Briggs Transp. Co., Inc. v. Starr Sales Co., Inc.

• Decision Date: 22 February 1978
• Docket Number: No. 59158,59158
• Citation: 262 N.W.2d 805
• Parties: BRIGGS TRANSPORTATION CO., INC., Appellee, v. STARR SALES CO., INC., et al., Appellants.
• Court: Iowa Supreme Court

Page 805

262 N.W.2d 805

BRIGGS TRANSPORTATION CO., INC., Appellee, v. STARR SALES CO., INC., et al., Appellants.

No. 59158.

Supreme Court of Iowa.

Feb. 22, 1978.

John C. Platt of Chipokas, Koehler, Platt & Merrifield, Cedar Rapids, for appellants.

Michael P. Donohue of Moyer & Bergman, Cedar Rapids, for appellee.

Considered by MOORE, C. J., and MASON, REES, REYNOLDSON and McCORMICK, JJ.

REYNOLDSON, Justice.

The question in this appeal is whether a corporate veil should be pierced and corporate officers-owners held liable for corporate debt and punitive damages.

Defendant corporation Starr Sales Co., Inc., was organized by defendant Scott Voeltz and his parents, defendants Robert and Martha Voeltz, in October, 1974.

October 8, 1974, Scott telephoned Schulze, president of Northern State Sales Co., expressing Starr Sales' interest in purchasing certain television, radio, stereo and related equipment from Northern State. The latter company forwarded a credit application to Starr Sales. Upon return it was signed by Robert as president and disclosed a $197,851 net worth. The enumerated assets were actually those of another business owned by Robert, Play-Mar Lounge. A Dun & Bradstreet report relating to Starr Sales was received by Northern State. It identified Robert as president and secretary, Martha as vice-president and treasurer. A portion of the "history" stated: "Incorporated Iowa, Oct 25 1974. * * * Ownership acknowledged verbally by Robert L. Voeltz, president on Nov 1 1974. Business started Jan 1973 by Robert and Martha Voeltz." The net worth shown was the same as that incorporated in the Starr Sales credit report signed by Robert.

Northern State's credit investigation of Starr Sales revealed Scott had filed for bankruptcy. Because the value of goods sought was $17,612.33, Northern State was willing to make delivery and gamble freight expense, but demanded a C.O.D. arrangement.

Much of the negotiation had been between Schulze of Northern State and Scott. But on October 31, 1974, Schulze telephoned Robert and outlined the agreed terms of sale. The merchandise was to be shipped pursuant to a bill of lading and sight draft arrangement through Peoples Bank & Trust Co. of Cedar Rapids, to insure payment on delivery. Robert replied, "I will talk to Scott about it and he will get in touch with you." The next day, November 1, Scott, in a telephone conversation with Schulze, reported his father had approved the deal as negotiated.

November 4, 1974, the goods were shipped through plaintiff carrier, Briggs Transportation Co. Briggs made an error on the bill of lading. Instead of receiving the sight draft properly endorsed, Briggs' employees collected only freight charges from Scott.

Briggs' supervisors in Cedar Rapids, notified of the error, went to the building (owned by Robert) where the goods had been delivered. Through a glass door they could see the equipment in the locked premises. They attempted to talk to Robert in his Play-Mar Lounge, located next door but in the same building. He was evasive, asserted he knew nothing about the shipment and wanted no part of it. A third person was seated at the bar with an unopened box containing a television set which had been delivered by Briggs. Robert referred the Briggs people to Scott, who could not be found. Robert was observed going in and out the Starr Sales premises with a bank deposit pouch. Shortly, the merchandise disappeared.

When Scott finally was reached by telephone on November 11, he claimed the merchandise was in a U-Haul van but would not tell where the van was located. None of the goods shipped were recovered.

Briggs paid Northern State, took an assignment of that company's claims, and brought this law action. The amended petition, in several divisions, alleged defendant Starr Sales fraudulently breached a contract for sale of goods with Northern State, that Scott, Robert and Martha were individually liable for the breach as principals of a sham corporation and committed fraud individually and in conspiracy, for which plaintiff sought actual and punitive damages.

Trial was to the court. The court found Robert was a director and officer of Starr Sales at all relevant times and participated in fraudulent activities. It rendered judgment against Starr Sales, Scott and Robert for $17,612.33 and interest, and for $8806.17 in punitive damages. Although the court found Martha was a corporate officer and stockholder, it determined she had no active part in the corporate business and therefore should not be held personally liable to Briggs.

Defendant Robert appeals from the judgments against him. Plaintiff Briggs cross-appeals, asserting Martha should be held liable for actual damages. We affirm on the appeal. We reverse and remand on the cross-appeal.

I. Did trial court err in holding Robert Voeltz personally liable for compensatory and punitive damages?

Robert contends the trial evidence neither supported the finding he was a director and shareholder of Starr Sales nor warranted piercing the corporate veil to hold him personally liable for actual and punitive damages.

We consider these contentions from the premise trial court's findings of fact in this law action are binding on appeal if supported by substantial evidence. Rule 14(f)(1), Rules of Appellate Procedure.

A finding of fact is supported by substantial evidence if the finding may reasonably be inferred from the evidence. In evaluating sufficiency of evidence, we view it in its light most favorable to sustaining the court's judgment. We need only consider evidence favorable to the judgment, whether or not it is contradicted. Grefe v. Ross, 231 N.W.2d 863, 865 (Iowa 1975).

We first examine Robert's liability as an officer and stockholder of Starr Sales.

A corporate officer is individually liable for fraudulent corporate acts which he or she participated in or committed. Grefe v. Ross, supra, 231 N.W.2d at 868. The exemption from personal liability of corporate directors and officers is subject to the qualification of good faith, and honesty of intent and purpose. Where there is ulterior motive, the immunity is withdrawn. Feuer, Personal Liabilities of Corporate Officers and Directors, pp. 219-220 (1961).

Directors or officers of a corporation may be presumed to have knowledge of the financial affairs of their corporation when making statements concerning its financial condition. It is not necessary that they know such statements to be false and fraudulent, it is their duty to know them to be true, and they are liable in damages to anyone dealing with the corporation, relying on the truth of such false or fraudulent financial reports. Hubbard v. Weare, 79 Iowa 678, 687-688, 44 N.W. 915, 918 (1890); see Boddy v. Henry, 113 Iowa 462, 466-472, 85 N.W. 771, 772-774 (1901); 19 Am.Jur.2d, Corporations, § 1385, p. 781 (1965).

There was ample evidence to support the finding Robert was an officer, director and owner of the corporation. In addition to the representations he made on the credit application and to Dun & Bradstreet, he is disclosed as the incorporator in the articles of incorporation filed in the office of secretary of state October 25, 1974, and as an incorporator and director in the notice of incorporation published November 18, 1974. Deposition testimony introduced into evidence identified Robert as an officer, director and stockholder.

Robert relied on an alleged resignation as director of the corporation. A written resignation dated October 31, 1974, was offered in evidence. Robert testified this resulted from a quarrel with Scott concerning financing and ordering the merchandise, and he had nothing to do with the corporation from that date.

Other evidence impeaches the validity of this purported resignation. It was never mentioned by Robert in his telephone conversation with Schulze of Northern State on October 31. On the next day he acknowledged ownership of the corporation, as shown by the Dun & Bradstreet report. There were inconsistencies in the testimony of Scott and Robert concerning preparation and delivery of the written resignation. The same firm which allegedly prepared the resignation caused the notice of incorporation to be published 18 days later listing Robert as a director. Robert's name was not removed from the bank signature card until January 31, 1975, when the small account was closed.

The above, together with other evidence and inferences in the record, was sufficient to support trial court's finding Robert neither resigned as an officer and director, nor surrendered any right he had as an owner.

The Starr Sales credit information furnished by Robert was false. Trial court was justified in finding that although credit was not granted, a C.O.D. sale was made and Northern State risked several hundred dollars in freight charges and the inherent hazard of such mishaps as disclosed by the facts of this case. The record is clear Northern State would never have made the shipment to Scott.

Further, trial court had solid evidentiary ground to find that defendants, Scott, Robert and Starr Sales, "knowing that there had been an error made in delivery, refused to pay plaintiff the $17,612.33 pursuant to the terms of the invoice, and intentionally hindered, delayed and attempted to mislead the plaintiff in regard to the whereabouts of the goods."

Under the principles above stated, trial court correctly found Robert liable.

We also hold trial court was justified in piercing Starr Sales' corporate veil to find Robert personally liable.

Central to corporate law is the concept a corporation is an entity separate from its owners. The separate corporate personality ordinarily enables corporate stockholders to limit their personal liability to the extent of their investment. Krivo Industrial Sup. Co. v. National Distill. & Chem. Corp., 483 F.2d 1098, 1102 (5th Cir. 1973).

But the corporate device cannot in all cases insulate the owners from personal liabili...