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There are three elements necessary to pierce the corporate veil under the instrumentality rule: (1) Control, not mere majority or complete stock control, but complete domination, not only of finances, but of policy and business practice in respect to the transaction attacked so that the corporate entity as to this transaction had at the time no separate mind, will or existence of its own; and (2) Such control must have been used by the defendant to commit fraud or wrong, to perpetrate the violation of a statutory or other positive legal duty, or a dishonest and unjust act in contravention of plaintiff's legal rights; and (3) The aforesaid control and breach of duty must proximately cause the injury or unjust loss complained of.
The landlord, plaintiff East Market Street Square, Inc. ("East Market Street Square"), and the owner, Gilbert T. Bland, entered into negotiations regarding the lease of a commercial premises for a restaurant. The contract was signed by the plaintiff and Tycorp Pizza IV, Inc., a corporate tenant, which had been formed by the owner for the specific purpose of entering into the contract. After financial difficulties arose, the plaintiff landlord was required to demolish the partially renovated building at its own expense. Thereafter, a breach of contract action was instituted against the Tycorp and its owner. In its complaint, plaintiff sought to pierce the corporate veil of Tycorp IV and hold defendant Bland individually liable for all of the corporate defendant’s liabilities to plaintiff. The trial court entered judgment in favor of the landlord. The trial court pierced the corporate veil and held the owner individually liable. The owner then sought review.
Under the circumstances, should the corporate veil be pierced, thereby making the individual owner liable to the liabilities of the corporation?
In affirming, the court used the instrumentality test adopted in North Carolina to determine that the owner was individually liable. There were four elements of the instrumentality test: inadequate capitalization, non-compliance with corporate formalities, complete dominion and control, and excessive fragmentation. These elements were all satisfied. The owner was the sole director, shareholder, president and officer, there was insufficient funds to run the corporation, there was no reason for the corporations formed, and money was commingled between them.