No. 80-73 INTHE St1PRE:ME COURT OF THE STATE GF MONTANA 198C:

EVELYN M. F1,EMMER 

## ,Persorral Representative of the Estateof Jack Flemrner, Deceased, Plaintiff and Resportdent,-VSJOHN J. MING, Individually

## ,JOUN J,MING,INC

# ., and INCOME PROPERTIES,INC., Defendant and Appellant.

Appeal from: CistrictCourt of theMineteenth JudicialDistrict, Inand forthe County of Lincoln, The Honorable RclbertM. Holter, Judge presiding. Counsel of Record:

For Appellant:: Murray, Kaufman, Vidal & Gardon, Kalispell, Montana

For Respondent: Fennecsy, Crocker, Harnan 6 Bostock, Libby, Montana

Submitted an Briefs: August 13, 198Cc ~ecided : 

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# -P* ClerkMr. Justice Daniel J. Shea delivered the Opinion of the Court.

Defendants appeal the judgment of the Lincoln County DistrictCourt, entered after ajury verdict for plaintiffs, in the amount of $34,806 in actual and punitive damages and $7,727 incosts and attorney feeswith interesttoaccrue at 10 percent per year until paid. Plaintiffs Evelyn M. Flemmer

## , individually, and asthepersonal representative of her late husband, Jack Flemmer, sued the defendants for breach of contract and fraud for the nonpayment of a promissory note. On appeal, defendants allege that the trial court erred in denying their motions to dismiss and for summary judgment and in admitting evidence to vary the terms of the promissory note. Defendants also urge that there 

### is insufficient evidence to support the jury's verdict. We find no error and affirm. In 1968, theFlemmers listedthe Evergreen Motel, which they had owned and operated since 1948, with defendant John J. Ming, a real estateagent inLibby. After attempting for several months to sell the motel, Ming approached the Flemmers about buying it himself. The parties agreed on a purchase priceof $110,000. Ming had hisattorneydraw up a contract for deed and a promissory note for $10,000 which represented the downpayment. The contract listed John J. Ming, Inc., as buyer and the promissory note was signed by John J. Ming aspresident of John J. Ming, Inc. Before the contract was prepared, Ming had not informed the sellers that he was not buying the property in his individual capacity, but rather thatthebuyer would be a closely-held, family corporation of which he was the president. Mrs. Flemmer testified at trial the designation "Inc." after Ming's name on the contracthad held no special significanceto either her or her husband and that they were lead to believe thatMing would make payments under thecontract. After closing the sale, theFlemmers moved fromMontana to Lodi, California, where they intended to retire. In March 1970, Ming wrote to the Flemmers and informed them thatthemotel was not as profitable ashad been anticipated and that he would have to default unless the Flemmers were willing to renegotiate the purchase price and lower the monthly payments. Jack Flemmer was in poor health and did notwant totake themotel back. Consequently, the Flemmers agreed toreduce the sellingprice from $110,000 to$85,000. Ming's attorney drew up the renewal contract and the new agreement was executed on April 1, 1970. When the Flemmers received the new contract in the mail, it showed the buyer to be Income Properties, Inc., and was signed by John J. Ming, aspresident of that corporation. Ming had atno 

### time disclosed that a different buyer would be named in the contract. Moreover, the 1970 Corporation Annual Report filed by the corporation with the Secretary of State and introduced into evidence at trial by plaintiffs does not show thatMing was a corporateofficer atall. The original promissory note with John J. Ming, Inc., became the downpayment for thenew contractwith Income Properties. Ming could not pay the promissory note when 

### it became due on November 9, 1973, and therefore asked the Flemmers to accept a new note for $13,127.05, being the original $10,000 downpayment plus accrued interest. The Flemmers assented. The maker was again John J. Ming, Inc. The terms of the renewal note called for monthly interest payments of $87.51 to be made to the Flemmers, with the entire principal balance fallingdue on February 1, 1975. Ming sentthenote to the Flemmers by mail on stationary of Treasure State

### Realtors, Inc. The letterwas signedby Ming, ostensiblyas
an agent for Treasure State Realtors, Inc. This letter used--as did all correspondence from Ming to the Flemmers- -the pluralpronoun "we" when referring towho was liableto make payments under the note. Only six interest payments were made on the new note, atleast two of which were drawn on the checking account of Treasure StateRealtors, Inc. Jack Flemmer died on July 31, 1975. On February 2, 1978, 

### Mrs. Flemmer instituted this action for collection of the balance due on the note. She alleged that Ming had devised a fraudulent scheme todefraud theplaintiffsof the money owed them under the 1973promissory note. Plaintiffs also contended that the corporate defendants did not have any genuine or separate corporate existence and that they existed for the sole purpose of enabling Ming to transact hispersonal business ina corporate guise. We 

### find no merit in the defendants' charge that the trial court erred in ruling on certain procedural and evidentiaryquestions. The lower court's denial of defendants' motion for summaryjudgment was entirelyproper. An examination of the 

### pretrial record clearlyindicatesthatthe following factual issueswere indispute and could onlybe resolved by a trial

on the merits: (1) whether John J. 

### Ming operated John J. 

### Ming, Inc., Income Properties, Inc., and Treasure State Realtors, Inc., as his 

### personal businesses; (2) 

### whether Ming fraudulently represented to the plaintiffs that he would be liableon the contract and notes; (3)whether Ming acted as an agent for the defendant corporations; and (4) whether the corporate veilsshould be 

### pierced so as tohold Ming, Treasure StateRealtors, and Income Properties liableon the 1973 renewal note. Summary judgment 

### is proper only where the pretrial record discloses that there are no genuine issuesof material factand thatthemoving party 

### is entitled to judgment as a matter of law. Scott 

### v. Robson (1979)I Mont

# . , 597 P.2d 1150, 1154; Rule 56(c), M.R.Civ.P. Neither did the trial court err in denying Income Properties, Inc., Treasure StateRealtors, Inc., and John J. Ming's motion to dismiss on grounds that they were not "contractual" parties to the note. These defendants 

### misconstrue the essence of the plaintiffs' action. The Flemmers' lawsuit 

### is based not only on an action atlaw for breach of contract, but alsoon a claim inequity for fraud. Plaintiff alleged, in substance, that the defendants acted in concert to perpetrate a fraud. The lower court, ruling

on a motion to dismiss, must take the allegations of the complaint as true, Gunderson v. Bd. of Commissioners of Cascade County (1979), Mont

# . and must construe them in a light most favorable to the plaintiff. Fraunhofer v. Price (1979), Mont

# . I 594 P.2d 324, 327, 36 St.Rep. 883. A complaint willnot be dismissed for failure to state a claim unless it appears beyond any doubt that the plaintiff can prove no 

### set of facts in support of his claim which would entitle him to relief. Fraunhofer, supra, 594 P.2d at 327. Hence, the District Court 

### is not toengage in fact-finding when ruling

on a motion todismiss. See Fraunhofer, supra, 594 P.2d at 327. What evidence was later actuallyadduced in support of plaintiffs' position 

### is of no consequencewhen reviewing the appropriateness of the lower court's denial of a motion to dismissmade prior totrial. Defendants urge that thetrialcourterred inadmitting

### extrinsic evidence, chiefly letters from Ming to the Flemmers, relating to the circumstances leading up to the execution of the 1973 note. They contend that the parol evidence rule prohibits the admission of any and all extrinsicevidence contradicting or varying theterms of the note. There are numerous exceptions to the parol evidence rule. Evidence of the circumstances under which a written instrument was made or towhich it 

### relates is 

### admissible to establish fraud. Section 28-2-905(2), MCA. 

### There was therefore no error. Defendants also faultthe trial court for not granting their motion to dismiss plaintiffs' claim of fraud at the close of the plaintiffs' case in chief. We will 

### consider that assignment of error together with the defendants' charge that there was insufficient evidence to support the jury's conclusion that Income Properties, Inc., Treasure StateRealtors, Inc., and JohnJ. 

### Ming, Inc., were the alter ego of John J. 

### Ming and had no separate identitiesof their

own. This Court has recognized two general theories under which the corporate identity may be disregarded: the 

### socalled "agency" theory and the "identity" or "alter ego" theory. State ex rel. Monarch Fire Ins. Co. v. Holmes (1942), 113 Mont. 303, 307-08, 124 P.2d 994, 996. The court's instruction to the jury accorded with these recognized theories: 

# ".

.. a corporation's separate identitymay be disregardedwhen suchcorporation is

### under the 

### control of another corporation or individual, and acted as that corporation's agent as to the particular transaction, or, when the corporation's identity is 

### so identified with the other corporation or individual sought to be held liable as to make the two corporations one. Before you can disregard the separate identity of the corporation, however, you must alsofind.

# . . thatthecorporation 

### isutilized asa subter-

### fuge todefeat public convenience, tojustify wrong, or toperpetrate fraud." Where the corporate form is 

### abused by an individual controlling shareholder in order to defraud creditors, equity may pierce the corporate veil. See, Stromberg v. SeatonRanch Co. (1972), 160Mont. 293, 502 P.2d 41; Shaffer

v. Buxbaum (1960),137Mont. 397, 352 P.2d 83. The evidence supports a finding of fraud and justifies piercing the corporate veil. The record shows that all three of the corporate defendants were closely-held, family corporations. The officers, stockholders and members of the boards of directors consisted in each case of the same people: Ming, his wife, his son, and his 

### daughter. The registered officesof allthreecorporationswere located in Ming's personal residence. All 

### three corporations were engaged in the same enterprise 

### -- the 

### purchase, sale and development of real estate. These facts, if they stood alone would not, of course, warrant abrogating a corporation's limited liability. However, the use towhich the corporations were put does. In particular, when Ming asked to renegotiate the original contract, he never mentioned tothe Flemmers thatthe renewal contractwould be with

### Income Properties, Inc., or thattheFlemmmers would be required toretainthe originalpromissory notewithJohn J. 

### Ming, Inc., as the downpayment for the new contract. Ming regularly corresponded with the Flemmers under different business names. In those letters, he habitually used the word "we" when referring to the parties who were to make payment under the note. He made interest payments on the renewal note with checks drawn on different corporate accounts (Treasure State Realtors, Inc., and John J. 

### Ming, Inc.). Under the circumstances, it 

### was entirely reasonable for the Flemmers to conclude that the various corporationswere allapart of Ming's personal business empire. In 1970, when the second contract for deed was executed, Income Properties, Inc., replaced John J. Ming, Inc., as the purchaser, Ming testified that no considerationwas paid for that transfer. It 

### ishighlyunlikelythat

one corporation would trans£ er income-producing property to another corporation gratis unless their interests were really the same. Ming, admitted on the stand, the unity of interestwhich he had with Income Property, Inc.:



# . It 

### is not reallygood business sense, 

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## , to sell property and still stay liable r ten or twelve thousand ($10,000.00 or $12,000.00) of the obligation? A. I was liable on the note whether I gave the motel back to the Flemmers or not; whether John J. Ming, Incorporated was.

### " Ming also admitted on the stand thatatthe time the renewal note was mailed to the Flemmers, John J. Ming, Inc. was financiallyincapable of paying off thenote. The evidence showed that when Ming originally negotiated with the Flemmers to purchase their motel in 1968, he had been engaged as their real estate agent. The law imposes an affirmativedutyupon a real estateagentnot only to refrain from taking advantage of his client, but also to act with the utmost good faith, and to fully disclose all material facts concerning a transaction that might affect the client's decision. Lyle v. Moore (1979), Mont. 

## , 599 P.2d 336. Ming did not advise the Flemmers that Treasure State Realtors, Inc. was separate from John J. Ming, Inc., or that any of these were separate from John J. Ming, himself. Nor did he reveal, atthe time of executing the second note, thatthe corporatemaker, John J. Ming, Inc., could notpay 

### it off. Under the circumstances, we cannot say that the trial court abused 

### its discretion by denying the defendants'motion todismissplaintiffs' claimof fraud atthe closeof the plaintiffs' case in chief. Clearly, substantial evidence was introduced at trial to justify the jury's decision topierce the corporateveil. Defendants next contend that the evidence fails to support an award of exemplarydamages. There 

### is no merit to this claim. Since there 

### is substantial evidence of fraud, the jury was clearly within 

### its province in awarding punitivedamages. Section27-1-221, MCA. Plaintiff requests this Court to allow her attorney feesfor costsincurred resulting from thedefendants' posttrialmotions and appeal under our holding inErdman v. C & C Sales, Inc. (1978)

## , Mont. 

## , 577 P.2d 55, 59. We decline to do so. The award of reasonable post-trial attorney fees in Erdman 

### was grounded upon section 39-3-214, MCA (formerly section 41-1306, R.C.M. 1947), a statutethat 

### is inapplicable tothe presentcase. Thejudgment of theDistrictCourt 

### is affirmed.

We Concur:



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