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The law permits the incorporation of a business for the very purpose of escaping personal liability.
Defendant Home Owners Cooperative, Inc. was a co-operative corporation composed mostly of veterans, organized for the purpose of providing low-cost housing for its members. Unable to secure a contractor to undertake construction of the housing planned, Westerlea Builders, Inc., was organized for that purpose. Plaintiff Newton Bartle, as trustee in bankruptcy of Westerlea Builders, Inc., attempted to hold defendant liable for the contract debts of Westerlea. The trial court dismissed plaintiff’s complaint. On appeal, plaintiff argued that the trial court erred in refusing to pierce the corporate veil of Westerlea’s corporate existence.
Under the circumstances, should Westerlea’s corporate veil be pierced?
The Court affirmed the lower court, holding that the law permitted the incorporation of the wholly owned subsidiary for the very purpose of escaping personal liability. According to the Court, the doctrine of piercing the corporate veil was invoked to prevent fraud or to achieve equity. However, in this case there had been no evidence to support a finding of fraud, misrepresentation, or illegality. The defendant’s purpose in placing its wholly owned subsidiary into a separate corporation was clearly within the limits of public policy. Thus, the Court affirmed the dismissal of plaintiff’s complaint.