# FILED
May 13, 1997 Cecil Crowson, Jr . App ellate C ou rt Clerk IN THE COU RT OF A PPEA LS OF TENN ESSEE EASTERN SECTION A T KNOXVILLE

SAVCO, INC. , ) WASHINGTON CIRCUIT ) Plaintiff/Appellee ) NO. 03A01-9611- CV-00360 ) v. ) HON. LEWIS W . MAY, JR ., ) JUDGE CENTURY H OME IMPROVE MENT, ) INC. ) ) Defendant ) and ) ) MARVIN GRIFFITH, ) ) AFFIRMED Defendant/Appellant ) Edward T. Br

ading, Johnson City, for Appellant, Ma rvin Gr iffith. Walter Lee Davis, Jr ., Johnson Cit y, for Appell ee, Savco. O P I N I O N

INMAN, Se nior Jud ge This is a suit o n open account. The plaintiff corporation sold a quantity of building materials to the de fend ant corp oration which ackno wledge s th e debt; but its sole shareholder, Marvin Griffith, was also held liable f or the account and he ap peals. To reach the s hareholder it was neces sary to ' pierce the cor porate veil ' and whether the eviden ce w as s uff icient to ignore the Charter of the de btor corporation is the issue pres ented. Our review is de novo

on the record, accompanie d by a pres umption that the findin gs of f act of the trial court are correct unless the evidence otherwise preponderates. R ULE 13(d), T ENN . R. A PP . P. There is no presumpti on of correctness with regard to the trial court's determi nation of questi ons of law. NCNB v. Thrailkill, 856 S.W .2d 250, 153 (Tenn . App. 1993). The plaintiff, now defu nct, was e ngage d in t he bu sine ss of whole salin g vinyl siding, windo ws and shutters. The appellant ow ned 40% of itsoutstanding s hares, and was also its full-ti me employee. In early 1994

the plaintiff began doing busi ness wit h Century Home Improvement, Inc., whose shares were wholly owned by Charles T. Bowers.2 Mr. Bowers, on behalf of Centu ry, obtained, in March, 1994, a $5,000.00 line of credit from the pl aintiff. In July, 1994, Mr. Gri ffith acquired all of the outstanding shares of Centuryfrom Mr. Bowers, for whic h he apparently paid nothing. He testified, somewhat inco nsis tent ly, that "I've put money into it for capital ," and "the only thing I've ever done is loan the company

money." As s ole shareholder and President of Century he exercis ed complete contr ol of the corporat ion. The tria l cour

t desc ribed Centur

y as a "sham c orp oration . . . set up for the purpose of doing that w hich, whi le not i llega l, was certainly unethical in the business they were oper

ating," apparently

in reference to the fact that aminority shareholder of the wholesal er acquired the retailer of comparable goods . Whatev er the business ethics of this acqui sition may have been, the evidenc e does not reflect; but we note, in passing through, that the majori ty sharehol ders of Savco not only offered no o bjection to the acquisiti on, but expres sly appro v ed it. As may be deduced from this record, the appellee defends the judgment upon the basis that Griffith (1) controlled Century especiallyin the area of pay ing bill s, (2) used corpor ate funds and employees for his personal benefit, (3) tr

ansacted business through Cent ury w hich did not hav e sufficient operating cap it al, (4) had a personal relationship with the majority shareho lders of Savco which he mi suse d to i ncur debt on be half of Ce ntur y. As to (1), there is little or no doubtthat Mr. Gr iffith exerci sed absolute cont rol of Cent ury, superimposed upon his su bstantial influence wi th Savco. As to (2), th e evidence consists of testimony that he ut ilized the service s of a Century secretary

to compile inf orma tion for him about another laws uit in w hich he was a party and that Centu ry madepay ment s on hisboat . Asto ( 3), the evi denc e re vea ls t hat M r. G riffi t h "paid no capital into the corporation" which usually had only one or two thousand dollars in its check ing account. As to (4), one of the majority shareholders

of Savco test ified: Q: But it's also your testimony t hat Mr. Gri ffith, I suppose, hoodw inked Savco into letting C entury g o over the $5 ,000. in May of 1995. Is that also your te stim ony?

A: I would not c onsi der it hood wi nk ed. I would consider it using his relationship with Savco and our personal friendship to increase the credit amount.3 The record does n ot reveal whether M r. Griffith was a director of either corporation, and neither par ty raises the i ssue of his fiduci ary duty , or consequently , of any breach thereof. Th e appellee merely argues that in light of thecircumstances the trial judg e correctl y held that the Charter of C entury shoul d be ignored. The controlli ng princi ples of law are set forth in Electric P ower Bd. o f Chattanooga

v. St. Joseph Valley Structural Steel C orp., 691 S.W.2d 522 (Tenn. 1985): A corporation, of course, has an exis tence separate and distin ct from that of the owners of its capital stock, but thi s separate enti ty may be disregar ded upon the showing of special circumstance s, such as, that the corporation is a sham or dummy so that failure to disregard it would result in an injustice

. Fidelity T rust Co. v. Service Laundr y Co., 22 S .W.2d 6 (1929); America n

Indemnity

Co. v. Southern M

issionary Col., 260 S.W.2d 269, (1953); Ten ness ee Consol. Coa l Co. v. H ome Ice & C

oal Co., 386 S.W .2d 918 (1964). In our most rece nt cas e disc ussin g the circ ums tance s which will cause a court todisregar d the separate enti ty ofa subsidiar y corporation and fix its liability

on the parent cor poration, we said:
" . . . application ofthe instrumentali ty rule r equires pr

oof of the following three elements: "(1) The parentcorporation, at t he ti me of t he tr ansa cti on co mpla ined of, exercis es comp lete dom inio n over its su bsid iary, not only of finances, but of policy and business practice in respect to thetransaction under attack, so that the corpor

ate entity, as

to that transac

tion, had noseparate mind, will o r exist ence of its ow n. "(2) Such contro l must have b een used to commit frau d or wro ng, to perpetrate the violation of a stat utory or other positive legal duty, or a dishonest and unjust act in con travention of third parties' rights. "(3) The aforesaid contr ol and breach of

duty must pr

oximately

cause the injuryor unjust loss complain ed of." Continental Bankers Life, Etc. v. Bank of Alam o, 578 S.W .2d 625, 632 (1979). See also, 7 Tennessee Juris prude nc e 235-236, Corporations , sect. 3 (1983); 18 Am. Jur.2d, Corporations , sect. 17 (1965) ; 63 Am. Jur2d. Products Liability, sect. 166 (1984). The conditionsunder whi ch the corporate entity w ill be dis regarded vary according to the circumstances present in each case and the matter is particular ly w ithin the provinc e of the trial court. Moreov er, a determination of whether or not a corporation is a mere instr umentality of an individ ual or a parent corporation is ordinaril y a quest ion of fact for the jury. Trans-Am erican Com municati ons, Inc. v. N

olle, 134 Ga. App. 457, 214 S.E.2d 717 (1975) ; Alexander v. Abbey of The Chimes, 104 Cal. App. 3d 39, 163 Cal. Rptr. 377 (1980 ). We particularly take note of the admonition th at "a determination of w hether or not a corporati on is a mere i nstrumentality of an indivi du al . . . is ordi narily a question of fact for the jury ," here, the tr ial judge. Applyingthis standar d, we cannot find that the evidence preponderates agai nst the findings of the trial j udge.4 Mr. Griffith was

an employee of Savco; he owned 40% of its shares; he w

as pers uasi ve in the conduct of its wholesaling business. He acquired 100% of the stock of Century, a retail c ustomer ofSavco, for which he paid nothing. Century continued to do business w ith Savco, surpassing its establi shed credit l ine ten-fold. For all practi cal purposes Mr. Gri ffith sol d Savco' s in ven tor y to hims elf w itho ut th e onu s of p ayment

. Cent ury do ubtl essl y was his instr ume ntal ity. While there is no evidence thatCenturywas "set u p" to perpetuate a course of dealin g, since it pre -existe d Mr. Gri ffith's owners hip, we are unable to find that the
e v idence preponderates against the f inding of the Chancellor that th e Charter of Century should be ig nored under the c ircumstances of this case. The Judgment is affir med at the costs of theappellant.

__________________________________ W illiam H. I nman, Senior Ju dge CONCUR:

_______________________________ Housto n M. Godd ard, Pre siding Jud ge

_______________________________ Charles D. Susano , Jr., Jud ge