William MINTON and Hester Minton, Plaintiffs and Respondents, v. Edwin A. KRAFT et al., Defendants, Maude N. Cavaney, Executrix of the Will of P. E. Cavaney, deceased, a substituted defendant, Appellant.*
This appeal is from a judgment which decrees that the plaintiffs recover from defendant Maude N. Cavaney ‘as Executrix of the Will of P. E. Cavaney, Ten Thousand Dollars ($10,000.00), plus interest on that sum computed at the rate of seven (7%) per cent per annum from December 22, 1955.’ The basis for the judgment is that the deceased, P. E. Cavaney, was the ‘alter ego’ of Seminole Hot Springs, Inc., a California corporation.
Seminole Hot Springs, Inc. (hereinafter referred to as ‘Seminole’) was duly incorporated as a California corporation on March 8, 1954. On June 25, 1954, Margaret Minton, the minor daughter of plaintiffs, wad drowned in a swimming pool located at Cornell Corners. Seminole conducted a health center and the aforementioned swimming pool.
On July 29, 1954, Seminole filed an application with the Division of Corporations for a permit to issue three shares of stock of said corporation. This application was signed by Edwin Kraft and P. E. Cavaney, who affixed their signatures as follows:
‘Seminole Hot Springs, Inc.
‘By Edwin Kraft
P. E. Cavaney
The application was verified by Kraft. Therein, P. E. Cavaney was named as ‘the secretary and treasurer and a director of this corporation’ and was to receive one share of stock. The application also stated tht the corporation's ‘principa place of business is at Seminole Hot Springs, near the town of Cornell, County of Los Angeles, State of California; that the office of the corporation will be located 323 West 6th Street, Room 606, Paramount Building, in the City of Los Angeles, California.’ The latter address was also the address of the law office of P. E. Cavaney. On September 16, 1954, a deputy in the Corporation Commissioner's office directed a letter to Cavaney at his office wherein the deputy indicated that upon an investigation of Kraft they could not say that in their view the sale of any security would be fair. The deputy advised that he would oppose the issuance of a permit and that unless a request for hearing was made within fifteen days the assumption would be made that it was desirable to not prosecute the application and that abandonment would be recommended. Subsequently on November 15, 1954, the aforementioned application for a permit to issue stock was abandoned. No stock was issued.
On September 13, 1954, a ‘Complaint for Damages for Wrongful Death’ was filed by plaintiffs naming ‘Seminole Hot Springs, Incorporated, A California Corporation, Does One Through Ten,’ as defendants. The number of this action was SFC 1240. An answer to the aforesaid complaint was filed October 13, 1954. The answer was signed by P. E. Cavaney, as ‘Attorney for defendant’ and was verified by Edwin A. Kraft. The verification states that he (Kraft) ‘is the President of the defendant Corporation and that he makes this verification for and on behalf of said defendant corporation.’
On June 13, 1955, plaintiffs, in action number SFC 1240, filed a ‘First Amended Complaint’ again naming ‘Seminole Hot Springs, Incorporated, A California Corporation, Does One Through Ten,’ as defendants. On the same date ‘defendant, Seminole Hot Springs, Inc., for itself alone and none other’ filed its ‘Answer To First Amended Complaint.’ This answer was again signed by P. E. Cavancy as ‘Attorney for Defendant,’ however, P. E. Cavaney also verified this answer. The verification states that he (Cavaney) ‘is the attorney for defendant herein; that Edwin Kraft is President of said defendant corporation and all other officers of said corporation are absent from Los Angeles, County, where attorney for defendant has his office; that the facts are within the knowledge of affiant and that affiant verifies said answer for and on behalf of said corporation * * *. (Emphasis added.) The above verification was false in that P. E. Cavaney was at that time actually, according to the records, the secretary and treasurer, and a director of Seminole.
On August 17, 1955, P. E. Cavaney submitted his resignation as a director and the secretary-treasurer of Seminole. A minute order dated August 24, 1955, indicates that P. E. Cavaney's ‘Motion for Withdrawal of Counsel by Counsel for Defendant’ was granted. A minute order dated September 19, 1955, states in part:
‘Cause is called for trial; * * * Edwin A. Kroft (sic), president of defendant corporation appearing in propria persona. On motion of defendant trial of cause is continued to November 7, 1955 * * *.’
A minute order dated November 7, 1955, provides in part as follows:
‘Cause is called for trial; * * * Edwin A. Kroft (sic), president of defendant corporation appearing in propria persona. Motion of Edwin A. Kroft (sic) to substitute Charles Murstein as attorney for defendant corporation is granted. * * *’ Plaintiffs rest.
The defendant Seminole then put on its defense.
After the trial on the merits of the wrongful death action, on December 21, 1955, plaintiffs were awarded a judgment against Seminole in action number SEC 1240, in the principal amount of $10,000, plus costs in the sum of $121.90. The judgment was solely against the corporation. It was entered December 22, 1955. No individual defendants had ever been made parties to the action. The judgment against Seminole became final.
Execution on said judgment in action numbered SFC 1240 was issued, and a return was made on said execution on or about January 15, 1957. No part of the judgment had been paid. On January 15, 1957, an ‘Answer of Garnishee’ was served on P. E. Cavaney. It provides in part as follows:
‘To notice of garnishment and demand for a statement served on me Jan. 15, 1957 * * * my answer is that I am holding under said garnishment the following property:
‘NIL owing to said defendant NIL at the time thereof; * * * Also personal property belonging to said defendant in my possession or under my control, to wit: NIL’ Signed P. E. Cavaney.
On January 17, 1957, in a letter sent by P. E. Cavaney to the marshal it is stated in part as follows:
‘Enclosed herewith please find answer of garnishee. * * * Insofar as I know, this corporation has no assets of any kind or character. The corporation was duly organized, but never functioned as a corporation.’ (Emphasis added.)
On January 30, 1957 (approximately 13 months after the judgment was entered), a ‘Complaint’ was filed in action number 673,333 naming ‘Edwin A. Kraft, P. E. Cavaney, Doe I, Doe II and Doe III, Doe I Company, a partnership, and Doe II Company, a corporation’ as defendants. The complaint was drawn upon the theory that the named defendants were the alter ego of Seminole.
On March 8, 1957, a ‘Demurrer’ was filed by ‘P. E. Cavaney, a defendant in said action, and for himself and for none other * * *.’ On April 3, 1957, the demurrer was sustained, and on April 15, 1957, plaintiffs filed their ‘First Amended Complaint.’ In the amended complaint it was alleged, among other things, that Kraft and P. E. Cavaney formed Seminole Corporation; that it was duly incorporated; that P. E. Cavaney was a director and also secretary-treasurer of Seminole; that pursuant to its articles of incorporation Seminole had an authorized capital stock of $700,000; that P. E. Cavaney et al. held out to the public that Seminole was conducting a health center and swimming pool; that a drowning had occurred and that judgment had been rendered in favor of plaintiffs against Seminole; that the judgment is uncollectible and that the execution is unsatisfied for the reason that Seminole has had no assets of any kind or character since its formation; that Seminole never functioned as a corporation; that defendants P. E. Cavaney et al. ‘and each of them, used the corporate name Seminole Hot Springs, Inc. for the operation of the health center and swimming pool * * * at the time that the drowning occurred in said swimming pool on or about June 22, 1954; that defendants * * * defended the aforesaid litigation arising out of said drowning in the corporate name * * *; that defendants * * * and each of them, utilized the corporate name to escape personal liability for the operation by them, as individuals, of the health center and swimming pool * * *’; that defendants failed to issue any stock and therefore failed to provide Seminole with assets from the sale of shares to pay its liabilities or to discharge its debts; that defendants ‘did not put at the risk of the business unencumbered capital reasonably adequate for its prospective liabilities'; ‘That defendants * * * and each of them, * * * from the time of its (Seminole's) incorporation, * * * have dominated, managed and operated said company, which has been at all times herein mentioned the alter ego of siad defendants Edwin A. Kraft and P. E. Cavaney, and each of them;’ (Emphasis added); ‘That there was a unity of interest and ownership between the aforesaid defendants * * *, and each of them, and the corporation Seminole Hot Springs, Inc.; That the corporation * * * existed merely to serve the interests of the aforesaid defendants * * *, and each of them; That by reason of the failure to issue stock and to provide adequate capitalization for the corporation * * *, defendants * * * and each of them, made it impossible for plaintiffs' judgment to be collected from the said corporation * * * and plaintiffs have been damaged in the sum of Ten Thousand One Hundred Twenty-one Dollars Ninety Cents ($10,121.90).’
P. E. Cavaney, ‘for himself and for none other’ filed a demurrer to the first amended complaint on April 29, 1957. The demurrer was overruled May 6, 1957. On May 27, 1957, P. E. Cavaney filed a ‘Demurrer and Answer to First Amended Complaint.’ Therein, among other things, he incorporated by reference ‘every and all of the grounds set out in said defendant's demurrer to plaintiffs' said first amended complaint heretofore filed herein and by reference thereto, for brevity, incorporates in this demurrer each, every and all of the grounds set out in his said demurrer to plaintiffs' said first amended complaint heretofore filed and makes the same a part thereof as though set out in haec verba herein.’ On June 4, 1957, the aforementioned demurrer which was incorporated in his answer was overruled.
On August 15, 1957, in the San Fernando Branch of the Superior Court of Los Angeles County, a ‘Petition for Order to Show Cause Why P. E. Cavaney Should Not be Added as a Judgment Debtor to a Final Judgment in Case No. SFC 1240’ was filed (as indicated above, action number SFC 1240 was the wrongful death action against Seminole). On October 16, 1957, P. E. Cavaney filed a ‘Motion to Strike Petition of Plaintiffs and Affidavit in Support Thereof’ and a ‘Demurrer.’ On the same date, the demurrer was overruled and the motion to strike denied. The order to show cause was continued to November 13, 1957.
On November 5, 1957, plaintiffs filed a ‘Notice of Motion to Consolidate Order to Show Cause in Action Number SFC 1240 With Action Number 673333’. Therein it was provided in part as follows:
‘The Motion will be based on the following grounds, to wit:
‘2. That Action Number 673333 is basically an action which seeks to disregard the corporate entity of Seminole Hot Springs, Inc. and hold the officers, directors and/or incorporators of said corporation personally liable for a judgment obtained in December 1955 against such corporation in Action Number SFC 1240.
‘3. That Order to Show Cause in Action Number SFC 1240 was filed in the San Fernando Superior Court in September 1957, and the parties appeared on October 16, 1957 pursuant to said Order to Show Cause.
‘4. That the object of the Order to Show Cause filed in Action Number SFC 1240 was to open up the judgment previously obtained in said action against Seminole Hot Springs, Inc., a California corporation, and to pierce the corporate veil and add the name of P. E. Cavaney as judgment debtor to the judgment previously obtained.
‘5. * * *
‘6. That Honorable Alfred E. Paonessa, Judge of the Superior Court, at such hearing on the Order to Show Cause, did not take evidence or rule on the Order to Show Cause while the previously filed Action Number 673333 was pending; that Honorable Alfred E. Paonessa continued the matter until November 13, 1957 and stated that he would rule on the merits of the Order to Show Cause if in the meantime Action Number 673333 had been dismissed or otherwise disposed of prior to November 13, 1957.
‘7. That Action Number 673333 and Order to Show Cause in Action Number SFC 1240 basically attempt to achieve the same result, which is to pierce the corporate veil of Seminole Hot Springs, Inc., and hold P. E. Cavaney personally liable as an officer, director and incorporator of Seminole Hot Springs, Inc; that the actions are procedurally different in that Action Number 673333 is an independent action based on the judgment in Action Number SFC 1240, whereas, the Order to Show Cause in Action Number SFC 1240, is an action ot open up the judgment obtained in Action Number SFC 1240. (Emphasis added.)
‘8. * * *
‘9. * * *
‘10. * * *
‘11. That plaintiffs are uncertain which of the two actions is the proper one procedurally and do not desire to dismiss Action Number 673333 in order to secure a determination of the merits of the Order to Show Cause in Action Number SFC 1240. * * *’
A minute order of November 12, 1957, states that:
‘Motion of plaintiffs in action 673333 to consolidate Order to Show Cause in Action SFC 1240. Motion granted. Pursuant to stipulation, Demurrer and Motion to Strike Petition may be filed by the defendant and it is so ordered.’
On the same date P. E. Cavaney filed his ‘Answer to Petition of Plaintiffs.’ Subsequently P. E. Cavaney's demurrer was overruled and the motion to strike denied.
On April 22, 1958, the ‘Pre-Trial Conference Order’ was filed. It provides in part as follows:
‘This is a proceeding in equity for the purpose of piercing the corporate veil of the Seminole Hot Springs Corporation * * * and for the purpose of personally holding liable the officers and/or directors of the corporation for a judgment now held by the plaintiffs against the corporation and unsatisfied.
‘Counsel for the plaintiffs and the defendant, P. E. Cavaney, have stipulated to a joint Pre-Trial Statement and both counsel have signed the same and it is now ordered filed and by this reference made a part of the Pre-Trial Order.
‘* * * At this time there is one Law and Motion matter pending which is referred to in the joint Pre-Trial Statement, * * *.’
The joint pre-trial statement referred to and incorporated within the pre-trial conference order, supra, provides in part as follows:
‘I. General Statement
‘Both of the above entitled cases are actions to pierce the corporate veil of Seminole Hot Springs, Inc., a corporation, and hold personally liable the officers and/or directors of the corporation for a final judgment now unsatisfied and held by plaintiffs against said corporation.
‘On the 21st day of December, 1955, Honorable Alfred E. Paonessa, after a court trial of an action arising out of the drowning of plaintiffs' minor daughter * * * at a public swimming pool, rendered judgment for plaintiffs in the principal amount of Ten Thousand Dollars * * *. Said judgment was entered on December 22, 1955, and has become final, no appeal having been taken. Execution an said judgment was issued and was returned unsatisfied on or about January 15, 1957, and same remains wholly unpaid and unsatisfied.
‘II. Case No. 673,333
‘A. Brief Statement
‘In case number 673,333, filed in Civic Center Superior Court, plaintiffs have served only defendant Cavaney, an attorney at law. It is contended therein generally that defendant Cavaney, among others, was an alter ego of the corporation, as alleged in the complaint, and judgment should be entered against him. Defendant Cavaney denies these allegations and contends that while it is true that he was named as a director and secretary-treasurer of the corporation in the Articles of Incorporation and in an application for a stock permit to the Corporation Commissioner on July 29, 1954, he served in these two capacities merely as a temporary accommodation and at the request of one of the organizers of the Corporation, * * *; it is the further contention of defendant Cavaney that his true, actual and only service to the Corporation at any time was as attorney for the corporation, which contention is denied by the plaintiffs.
‘III. Case No. SFC 1240
‘A. Brief Statement
‘This is the main action for wrongful death above referred to * * *. Defendant P. E. Cavaney was not a party to this action * * * after the judgment had become final, the plaintiffs filed * * * a Petition for Order to Show Cause Why P. E. Cavaney Should not be Added as a Judgment-Debtor to Final Judgment in Case No. SFC 1240. To this petition defendant Cavaney filed a Demurrer and Motion to Strike and a sepatate Answer without to Strike and a separate Answer without and Motion heard before trial. On January 28, 1958, the Demurrer and Motion to Strike were taken under submission by the Honorable Alfred Gitelson in Department 26 of the above entitled court, his decision and ruling to await the outcome of a Petition for writ of Mandate, No. 22930, pending in the District Court of Appeal in Superior Court, case entitled ‘Motores de Mexicali v. Erbel, Inc.’, No. 614,794, a case involving the same principles as the case No. SFC 1240, herein * * *. No pre-trial agreements have been reached in case No. SFC 1240, for the reason that if Judge Gitelson sustains the Demurrer, said case will not go to trial on April 25, 1958, and it the Court overrules the Demurrer and Motion, then the admitted facts and contentions in the Civic Center Case No. 673,333 will be applicable to both cases and both cases will be ready for trial.' (Emphasis added.)
On May 28, 1958, approximately one month after the aforementioned pre-trial conference order, P. E. Cavaney died. On September 25, 1958, plaintiffs filed a ‘Notice of Motion For Order Of Substitution, and For Leave to File Supplemental Complaint * * *’ to obtain on order substituting Maude N. Cavaney, executrix of the will of defendant P. E. Cavaney, and authorizing plaintiffs to file a supplemental complaint in action number 673333 and a supplemental motion in action SFC 1240. On October 10, 1958, the above relief was granted and on October 23rd, said supplemental complaint and motion were filed. On November 3rd, a ‘Notice of Motion for Summary Judgment by Defendant Maude N. Cavaney, Individually, and Maude N. Cavaney as Executrix of the Will of Peter E. Cavaney, Deceased’ was filed. Therein judgment on the pleadings was sought ‘upon the ground that the * * * court has no jurisdiction of the subject matter of the action and that the complaints as amended do not state facts sufficient to constitute a cause of action, nor can said complaints be further amended so as to state facts sufficient to constitute a cause of action as to this defendant.’ The aforesaid motion was denied January 27, 1959. On January 13, 1959, a ‘Memorandum for Setting Contested Action’ was filed. It provides in part as follows:
‘* * * Nature of Action (state fully) To pierce corporate veil of Seminole Hot Springs Corp., a California Corporation, to personally hold liable the officers and/or directors for a judgment held by plaintiffs against the corporation and unsatisfied.’
The consolidated cases came to trial on May 5, 1959. On October 19, 1959, two separate judgments and two separate findings and conclusions were filed. In case number SFC 1240 (i. e. Order to Show Cause), ‘the Order requested by the Plaintiffs, * * * be denied and judgment is given in this case alone, file No. SFC 1240 for each Defendant and for Defendants Expectant.’
The finding of fact upon which the judgment, supra, was based provided in pertinent part as follows:
‘On or about April 8, 1954, the Defendant P. E. Cavaney, joined with F. J. Wettrick and Edwin A. Kraft in organizing * * * Seminole * * *; thereafter, the Defendant * * * represented the aforesaid corporation as its legal counsel * * * until August 24, 1955, at which time this Court granted said P. E. Cavaney's motion for withdrawal as the counsel for * * * Seminole * * *; that during such time, to wit, on or about June 10, 1955, the Defendant, P. E. Cavaney, while acting as the attorney and as an officer and as a director of the said corporation, did prepare, execute, and cause to be filed with this Court a personally verified Answer to the Plaintiff's (sic) First Amended Complaint * * * having theretofore, on October 13, 1954, as an attorney, caused an Answer to be filed to Plaintiff's (sic) Complaint; but that Defendant P. E. Cavaney, either acting as a director, as the Secretary-Treasurer, or as the attorney for the aforesaid corporation, did not at the time of trial which actually commenced on November 7, 1955, or subsequently thereto, appear on behalf of, or in any other manner represent the said corporation in the aforementioned Case No. SFC 1240’ (Emphasis added.)
No appeal was taken from that judgment.
In action number 673333 judgment was rendered in favor of the plaintiffs (respondents), in the sum of $10,000 plus interest. The appeal with which we are now concerned is from that judgment.
Appellant raises several issues on appeal, namely:
‘I. Is the judgment in Case No. SFC 1240 against the corporation alone res judicata to prevent harassment of defendant P. E. Cavaney in Case No. 673,333?
‘II. Is judgment of dismissal as to defendant P. E. Cavaney by the trial court in Case No. SFC 1240 res judicata as to Case No. 673,333?
‘III. Is not Case No. 673,333 an attempt to do indirectly what the Motores de Mexicali case (supra) says cannot be done directly? Is not this a denial of due process just as much as Case No. SFC 1240?
‘IV. Is an alter ego action, being a personal action in equity to establish status, the type of action that survives the death of the alleged tort feasor prior to trial and prior to judgment?
‘V. Was it error for the trial court to deny motions and to overrule general demurrers simply because another department had previously ruled on the questions?
‘VI. Was it error for the trial court to deny a motion for judgment of nonsuit when there had been no evidence of any sort to establish the necessary elements of the alter ego theory?
‘VII. Appellant alleges that there was not sufficient evidence to justify the Finding of Fact and the Judgment as to appellant.’
We will first direct our attention to appellant's contention of insufficiency of the evidence. What was stated in New v. New, 148 Cal.App.2d 372, 306 P.2d 987 is pertinent. The court stated at page 383 of 148 Cal.App.2d, at page 994 of 306 P.2d as follows:
‘The appellate court must accept as established all facts and all inferences favorable to respondent which find substantial support in the evidence. ‘And where appellant urges the insufficiency of the evidence to sustain the findings * * * the rule is that, ‘Such contention requires defendants to demonstrate that there is no substantial evidence to support the challenged findings.’ Nichols v. Mitchell, 32 Cal.2d 598, 600, 197 P.2d 550, 552. (Emphasis added.) It is said in Crawford v. Soughern Pac. Co., 3 Cal.2d 427, 429, 45 P.2d 183, 184 that: ‘It is an elementary, but often overlooked principle of law, that when a verdict is attacked as being unsupported, the power of the appellate court begins and ends with a determination as to whether there is any substantial evidence, contradicted or uncontradicted, which will support the conclusion reached by the jury. When two or more inferences can be reasonably deduced from the facts, the reviewing court is without power to substitute its deductions for those of the trial court.’' Hartzell v. Myall, 115 Cal.App.2d 670, 673, 252 P.2d 676, 677.'
To be ‘substantial,’ the evidence must be be reasonable in nature, credible, and of solid value. In other words, it must be of ‘ponderable legal significance.’ Dyer v. Knue, 186 Cal.App.2d 348, 8 Cal.Rptr. 753, 755; Estate of Teed, 112 Cal.App.2d 638, 644, 247 P.2d 54.
The trial court's findings of fact must stand or fall on the evidence actually contained in the record. Myers v. Mitchell, 176 Cal.App.2d 616, 618, 1 Cal.Rptr. 593.
In order to justify a disregard of the corporate entity two requirements must be satisfied. First, there must be such a unity of interest and ownership that the separate personalities of the corporation and the individual no longer exist; secondly, that if the acts are treated as those of the corporation alone, an inequitable result will follow. Riddle v. Leuschner, 51 Cal.2d 574, 580, 355 P.2d 107; Automotriz Del Golfo De California S. A. De C. V. v. Resnick, 47 Cal.2d 792, 796, 306 P.2d 1, 63 A.L.R.2d 1042. Each case is sui generia. As stated in Stark v. Coker, 20 Cal.2d 839, at page 846, 129 P.2d 390, at page 394:
‘The conditions under which the corporate entity may be disregarded, or the corporation be regarded as the alter ego of the stockholders, necessarily vary according to the circumstances in each case inasmuch as the doctrine is essentially an equitable one and for that reason is particularly within the province of the trial court. Only general rules may be laid down for guidance.’
The plaintiffs presented only one witness. He was from the Corporation Commissioner's office. The witness was asked, ‘Then you have no knowledge as to the activity of P. E. Cavaney that could be interpreted as making him the alter ego of this corporation’ and he answered, ‘I have none, no.’
The other evidence reduced to simple terms amounts to the following:
P. E. Cavaney was an attorney at law and in the course of his practice prepared and caused to be filed the original articles of incorporation of Seminole. He served as the secretary-treasurer and as one of three directors of the corporation. The office address, as distinguished from the principal place of business of the corporation, was the same address as Cavaney's law office. Cavaney corresponded with the Corporation Commissioner's office in regard to obtaining a permit to issue three shares of stock. When the Commissioner's office learned of Kraft's background it indicated that a permit was going to be difficult to secure. Cavaney filed the answer to the original wrongful death action as the attorney for Seminole. The answer to the first amended complaint was verified and filed by Cavaney. The corporation was insolvent. After Cavaney's resignation form the board and as an officer he made an answer to a garnishee.
The facts as established are not sufficient to show ‘such unity of interest and ownership that the separate personalities of the corporation and the individuals no longer exist.’ There is no showing of any sort of fraud, bad faith or wrong upon the part of Cavaney. There is no showing by which any estoppel theory might be relied upon. There was no effort by Cavaney to fail to issue stock in an attempt to avoid the decision of the Corporation Commissioner, as was the case in Geisenhoff v. Mabrey, 58 Cal.App.2d 481, 137 P.2d 36.
It was pointed out in Marr v. Postal Union Life Insurance Co., 40 Cal.App.2d 673, 105 P.2d 649, that bad faith in one form or another must be shown and that lack of stockholders alone is not sufficient to justify piercing the corporate veil. See also Clark v. Millsap, 197 Cal. 765, 242 P. 918; Shorb v. Beaudry, 56 Cal. 446, and Vogel v. Bankers Building Corp., 112 Cal.App.2d 160, 245 p.2d 1069.
The fact alone that no stock was issued would not be enough in and of itself to establish the alter ago. Section 25154 Corporations Code particularly provides—‘this section does not prohibit the transaction of business or the performance of any act, other than the issue or sale of securities, by a corporation before it has applied for and received a permit to issue or sell securities, and has issued shares in conformity therewith.’
There was not the slightest showing in the present case that Cavaney was doing business with Kraft or with the other director, or together as partners or as joint adventurers.
With reference to the claim that Seminole was under-capitalized there is no evidence that Cavaney individually had anything to do with such condition of the corporation. There was no evidence that Cavaney was guilty of any misrepresentation with reference to the finances of the corporation or in any other respect. There was no showing that if it was sham, Cavaney had anything to do with such sham.
Appellant places great reliance upon Automotriz Del Golfo De California S. A. De C. V. v. Resnick et al., 47 Cal.2d 792, 306 P.2d 1, 63 A.L.R.2d 1042. The facts of the Resnick case are distinguishable from the facts in the present case. In the Resnick case, Resnick and others organized Erbel, Inc.; thereafter Resnick, after securing certain releases from his associates, joined with the defendants W. D. and R. W. Cowan and converted the company into a used car concern. The defendants became officers and directors of the corporation with Resnick as manager. The corporation never issued or applied for a permit to issue stock. No bank account was opened in the corporation's name, although a checking account was opened showing that the corporation was doing business under a fictitious name. An unusual method was arrived at in the transaction of the business of the company. The Cowans made large advances and were the reimbursed from the corporate account upon the resale of the cars. Certain checks were issued to the plaintiff who had agreed to deal with the defendants only upon the assurances that W. D. Cowan was ‘going into the business' and would be ‘backing the business up.’ The corporation went into bankruptcy and as a result the plaintiff, who held two checks drawn by Resnick on the corporate account, sued and the corporate entity was disregarded. In the case before us nothing occurred and no one transacted any business with Seminole because Cavaney was ‘backing the business up’ or because Cavaney was ‘going into the business.’
In the Shafford v. Otto Sales Co., Inc., 149 Cal.App.2d 428, 308 P.2d 428, 429, Otto (the alter ego) had for fifteen years prior to December 16, 1946, been doing a business under the name of ‘Otto Sales Company.’ On December 16, 1946, Otto caused to be filed with the Secretary of State articles of incorporation relating to ‘Otto Sales Company, Inc.’ Otto invested practically no money in the corporation and it became insolvent. The evidence was clear that Otto formed the corporation merely as an instrumentality through which he, for his personal convenience, transacted business. The corporation was dominated and controlled by Otto and was merely the conduit through which he performed the acts and made the promises and representations complained of. There is no proof in the case before us that Cavaney conducted himself in any such manner or fashion.
There was no evidence in the case that Cavaney exercised any control over the business of Seminole, or that the ever did anything with reference to the operations of Seminole. Cavaney did not control the board of directors. There was no commingling of and of the funds of Seminole, if any, with any of Cavaney's personal funds and Seminole never paid any account for Cavaney and Cavaney never paid any account for Seminole.
We think there was no abuse shown of the statutory privilege of incorporation by Cavaney, and the Cavaney should not under the circumstances be held personally liable for the death of the minor child.
It further appears to this court that a gross inequity would result if the estate of Cavaney is required to pay the $10,000 judgment when Cavaney never had the opportunity to be heard, nor was he heard on the merits in the action with reference to the death of the child. Cavaney acted, so far as can be determined by the record, only as an attorney for Seminole. There is no evidence that Cavaney was ever on the property where Seminole was to do business; he never hired or fired anybody for Seminole, nor did he make a single order of direction for or in behalf of Seminole. There is no showing that plaintiffs were confused to their detriment by anything said or done by Cavaney. Had the plaintiffs desired to sue Cavaney on the merits they could have done so in the first instance by simply including Cavaney as a defendant in the original action, and it would have been an easy matter in discovery proceedings to have ascertained the status of Cavaney's position.
The evidence at the most shows only a course of conduct consistent with the role of an attorney in the formation and organization of a corporation. It becomes unnecessary therefore to pass upon the other contentions of appellant for we are convinced that the evidence is insufficient to support the judgment.
The judgment is reversed.
WOOD, P. J., and LILLIE, J., concur.