Opinion ID: 1213053
Heading Depth: 1
Heading Rank: 3

Heading: Bendix's Liability as a Contracting Party

Text: At the conclusion of Adams' case-in-chief, Bendix moved for a directed verdict against Adams. The court denied the motion on the tortious interference claim, but granted Bendix's motion on Adams' claim for breach of contract. Adams' theory is that Bendix was a party to the contract either because Marine was the instrumentality of Bendix, or it was acting as the agent of Bendix. There was insufficient evidence to support Adams' claim that Marine, in negotiating and later breaching its contract, was merely serving as a department or an `instrumentality' of the parent corporation. We considered a similar claim in Jackson v. General Electric Co., 514 P.2d 1170 (Alaska 1973). In Jackson, the plaintiff brought a defamation action against General Electric and its wholly-owned subsidiary, the General Electric Credit Corporation (GECC). The evidence showed that GECC financed a substantial portion of General Electric's credit sales. The two companies filed consolidated income tax returns. The directors and officers of GECC were all officers or employees of General Electric. Despite these facts, we affirmed the trial court's dismissal of General Electric because it was not responsible for GECC's conduct. We noted that appellant offered no evidence to show that GECC was underfinanced, or that GE used the property of GECC as its own, or paid the salaries, losses or expenses of GECC. 514 P.2d at 1174. Adams notes that a number of the criteria that might be used to evaluate the relationship between two corporations that were suggested in Jackson apply to the relationship between Marine and Bendix. Although this may be so, more important than the quantitative approach urged by Adams is the fact that there is no suggestion anywhere in the record that Marine was created to defeat public convenience, justify wrong, commit fraud, or defend crime. 514 P.2d at 1172-73. Furthermore, as one authority has noted: It is to be expected that a subsidiary will be controlled by its parent, otherwise the latter would have little reason for creating it. 6 Z. Cavitch, Business Organizations § 120.05[2][b] (1979). In Elliott v. Brown, 569 P.2d 1323 (Alaska 1977), we stated that piercing the corporate veil requires considerably more than mere control; it exists to prevent a party from obtaining an advantage through deceptive or manipulative conduct. Adams has also failed to prove that Marine was acting as the agent of Bendix when Marine negotiated and breached the contract for the 1970 season with Adams. [14] A subsidiary is not presumed to be the agent of its parent corporation. As noted in Restatement (Second) of Agency § 14M (1958): A corporation does not become an agent of another corporation merely because a majority of its voting shares is held by the other. [15] To establish an agency relationship between Bendix and Marine, Adams must show that Marine negotiated and signed its contract with him on behalf of the Bendix Corporation, and not as a separate corporate entity. [16] Adams cites essentially two items of evidence to establish an agency relationship. The first is a press release issued by Rambo which states that an Arctic survey is being conducted by Bendix. Adams introduced no evidence to show that Bendix ever saw or approved this statement. Rambo was an employee of Marine, not Bendix. Second, Adams argues that the project was funded by the Bendix Corporation and required its approval. The only evidence introduced on the question shows that the funding and approval was in the nature of an interest-bearing loan from Bendix to Marine. [17] Such evidence is not any more supportive to the creation of an agency relationship than an ordinary bank loan. There is no suggestion that Adams thought he was contracting directly with the Bendix Corporation. Evalsons v. Industrial Covers, Inc., 269 Or. 441, 525 P.2d 105 (1974), a case cited by Adams, is distinguishable. In Evalsons, the Oregon Supreme Court found an agency relationship between a parent and a subsidiary, where employees' salaries of the subsidiary were paid directly by the parent. The parent and subsidiary had the same address and telephone number. Employees of the parent communicated directly with the plaintiff. The subsidiary used the parent's letterhead. The facts of the case, unlike here, were such that the plaintiff might well have been led into believing that he was dealing directly with the parent. In short, the evidence was insufficient to establish that Marine was acting on Bendix's behalf in contracting with Adams, nor did Bendix or Marine create the impression that this was the case. Finally, Adams argues that the Bendix directive to terminate speculative projects establishes that Marine was acting as Bendix's agent. We have previously indicated that the Bendix directive was apparently issued to protect its interests as a shareholder in Marine and as its creditor. The directive is, nevertheless, some evidence of the exercise of control over Marine, one factor to be considered in determining the existence of an agency relationship. [18] We do not believe that this one item of evidence, by itself, establishes an agency relationship, and, in any event, it would not be sufficient to establish that Marine was acting on behalf of Bendix at the time when the contract was formed. Because Adams failed to show that Bendix was a party to the original contract, even if an agency relation were created later between Bendix and Marine as a result of the directive, this would not make Bendix a party to the earlier contract on an agency theory so as to be liable for a breach of that contract. [19] Adams would have to prove that Bendix became a party to the contract through the assignment of rights and the delegation of duties. [20] This Adams failed to prove. Consequently, Bendix cannot be held liable on a contract theory. Given our disposition of this case, it is not necessary to consider other issues raised by the parties. [21] The judgment against the Bendix Corporation is REVERSED, and the cause against it is dismissed.