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De Witt Truck Brokers, Inc. v. W. Ray Flemming Fruit Co. - 540 F.2d 681 (4th Cir. 1976)

Rule:

A corporation is an entity, separate and distinct from its officers and stockholders, and its debts are not the individual indebtedness of its stockholders. This is expressed in the presumption that the corporation and its stockholders are separate and distinct. And this oft-stated principle is equally applicable, whether the corporation has many or only one stockholder. But this concept of separate entity is merely a legal theory introduced for purposes of convenience and to subserve the ends of justice, and the courts decline to recognize it whenever recognition of the corporate form would extend the principle of incorporation beyond its legitimate purposes and would produce injustices or inequitable consequences. Accordingly, in an appropriate case and in furtherance of the ends of justice, the corporate veil will be pierced and the corporation and its stockholders will be treated as identical.

Facts:

Appellee creditor, DeWitt Truck Brokers, Inc., brought an action on debt against appellants W. Ray Flemming Fruit Company and W. Ray Flemming, a corporation and its president. In practice, the Fruit Company was a one-man corporation from the very beginning, which never had a stockholders’ meeting. Moreover, no stockholder or officer of the corporation other than the president, W. Ray Flemming, ever received any salary, dividend, or fee from the Fruit Company, or, for that matter, apparently exercised any voice in its operation or decisions. In all the years of the Company’s existence, the president was the sole beneficiary of its operations and its continued existence was for his exclusive benefit. Accordingly, the District Court granted appellee's request to pierce the corporate veil and to impose liability on appellant president individually. Appellants, W. Ray Flemming Fruit Company and W. Ray Flemming, challenged the decision.

Issue:

Was it proper for the district court to pierce the corporate veil to hold the president personally liable for the corporation’s indebtedness?

Answer:

Yes.

Conclusion:

The Courtof Appeals for the Fourth Circuit affirmed the judgment of the District Court, holding that the finding of the district court that the corporate entity should be disregarded was not clearly erroneous. The Court determined that there was evidence to sustain the finding that there was a complete disregard of corporate formalities in the operation of appellant corporation, which functioned only for the financial advantage of appellant president. The evidence also supported the finding that appellant corporation was undercapitalized. Additionally, the Court determined that appellant president made personal assurances to appellee that he would take care of the charges personally if appellant corporation failed to do so. The Court concluded that equity and fundamental justice supported the individual liability of appellant president for appellee's charges.

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