Grayson v. Nordic Const. Co., Inc.
| Decision Date | 11 December 1978 |
| Docket Number | No. 5753-I,5753-I |
| Parties | Bessie GRAYSON, a single woman, Amos Grayson and Evelyn Grayson, his wife, Respondents, v. NORDIC CONSTRUCTION COMPANY, INC., a Washington Corporation, Defendant, Arnold Bergstrom and Jane Doe Bergstrom, Appellants. |
| Court | Washington Court of Appeals |
Reseburg & Reseburg, Walter J. Reseburg, Jr., Seattle, for appellants.
Young & Cole, Inc., P. S., Richard T. Cole, Seattle, for respondents.
Defendant Arnold Bergstrom appeals a judgment holding him personally liable to the plaintiffs for breach of a contract which called for repair work on plaintiffs' home. The contract had been negotiated by plaintiff Bessie Grayson and the Nordic Construction Co., Inc. (Nordic). Bergstrom contends on appeal that the trial court erred in piercing the corporate veil, to establish personal liability.
In 1974, Bessie Grayson lived with her mother, Evelyn Grayson, in a house owned by Evelyn and her husband, Amos Grayson. In the summer of 1974, Bessie Grayson received a flier in the mail from Nordic. The flier advertised home remodeling and repair work and stated: "financing available." In response, Bessie Grayson telephoned Nordic and spoke with Bergstrom regarding repair of a leak in the roof of the Grayson house. The plaintiff and the corporation entered into a written agreement on August 24, 1974, for the repair of the roof, gutters and downspouts of the house for the amount of $2,053.35.
Bergstrom attempted to obtain financing for the plaintiffs through a bank with which he had dealt in the past. However, the bank would not approve the financing. Other attempts to obtain financing were made but were equally unsuccessful. Bergstrom eventually agreed to finance the repair work himself by agreeing to a method of payment Over a period of almost a year, work crews from Nordic periodically worked on the Grayson house, but failed to repair the leaking roof and complete the contract, causing further damage to the house.
under which work would be commenced upon a $300.00 initial payment, with subsequent monthly payments of $50.00. Bessie Grayson paid the $300.00. The agreement was that, upon receipt of $400.00, Bergstrom would complete the work. Bessie Grayson made payments totalling $450.00, but the work was never completed.
In August of 1975, Amos Grayson received letters from Bergstrom indicating that he could not continue to personally finance the work, and that he needed an additional $1,000.00. At that point in time the Graysons directed a letter to Bergstrom, advising that he and his company had breached their contract. The Graysons then hired another contractor who completed the work at a cost of $4,702.79.
At trial, the court found that Bergstrom breached the parties' contract and that he violated RCW 19.86.020 relating to unfair trade practices. The court entered judgment against Bergstrom in the amount of $3,099.44 for breach of contract and awarded the Graysons attorneys' fees in the amount of $500.00 pursuant to RCW 19.86.090.
1. Did the trial court err in piercing the corporate veil of the Nordic corporation, holding its major stockholder and executive personally liable?
2. Were plaintiffs entitled to attorney fees pursuant to the Consumer Protection Law?
In Harrison v. Puga, 4 Wash.App. 52, 62, 480 P.2d 247, 254 (1971) we reviewed the rules as to disregarding the corporate entity:
When a person deals with a corporation, he normally must enforce his rights and the corporation's corresponding duties against the corporation itself as a separate entity. He thereby regards the corporation as a separate legal person. Critzer v. Oban, 52 Wash.2d 446, 326 P.2d 53 (1958). There are exceptional situations when it is nevertheless proper to disregard the separate entity of the corporation and fasten liability directly on the corporation's stockholder and in favor of the person dealing with the corporation. By so doing, the court in effect extends the scope of the duty initially owed by the corporation to the person dealing with it so as to impose liability upon the corporation's stockholder in his individual capacity. J.I. Case Credit Corp. v. Stark, 64 Wash.2d 470, 392 P.2d 215 (1964). The Court must do so, however, for an adequate reason. Often the reason given is public advantage, requirements of justice, alter ego, fraud, bad faith, or other wrong.
(Emphasis added).
In the subject case, the trial court relied heavily on the closely held nature of the corporation in finding that Nordic was Bergstrom's "alter ego" thereby justifying disregard of Nordic's corporate existence. It is clear that Bergstrom made the financial decisions for Nordic and was responsible for the language and content of advertisements such as the one received by Bessie Grayson, but all his actions were consistent with being a corporate officer, because a corporation can only act through its officers and agents. The record also indicates that the advertisements were sent under the Nordic name, not Bergstrom's name, that the parties' contract was entered under the name of Nordic Construction Co., Inc., and that the checks used as contract payments were made out to Nordic not Bergstrom.
Even conceding the close nature of the corporation, however, that alone is not enough to justify the trial court in "piercing the corporate veil". In F. O'Neal, Close Corporations 1.09a (1971) the author notes at page 33 that:
Undoubtedly the likelihood that a court will disregard a corporation's legal personality in a particular situation is considerably greater if the corporation is close than if it is publicly held.
A corporation's separate legal identity is not lost, however, merely because it is closely held. See Nursing Home Bldg Corp. v. DeHart, 13 Wash.App. 489, 495, 535 P.2d 137 (1975). In State v. Northwest Magnesite Co., 28 Wash.2d 1, at 41, 182 P.2d 643, 663-664 (1947) the court stated:
(A) corporation exists as an organization distinct from the personality of its shareholders. This separate organization, with its distinctive privileges and liabilities, is a legal fact, and not a fiction to be disregarded when convenient. The concentration of its ownership in the hands of one or two principal shareholders does not, Ipso jure, dispel those corporate characteristics of the organization.
The law is that when the shareholders of a corporation, who are also the corporation's officers and directors, conscientiously keep the affairs of the corporation separate from their personal affairs, and no fraud or manifest injustice is perpetrated upon third persons who deal with the corporation, the corporation's separate entity shall be mandated. Frigidaire Sales v. Union Properties, 88 Wash.2d 400, 405, 562 P.2d 244 (1977). There is nothing in the record to indicate that Bergstrom did not conscientiously keep Nordic's affairs separate from his personal affairs.
The only grounds, other than the close nature of the corporation, which might reveal the perpetration of a fraud or manifest injustice (thereby justifying the disregarding of Nordic's corporate existence) are the alleged consumer protection violation and Nordic's breach of contract. First, we disagree with the trial court's conclusion that Nordic violated the consumer protection act; and, second, the mere breach of a contract by Nordic alone does not justify disregarding its corporate existence.
To constitute an unfair or deceptive trade practice under the Consumer Protection Act (RCW 19.86.020), an advertisement must have the tendency or capacity to deceive a substantial portion of the purchasing public. Fisher v. World-Wide Trophy, 15 Wash.App. 742 748, 551 P.2d 1398 (1976). The trial court entered a finding of fact in the subject case that Nordic's representation that "financing was available" constituted an unfair and deceptive act which had the capacity or tendency to deceive. Although the trial court denominated this a finding of fact, it is in actuality a conclusion of law and is therefore reviewable on appeal. 1 Local Union 1296 v. Kennewick, 86 Wash.2d 156, 161-62, 542 P.2d 1252 (1975). We hold, as a matter of law, that such a statement did not have the tendency or capacity to deceive the purchasing public. Fisher v. World-Wide Trophy, supra. The statement "financing available" does not insure that financing will be obtained, but merely indicates that the advertising party will make an effort to obtain financing, which Nordic in fact did. Such a statement does not guarantee financing to those whose financial condition does not otherwise warrant it. Obviously financing is only available if bank requirements are met. We conclude that there was no violation of RCW 19.86.020.
While Nordic's breach of contract establishes a cause of action against the corporation, standing alone it does not provide a justification for disregarding Nordic's corporate existence. Plaintiffs provide no authority, and we have found none for the proposition that mere breach of a contract by a corporation, without more, justifies disregarding the corporate entity.
We hold that the trial court erred in piercing the corporate veil and holding the defendants Bergstrom liable.
As a result of the trial court's conclusion that Nordic violated the Consumer Protection Act, the court granted plaintiffs attorney's fees of $500.00 pursuant to RCW 19.86.090. We have previously concluded that there was no consumer protection violation. Therefore imposition of attorney's fees was improper. 2
This case is reversed and remanded to the trial court with instructions to delete the judgments against the defendants Bergstrom and enter judgment for plaintiffs against the defendant Nordic Construction Company in the amount of $3,099.44 plus statutory costs. All other parts of the judgment shall remain the same.
I would affirm the judgment...
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