Court Opinion

ID: 9607328
Source: CourtListenerOpinion
Date Created: 2023-08-22 02:57:39.006911+00
Date Added: 2024-06-11T18:02:38.409731
License: Public Domain

SCHAUER, J., Dissenting.
It appears to me that the evidence in the present case falls short of establishing the requirement that fraud, injustice, or an inequitable result will follow unless the corporate entity is disregarded. (See Automotriz etc. De California v. Resnick (1957), 47 Cal.2d 792, 796 [5] [306 P.2d 1], and cases there cited; Minifie v. Rowley (1921), 187 Cal. 481, 487 [5] [202 P. 673].)
Certainly the evidence referred to in the majority opinion relates a number of facts which must be regarded as established. Principally the evidence establishes that two corporations were organized by members of the Leuschner family, that the stockholders of those corporations did control them, that there was a downward turn in the market for canned goods and that one or both of the corporations lost money, and that the Leuschners or some of them advanced more money to those corporations as loans in an effort to keep them solvent, both for the benefit of the creditors and themselves; these loans were in addition to that which had been paid in for the stock. Wherein does such evidence even tend to prove “fraud, injustice or an inequitable result?”
*583Surely we may also recognize that undoubtedly the corporations were organized so that they would constitute a shield between the individual stockholders and the creditors, i.e., so that liability of the stockholders to be incurred in the dealings of the corporations would be limited to the amount of their presumptively original investment in the corporations. Is such purpose not always a material, if not controlling, factor in leading the incorporators to select the corporate form of enterprise?
Manifestly from the above recounted facts no reason whatsoever is shown for the drastic remedy of disregarding the corporate entity. As appears from the various provisions of law relating to corporations and as is even mentioned in other parts of the law, such as section 923 of the Labor Code,1 it has been the policy of government to foster and encourage the corporate form of enterprise for the express purpose of limiting the liability of the stockholders to the funds invested in the enterprise. This objective of encouraging thrifty persons to become entrepreneurs by limiting their possible losses to the amounts originally invested is the most important element of the corporate concept. It is because of the safety. factor that investors become willing to pool their capital for larger enterprises. Even in partnerships express provision is made for the classification of partners as general and special and thereby limiting liability beyond the investment to general partners only. (See Corp. Code, § 15507 et seq.)
It is also a thoroughly established principle of law that the perpetration of fraud, or similar acts leading to injustice and inequity, is not to be lightly presumed and, indeed, that any of such acts must be established by clear and convincing proof. Fraud is closely akin to a charge of criminal conduct and the character of the proof to establish fraud should at least approximate that which is essential to prove guilt of crime. (Hedden v. Waldeck (1937), 9 Cal.2d 631, 636-637 [1-3] [72 P.2d 114].) I appreciate, of course, that it is in the trial court that the question is initially determined as to whether the evidence constitutes clear and convincing proof of the fact to be established, but that does not mean that the reviewing court shall not scrutinize the record to determine whether the facts which the evidence is sufficient to establish are of *584themselves of such a character as can, as a matter of law, constitute clear and convincing proof of fraud.
In the light of the foregoing, all of which is merely fundamental to the concept of corporate operation, and the basis for the extraordinary remedy of striking down the corporate entity, it seems to me that the evidence recounted in the opinion of the Chief Justice, as was said at the beginning, “falls short of establishing the requirement that fraud, injustice, or an inequitable result will follow unless the corporate entity is disregarded. ’ ’ Rather, I believe, the advancement as loans to the companies by members of the Leuschner family of various sums of money aggregating probably $100,000, and on any view of the evidence a substantial sum, with the result that the plaintiff creditors received on an average about 80 per cent of the contract price for produce they delivered, shows a concerted effort by members of the family to save the solvency of the companies for the benefit of the creditors and themselves. They had a perfect right, of course, to seek to protect themselves when going beyond the call of legal duty to try to save the corporate enterprise. The regrettable situation that, because of a declining canning market and a breach of contract by one of the buyers from the defendant companies, the corporations were unable to pay plaintiffs in full does not in the circumstances warrant a holding that fraud, inequity, or injustice will follow as a result of acts of the Leuschners unless further monies are supplied by them.
In any event, it additionally appears that the defendant Elizabeth F. Leuschner was actually a housewife by occupation who had little knowledge of the affairs of the corporations and no independent direction or control of their business activities, and who only did the bidding of her husband, Richard D. Leuschner, Sr., in the way of executing documents as requested by him.2 Moreover, during the period when plain*585tiffs’ claims arose in 1952 and 1953, Mrs. Leuschner’s sole ownership or property interest in the two defendant corporations consisted of one share of Yosemite’s stock, and no shares whatsoever of the stock of Kadota. As shown in the opinion prepared by Chief Justice Gibson, various employes of Yosemite also owned eight shares of that corporation’s stock. I can perceive no reasonable or fair basis for holding Mrs. Leuschner, a housewife, responsible for the activities and obligations of Yosemite, which she herself did not direct or control and in which she owned only one share of stock, while not holding the stock-owning employes. Consequently, it seems to me, an affirmance of the judgment against her in itself serves to promote injustice and inequity, rather than the contrary.
I would reverse the judgment as to all of the individual defendants.
Shenk, J., concurred.
Appellants’ petition for a rehearing was denied March 11, 1959. Carter, J., did not participate therein. Shenk, J., and Schauer, J., were of the opinion that the petition should be granted.

Lab. Code, § 923: ‘ ‘ Governmental authority has permitted and encouraged employers to organize in the corporate and other forms of capital control. ...”

The record shows the following:
“Q. [Of Mrs. Leuschner] What is your occupation? A. Housewife. “Q. Do you have any other occupation other than that of housewife? A. No. . . .
“Q. Do you have any knowledge of the corporation by the name of Yosemite Creek Company? A. I knew there was one, yes. . . .
“Q. . . . were you one of the incorporators of Yosemite Creek Company? A. According to that, I am, or was.
“Q. Yes, and were you also one of the directors ... in 1949? A. I don’t remember. It should be of record. . . .
“Q. In what business was the Yosemite Creek Company engaged? A. In the canning business.
*585”Q. Did you do any processing, selling? A. I don’t know anything about that part of it. . . .
“Q. Where was the plant located in 1949, Mrs. Leuschner? A. At Kadota out on Yosemite Highway.
‘‘Q. Was the plant and office later moved to Modesto? ... A. Yes, I think it was.
“Q. Do you know about when it was moved? A. No, I do not. . . .
“Q. . . . did you, as an individual, ever enter into any business transaction, business deal, or arrangements of any kind with Yosemite Greek Company? A. Well, all I did was give money ... I loaned money to Yosemite Creek Company . . . and I was supposed to get it back. . . . I don’t remember the years, but . . . there are records of that. . . . I don’t know how much [money] ...” (Italics added.)
Mr. Leuschner, Sr., testified as follows:
”Q. During this period of time, Mr. Leuschner, in 1953, . . . did you have occasion to actually discuss the business operations and the operation of the Yosemite Creek Company and the Kadota Creek affairs with her [Mrs. Leuschner] to a point where she would know . . . the nature and extent of the business, the activities? A. No.
“Q. In other words, she didn’t know, is that right? A. I ran the business.”