Ramsey v. Adams, s. 50177

• Decision Date: 14 December 1979
• Docket Number: 50178 and 50179,Nos. 50177,s. 50177
• Citation: 603 P.2d 1025,4 Kan.App.2d 184
• Parties: William J. RAMSEY d/b/a Kinsley Automotive; the Kinsley Cooperative Exchange; and L. W. Wood d/b/a Bill's Standard Service, Appellees, v. Ollie B. ADAMS, Appellant.
• Court: Kansas Court of Appeals

Page 1025

603 P.2d 1025

4 Kan.App.2d 184

William J. RAMSEY d/b/a Kinsley Automotive; the Kinsley Cooperative Exchange; and L. W. Wood d/b/a Bill's Standard Service, Appellees, v. Ollie B. ADAMS, Appellant.

Nos. 50177, 50178 and 50179.

Court of Appeals of Kansas.

Dec. 14, 1979.

Syllabus by the Court

1. A corporation and its stockholders are presumed separate and distinct, whether the corporation has many stockholders or only one.

2. Debts of a corporation are not individual indebtedness of its stockholders. However, the corporate form will be disregarded and the corporation and its majority stockholder may be treated as identical when the debt has been personally guaranteed or the corporation is merely the alter ego of the majority shareholder.

3. Power to pierce the corporate veil is to be exercised reluctantly and cautiously.

4. The corporate entity may be disregarded as the alter ego of the majority shareholder when the corporation is a mere instrumentality for carrying out the business affairs of the shareholder and when to permit separation of the corporate entity would allow fraud or injustice.

5. Eight factors considered significant in justifying disregard of the corporate entity are stated.

6. In an appeal from a judgment against the president and sole stockholder for a debt of a corporation, it is Held that there was not substantial competent evidence produced at trial to establish a basis for liability either on a theory of alter ego or reliance on the personal guarantee of the shareholder.

Richard M. Klinge, of Kaplan, McMillan & Klinge, Wichita, for appellant.

Rae E. Batt, Kinsley, for appellees.

Before FOTH, C. J., and PARKS and MEYER, JJ.

PARKS, Judge:

Defendant Ollie Adams appeals from a judgment of the trial court holding him personally liable for debts incurred in the name of Sprink-Co., Inc., a Kansas corporation of which he is the sole stockholder. Sprink-Co. is engaged in selling and servicing large irrigation systems in western Kansas. Plaintiffs are three Kinsley merchants who sold goods and merchandise to Sprink-Co. on open accounts.

The corporation had long dealt with plaintiffs and had often purchased goods used to service its customers' irrigation systems. Terry Schaller, manager of the Kinsley office of the corporation, and other employees of Sprink-Co. ordered the goods. Invoices were sent to Sprink-Co. and payments were made on corporate checks. Plaintiffs had no direct dealing with Adams and two of them, although knowing who he was, did not know him personally. Some of the merchandise which plaintiffs sold to Sprink-Co. was used on a tract of land near Kinsley personally owned by Adams and his wife.

The parties stipulated that there was an agreement, unknown to the plaintiffs, between Adams and Sprink-Co. that any goods and services furnished to Adams' land and billed to Sprink-Co. were in turn billed to Adams, who would reimburse Sprink-Co. at its Garden City office. The parties also stipulated to the entire amount due on each account from Sprink-Co. to plaintiffs. Although the corporation admitted complete liability and that it would confess judgment to the debt, the plaintiffs sued Adams personally to collect the entire bill, including merchandise and services other than those furnished to Adams' property.

The trial court found that in selling merchandise to Sprink-Co., the plaintiffs relied on and had a right to rely on the personal credit of Ollie Adams. We are required to determine whether there is substantial competent evidence to support this finding. Gangel v. Benson, 215 Kan. 118, 123, 523 P.2d 330 (1974).

A corporation and its stockholders are presumed separate and distinct, whether the corporation has many stockholders or only one. Debts of a corporation are not the individual indebtedness of its stockholders. Amoco Chemicals Corporation v. Bach, 222 Kan. 589, 593, 567 P.2d 1337 (1977). There are few exceptions to this rule, but a creditor may collect a corporate debt from the sole shareholder if (1) the debt has been personally guaranteed by the shareholder; (2) the corporation is completely bogus (see Sell v. United States, 336 F.2d 467 (10th Cir. 1964)); or (3) the corporation is merely the alter ego of the sole stockholder (Kilpatrick Bros., Inc. v. Poynter, 205 Kan. 787, 473 P.2d 33 (1970)). Clearly, the trial court did not rely upon the second exception cited above, since it held that the corporation was "good." Additionally, the parties themselves stipulated that the corporation was validly organized. It therefore remains for this court to determine whether there was substantial competent evidence for the trial court to hold Adams personally liable for debts of Sprink-Co. either because he personally guaranteed the debts or because the corporation was the alter ego of Adams.

As a factual matter, there is no evidence to show that plaintiffs relied on Adams' personal guarantee. All of plaintiffs' contacts were with the corporation through its office manager, Mr. Schaller. Only one plaintiff knew Adams personally, and he...