Minton v. Cavaney

FACTS:  Minton’s daughter died in a pool leased and operated by Seminole Hot Springs Corp.  Minton received a $10,000 judgment against Seminole for negligence.  When Seminole did not satisfy the judgment, Minton brought this action against Cavaney’s estate, Seminole’s attorney at the time of the drowning.  Cavaney was the director, treasurer and secretary of Seminole but claimed only to be so as a temporary accommodation to his corp. client.  Cavaney was also to receive one share of Seminole stock.  Further, he kept the records in his office.  Before Cavaney died, he stated in response to an interrogatory that Seminole “had no assets of any kind or character.”  He further stated that Seminole was “duly organized but never functioned as a corp.”  Minton wanted to hold Cavaney’s estate personally liable for the unsatisfied judgment against Seminole on the theory that Seminole was Cavaney’s “alter-ego”.  Tr. Ct. gave judgment for Minton and, on appeal, ct. reversed b/c Cavaney’s estate should be able to relitigate the issues – he never had his day in ct. w/regard to the drowning.

ISSUE:  May a person who participates in a corp.’s affairs and evidence shows him to be an equitable owner in such company, be held personally liable for the corp.’s debts where he knows it is undercapitalized?

HOLDING:  Yes, Seminole never had any substantial assets – there was no dispute as to undercapitalization.  Since he acted as officer-director, kept his records for safekeeping and was entitled to a share of stock, Cavaney was found to be an equitable owner in Seminole.  It is immaterial that he said he accepted the directorship as an accommodation b/c once a person is named director, he may not divorce the responsibilities of that office from the stat. duties and powers imposed on the office.  It does not matter that Cavaney never performed any director duties.

Any attempt to do corp. business w/out providing sufficient assets to meet corp. responsibilities to creditors is an abuse of the corp. privilege.  The law extends the corp. privilege so that corp. share holders may not suffer personal liability inherent in partnerships.  But if the capital supporting the corp. is illusory or small compared to anticipated risks, this is fraud upon the public dealing w/such corp.

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