Hayhurst v. Boyd

• Decision Date: 08 June 1931
• Docket Number: 5594
• Parties: NATHAN HAYHURST, Appellant, v. T. O. BOYD et al., Respondents
• Court: Idaho Supreme Court

300 P. 895

50 Idaho 752

NATHAN HAYHURST, Appellant, v. T. O. BOYD et al., Respondents

No. 5594

Supreme Court of Idaho

June 8, 1931

DISCOVERY-INSPECTION OF BOOKS AND PAPERS-MOTION-AFFIDAVIT, SUFFICIENCY OF-CORPORATIONS-STOCKHOLDERS-LIABILITY FOR CORPORATE DEBTS AND ACTS.

1. Affidavit supporting motion for order to inspect books, not disclosing documents desired nor showing contents or relevancy thereof, held insufficient as evidence on noncompliance with order (C. S., sec. 7193).

2. Generally, corporation will be regarded as legal entity except when legal fiction is used to defeat public convenience and perpetrate fraud.

3. Stockholder is not personally liable for acts of corporation's servants with which he was not personally connected (C. S., sec. 4728; Const., art. 11, sec. 17).

4. That individual sought to be held personally liable for judgment against corporation was holder of majority of stock held insufficient to disregard corporate entity (C. S sec. 4728; Const., art. 11, sec. 17).

5. To disregard corporate entity, there must be unity of interest and ownership between corporation and individual sought to be held personally liable for judgment against corporation (C S., sec. 4728; Const., art. 11, sec. 17).

6. Corporation held not required to own property with which its business was conducted.

7. Evidence held insufficient to show fraud, neglect, or misconduct by principal stockholder sufficient to disregard corporate entity and hold stockholder individually liable for judgment against corporation (C. S., sec. 4728; Const., art 11, sec. 17).

APPEAL from the District Court of the Eleventh Judicial District for Twin Falls County. Hon. Hugh A. Baker, Judge.

Action on judgment. Judgment for defendants. Affirmed.

Judgment affirmed; costs to respondents. Petition for rehearing denied.

James R. Bothwell and W. Orr Chapman, for Appellant.

When necessary to redress fraud, protect the rights of third persons or innocent parties, or prevent palpable injustice, law and equity will interfere and set aside the legal fiction of corporate entity or existence and will hold such corporation obligated for the acts of the sole owner of the corporation, or the corporation and stockholders will be treated as identical entities, with identical duties and obligations to the same extent and as they would be bound in the absence of the existence of the corporation. (Wenban Estate v. Hewlett, 193 Cal. 675, 227 P. 723, and cases cited; Pierce v. National Bank of Commerce, 13 F.2d 40; 14 C. J., p. 129, sec. 119; Offeman v. Robertson-Cole Studios, 80 Cal.App. 1, 251 P. 830; Louisville & N. R. Co. v. Carter, 226 Ky. 561, 10 S.W.2d 1064; Bryan v. Banks, 98 Cal.App. 748, 277 P. 1075.)

Upon the failure of a party to comply with an order of the court requiring the production for inspection of papers or documents the court must assume the facts to be such as the party seeking the production and inspection, alleges them to be in his moving papers. (C. S., sec. 7193; Robinson v. Rispin, 33 Cal.App. 536, 165 P. 979; Georgia Iron & Coal Co. v. Etowah Iron Co., 104 Ga. 395, 30 S.E. 878; 22 Cyc. 966, sec. 120 1/2; 18 C. J. 1181; Iasigi v. Brown, 12 F. Cas. No. 6993; Waller v. Stewart, 29 F. Cas. No. 17,109; Bloede Co. v. Joseph Bancroft & Sons Co., 110 F. 76.)

Homer C. Mills, Walters, Parry & Thoman and J. R. Keenan, for Respondents.

The liability of corporation stockholders is limited by Constitution and statute to the amount unpaid upon stock subscriptions, and without a showing of anything unpaid on stock subscriptions there is no liability of the respondents.

Even if Boyd Hospital was a one-man corporation, and that one man is T. O. Boyd, it is none the less a corporation with all of the features of a corporation. (Sun River Stock & Land Co. v. Montana Trust & Sav. Bank, 81 Mont. 222, 262 P. 1039; Elenkrieg v. Siebrecht, 238 N.Y. 254, 144 N.E. 519, 34 A. L. R. 592; Fletcher, Cyc. Corps., sec. 109.)

The debts of Boyd Hospital are not the debts of T. O. Boyd even if he is the sole owner of its capital stock. (National Oil Transport Co. v. United States, 18 F.2d 305; City of Winfield v. Wichita Natural Gas Co., 267 F. 47; State v. Tacoma Ry. & Power Co., 61 Wash. 507, 112 P. 506, 32 L. R. A., N. S., 720; Kniese v. Fairfax Incline R. Co., 96 Cal.App. 427, 274 P. 382; Peckett v. Wood, 234 F. 833, 148 C. C. A. 431; Finn v. George T. Mickle Lumber Co., 41 F.2d 676.)

The affidavits made for the orders of inspection stating facts only on information and belief are incompetent as evidence, and on appeal will be presumed to have been disregarded by the trial court. (Kullman, Salz & Co. v. Superior Court, 15 Cal.App. 276, 114 P. 589.)

The showing made by the appellant was entirely insufficient to entitle him to the order of inspection, and such order was highly improper. (Georgia Iron & Coal Co. v. Etowah Iron Co., 104 Ga. 395, 30 S.E. 878; Wallace Bank & Tr. Co. v. First Nat. Bank, 40 Idaho 712, 237 P. 284, 50 A. L. R. 316; Federal Min. & Smelting Co. v. Public Utilities Com., 26 Idaho 391, 143 P. 1173, L. R. A. 1917F, 1195.)

BUDGE, J. Givens, Varian and McNaughton, JJ., concur.

OPINION

BUDGE, J.

In an action against the Boyd Hospital, a corporation, for damages on account of injuries alleged to have been sustained while a patient in the hospital, appellant recovered a money judgment December 22, 1922, which was by this court affirmed on appeal. (Hayhurst v. Boyd Hospital, 43 Idaho 661, 254 P. 528.) On the appeal from the judgment against it, the hospital corporation did not execute an undertaking in the way of a supersedeas to stay execution, and execution on the judgment was issued and levy made October 23, 1923, on certain personal property, consisting of equipment and furnishings of the hospital, and on certain real property. Thereupon a demand was made, supported by affidavit, for the release of the property levied upon, for the assigned reason that none of such property was owned by the judgment debtor, the Boyd Hospital. Nothing further was done in consequence of the levy. Shortly thereafter the instant action was commenced by appellant against T. O. Boyd and members of his family (individually and as trustees of the Boyd Hospital, a corporation), the Boyd Corporation and the Boyd Hospital, a corporation.

The allegations of the complaint as amended are directed mainly against T. O. Boyd personally and individually and assert in substance and effect that he was the chief actor in the incorporation of the Boyd Hospital (organized for the purpose of conducting a general hospital in the city of Twin Falls) and of the Boyd Corporation (to be used in name as a holding and disbursing company for the properties of T. O. Boyd and the Boyd Hospital), this being done in order to make it appear that said hospital was a separate entity from T. O. Boyd, holding no property and not being financially responsible for any debts, obligations or damages which should be incurred in conducting the hospital business, and that, pursuant to such plan T. O. Boyd appropriated to his own use all of the assets of the Boyd Hospital so as to cheat and defraud creditors; that the said T. O. Boyd was and is the true and lawful owner of the property levied on under appellant's judgment and that such property was and now is subject to sale in satisfaction of said judgment and under the levy made thereon; that the claims of the other defendants, including members of the family of T. O. Boyd and the Boyd Corporation, to an interest in the property levied on, are fictitious and untrue and were made at the solicitation of T. O. Boyd in furtherance of his plan in conducting a general hospital business and for the purpose of cheating and defrauding appellant out of his judgment. The complaint prayed for an accounting of the assets of T. O. Boyd, the Boyd Corporation and the Boyd Hospital; that it be decreed that T. O. Boyd and the Boyd Hospital are one and the same entity and that the property levied on in execution of appellant's judgment be declared to be owned by T. O. Boyd as the Boyd Hospital and subject to the lien of appellant's judgment; that the defendants be restrained from disposing of such property without first applying the proceeds thereof to the payment of appellant's judgment; and for judgment against all of the individual defendants in the amount of appellant's judgment obtained against the Boyd Hospital, together with interest and costs.

The cause was tried to the court without a jury. The court found that T. O. Boyd had been a duly licensed physician engaged in the practice of his profession at Twin Falls and that other individual defendants were his wife and children; that originally incorporated in 1914, under the laws of this state, as the Twin Falls Hospital, with a capital stock of 500 shares of the par value of $ 10 each, of which 36 shares were all that had been subscribed, the corporate name of the hospital was in 1917 changed to Boyd Hospital, and that the charter of the Boyd Hospital and its right to do business as a corporation had been forfeited November 1, 1921; that the business of the hospital had been conducted as a corporation on property the record title to which had stood in the name of the Boyd Corporation for more than a year prior to the incorporation of the Twin Falls Hospital (1914); that T. O. Boyd was not the sole or only real or actual owner of the capital stock of the Boyd Hospital or of the Boyd Corporation, but that as president of the Boyd Hospital and with the consent of other stockholders he had controlled and managed its business and affairs; that the defense to the action brought by Hayhurst against the Boyd Hospital was conducted in the name of the Boyd Hospital, a corporation, but the expenses...