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Policy reasons for a pierce do not alone justify disregarding the corporate entity. The degree of identity between the individual and his or her corporation, the extent to which the corporation is an alter ego, is important. Also important is whether others, such as a creditor or other shareholders, will be harmed by a pierce.
Respondents owned a farm. They incorporated the farm pursuant to Minn. Stat. § 500.24, subd. 1(c) (1973). The husband purchased farm supplies and services on account from the creditor. The creditor was unaware that the farm was incorporated. The creditor obtained a judgment against the husband and the corporation for the amount of the debt. Respondents filed an action to enjoin the sale of the farm. The trial court held that 80 acres of the farm were exempt from sale pursuant to the homestead exemption of § 510.02. The appellate court affirmed the trial court's judgment. The creditor sought review.
By placing their land in a family farm corporation, would owner-occupants of a farm lose their homestead exemption from judgment creditors?
On appeal, the court affirmed the judgment of the appellate court. The court held that the case was a proper one for a reverse pierce of the corporate veil because there was a close identity between respondents and the corporation and public policy favored protection of the homestead. The court determined that creditors were deemed to extend credit with awareness that, should an individual debtor default, a homestead was exempt. Therefore, the court ruled that 80 acres of the farm were protected by the homestead exemption.