Opinion ID: 2164761
Heading Depth: 1
Heading Rank: 3

Heading: the defendants' cross appeal

Text: On their cross appeal, the defendants first argue that expenditures made by the defendants CLESCO and Neustadt and disallowed as improper by the trial court were in fact authorized expenditures. The trial court found that under general expenditures CLESCO spent $19,846.40. Of this amount $13,412 was found to have been wrongfully misapplied to cover expenditures in the amount of $11,260.82 to the defendant Neustadt as reimbursement for office expenses he incurred on behalf of CLESCO, the balance having been paid for miscellaneous items including real estate taxes, legal fees, state fees, insurance, fire department contributions, signs, a mailbox and a guardhouse. The court rendered judgment for the plaintiffs against both CLESCO and Neustadt. [4] The issue presented is whether the covenant, stating that funds received from the plaintiff-property owners shall be applied to the maintenance ... of the roads authorized the defendants to expend part of those funds for purposes not strictly related to the maintenance of the roads. We find that the trial court did not err in concluding that the covenant did not authorize such expenditures. The defendants argue that all of the above expenses fall into the general category of overhead expenses and are a part of the maintenance of the roads, urging that we construe the word maintenance broadly to encompass all of the above expenditures. The word maintenance, however, has no precise legal significance; its meaning varies with the purpose to be accomplished. Compare Davis Holding Corporation v. Wilcox, 112 Conn. 543, 547, 153 A. 169 (1931), with Faraday v. Dube, 175 Conn. 438, 399 A.2d 1262 (1978). We agree with the plaintiffs that the term must be construed in light of the intention of the parties, which is to be determined from the language used, the circumstances, the motives of the parties and the purposes they sought to accomplish. Klein v. Chatfield, 166 Conn. 76, 80, 347 A.2d 58 (1974); Henriques v. Rockefeller, 148 Conn. 654, 658, 173 A.2d 596 (1961); see Swayze v. Swayze, 176 Conn. 323, 408 A.2d 1 (1978). We add, however, that a covenant containing language of doubtful or uncertain meaning is to be construed in the sense in which it is most probably understood by the person to whom it is addressed; or, expressed differently, the terms are to be construed most strongly against the party using them, in this case the defendant Neustadt. Collins v. Sears, Roebuck & Co., 164 Conn. 369, 376, 321 A.2d 444 (1973); 20 Am. Jur. 2d, Covenants, Conditions and Restrictions § 6. Moreover, the meaning of language in restrictive covenants is to be narrowly construed and is not to be extended by implication. Rossini v. Freeman, 136 Conn. 321, 323, 71 A.2d 98 (1949); Hooker v. Alexander, 129 Conn. 433, 436, 29 A.2d 308 (1942). The court found that neither the deeds, contracts of purchase nor the defendants' offering statements mentioned the fact that part of the funds collected would be used for CLESCO's office expenses, and that at no time were the plaintiffs ever informed that some of the funds collected for road and beach maintenance would be used to defray office and administrative expenses. The court found further that most of the funds found to have been misapplied by the defendants were paid to Neustadt as reimbursement for amounts he paid for expenses in connection with collection work on delinquent accounts owed to CLESCO by the plaintiffs. Implicit in the court's findings and conclusions is a restrictive definition of the word maintenance in the covenant contained in the plaintiffs' deeds, one that would limit permissible use of the road fund to the physical upkeep of the road, excluding use of the funds for administrative or managerial expenses. This construction of maintenance is both consistent with meanings given to similar covenants relating to road maintenance, and with the parties' intentions concerning the payments made by the plaintiffs. Maintenance in relation to property has been defined as the upkeep or preservation of the condition of property; Black's Law Dictionary; and making repairs and otherwise keeping premises ... in good condition. Ballentine's Law Dictionary. It connotes a state of physical repair, upkeep, and preservation. Frye v. Angst, 28 Wis. 2d 575, 582, 137 N.W.2d 430 (1965); 54 C.J.S., Maintenance, p. 905. It does not, in common parlance, encompass the expenditure of funds for the administrative or managerial purposes of a corporation. If the covenant here in question had been intended to authorize expenditures other than those related to the physical upkeep and repair of the roads, it could easily have so stated. See Neptune Park Assn. v. Steinberg, 138 Conn. 357, 361, 84 A.2d 687 (1951). The court found that approximately $11,000 of the $13,412 wrongfully misapplied had been used by Neustadt to underwrite the cost of collection work by CLESCO and Neustadt. This expenditure, of course, had nothing to do with the physical upkeep or repair of the roads. The court could have concluded that the plaintiffs never envisioned such a use of the road fund, and never intended that it be used in this manner. In view of the evidence before the court, indicating that the roads were in constant need of repair and that the plaintiffs paid the defendants monies solely to alleviate that problem, we cannot say that the court erred in concluding that Neustadt impliedly covenanted with the plaintiffs to use the road fund solely for the physical upkeep of the roads, and not for general administrative expenses.
The defendants next claim that the trial court erred in allowing the plaintiffs, after the trial and initial judgment, to amend their complaint to conform to the proof at trial on the ground that this amended complaint alleged a new cause of action. In this connection, they argue further that the judgment, covering amounts wrongfully spent during the years 1966 to 1973, was improper in that the court erroneously allowed the amended complaint to relate back to the date of the filing of the plaintiffs' original complaint in 1971. Without such relation back, the defendants argue that the statute of limitations, General Statutes § 52-576, would bar any claim based on actions of the defendants prior to six years before August, 1975, the date of the postjudgment amended complaint. These claims are without merit. As to the defendants' argument that the amendment was improper, we note that a trial court may allow, in its discretion, an amendment to pleadings before, during, or, as here, after trial to conform to the proof. Wright v. Coe & Anderson, Inc., 156 Conn. 145, 155, 239 A.2d 493 (1968); Thibault v. Frechette, 135 Conn. 170, 173, 62 A.2d 863 (1948); cf. Winsor v. Hawkins, 130 Conn. 669, 670, 37 A.2d 222 (1944); General Statutes § 52-130; Practice Book, 1963, §§ 132, 134; Maltbie, Conn. App. Proc. §§ 33, 62-64. Such a ruling can be reversed only on a clear showing of abuse of discretion. Practice Book, 1963, § 132; Antonofsky v. Goldberg, 144 Conn. 594, 597, 136 A.2d 338 (1957). We find no abuse of discretion in the court's action, and, thus, the court did not err in allowing the amendment. As to the defendants' argument concerning the relation back of the amendment and the statute of limitations, it is well settled that amendments to a complaint, unless they allege a new cause of action, relate back to the date of the complaint. Keenan v. Yale New Haven Hospital, 167 Conn. 284, 285, 355 A.2d 253 (1974); Baker v. Baker, 166 Conn. 476, 486, 352 A.2d 277 (1974); Kelsall v. Kelsall, 139 Conn. 163, 165, 90 A.2d 878 (1952). The issue, therefore, is whether the amended complaint, filed after trial, alleged a new cause of action. We hold that it did not. A cause of action is that single group of facts which is claimed to have brought about an unlawful injury to the plaintiff and which entitles the plaintiff to relief. [Citations omitted.] `A right of action at law arises from the existence of a primary right in the plaintiff, and in invasion of that right by some delict on the part of the defendant. The facts which establish the existence of that right and that delict constitute the cause of action.' Pavelka v. St. Albert Society, 82 Conn. 146, 147, 72 A. 725. Gallo v. G. Fox & Co., 148 Conn. 327, 330, 170 A.2d 724 (1961); see Keenan v. Yale New Haven Hospital, supra; Veits v. Hartford, 134 Conn. 428, 434, 58 A.2d 389 (1948). Here, the single group of facts contained in the plaintiffs' complaint alleged a complete delict by the defendants of the duties imposed by the covenant, and the complaint sought an accounting of the monies paid pursuant to that covenant. By allowing the amendment, the trial court properly permitted the plaintiffs to expand or amplify what had already been alleged in support of their cause of action. See Gallo v. G. Fox & Co., supra. The damages awarded by the court were of such a nature that they were in general within the allegations of the complaint, and the allowance of damages for misappropriation of funds by the defendants did not constitute a departure from those allegations in a matter essential to the charge or claim which would render the judgment awarding them invalid. Frosch v. Sears, Roebuck & Co., 124 Conn. 300, 303, 199 A. 646 (1938). Moreover, where, as here, there is a variance between allegations in the complaint and the proof at trial, which is corrected by amendment to the complaint, a judgment based on the amended complaint will not be set aside unless the variance misled or prejudiced the defendants on the merits of the case. Antonofsky v. Goldberg, supra, 599; Reciprocal Exchange v. Altherm, Inc., 142 Conn. 545, 552, 115 A.2d 460 (1955); Practice Book, 1963, § 134. The facts on which the plaintiffs relied in proving the defendants' misappropriation of funds had been received through the testimony of the defendant Neustadt. Moreover, the court opened the original judgment and gave the defendants the opportunity to plead to the amended complaint and to offer evidence on the amount of damages. The new evidence resulted in a reduction of the damages originally awarded to the plaintiffs. In view of that, we cannot say that the defendants were prejudiced in maintaining their defense on the merits, or that they were surprised by the plaintiffs' proof, or that they were misled by the allegations in the amended complaint. For these reasons, the variance was not material, and the court's judgment was correct. Strimiska v. Yates, 158 Conn. 179, 184, 257 A.2d 814 (1969); Schaller v. Roadside Inn, Inc., 154 Conn. 61, 64, 221 A.2d 263 (1966). In sum, we hold that the amended complaint, arising from the same single group of facts as the initial complaint, properly related back to it, that the claims therein were thus not barred by the statute of limitations, and that the court's judgment was proper.
We turn finally to the defendants' claim that the court erred in concluding that CLESCO and Neustadt were alter egos and that, therefore, both defendants were liable in damages to the plaintiffs. Generally, a corporation is a distinct legal entity and the stockholders are not personally liable for the acts and obligations of the corporation. 18 Am. Jur. 2d, Corporations § 13; 19 Am. Jur. 2d, op. cit. § 713. Courts will, however, disregard the fiction of a separate legal entity to pierce the shield of immunity afforded by the corporate structure in a situation in which the corporate entity has been so controlled and dominated that justice requires liability to be imposed on the real actor. 1 Fletcher, Corporations (Perm. Ed. 1963 Rev.) § 43; Ballantine, Corporations (Rev. Ed.) § 136; 18 Am. Jur. 2d, Corporations § 14; see Vogel v. New Milford, 161 Conn. 490, 494, 290 A.2d 231 (1971); Tishman Equipment Leasing, Inc. v. Levin, 152 Conn. 23, 28, 202 A.2d 504 (1964); Humphrey v. Argraves, 145 Conn. 350, 354, 143 A.2d 432 (1958); Hoffman Wallpaper Co. v. Hartford, 114 Conn. 531, 535, 159 A. 346 (1932). We have affirmed judgments disregarding the corporate entity and imposing individual stockholder liability when a corporation is a mere instrumentality or agent of another corporation or individual owning all or most of its stock. See Zaist v. Olson, 154 Conn. 563, 573, 227 A.2d 552 (1967). In Zaist, we found the controlling stockholder and a related corporation liable under an alter ego theory, concluding that the corporate structure of the defendant in that case could properly have been disregarded under either the instrumentality rule or the identity rule. Zaist v. Olson, supra, 578. Similarly, we have concluded that the defendant Neustadt could properly have been held liable, and the corporate structure of CLESCO disregarded, under either theory. The instrumentality rule requires, in any case but an express agency, proof of three elements: (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; (2) that 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 or unjust act in contravention of plaintiff's legal rights; and (3) that the aforesaid control and breach of duty must proximately cause the injury or unjust loss complained of. (Emphasis added.) Zaist v. Olson, supra, 575. The identity rule, on the other hand, has been expressed as follows: If plaintiff can show that there was such a unity of interest and ownership that the independence of the corporation had in effect ceased or had never begun, an adherence to the fiction of separate identity would serve only to defeat justice and equity by permitting the economic entity to escape liability arising out of an operation conducted by one corporation for the benefit of the whole enterprise. Id, 576. The record before us reasonably supports a conclusion that CLESCO was a corporation in name only and that it was operated as the instrumentality or alter ego of Neustadt, subject to the sole control of Neustadt; as such, CLESCO's activity was not indicative of corporate activity, but was symptomatic of the business operations of an individual. See, generally, 46 A.L.R.3d 428, 431. The court found that Neustadt was the sole shareholder of CLESCO, that he was the president of CLESCO, that Neustadt held the only proprietary interest in CLESCO, that no minutes were kept of the meetings of CLESCO's directors, that no records of annual elections of CLESCO existed, that other officers of CLESCO existed solely to accommodate Neustadt, that Neustadt solely directed CLESCO's affairs, that only Neustadt could deal with corporate funds, and that CLESCO had never filed a corporate business tax return. In view of those facts the court could reasonably conclude that Neustadt completely dominated the corporation to the point where CLESCO had no separate existence, and that such control was used for the purpose of diverting Neustadt's positive legal duty; Zaist v. Olson, supra; imposed by deeds signed solely by Neustadt, to construct and maintain the roads in the development. Moreover, the court could conclude that there existed a unity of interest and ownership between CLESCO and Neustadt such that the purposes of justice would be served by disregarding the shield of CLESCO's corporate structure. In sum, we find no error in the court's conclusions imposing liability on CLESCO and Neustadt individually. See House of Koskot Development Corporation v. American Line Cosmetics, Inc., 468 F.2d 64, 66-67 (5th Cir. 1972); Segan Construction Corporation v. Nor-West Builders, Inc., 274 F. Sup. 691, 698-99 (D. Conn. 1967); Plank v. Arban, 241 So. 2d 198, 200 (Fla. App. 1970). We add one caveat. We do not wish to be understood to countenance, by anything we have said here, the imposition of the legitimate indebtedness of a corporation upon a majority stockholder in derogation of his legal immunity merely because of the corporate control inherent in his stock ownership. To do so would be to act in opposition to the public policy of this state as expressed in legislation concerning the formulation and regulation of corporations. See Zaist v. Olson, supra, 581 (Cotter, J., dissenting). The present case, however, presents a set of circumstances far different from mere majority control of a corporation by a sole stockholder. We decide cases on the record before us; and, on that record, we have no difficulty sustaining the conclusions of the trial court as to the personal liability of the defendant Neustadt.