FILED

November 14, 1997

Cecil W. Crowson

Appellate Court Clerk

AMERICAN COLOR, a division of )

SULLIVAN GRAPHICS, INC., )

) Robertson Chancery

Plaintiff/Appellee, ) No. 12258

)

VS. )

) Appeal No.

INNOVO, INC., ) 01A01-9703-CH-00120

)

Defendant/Appellant. )

IN THE COURT OF APPEALS OF TENNESSEE

MIDDLE SECTION AT NASHVILLE

APPEAL FROM CHANCERY COURT OF ROBERTSON COUNTY

AT SPRINGFIELD, TENNESSEE

HONORABLE ALEX W. DARNELL, JUDGE

Patrick Johnson

Cavalier Building, Suite 508

95 White Bridge Road

Nashville, TN 37205

ATTORNEY FOR PLAINTIFF/APPELLEE

Lisa M. Sherrill

509 West Court Square

Springfield, TN 37172

ATTORNEY FOR DEFENDANT/APPELLANT

MODIFIED, AFFIRMED AND REMANDED.

HENRY F. TODD

PRESIDING JUDGE, MIDDLE SECTION

CONCUR:

BEN H. CANTRELL, JUDGE

CONCUR IN RESULTS:

WILLIAM C. KOCH, JR., JUDGE
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AMERICAN COLOR, a division of )

SULLIVAN GRAPHICS, INC., )

) Robertson Chancery

Plaintiff/Appellee, ) No. 12258

)

VS. )

) Appeal No.

INNOVO, INC., ) 01A01-9703-CH-00120

)

Defendant/Appellant. )

O P I N I O N

The defendant, Innovo, Inc., has appealed from a non jury judgment, in the amount of

$58,856.26, in favor of the plaintiff, American Color, a division of Sullivan Graphics, Inc., for

merchandise sold and services rendered to the defendant.

The complaint states that the suit is brought upon a sworn account as authorized by

T.C.A. § 24-5-107, but no sworn itemized statement of account is exhibited to the complaint.

Instead, the complaint, which is verified by the oath of its general manager, narrates a series of

charges represented by invoices attached to the complaint on which the complaint alleges a

balance of $58,856.26 is due.

In thirteen numbered paragraphs, the complaint alleges amounts due fromdefendant upon

thirteen invoices which are exhibited to the complaint.

The answer of defendant which is verified by the oath of its president, admits that it owes

some of the invoices, denies knowledge of two and, as to the remaining invoices, makes the

following defense:

The products were supplied to Nasco Group, Inc., the

parent of Innova. Nasco has since changed its name to

Spirco, Inc., and has filed for protection under the bankruptcy

code.

This Court has tabulated the assertions of the complaint and answer as follows:
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 Date Amount Defendants Answer

12/24/92 $ 116.37 Admit

12/29/92 1,339.05 Nasco received product

01/22/93 15,678.93 Nasco received product

01/22/93 841.10 Admit

01/29/93 1,603.18 Admit

01/29/93 624.60 Nasco received product

01/29/93 13,013.82 Nasco received product

01/29/93 815.12 Nasco received product

01/29/93 10,825.00 Nasco received product

01/31/93 11,120.82 Nasco received product

02/12/93 950.44 Nasco received product

02/15/93 1,190.75 Nasco received product

 $58,118.88

It appears that defendant’s sworn answer admitted owing plaintiff $2,560.65, denied

knowledge of $11,640.12 and, as to the remainder of the charges, stated that the product was

supplied to the “parent” of defendant which is in bankruptcy.

The Trial Judge filed the following memorandum:

This is an action on an account that is severely

contested on most of the general elements for which a debt

may be challenged.

(1) There is a challenge to the amount due and

whether the pleadings bar the Plaintiff from a judgment larger

than a prayer of some $46,000.00.

(2) There is some form of accord and satisfaction

alleged. This comes about when the defense alleges that a

promissory note was substituted as satisfaction for a debt

allegedly made. The substitution being a future guaranty of

payment.

(3) The Defendant alleges that the obligation, if

any, is not that of Innovo but of a subsidiary of Innovo,

Nasco.

The Plaintiff agrees that the work done was for Nasco,

a subsidiary company of Innovo. The Plaintiff disagrees as to

who is the obligor, claiming that Innovo was the guarantor of

the debt and that all of the proceedings, billings, charges and

payments were made in light of that type of arrangement. The

Plaintiff sought an amendment to the prayer for damages and

asked that the amendment be allowed and that the judgment

conform to the proof and there be no limit of $46,000.00 by

virtue of the prayer in the complaint.

American Color prepared the advertising agenda and

the products for the defendant. Kathrine Bahr, who was the
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credit manager of the Plaintiff company, testified that the

company, set up a ledger card on all its accounts and that the

one ledger card maintained for the charges was in the name of

Innovo. This ledger card then was supplemented by the

charges and payments on the account. Ms. Bahr said there

was not a separate account for Nasco in any of its capacities,

whether Nasco Sportswear or Nasco Express. Ms. Bahr

serves as the credit manager of the Plaintiff and she was

personally responsible for and oversaw the accounts of the

company and specifically the one involving Innovo.

Before 1992 the bill of the Plaintiff actually went to

Zamora and Associates and they would then pay the company.

Beginning in 1992, Innovo decided to have the billings made

direct to them or at least they were made to them at

somebody’s request. Ms. Bahr admitted that she had

received a check from Nasco but she claims that the payment

was made subsequent to a bill made to Innovo.

Ms. Patricia Anderson Lasko, the CEO and President

of Innovo testified with respect to the company’s attempted

financial arrangements with the Plaintiff company. This

witness testified that Innovo was a holding company and that

some of the subsidiaries were Innovo, Inc., Nasco, Inc., and

Nasco Products. She testified that each one of these

companies had its own accounts and did its own receipts and

disbursements and handled its own business items. The

witness acknowledged that there were some credit problems

particularly in 1992 and there was an attempt to have a

funding of the debt and future responsibilities done by

promissory notes which would cover the debts and purchases

of the three subsidiary companies of Innovo.

The substance of the testimony of Ms. Lasko was that

Nasco was the beneficiary of the products furnished by the

plaintiff and Innovo did not have an obligation to pay for

Nasco’s purchases. She insisted that each company was

independent in its own operations and dealings with

American Color and Innovo was not to be charged with the

responsibility in view of the independence of Nasco.

As part of the testimony in this cause there was

furnished the deposition of Ismael Zamora. Mr. Zamora is

engaged as a graphic designer and his wife is a sales

representative. They began doing business with Innovo in

1990. He began doing work for Innovo and then took a fulltime job with Innovo and did work with American Color for

the benefit of Innovo. Some of the accounts or the billing by

American Color was through Mr. Zamora and some went

another direction but he did participate in the payments to

American Color.

Weighing all of the testimony including the

aforementioned highlights shows that the balance falls to the

Plaintiff. The Plaintiff has shown by a preponderance of the
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testimony that the Defendant is obligated in the amount of

$58,856.25.

(1) The motion to amend the prayer for damages

to conform to the proof is allowed.

(2) The Court finds that the offer of the

promissory note as satisfaction to debt was not accepted by

the Plaintiff.

(3) The materials were furnished to the subsidiary

Nasco; but Innovo, by all the proof, is the entity to be charged

with the debt.

This Opinion shall be filed as a part of the record in

this Cause, but is not to be copied in the decree herein. 

The Trial Judge awarded judgment to plaintiff against the defendant for $58,828.26, the

amount alleged to be due in the sworn complaint.

On appeal, defendant presents the following issues for review:

I. Did the trial court err in disregarding the corporate

form by holding the defendant, Innovo, Inc., responsible for

the debts incurred by its sister corporations?

A. Can corporations be held liable for the debts

incurred by their sister corporations?

B. When and how should the court determine

whether it is appropriate to disregard the

corporate form?

C. Did the evidence presented by American

Color justify disregarding the corporate

forms of the subsidiary corporations?

Plaintiff presents its issues in the following form:

1. The trial court was correct in ruling that the appellant

is liable for charges to an open account made by itself and

sister corporations when: (1) The “course of dealings”

between the parties indicated that the appellee looked to the

appellant for payment on this account and appellant made no

objections thereto; (2) the appellant, as agent for its sister

corporations, is liable since credit was extended to it alone.

2. The trial court abused its discretion in failing to award

prejudgment interest.
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The defendant’s only defense to the “sworn amount” (sworn complaint with invoices),

was a sworn answer that “the product” (the subject of the invoices), was delivered to a subsidiary

of the same corporation of which defendant was also a subsidiary. Defendant does not explain

how it, a subsidiary, is litigating its liability while its parent corporation is in bankruptcy.

Defendant’s sworn answer is not an unequivocal denial as contemplated by T.C.A. § 24-

5-107, but an effort to shift the liability to a sister corporation when there is evidence that the

course of dealing between the parties was that the goods and services would be furnished to the

sister corporation “at the request of defendant,” that defendant would pay plaintiff for such goods

and services and collect from the sister corporation. There is evidence of an effort to change the

course of dealing to direct billing and to collection from the sister corporation, but the permanent

accomplishment of such change is not shown.

The evidence does not preponderate against the findings of the Trial Judge. However,

this Court finds that part of the debt ($3,298.03) which defendant did not deny in its sworn

answer should bear pre-judgment interest. Upon remand the amount of said interest will be

computed and the judgment of the Trial Court will be increased in this amount. The judgment

so rendered will bear statutory interest from the date of the original judgment October 28, 1996,

until paid. Costs of this appeal will be paid by defendant and its surety.

MODIFIED, AFFIRMED AND REMANDED.

 

HENRY F. TODD

PRESIDING JUDGE, MIDDLE SECTION

CONCUR:

 

BEN H. CANTRELL, JUDGE

CONCUR IN RESULTS:

WILLIAM C. KOCH, JR., JUDGE
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