o r a t e o f f i c e r a t a l l . The o r i g i n a l promissory note with John J. Ming, Inc., became the downpayment f o r t h e new c o n t r a c t w i t h Income P r o p e r t i e s . Ming c o u l d n o t pay t h e p r o m i s s o r y n o t e when i t became d u e on November 9 , 1 9 7 3 , and t h e r e f o r e a s k e d t h e Flemmers t o a c c e p t a new n o t e f o r $ 1 3 , 1 2 7 . 0 5 , b e i n g t h e o r i g i n a l $10,000 downpayment p l u s a c c r u e d i n t e r e s t . The Flemmers a s s e n t e d . The maker was a g a i n J o h n J . Ming, Inc. The t e r m s o f the renewal n o t e c a l l e d f o r monthly i n t e r e s t payments o f $87.51 to be made to the Flemmers, with the entire principal b a l a n c e f a l l i n g due on F e b r u a r y 1, 1 9 7 5 . Ming s e n t t h e n o t e to the Flemmers by mail on stationary of Treasure State Realtors, Inc. The l e t t e r was s i g n e d by Ming, o s t e n s i b l y a s an agent for Treasure State Realtors, Inc. This letter used--as d i d a l l c o r r e s p o n d e n c e f r o m Ming t o t h e Flemmers- - t h e p l u r a l p r o n o u n "we" when r e f e r r i n g t o who was l i a b l e t o make p a y m e n t s u n d e r t h e n o t e . Only s i x i n t e r e s t p a y m e n t s w e r e made on t h e new n o t e , a t l e a s t two o f which w e r e drawn on t h e c h e c k i n g a c c o u n t o f Treasure S t a t e Realtors, Inc. J a c k Flemmer died on J u l y 3 1 , 1975. On F e b r u a r y 2, 1 9 7 8 , Mrs. Flemmer i n s t i t u t e d t h i s a c t i o n f o r c o l l e c t i o n o f the balance due on t h e n o t e . She a l l e g e d t h a t Ming had d e v i s e d a f r a u d u l e n t scheme t o d e f r a u d t h e p l a i n t i f f s o f t h e money owed them u n d e r t h e 1 9 7 3 p r o m i s s o r y n o t e . Plaintiffs a l s o contended t h a t t h e c o r p o r a t e d e f e n d a n t s d i d n o t have any genuine or s e p a r a t e c o r p o r a t e e x i s t e n c e and t h a t they existed for t h e s o l e purpose of e n a b l i n g Ming t o t r a n s a c t h i s personal business i n a corporate guise. We find no m e r i t i n the defendants' charge t h a t the trial court erred in ruling on certain procedural and evidentiary questions. The lower court's denial of defendants' motion for summary judgment was e n t i r e l y p r o p e r . An e x a m i n a t i o n o f t h e p r e t r i a l record c l e a r l y i n d i c a t e s t h a t the following f a c t u a l i s s u e s were i n d i s p u t e and c o u l d o n l y be r e s o l v e d by a t r i a l on t h e m e r i t s : (1) w h e t h e r J o h n J . Ming o p e r a t e d J o h n J . Ming, Inc., Income Properties, Inc., and Treasure State Realtors, Inc., as his personal businesses; (2) whether Ming fraudulently represented to the plaintiffs that he would be l i a b l e on t h e c o n t r a c t and n o t e s ; ( 3 ) w h e t h e r Ming a c t e d a s an a g e n t f o r the defendant corporations; and (4) w h e t h e r t h e c o r p o r a t e v e i l s s h o u l d be p i e r c e d s o a s t o h o l d Ming, T r e a s u r e S t a t e R e a l t o r s , and Income P r o p e r t i e s l i a b l e on t h e 1 9 7 3 r e n e w a l n o t e . Summary judgment is proper only where the pretrial record discloses that there are no g e n u i n e i s s u e s of m a t e r i a l f a c t and t h a t t h e moving p a r t y i s entitled t o judgment a s a matter of law. S c o t t v. Robson (1979)I Mont . , 597 P.2d 1150, 1154; Rule 5 6 ( c ) , M.R.Civ.P. Neither did the trial court err in denying Income Properties, Inc., Treasure S t a t e Realtors, Inc., and J o h n J . Ming's motion to dismiss on grounds that they were not "contractual" parties to the note. These d e f e n d a n t s m i s - construe the essence of the plaintiffs' action. The Flemmers' l a w s u i t i s b a s e d n o t o n l y on a n a c t i o n a t l a w f o r b r e a c h o f c o n t r a c t , b u t a l s o on a c l a i m i n e q u i t y f o r f r a u d . Plaintiff alleged, i n substance, t h a t the defendants acted i n concert t o perpetrate a fraud. The l o w e r c o u r t , ruling on a m o t i o n t o dismiss, must take the a l l e g a t i o n s of the complaint as true, Gunderson v. Bd. of Commissioners of Cascade County ( 1 9 7 9 ) , Mont . and must construe them in a light most favorable to the plaintiff. Fraunhofer v. Price (1979), Mont . I 594 P.2d 3 2 4 , 3 2 7 , 36 S t . R e p . 883. A c o m p l a i n t w i l l n o t be dismissed for failure to state a claim unless it a p p e a r s beyond any doubt that the plaintiff can prove no set of facts in support of his c l a i m which would e n t i t l e him t o relief. Fraunhofer, supra, 594 P.2d at 327. Hence, the D i s t r i c t Court is n o t t o engage i n f a c t - f i n d i n g when r u l i n g on a m o t i o n t o d i s m i s s . S e e F r a u n h o f e r , s u p r a , 594 P.2d at 327. What e v i d e n c e was l a t e r a c t u a l l y a d d u c e d i n s u p p o r t o f p l a i n t i f f s ' p o s i t i o n i s o f no c o n s e q u e n c e when r e v i e w i n g t h e a p p r o p r i a t e n e s s of t h e lower c o u r t ' s d e n i a l of a motion t o d i s m i s s made p r i o r t o t r i a l . Defendants urge t h a t t h e t r i a l c o u r t e r r e d i n admitting extrinsic evidence, chiefly letters from Ming to the Flemmers, relating t o t h e c i r c u m s t a n c e s l e a d i n g up t o t h e e x e c u t i o n of the 1973 n o t e . They c o n t e n d that the parol evidence rule prohibits the admission of any and all e x t r i n s i c evidence c o n t r a d i c t i n g o r varying t h e terms of t h e note. T h e r e a r e numerous e x c e p t i o n s t o t h e p a r o l e v i d e n c e rule. Evidence of t h e c i r c u m s t a n c e s u n d e r which a w r i t t e n i n s t r u m e n t was made o r t o which i t r e l a t e s i s a d m i s s i b l e t o establish fraud. Section 28-2-905(2), MCA. There was t h e r e f o r e no e r r o r . Defendants a l s o f a u l t t h e t r i a l c o u r t f o r not g r a n t i n g t h e i r motion t o d i s m i s s p l a i n t i f f s ' claim of fraud a t the c l o s e of the plaintiffs' case i n chief. W w i l l consider e that assignment of error together with the defendants' c h a r g e t h a t t h e r e was i n s u f f i c i e n t e v i d e n c e t o s u p p o r t t h e jury's conclusion that Income Properties, Inc., Treasure S t a t e Realtors, Inc., and J o h n J . Ming, I n c . , were t h e a l t e r e g o o f J o h n J . Ming and had no s e p a r a t e i d e n t i t i e s o f t h e i r own. This Court has recognized two g e n e r a l t h e o r i e s under which t h e c o r p o r a t e i d e n t i t y may be d i s r e g a r d e d : the so- called "agency" theory and the "identity" or "alter ego" theory. State ex rel. Monarch Fire Ins. Co. v. Holmes ( 1 9 4 2 ) , 1 1 3 Mont. 303, 307-08, 124 P.2d 994, 996. The court's instruction to the jury accorded with these recognized t h e o r i e s : ". . . a c o r p o r a t i o n ' s s e p a r a t e i d e n t i t y may be d i s r e g a r d e d when s u c h c o r p o r a t i o n i s u n d e r the control of another corporation or i n d i v i d u a l , and a c t e d a s t h a t c o r p o r a t i o n ' s agent a s t o the particular transaction, o r , when t h e c o r p o r a t i o n ' s i d e n t i t y is so identified with the other corporation or i n d i v i d u a l sought t o be h e l d l i a b l e a s t o make t h e two c o r p o r a t i o n s o n e . B e f o r e you can d i s r e g a r d t h e s e p a r a t e i d e n t i t y of t h e c o r p o r a t i o n , h o w e v e r , you m u s t a l s o f i n d . .. t h a t t h e c o r p o r a t i o n is u t i l i z e d a s a s u b t e r - fuge t o d e f e a t p u b l i c convenience, t o j u s t i f y wrong, o r t o p e r p e t r a t e f r a u d . " Where the corporate form is abused by an individual controlling shareholder i n order t o defraud creditors, e q u i t y may p i e r c e the corporate veil. See, S t r o m b e r g v. S e a t o n Ranch Co. ( 1 9 7 2 ) , 1 6 0 Mont. 293, 502 P.2d 4 1 ; S h a f f e r v . Buxbaum ( 1 9 6 0 ) , 1 3 7 Mont. 397, 352 P.2d 8 3 . The e v i d e n c e s u p p o r t s a f i n d i n g o f f r a u d and j u s t i f i e s piercing the corporate veil. The record shows that all t h r e e of t h e c o r p o r a t e d e f e n d a n t s were c l o s e l y - h e l d , family corporations. The o f f i c e r s , s t o c k h o l d e r s and members o f t h e boards of directors consisted in each case of the same people: Ming, h i s wife, h i s son, and h i s d a u g h t e r . The r e g i s t e r e d o f f i c e s o f a l l t h r e e c o r p o r a t i o n s were l o c a t e d i n Ming's personal residence. All three corporations were engaged in the same e n t e r p r i s e -- t h e p u r c h a s e , s a l e and development of real estate. These facts, if they stood alone would not, of course, warrant abrogating a corporation's limited l i a b i l i t y . However, t h e u s e t o which t h e c o r p o r a t i o n s were p u t d o e s . In particular, when Ming asked to renegotiate the original contract, he never m e n t i o n e d t o t h e Flemmers t h a t t h e r e n e w a l c o n t r a c t would be w i t h Income P r o p e r t i e s , I n c . , o r t h a t t h e Flemmmers would be r e q u i r e d t o r e t a i n t h e o r i g i n a l promissory n o t e with John J. Ming, I n c . , a s t h e downpayment f o r t h e new c o n t r a c t . Ming regularly corresponded with the Flemmers under different b u s i n e s s names. In those l e t t e r s , he h a b i t u a l l y used t h e word "we" when referring t o t h e p a r t i e s who w e r e t o make payment u n d e r t h e n o t e . He made i n t e r e s t p a y m e n t s on t h e renewal note with checks drawn on d i f f e r e n t corporate accounts (Treasure S t a t e Realtors, Inc., and J o h n J . Ming, Inc.). Under t h e c i r c u m s t a n c e s , i t was e n t i r e l y r e a s o n a b l e f o r t h e Flemmers t o c o n c l u d e t h a t t h e v a r i o u s c o r p o r a t i o n s were a l l a p a r t o f M i n g ' s p e r s o n a l b u s i n e s s e m p i r e . In 1970, when the second contract for deed was executed, Income P r o p e r t i e s , Inc., r e p l a c e d John J. Ming, Inc., as the purchaser, Ming t e s t i f i e d t h a t no c o n s i d e r a - t i o n was p a i d f o r t h a t t r a n s f e r . It is highly unlikely t h a t o n e c o r p o r a t i o n would t r a n s £ e r i n c o m e - p r o d u c i n g property t o another corporation gratis unless their interests were r e a l l y t h e same. Ming, a d m i t t e d on t h e s t a n d , t h e u n i t y o f i n t e r e s t which h e had w i t h Income P r o p e r t y , I n c . : . I t i s n o t r e a l l y good b u s i n e s s s e n s e , i s , t o s e l l p r o p e r t y and s t i l l s t a y l i a b l e r t e n o r twelve thousand ($10,000.00 o r $12,000.00) of t h e o b l i g a t i o n ? A. I was l i a b l e on t h e n o t e w h e t h e r I g a v e t h e m o t e l back t o t h e Flemmers o r n o t ; w h e t h e r J o h n J . Ming, I n c o r p o r a t e d was. " Ming a l s o a d m i t t e d on t h e s t a n d t h a t a t t h e t i m e t h e r e n e w a l note was m a i l e d to the Flemmers, John J. Ming, Inc. was f i n a n c i a l l y i n c a p a b l e of p a y i n g o f f t h e n o t e . The evidence showed that when Ming originally negotiated with the Flemmers to purchase their motel in 1 9 6 8 , h e had b e e n e n g a g e d a s t h e i r r e a l e s t a t e a g e n t . The l a w i m p o s e s an a f f i r m a t i v e d u t y upon a r e a l e s t a t e a g e n t n o t only to refrain from t a k i n g advantage of his client, but also to act with the utmost good faith, and to fully disclose a l l material f a c t s concerning a transaction that might a f f e c t t h e c l i e n t ' s d e c i s i o n . L y l e v. Moore (1979), Mont. , 599 P.2d 336. Ming d i d n o t a d v i s e t h e Flemmers that Treasure State Realtors, Inc. was separate f r o m J o h n J . Ming, I n c . , o r t h a t a n y o f t h e s e were s e p a r a t e from J o h n J . Ming, h i m s e l f . Nor d i d h e r e v e a l , a t t h e time of e x e c u t i n g t h e second n o t e , t h a t t h e c o r p o r a t e maker, J o hn J . Ming, Inc., c o u l d n o t pay i t o f f . Under the circumstances, we c a n n o t s a y t h a t t h e t r i a l court abused its discretion by denying the defendants' motion t o d i s m i s s p l a i n t i f f s ' claim of fraud a t t h e c l o s e of the plaintiffs' case in chief. Clearly, substantial evidence was introduced at trial to justify the jury's decision t o pierce the corporate veil. Defendants next contend that the evidence fails to s u p p o r t a n award o f e x e m p l a r y damages. T h e r e i s no m e r i t t o t h i s claim. Since t h e r e is s u b s t a n t i a l evidence of fraud, the jury was clearly within its province in awarding p u n i t i v e damages. S e c t i o n 27-1-221, MCA. Plaintiff requests this Court to allow her attorney f e e s f o r c o s t s i n c u r r e d r e s u l t i n g from t h e d e f e n d a n t s ' p o s t - t r i a l m o t i o n s and a p p e a l u n d e r o u r h o l d i n g i n Erdman v . C & C Sales, Inc. (1978 ) , Mont. , 577 P.2d 55, 59. W decline e t o do so. The award o f reasonable p o s t - t r i a l a t t o r n e y f e e s i n Erdman was g r o u n d e d upon s e c t i o n 39-3-214, MCA ( f o r m e r l y s e c t i o n 41-1306, R.C.M. 1947), a s t a t u t e t h a t is i n a p p l i c a b l e t o t h e p r e s e n t c a s e . The judgment o f t h e D i s t r i c t C o u r t i s a f f i r m e d . W Concur: e Chief Justice U3-k-L-2-+--- - Justices