Pan Pacific Sash & Door Co. v. Greendale Park, Inc.

Citations: 166 Cal. App. 2d 652; 333 P.2d 802; 1958 Cal. App. LEXIS 1453Docket: Civ. 23078

Court: California Court of Appeal; December 31, 1958; California; State Appellate Court

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In the case of Pan Pacific Sash and Door Company v. Greendale Park, Inc., the California Court of Appeals addressed an appeal by defendants Greendale Park, Inc. and Ralmor Corporation from a judgment favoring the plaintiff for $12,535.96 plus interest on an additional amount of $16,271.41 from September 1, 1955. The complaint initially included two counts: the first sought to foreclose a mechanic's lien for sash doors and related materials provided to Ralmor for residential construction, while the second sought recovery for goods sold and delivered. The first count was dismissed before trial, which focused solely on the second count.

Defendant Greendale denied any debt to the plaintiff, while Ralmor acknowledged the debt but counterclaimed for $3,735.45 due to alleged damages from defective materials. During pretrial, the plaintiff indicated an intention to argue that Greendale and Ralmor were essentially one entity, asserting an alter ego relationship. The defendants objected to this evidence, citing a lack of sufficient allegations in the complaint. Despite these objections, the trial court permitted the evidence, leading to findings that both corporations had a unity of interest, that Ralmor served merely as an instrumentality of Greendale, and that both were insolvent. The court concluded that allowing the alter ego evidence was appropriate under the circumstances, as the defendants’ denial of liability permitted its admission, which was not deemed reversible error.

In *Gordon v. Aztec Brewing Co.*, the court addressed whether the issue of an alter ego relationship was properly before the trial court, despite the defendant's claim that it was not pleaded. The court noted that defects in the complaint could be remedied by the answer, and cited multiple cases supporting this principle. The defendant had denied involvement in the bottling and distribution of ABC beer, which raised questions about the entity responsible for the beer's manufacturing and safety. The court found that, even if the pleadings were deficient, the defendant was not prejudiced by any discrepancies since it had prepared to contest the partnership's liabilities throughout the trial. The case referenced *Wilson v. Nobell*, where evidence about the relationship between a principal and a foundation was admitted without prejudice, as both parties were represented by the same counsel and shared knowledge of relevant facts. In the current case, both corporations were parties to the action, represented by the same legal team, and key individuals were aware of the corporate relations. The court concluded that, despite any deficiencies in the complaint, the defendants were adequately informed and not misled. Additionally, the court evaluated evidence indicating that Ralmor, incorporated in 1951 with specific shareholders and officers, was the alter ego of Greendale, which was incorporated in 1954.

Mr. Hoffberg and Mr. Blink were the sole stockholders of Greendale, each owning 250 shares at a par value of $1.00. The board of directors included Hoffberg, Blink, and their attorney, who ceased participation after September 13, 1954. Hoffberg served as president, while Blink held the positions of vice-president and secretary. Greendale was formed primarily to acquire land in Antelope Valley for home construction. Hoffberg and Blink purchased the land, which was transferred to Greendale with a $100,000 encumbrance and a $45,000 promissory note issued to them by the corporation.

On January 20, 1955, Greendale contracted with Ralmor for the construction of houses on the 100 lots, with costs plus a $500 fee per house. The following day, Greendale secured a $1,194,000 loan from the Bank of America, guaranteed jointly by the Blink and Hoffberg families, ensuring completion of the houses and payment for all construction-related costs, free of mechanics' liens. Additionally, an agreement required the parties to purchase any unsold houses from the bank within nine months for the unpaid balance plus interest.

The corporations primarily engaged in constructing and selling houses, with financial records indicating numerous loans exchanged between them. Both were heavily indebted and relied on loans from the Blink and Hoffberg families and other sources, including a $50,000 debenture from Greendale, which was later repurchased by Blink and Hoffberg. The trial court concluded that Greendale and Ralmor operated as instrumentalities of one another, pursuing a singular venture in home construction and sales, sharing stockholders, directors, officers, office space, and common employees, while lacking substantial capital.

Each corporation benefited from materials supplied by the plaintiff and used in the construction of houses. The close relationship between the two corporations—characterized by shared ownership and interests—rendered their separation ineffective, making it unjust for Greendale to avoid liability for obligations incurred for its benefit as well as Ralmor's. The court, referencing Thomson v. L. C. Roney Co., emphasized that when strict adherence to the separate corporate existence leads to injustice, it will look beyond the corporate structure to determine liability. The statutory privilege of separate corporate personality should not be abused to evade obligations.

The criteria for piercing the corporate veil, as detailed in Minifie v. Rowley, include: (1) the corporation is controlled by an individual to the extent that their separate identities have merged, and (2) maintaining the separate existence would facilitate fraud or injustice. It is not necessary to prove actual fraud; mere recognition of the entities as separate can lead to unjust results. In this case, the entities controlled by the same individuals and sharing a name would confuse matters and undermine a legitimate claim.

Additionally, the appellants contested the trial court's decision to award interest on $16,271.41 instead of the $12,535.96 for which judgment was granted. Although parties agreed on interest starting from September 1, 1955, this does not mean interest should be calculated on an amount exceeding the judgment. The appellants' argument regarding their offset lacked merit, as per the Code of Civil Procedure, which states that cross-demands are compensated to the extent they equal each other. The appellants were only liable for $12,535.96, not $16,271.41. The judgment was modified to reflect an interest calculation from September 1, 1955, at 7 percent per annum, and as modified, the judgment was affirmed, with no costs awarded on appeal.