Big Four Mills v. Commercial Credit Co., Inc.

• Decision Date: 16 January 1948
• Citation: 307 Ky. 612,211 S.W.2d 831
• Parties: BIG FOUR MILLS, LIMITED, v. COMMERCIAL CREDIT CO., Inc., et al.
• Court: Kentucky Court of Appeals

211 S.W.2d 831

307 Ky. 612

BIG FOUR MILLS, LIMITED, v. COMMERCIAL CREDIT CO., Inc., et al.

Court of Appeals of Kentucky

January 16, 1948

Rehearing Denied June 25, 1948.

Appeal from Circuit Court, Kenton County; Joseph P. Goodenough Judge.

Suit by Commercial Credit Company, Inc., and others against Big Four Mills, Limited, to recover money due under a written contract, for accounting, and for appointment of a receiver. From the judgment, defendant appeals.

Affirmed.

John L. Vest and Vest & Vest, all of Walton, and Bert J. King, of Covington, for appellant.

Stephens L. Blakely, of Covington, and C. E. Schindler, of Louisville for appellees.

CLAY Commissioner.

This suit was brought by Commercial Credit Company, Inc., a Maryland corporation (hereinafter referred to as 'Commercial'), against Big Four Mills, Ltd., a Kentucky corporation (hereinafter referred to as 'Big Four'), to recover money due under a written contract for an accounting and for the appointment of a receiver. The action was described by the trial Court in one of its opinions as 'a plain, simple suit on account.'

Commercial's motion for the appointment of a general receiver was denied, but a special receiver was appointed for the purpose of collecting certain assigned accounts. On final submission judgment was entered against Big Four for the sum of $188,792.91.

The undisputed facts are that on December 2, 1940, Big Four and Commercial entered into a written contract whereby Commercial agreed to advance to Big Four from time to time eighty percent of the gross face value of accounts assigned to it. Big Four agreed to pay certain 'charges' on these advancements, at rates ranging from 1/28 of 1% to 1/39 of 1% per day on the average daily outstanding face of accounts. Though there is some controversy as to the nature of this contract, we will accept Big Four's view that it was simply a loan agreement and the so-called 'charges' were nothing more or less than interest on the money loaned.

Under the above contract and subsequent modifications thereof (the original and modifications being hereinafter referred to as 'contract'), Commercial advanced to Big Four from December 1, 1940 to May 25, 1942 approximately $130,000.

After suit was filed by Commercial, Big Four over a period of years filed numerous answers, amended answers, counter-claims, set-offs and cross-petitions in a vigorous campaign to not only defeat Commercial's claim but in an attempt to recover substantial unliquidated damages. To some of Big Four's pleadings the trial Court sustained demurrers, to others it struck out certain paragraphs, and it refused to permit Big Four to file a fifth amended answer and counter-claim. The damages asked by Big Four in the various pleadings ranged from $50,000 to $800,000.

Big Four complains bitterly of practically every action taken by the lower Court throughout these proceedings. The record in this case is voluminous, consisting of approximately 2,500 pages. Big Four's counsel has filed briefs on this appeal totalling 398 pages. Its argument for reversal is set forth in no less than 16 numbered propositions, plus one supplemental proposition. We have carefully considered all of the contentions made by both parties, and in this opinion will limit ourselves to what we consider the true merits of the case.

1. Is Commercial the real party in interest in this litigation?

Big Four has devoted a substantial portion of its pleadings and its briefs to the proposition that Commercial is a 'dummy' or 'pseudo' corporation, that it is not the proper party plaintiff in this action, and that its parent corporation should be made a party. Big Four alleged that all of the stock of Commercial, a Maryland corporation, was owned by Commercial Credit Company, a Delaware corporation; that the Delaware corporation also owns all of the stock in four Kentucky corporations; and because of these facts the 'Commercial Credit Constellation of the Financial Heavens' is some sort of evil institution which by sham, subterfuge and legal trick engages in the business of lending money at usurious and illegal rates of interest.

We have difficulty in determining what Big Four intended to accomplish by its pleadings along the above lines and the argument in its briefs. The ownership of all or a substantial portion of the capital stock of one corporation by another corporation does not create an identity of corporate interest. Harlan Public Service Company v. Eastern Construction Company, 254 Ky. 135, 71 S.W.2d 24; Kentucky Auto Mechanics Service Co., Inc. v. Kentucky Auto Parts Co., Inc., et al., 267 Ky. 531, 102 S.W.2d 1022.

We are, of course, aware of the principle that a court will on appropriate occasions ignore the distinction between corporate entities where its recognition would operate as a shield for fraudulent or criminal acts or where subversive of the public policy of a state.

As stated in 13 Am.Jur., 'Corporations', Section 7, page 160: 'In an appropriate case and in furtherance of the ends of justice, a corporation and the individual or individuals owning all its stock and assets will be treated as identical, the corporate entity being disregarded where used as a cloak or cover for fraud or illegality.'

In C. L. & L. Motor Express Co., Inc., et al. v. Achenbach, 259 Ky. 228, 82 S.W.2d 335, we decided the corporate entity may be disregarded 'in order to circumvent fraud or to remove a mere shield against responsibility.' 259 Ky. at page 237, 82 S.W.2d at page 339.

The difficulty with Big Four's position is that it has failed to allege any facts other than stock ownership which would justify a court in ignoring the existence of Commercial as a legal entity. The allegations with respect to sham, subterfuge and legal trick are simply argumentative conclusions based on no stated facts which would indicate that Commercial committed any fraud or is attempting to dodge any legal responsibility. Stock ownership of one corporation by another is not ipso facto an evil, nor can we perceive that the contract involved is fraudulent or criminal or otherwise illegal.

If we are to assume that the Delaware corporation was the dominating parent, there appears no reason to inject it into this law suit. Big Four entered into a contract with Commercial, known to be a lawfully created Maryland corporation. It being a distinct legal entity, it is the real party in interest in this controversy.

2. Was Commercial doing business in Kentucky during the term of this contract without qualifying, so as to deprive it of the right to maintain this suit?

On this point Big Four makes the following contentions: (a) since the Delaware corporation is the parent of Commercial and since the parent corporation owns all of the stock in certain Kentucky corporations, therefore the Delaware corporation, the real party in interest, is doing business in Kentucky, and (b) Commercial was actually doing business in the state because of its activities here. The objective of Big Four's argument on this point is to show that Commercial, or its parent, while doing business in the state, were not qualified under our laws and therefore could not sue Big Four in this jurisdiction.

Since we have already disposed of the Delaware corporation, it is unnecessary to pursue proposition (a). Insofar as proposition (b) is concerned, the record does not indicate that Commercial was actually doing business in Kentucky to such an extent as to require its qualification here. As far as we know, the transactions with Big Four were the only ones which might constitute Kentucky business, and as will be discussed more fully later, this business was actually conducted in Maryland.

A transaction somewhat similar to that involved here was considered in Jones v. General Motors Acceptance Corporation, 205 Ky. 227, 265 S.W. 620. The corporation in that case was organized under the laws of New York. It was engaged in the business of financing automobile dealers by discounting notes recived from purchasers. These notes and assignments executed by the dealers were sent to the company's office in Detroit. The Court found that the corporation did not make or have any contracts in this state nor did it have an agent securing or soliciting business in Kentucky and it neither discounted nor accepted any notes or assignments here. It was held not to be doing business in Kentucky. Similar conclusions on similar facts were reached in Refrigeration Discount Corporation v. Metzger, D.C.Pa., 10 F.Supp. 748; Bank of America v. Whitney Cent. Nat. Bank, 261 U.S. 171, 43 S.Ct. 311, 67 L.Ed. 594.

If we were to assume, however, that Commercial had been doing business in Kentucky without having qualified, it did not forfeit the right to sue in this jurisdiction. Williams v. Dearborn Truck Company, 218 Ky. 271, 291 S.W. 388; Falls City Machinery & Wrecking Company v. Sobel-Mark Furniture Company, 219 Ky. 195, 292 S.W. 814; Country Home Light & Power Company v. J. J. Fitzgerald Company, 219 Ky. 313, 292 S.W. 833; Hoopes Brothers & Thomas Company v. Adams, et al., 221 Ky. 527, 299 S.W. 162; Robb v. Midland Acceptance Corporation, 225 Ky. 258, 8 S.W.2d 377 .

Big Four recognizes that the above five cases now constitute the law of Kentucky, but requests this Court to overrule them. We are not constrained to do so. It is not the province of the Court to penalize a foreign corporation for failure to comply with our laws where the Legislature has specifically provided criminal penalties for such violations. This question has had very careful consideration on a number of occasions, and we still feel that the conclusions reached in the above cited cases are sound. Therefore, whether or not Commercial was doing business in this state, it had the...