Court Opinion

ID: 1268369
Source: CourtListenerOpinion
Date Created: 2013-10-30 05:17:58.796554+00
Date Added: 2024-06-11T10:44:14.995816
License: Public Domain

181 S.E.2d 799 (1971)
11 N.C. App. 444
PILOT TITLE INSURANCE COMPANY
v.
The NORTHWESTERN BANK, First Atlantic Corporation, Hillwest, Inc., and Park Road Professional Center, Inc.
No. 7126SC206.
Court of Appeals of North Carolina.
June 23, 1971.
*802 Ruff, Perry, Bond, Cobb & Wade by James O. Cobb, Charlotte, for plaintiff appellee.
Jack T. Hamilton and Fairley, Hamrich, Monteith & Cobb by James D. Monteith, Charlotte, for defendant appellants The Northwestern Bank, First Atlantic Corp., and Park Road Professional Center, Inc.
GRAHAM, Judge.
Appellants contend plaintiff does not have standing to seek injunctive relief, urging the well established principle that injunctive relief will be granted only where there is not a full, adequate and complete remedy at law. In re Davis' Custody, 248 N.C. 423, 103 S.E.2d 503; Amazon Cotton Mills Co. v. Duplan Corp., 245 N.C. 496, 96 S.E.2d 267.
Appellants' position is that plaintiff has an adequate remedy at law in that it could assert any matters asserted here as a defense to an action brought by defendant to recover under the policy. Whether this obviously available legal remedy would be so practical and efficient as to constitute it "full, adequate and complete" presents a close question. We are constrained to hold, however, that appellants' selection of injunctive relief in the trial court, in lieu of declaratory relief, forecloses their raising this question hereunless of course, plaintiff has no standing to seek a declaration of its rights pursuant to the Declaratory Judgment Act.
The Uniform Declaratory Judgment Act is to be liberally construed and administered. G.S. § 1-264 provides: "This article is declared to be remedial, its purpose is to settle and to afford relief from uncertainty and insecurity with respect to rights, status, and other legal relations, and it is to be liberally construed and administered."
For a court to have jurisdiction under the Act it is not necessary for a plaintiff to show that an adequate remedy at law is unavailable. "It is required only that the plaintiff shall allege in his complaint and show at the trial that a real controversy, arising out of their opposing contentions as to their respective legal rights and liabilities under a deed, will, or contract in writing, or under a statute, municipal ordinance, contract, or franchise, exists between or among the parties, and that the relief prayed for will make certain that which is uncertain and secure that which is insecure." Carolina Power & Light Co. v. Iseley, 203 N.C. 811, 167 S.E. 56.
It is true that a mere fear or apprehension that a claim may be asserted against a party in the future is not grounds for issuing a declaratory judgment. Newman Machine Co. v. Newman, 2 N.C.App. 491, 163 S.E.2d 279. (Reversed on other grounds, 275 N.C. 189, 166 S.E.2d 63.) However, jurisdiction lies where the court is convinced that litigation, *803 sooner or later, appears to be unavoidable. 22 Am.Jur.2d, Declaratory Judgments, § 11, p. 851.
Before this action was instituted Northwestern made formal claim and demand that plaintiff pay the entire amount of its policy. There can be no doubt that litigation was forthcoming. Certainly plaintiff should not be required to await suit, perhaps indefinitely, thereby running the risk that evidence relating to this very complicated and unusual set of facts would be lost. This is especially true since in the meantime plaintiff would have to maintain sufficient reserves to cover Northwestern's claim for $900,000. See Aetna Life Ins. Co. of Hartford, Conn. v. Haworth, 300 U.S. 227, 57 S.Ct. 461, 81 L.Ed. 617.
We hold that plaintiff's action for a declaratory judgment is maintainable. If, as the trial court concluded, plaintiff is entitled to a declaration of non-liability with respect to the $859,699.93 of its policy amount, appellants cannot complain that the court granted injunctive relief, rather than declaratory relief, upon appellants' representation that the former would be less objectionable.
The principal question remaining is whether the trial court correctly held, in effect, that Park Road is at most the alter ego or instrumentality of Northwestern; and that consequently, in endorsing the assets in question to Park Road, Northwestern did nothing more than endorse them to itself. If these conclusions are sound, it must necessarily follow that Northwestern has sustained no loss with respect to the portion of the loan allocated for the assets; and that plaintiff is not liable under its title insurance policy for this sum.
The "alter ego" or "instrumentality" doctrine states that: "[W]hen a corporation is so dominated by another corporation, that the subservient corporation becomes a mere instrument, and is really indistinct from the controlling corporation, then the corporate veil of the dominated corporation will be disregarded, if to retain it results in injustice." National Bond Finance Co. v. General Motors Corp., 238 F.Supp. 248 (W.D.Mo.1964), aff'd, 341 F.2d 1022 (8th Cir. 1965). In accord: B-W Acceptance Corp. v. Spencer, 268 N.C. 1, 149 S.E.2d 570.
The parties stipulated that at all pertinent times Park Road had outstanding one stock certificate for 50,000 shares of common stock and that the certificate, which has been lost or misplaced, is in the name of Jack T. Hamilton, Trustee for First Atlantic. It is undisputed that First Atlantic is owned and controlled by Northwestern and that the acts of First Atlantic, insofar as the matters have involved are concerned, are the acts of Northwestern.
Stock ownership alone, however, is not a determining factor. There must be "[c]ontrol, 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 * * *." Lowendahl v. Baltimore & O. R. Co., 247 App.Div. 144, 287 N.Y.S. 62, 76, aff'd, 272 N.Y. 360, 6 N.E.2d 56; B-W Acceptance Corp. v. Spencer, supra.
In the testimony of officers of First Atlantic, we find evidence of this type of control. The testimony of Thomas D. Pearson, a Vice-President of First Atlantic, indicates that he was "named" President of Park Road for the purpose of executing the loan agreement of 17 January 1968. His testimony also establishes beyond question that he personally knew nothing about the affairs of Park Road and little, if anything, about the loan agreement which he signed. Mr. Pearson stated:
"I was made President around December of 1967 or January 1968 and I have been President of Park Road Professional Center, Inc. ever since that date. I am President of Park Road Professional *804 Center, Inc. at the present time. I do not know whether or not any Federal or North Carolina income tax returns were prepared for Park Road Professional Center for the years 1967 and 1968. * * * I was told by Bill McClain [President of First Atlantic] that I had been elected President of Park Road Professional Center, Inc. * * * I don't think I am a director of Park Road Professional Center, Inc., but I don't know whether I am or not. I am not a stockholder of Park Road Professional Center, Inc.
I did not ask anyone to make me President of Park Road Professional Center, Inc. I do not remember exactly what Mr. McClain said to me when he told me I was President. It was to the effect that Park Road was a company that First Atlantic held and that as an employee of First Atlantic he wanted me to be President of this corporation and I said okay. I have never seen the stock book of Park Road Professional Center, the corporate minute book, the Articles of Incorporation, or any financial statements for Park Road Professional Center, Inc. I have never seen any books or records of Park Road Professional Center, Inc. As President of Park Road Professional Center I signed a Loan Agreement of January 17. I think Mr. McClain asked me to sign it. I do not remember how soon it was after he had asked me to be President that he asked me to sign the Loan Agreement, but it was soon after he asked me to be President of Park Road. I don't remember whether it was on the same day that I was told to be President or not. * * * I remember signing the document. I did not read it over in great detail before I signed it. I believe Bill McClain presented the document to me for signature. I do not recall what he said to me when he handed me the document. I would imagine he asked me to sign it but I don't know. I was not shown a copy of the document in advance. I did not participate in any discussions between The Northwestern Bank, Park Road Professional Center, Inc. and Hillwest prior to signing the document. I know nothing about the contents of the Loan Agreement and knew nothing about negotiations or discussions which resulted in the Loan Agreement until it was presented to me by Mr. McClain for signature. I don't think I have had any discussions with The Northwestern Bank and its representatives or Hillwest, Inc. and its representatives concerning the Loan Agreement after its execution.
* * * The only thing I remember engaging in in any sort on behalf of Park Road Professional Center is the execution of the Loan Agreement labeled `Plaintiff's Exhibit A'. I do not know who I succeeded as President of Park Road Professional Center, Inc. I do not have the North Carolina Franchise Tax Return for Park Road Professional Center for the years 1967 and 1968 as required pursuant to the Court Order for the examination. I have never seen them and I have never been told by anybody that they existed. I do not know that there are any Franchise Tax returns for 1967 and 1968."
William McClain testified that as President of First Atlantic he negotiated the loan in question with Hillwest on behalf of Northwestern. McClain testified that he did not know how Mr. Pearson came to be elected President of Park Road Professional Center but stated: "I presume he was appointed for the protection of First Atlantic Corporation, although I do not know." McClain admitted that the reason the loan instruments were assigned to Park Road rather than Hillwest was that "if they were assigned to Park Road Professional Center which we controlled they would be safe to be used." (Emphasis added).
The above quoted testimony, as well as other evidence appearing in the record, clearly establishes the necessary element of *805 "control." We think it equally clear that this control was used by the dominant corporation, Northwestern, to commit an unjust act in contravention of plaintiff's legal rights. Lowendahl v. Baltimore & O. R. Co., supra; B-W Acceptance Corp. v. Spencer, supra.
The circumstances surrounding the loan to Hillwest point to an unusual and highly questionable transaction. In fairness to the defendants, it should be pointed out that there is no evidence that any of them had knowledge, at the time the loan was closed, that there was a defect in title to the 60,125 acres of mountain land. (Hemingway did testify that shortly after the deed was recorded someone told him, he thought jokingly, that he had just purchased the Indian Reservation.) Other badges of questionability, however, are clearly present. For instance, no representative of any of the parties ever saw any part of the 60,125-acre tract of land. No formal appraisal was made by Northwestern. Hillwest never made written application for the loan and was not required to furnish Northwestern with a statement of its financial worth. The $900,000 loan was made to Hillwest, a corporation that was obviously without net assets, save for its title to land which it was purchasing with less than 20% of the money being borrowed. The conclusion is inescapable that Northwestern did not rely for its security upon the security afforded by the deed of trust on the mountain land or the execution by Hillwest of the demand note. Rather, it relied upon the fact that through its control of Park Road, control of the Paway loan instruments would be retained.
The matter comes down to a simple question of whether plaintiff may be subjected to liability for a loss that is illusory rather than real. Northwestern has parted with none of the $859,699.93 involved in this action. All that it has done has been to endorse the Paway loan instruments and liens to Park Road, which is at best little more than a corporate phantom. The corporate charter of Park Road was in a state of suspension at all pertinent times. Its only stock certificate is lost. Its purported president has never seen any minute books, tax returns or corporate recordsif any exist plaintiff's extensive discovery proceedings did not uncover them. No corporate secretary attested the signature of the purported president of Park Road to the loan agreement. No corporate seal was affixed thereto. No corporate officer, or anyone else verified or signed the answer in this case on behalf of Park Road. The only indicia of title its purported president has is his recollection that First Atlantic's president, William McClain, told him he was presidentan event Mr. McClain apparently does not recall.
This much is knownif Park Road exists at all, it exists as a mere puppet and device in the hands of First Atlantic. See Henderson v. Security Mortgage & Finance Co., 273 N.C. 253, 160 S.E.2d 39. Its policies and practices are dominated to the point that it has "no separate mind, will or existence of its own and is but a business conduit for its principal." 1 Fletcher, Cyclopedia Corporations, § 43, p. 205 (Perm.Ed.1963). A court of equity seeking to do justice among all parties looks at the spirit and not the form of transactions. Continental Trust Co. v. Spencer, 193 N.C. 745, 138 S.E. 124. "`It regards corporate organization objectively and realistically, unencumbered by fictions of corporate identity, and thus, brushing aside form, deals with substance.'" Mills v. Mutual Building & Loan Assn., 216 N.C. 664, 6 S.E.2d 549. Corporate identity offers no bar to equity's pursuit of the "plumb-line" of right dealing and fair accounting. Erickson v. Starling, 233 N.C. 539, 64 S.E.2d 832. These principles compel the affirmance of the trial court's judgment.
The trial court held that plaintiff was also entitled to relief on other grounds, i. e.: (1) The transfer of assets to Park Road constituted a fraudulent conveyance under G.S. § 39-15. (2) The gift of credit was beyond the power of Hillwest to *806 make and Park Road to accept since it was not a gift to a charitable, literary or religious organization such as is set forth in G.S. § 55-17(a)(6). (3) Park Road had no power to enter the loan agreement or to retain the assets since its corporate charter was under a state of suspension. Inasmuch as conclusions heretofore discussed entitle plaintiff to the relief granted, we find it unnecessary to inquire into the soundness of these additional grounds.
Affirmed.
CAMPBELL and BRITT, JJ., concur.