Linco Services, Inc. v. DuPont

DRAPER, P. J.

Plaintiff sold an airplane to Harper Aviation Sales, Inc., and received in part payment note of that corporation for $25,000. The note was not paid, and plaintiff brought this action against the corporation. Also joined as defendants, on the

alter ego

theory, were H. S. Harper and appellant DuPont. After trial without jury, judgment went against all defendants for principal, interest, and attorneys’ fees. Only DuPont appeals.

Defendant corporation was organized in 1957. It has not issued or applied for a permit to issue any stock. It was franchised to sell airplanes of one manufacturer. In 1958 the corporation had a net loss of $3,500, and in 1959 lost $41,000. In early 1960, its liabilities exceeded its assets. The corporation licensed its sales franchise to another, and ceased active business operations. It owed $40,000 to Cal-West Aviation Co., a corporation of which Harper was president. Harper also was president of Far West Airlines, a corporation which also owed Cal-West $40,000. Harper wanted to resume operation of defendant corporation, and to activate Far West. After some period of negotiation, on November 22, 1960, he and appellant DuPont executed a written agreement reciting their desire to “become joint promoters” of both corporations. The agreement stated that no stock of either corporation had been issued. It provided that 26 percent of the voting stock of each should be issued to DuPont and a like proportion to Harper, and that DuPont “shall loan to Far West . . . the sum of $40,000” and to defendant corporation a like amount.

Although DuPont made no loan to defendant corporation, he did guaranteé its $40,000 debt to Cal-West, and advanced $30,000 to Far West. Meetings of directors of defendant corporation were most informal, but testimony of Harper (contradicted by DuPont) is that DuPont was elected vice president and a director in December 1960, and thereafter

[843]

participated in a number of directors’ meetings. In March 1961, defendant corporation entered into a “flooring agreement” for loans from a bank under continuing guaranties signed by DuPont and his wife and by Mr. and Mrs. Harper, and went back into the business of dealing in airplanes. On April 11, 1961, the corporation purchased plaintiff’s airplane for $40,000, $15,000 of which was paid and the balance represented by the promissory note here sued upon. Some $28,000 was advanced by the bank to defendant corporation on this plane under the flooring agreement. By early May, the bank had made like loans upon nine other planes. DuPont asked the bank to repossess the floored planes, and it did so. Defendant corporation was left with substantial debts but no assets save office furniture. On May 22, DuPont sent to defendant corporation a document refusing to accept appointment as a director or officer, and, if he were presently such, resigning the office. His testimony concedes that at this time “I had, yes, ah, I had a feeling that probably” defendant corporation was “on the rocks”. There is testimony (denied by DuPont) that defendant corporation loaned $3,000 to a corporation operated by DuPont, and made the payment by cheek issued to DuPont.