Opinion ID: 1483004
Heading Depth: 1
Heading Rank: 6

Heading: The Corporate Relation of Pure.

Text: At the threshold of this issue, cross-appellants interpose the objection that there can be no liability of Pure under the so-called corporate instrumentality doctrine unless there was a fraud worked upon cross-appellee by the various corporate relationships and that while the relationship is pleaded in the Second Amended Bill there is no allegation therein of resulting fraud to cross-appellee. This objection is unsound. The facts of the corporate relationship were pleaded and appear undisputed in the evidence. The parties and the trial judge treated this issue of liability of Pure as being present. The Court ruled thereon. In this state of the record we may (Norton v. Larney, 266 U.S. 511, 516, 45 S.Ct. 145, 69 L.Ed. 413), and do, assume the pleadings, as amended, to accord with the facts. The pertinent facts as to corporate relationship are as follows. Prior to October 1, 1929, Pure Carbonic Company of America was an existing Delaware corporation. About that date, it caused to be organized, in Delaware, Pure Carbonic, Inc. (a defendant here), with capital stock of $5,000.00, wholly owned by the parent company. On that date, the two companies entered into a contract where Pure (therein called Sales) was employed by Pure of America (therein called Pure): as its agent to manage and operate, during the term of this contract, all plants for the production of carbonic acid gas and any and all other gases in gaseous, liquid and solid form, and all by-products thereof, and for the manufacture of apparatus and containers for the utilization and transportation of such gases, which it or its subsidiary or controlled companies now own or control, or which it or they may hereafter build or acquire; and likewise employs Sales as its agent to market and sell, during the term of this contract, the output of all such plants. Other pertinent provisions of the contract were as follows: Third: Pure agrees (1) to gives Sales the use of all cylinders, containers, motor trucks, equipment and shipping facilities, which it now owns or may hereafter acquire; (2) to supply such working capital as Sales may need; (3) to provide such executive management (but not accounting, bookkeeping and clerical service), and office accommodation and facilities, as may be necessary for the proper conduct of Sales business; and (4) to procure for Sales such contracts with Pure's subsidiary or controlled companies as will enable Sales to exercise in each case the agency hereby created, and as will in each case constitute Sales the agent of such subsidiary or controlled company. Fourth: Sales agrees (1) to manage and operate efficiently and carefully all of said plants; (2) to maintain the same in first class condition, charging necessary repairs and replacements to operating expense and setting aside and charging to operating expense proper reserves for depreciation and for wear and tear not immediately replaceable by repairs; (3) to distribute, market and sell, the product manufactured in said plants as efficiently as possible, realizing, to the best of its ability, the largest obtainable gross receipts therefrom; (4) to pay all expenses of such operation, maintenance and selling, and to discharge all expenses or liabilities incurred therein or thereby and to collect all accounts receivable or other proceeds resulting therefrom; (5) to credit monthly on its books to Pure all profits accruing to it from the operation of its entire business over and above an amount equal to six per cent (6%) per annum on its outstanding capital stock, which said amount it is hereby authorized to deduct and retain, and it hereby agrees to accept as full compensation for its services hereunder; and (6) to pay over to Pure under demand any profits becoming due and credited to Pure as aforesaid. This Agreement shall be binding upon and inure to the benefit of the respective successors and assigns of the parties hereto. On April 17, 1933, Pure of America caused Dispensing to be organized, in New York, with capital stock of $200.00, wholly owned by the parent company. April 29, 1933, the license was assigned to Dispensing  Pure of America expressly assuming liability for performance by Dispensing. In 1934, Pure of America caused Dry Ice, Incorporated, to be organized and wholly owned its stock. The general business of the entire corporation structure seems to have been the sale of carbon dioxide in solid, liquid and gaseous forms. The places in this set up of the various companies was as follows. Pure of America turned over its property to Pure under the agreement of October 1, 1929, and thereafter seems to have been solely concerned in receiving the profits (above $300.00 dividends allowed Pure under the contract) from Pure and in directing the general policies of the business. Dispensing (organized in 1933) held the license as assignee. Besides this license contract, it had no assets except the capital stock of $200.00. It transacted no business, kept no books, had no employees, paid no dividends. It had no contracts with Pure or any one else. It was simply an incorporated repository of the license agreement. Dry Ice, Incorporated (organized in 1934), bought dry ice from the manufacturers thereof. It turned over to Pure such dry ice as Pure needed, at the cost price to it (Dry Ice), and sold dry ice to other customers. It had no contract with Pure or other of members of this corporate family. It paid no current dividends. Pure was the active operating unit. It owned the plants and much of the equipment; apparently manufactured the liquefiers; manufactured liquid and gaseous carbon dioxide; sold dry ice to customers using liquefiers; and sold liquid or gaseous carbon dioxide to others. It kept complete books on its operations and business; calculated and paid royalties and reported to Carbo-Frost. It is true that the vouchers accompanying royalty checks to Carbo-Frost were endorsed this payment made for the account of Carbonic Dispensing, Inc., but the checks were by Pure. It received no funds from and paid none to Dispensing. All net funds, above the $300.00 annual dividend allowed under the above contract with Pure of America, were paid over to Pure of America as long as that corporation existed. It had no contract with any of the other corporations, except the contract with Pure of America (October 1, 1929), but continued the same method of operation and accounting from October 1, 1929, to the date of trial although the license passed by assignment to Dispensing and although there were various corporate changes (to be stated hereinafter). This action was filed April 1, 1936. In July, 1936, there was a rearrangement of corporations. At that time Air Reduction Company, Incorporated, owned all of the capital stock of Pure of America, which, in turn, owned all of the capital stock of Pure, of Dispensing, and of Dry Ice, Incorporated. In July, 1936, Pure of America was dissolved, all of its assets going to Air Reduction as a liquidating dividend; Dry Ice, Incorporated, was dissolved and a new Dry Ice, Inc., organized  the assets of the old Dry Ice going to Air Reduction and to the new company. All of the above companies have the same offices. While not identical, there is much similarity in the personnel of the officers and directors of the various companies. The control of all is, obviously, in the same hands and the business policies are in common and toward a unified result. In short, there is really but one group engaged in a single business but, for their own purposes, operating different departments of that business through separate corporations. Apparently, the physical property used in the business is very largely concentrated in Pure  at least appears upon its books. The exception is that there is evidence that Air Reduction (at the time of trial) carried the liquefiers and gas cylinders on its books and that these liquefiers had theretofore been owned by Pure of America. Our interest in the corporate status of the above business is confined to the effect thereof upon the rights of this plaintiff  rights created by and resting upon the license contract. How does this status affect those rights? If Dispensing (being assignee from the licensee of this license contract) is the only entity liable to plaintiff for the performance of the license contract, there can be no realization of recovery for a violation of that agreement. If Pure is immune because not a party to the license contract or the contract of assignment, then a licensee can, through the facile method of variously incorporating branches or departments of its business, entirely escape legal liability for legal wrongs. In short, may use the forms of law to perpetrate a positive fraud. Courts of justice do not permit such chicanery to realize its purpose. [7] Pure is the manufacturing, and selling unit in this aggregation. It is the unit and the only unit actually operating and earning under the license contract. It is liable for violation of that contract. Whether it alone is liable is of no moment here. The issue here is whether it is liable. We hold it is.