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