Linco Services, Inc. v. DuPont

Decision Date02 February 1966
Citation49 Cal.Rptr. 196,239 Cal.App.2d 841
CourtCalifornia Court of Appeals Court of Appeals
PartiesLINCO SERVICES, INC., a corporation, Plaintiff and Respondent. v. Michael H. DuPONT, Defendant and Appellant. Civ. 22590.

Hill, Farrer & Burrill, Stanley E. Tobin, Jack R. White, Albert J. Day, Los Angeles, for appellant.

Sheldon D. Durham, Redwood City, for respondent.

DRAPER, Presiding Justice.

Plaintiff sold an airplane to Harper Aviation Sales, Inc., and received in part payment note of that corporation for $25,000. The note was not paid, and plaintiff brought this action against the corporation. Also joined as defendants, on the alter ego theory, were H. S. Harper and appellant DuPont. After trial without jury, judgment went against all defendants for principal, interest, and attorneys' fees. Only DuPont appeals.

Defendant corporation was organized in 1957. It has not issued or applied for a permit to issue any stock. It was franchised to sell airplanes of one manufacturer. In 1958 the corporation had a net loss of $3500, and in 1959 lost $41,000. In early 1960, its liabilities exceeded its assets. The corporation licensed its sales franchise to another, and ceased active business operations. It owed $40,000 to Cal-West Aviation Co., a corporation of which Harper was president. Harper also was president of Far West Airlines, a corporation which also owed Cal-West $40,000. Harper wanted to resume operation of defendant corporation, and to activate Far West. After some period of negotiation, on November 22, 1960 he and appellant DuPont executed a written agreement reciting their desire to 'become joint promoters' of both corporations. The agreement stated that no stock of either corporation had been issued. It provided that 26% of the voting stock of each should be issued to DuPont and a like proportion to Harper, and that DuPont 'shall loan to Far West * * * the sum of $40,000' and to defendant corporation a like amount.

Although DuPont made no loan to defendant corporation, he did guarantee its $40,000 debt to Cal-West, and advanced $30,000 to Far West. Meetings of directors of defendant corporation were most informal, but testimony of Harper (contradicted by DuPont) is that DuPont was elected vice president and a director in December, 1960, and thereafter participated in a number of directors' meetings. In March, 1961, defendant corporation entered into a 'flooring agreement' for loans from a bank under continuing guaranties signed by DuPont and his wife and by Mr. and Mrs. Harper, and went back into the business of dealing in airplanes. On April 11, 1961, the corporation purchased plaintiff's airplane for $40,000, $15,000 of which was paid and the balance represented by the promissory note here sued upon. Some $28,000 was advanced by the bank to defendant corporation on this plane under the flooring agreement. By early May, the bank had made like loans upon nine other planes. DuPont asked the bank to repossess the floored planes, and it did so. Defendant corporation was left with substantial debts but no assets save office furniture. On May 22, DuPont sent to defendant corporation a document refusing to accept appointment as a director or officer, and, if he were presently such, resigning the office. His testimony concedes that at this time 'I had, yes, ah, I had a feeling that probably' defendant corporation was 'on the rocks'. There is testimony (denied by DuPont) that defendant corporation loaned $3,000 to a corporation operated by DuPont, and made the payment by check issued to DuPont.

The court found defendant corporation to be the alter ego of DuPont and Harper, and thus held them personally liable for the debt to plaintiff. DuPont argues that his agreement of November 22, 1960 cannot be relied upon, because it relates only to the future. He overlooks the testimony that he did in fact become an officer and director, participating in a number of meetings. This testimony was contradicted, but was accepted by the court. With the conceded fact that DuPont guaranteed the $40,000 indebtedness of defendant corporation to Cal-West, and also advanced $30,000 to...

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5 cases
  • Tatung Co. v. Shu Tze Hsu
    • United States
    • U.S. District Court — Central District of California
    • November 14, 2016
    ...need not be fraud: the "second requirement turns on an inequitable result and not on actual fraud." Linco Servs., Inc. v. DuPont , 239 Cal.App.2d 841, 844, 49 Cal.Rptr. 196 (1966). For example, the court in Linco found alter ego status where an unrelated company secured loans for a corporat......
  • Neilson v. Union Bank of California, N.A.
    • United States
    • U.S. District Court — Central District of California
    • October 20, 2003
    ...had outstanding liabilities in excess of $150,000, its initial capitalization was only $10,000"); Linco Services, Inc. v. DuPont, 239 Cal.App.2d 841, 844, 49 Cal.Rptr. 196 (1966) ("DuPont's participation did enable defendant corporation to return to active business, without capital stock an......
  • Pearl v. Shore
    • United States
    • California Court of Appeals Court of Appeals
    • May 18, 1971
    ...v. Resnick, 47 Cal.2d 792, 306 P.2d 1 (none); Harris v. Curtis, 8 Cal.App.3d 837, 87 Cal.Rptr. 614 ($1,000); Linco Services, Inc. v. DuPont, 239 Cal.App.2d 841, 49 Cal.Rptr. 196 (none); Platt v. Billingsley, 234 Cal.App.2d 577, 44 Cal.Rptr. 476 (none); Rosen v. E. C. Losch Co., 234 Cal.App.......
  • Soderberg Advertising, Inc. v. Kent-Moore Corp.
    • United States
    • Washington Court of Appeals
    • July 29, 1974 475, 392 P.2d 215. See also Forest Hill Corp. v. Latter & Blum, Inc., 249 Ala. 23, 29 So.2d 298 (1947); Linco Services, Inc. v. DuPont, 239 Cal.App.2d 841, 49 Cal.Rptr. 196 (1966); Dillard & Coffin Co. v. Richmond Cotton Oil Co., 140 Tenn. 290, 204 S.W. 758 (1918). KM in good conscience ......
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