Cahaba Veneer, Inc. v. Vickery Auto Supply
| Decision Date | 12 August 1987 |
| Citation | 516 So.2d 670 |
| Parties | CAHABA VENEER, INC. v. VICKERY AUTO SUPPLY. CAHABA VENEER, INC. v. Joe E. HARRIS, d/b/a Abbeville Auto Parts. CAHABA VENEER, INC. v. Ralph CLENNEY, Lamar Clenney, Dorothy Smith, a partnership, d/b/a Home Oil Company. Civ. 5761, 5761-A and 5761-B. |
| Court | Alabama Court of Civil Appeals |
Clarence T. Hellums, Jr. of Hellums & Meigs, Centreville, for appellant.
Samuel J. Clenney III, Abbeville, for appellees.
This is a case involving the collection of a debt on an open account.
On October 28, 1982 Mr. Stewart Fuzzell (hereinafter "Fuzzell") entered into a joint venture with Mr. Edsel Adams, who was doing business under the name of Adams Plywood Company (hereinafter "Adams"). Under the terms of the agreement between Fuzzell and Adams, Fuzzell was to manufacture veneer which Adams was to put to use in the production of plywood. The agreement also required Adams to purchase all of the veneer that Fuzzell could produce.
Shortly after Adams and Fuzzell made their agreement, Fuzzell enlisted the help of Mr. Charles Stephens, Mr. Joe Mosely, and Mr. Johnny Wallace in establishing the proper organization to implement his business relationship with Adams. Mr. Fuzzell, Mr. Stephens, and Mr. Mosely organized a corporation, Cahaba-Abbeville, Inc., for the purpose of producing veneer for Adams. Mr. Wallace was not a stockholder; however, he was made vice president of the enterprise and given an option to purchase twenty-five percent of its stock. The shareholders of Cahaba-Abbeville, Inc. thereafter elected Subchapter S status, purchased several trailers from Cahaba Veneer, Inc., a company in which Fuzzell was a minority shareholder, and entered into various business arrangements with the plaintiffs in this case. The business arrangements, usually in the form of credit extended on open accounts, allowed Cahaba-Abbeville, Inc. to purchase supplies with which to help produce veneer for Adams.
Sometime after Cahaba-Abbeville's incorporation, the shareholders agreed to sell one hundred percent of their stock in Cahaba-Abbeville, Inc. to Adams. Adams agreed to purchase all of Cahaba-Abbeville's stock and to assume all of its existing debts. Before the sale could be completed, however, Adams began to experience financial problems and ultimately declared bankruptcy. The sale was never finalized.
On July 25, 1985 Home Oil Company, one of the creditors of Cahaba-Abbeville and Adams, filed suit against Cahaba Veneer, Inc., alleging that Cahaba Veneer was the alter ego of Cahaba-Abbeville and, therefore, that Cahaba Veneer was liable for the debts incurred by Cahaba-Abbeville. Plaintiffs Abbeville Auto Parts and Vickery Auto Supply subsequently filed suit against Cahaba Veneer, seeking the recovery of amounts accrued on open account by Cahaba-Abbeville, Inc. All three cases were subsequently consolidated for trial in the Circuit Court of Henry County, Alabama.
The consolidated cases were tried in a nonjury trial on June 27, 1986 and at the close of the plaintiffs' cases the trial court took the matters presented therein under advisement. The trial court subsequently rendered a verdict in favor of plaintiff Vickery Auto Supply in the amount of $4,441.79. The trial court also ruled in favor of plaintiff Abbeville Auto Parts in the amount of $1,055.62 and in favor of plaintiff Home Oil Company in the amount of $1,467.02.
Defendant, Cahaba Veneer, Inc., now appeals and asserts that the trial court erred in ruling that it was liable on the accounts. Specifically, Cahaba Veneer asserts that it cannot be liable for the debts of Cahaba-Abbeville, since it neither approved, nor ratified, nor was otherwise involved in the transactions in question. The plaintiffs, on the other hand, assert that defendant, Cahaba Veneer, is either liable for the debts of Cahaba-Abbeville under an alter-ego theory or under an estoppel theory.
As a general rule, one corporation will be liable for the debts of a second, separate corporation only where the first corporation dominated the second to such an extent that the second corporation became a mere instrumentality of the first. Also, a complaining party must prove that the dominant corporation proximately caused its injury by misusing its control over the subservient corporation. See, Kwick Set Components v. Davidson Industries, Inc., 411 So.2d 134 (Ala.1982). Thus, the plaintiffs in the present case may recover the debts incurred by Cahaba-Abbeville upon offering sufficient proof that Cahaba Veneer controlled Cahaba-Abbeville and that Cahaba Veneer's misuse of that control proximately led to the unpaid debts which Cahaba-Abbeville incurred. The plaintiffs may alternatively recover the debts incurred by Cahaba-Abbeville by demonstrating that Cahaba Veneer intentionally or negligently clothed its officers or agents with the apparent authority to perform acts in its name. See, Oakdale Land Co. v. Fielding, 40 Ala.App. 601, 118 So.2d 608 (Ala.Civ.App.1960). If a corporation does so clothe its officers or directors, it will be estopped to deny that the apparent authority exercised by its officers or agents is real. Oakdale Land Co. v. Fielding, supra.
As previously stated, this case actually involves three cases which were consolidated for purposes of trial and the prosecution of this appeal.
Plaintiff Abbeville Auto Parts sought the recovery of $1,055.62 for debts incurred by Cahaba-Abbeville on an open account. The expenses allegedly incurred on the open accounts included sums for automobile parts, automobile accessories, and related goods and services.
Plaintiff Vickery Auto Supply claimed $4,441.79 for debts allegedly incurred by defendant Cahaba-Abbeville on an open account. The debts were allegedly incurred by Cahaba-Abbeville for gasoline, oil, and labor purchased on an open account for the purpose of servicing Cahaba-Abbeville's trucks.
Plaintiff Home Oil Co. claimed $1,467.02 allegedly due on an open account. Home Oil Co. alleged that the amount due on the open account was incurred for the purpose of purchasing gasoline, fuel, oil, and other related expenses.
As previously stated, a creditor may hold one corporation liable for the debts incurred by a second corporation where the first corporation dominated the second to such an extent that the second corporation was merely an instrumentality of the first and where the dominant corporation's misuse of its control over the first caused the creditor's injury. Woods v. Commercial Contractors, Inc., 384 So.2d 1076 (Ala.1980).
The evidence in the present case reveals that Cahaba-Abbeville was incorporated after Mr. Stewart G. Fuzzell, who was president and a minority stockholder of Cahaba Veneer,...
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