finding no liability to a parent corporation for the negligent performance by its subsidiary under a leasing agreementSummary of this case from Gray v. Edgewater Landing, Inc.
DECIDED JANUARY 28, 1953.
Attachment; from Glynn Superior Court — Judge Thomas. July 25, 1952.
Reese, Bennet Gilbert, for plaintiff in error.
Gowan, Conyers, Fendig Dickey, contra.
1. The allegations of the three counts do not show that the damages sued for resulted from an act of God.
2. Count one sufficiently alleges, as against a general demurrer, negligence on the part of the defendant in the failure, as sublessee of the plaintiff's equipment, to use ordinary care in the use of such equipment.
3. While count three is good as against a general demurrer, it is subject to the special demurrer pointing out the insufficiency of the allegations to show control of the defendant over Conseco Inc., an independent contractor, to establish liability upon the defendant, and the court erred in overruling such special demurrer.
4. Count two does not allege facts which would authorize the disregard of the separate corporate entity of Conseco Inc., the defendant's subsidiary, for the purpose of rendering the defendant liable for its subsidiary's negligence, and the court erred in overruling the general demurrer to such count.
DECIDED JANUARY 28, 1953.
The Brunswick Port Authority sued out an attachment against Condenser Service Engineering Company, a non-resident corporation. The declaration as amended contained three counts. Count one alleges: (2) On August 12, 1948, the defendant caused to be created a corporation under the laws of the State of Georgia with its principal office in Glynn County, Georgia, known as Conseco Inc. (3) Capital for said Conseco Inc. was furnished entirely by the defendant. (4) All of the stock of Conseco Inc. was owned by the defendant. (5) W. M. Kennedy was at all times hereinafter mentioned, president of the defendant and was also at all times during its existence, president of Conseco Inc. (6) H. C. Evans was likewise at all times hereinafter mentioned, vice-president of the defendant and also vice-president of Conseco Inc. (7) Conseco Inc. carried on no business of its own but was at all times acting for the account of the defendant and other of its subsidiaries. (8) On August 26, 1948, the defendant caused Conseco Inc. to lease from petitioner . . four gantry cranes. (9) On June 26, 1950, the defendant was engaged in scrapping the ship "John G. Carver" . . and was using in connection therewith one of the said gantry cranes so leased by petitioner to the said Conseco Inc. (10) The said Conseco Inc. turned over the said crane to the defendant to be used for such purpose. (11) On June 26, 1950, the said crane was being used and operated by the defendant. (12) The defendant, its servants, agents and employees, failed to properly secure the crane and during a summer squall on the afternoon of said date, the said crane was pushed off the end of the track into the water rendering the same a total loss except for salvage and junk. (12 a) The defendant, its servants, agents and employees failed to use the chocks with which the crane was equipped so as to hold the same in place, but instead depended upon the brakes with which it was equipped. The brakes were not sufficient to hold the crane secure against strong winds that are frequently a part of summer squalls at Brunswick, Georgia, but had the chocks been properly placed upon each wheel, the crane would have been secure and would have held in place against winds much stronger than those classified as strong, that is, from 32 to 38 miles per hour, and in fact would have held against winds of hurricane force, and petitioner's property would not have been damaged. (12 b) The defendant, its servants, agents and employees knew, or in the exercise of ordinary care and diligence should have known, that summer squalls at Brunswick, Georgia, are likely to be attended by strong winds or even gales. (12 c) The said gantry crane was then in the defendant's possession and being used in the prosecution and within the scope of its business. (12 d) The chocks were four in number, one for each wheel, were made of metal, were triangular in shape about eighteen inches long and twelve inches high with the side to be applied next to the wheel sloping so as to fit and hold against the wheel. The chocks also had a clamp that fitted over the railroad rail on which the crane moved and such clamp was tightened and held securely in place by means of a metal wedge that was driven into the chock. The said crane at said time and place was resting upon railroad tracks upon which it was propelled from place to place and from which it made lifts in connection with and in furtherance of the scrapping of the said ship. When properly placed to secure the crane and hold it steady so that winds could not move it and propel it along the tracks, the chocks were placed on the rail and against the outer side of each of the wheels, and the clamp was then placed over the flange of the rail and tightened and held securely by driving the wedge into the said chock. (12 e) There was sufficient time after the imminence of the summer storm became evident in which to place the said chocks in position so they would hold the crane. (13) The defendant, its servants, agents and employees, were negligent in the following particulars, to wit: in failing to properly moor and secure the crane; in failing to chock the wheel of the crane; in failing to chock and secure the crane so that it could not be moved by wind; in failing to take these precautions when it became apparent that a summer squall was about to descent upon the shipyard site; in failing to place the chocks with which the crane was equipped under the wheels when it became apparent, or in the exercise of reasonable care and diligence should have become apparent to the persons in charge of the crane that a blow was imminent. (14) Petitioner was entirely free from fault in the premises. (14 a) The value of the crane prior to the injury and damage aforesaid was $60,000. After said injury and damage the crane was worth $2,000. (15) Therefore, the defendant has injured and damaged petitioner in the sum of $58,000. (17) Petitioner has been, because of defendant's negligence, deprived of its crane and the value thereof (less its salvage or junk value) from July 1, 1950, and is entitled to recover as an element of its damage, to be included in the damages to be found on the trial, as further damage a sum equal to interest on the value of the crane as aforesaid from July 1, 1950, to the date of the trial of this case at the rate of 7% per annum.
Count two contains the same allegations as count one, with one exception. Instead of alleging that the defendant itself was using the crane, it alleges: (12) The defendant used its wholly owned subsidiary, Conseco Inc., as its instrumentality to scrap the said ship and to hold the scrap and salvage subject to its orders and for its account. (13) Conseco Inc., in scrapping the ship, was not acting as a separate corporate entity but as the instrumentality and alter ego of the defendant. (14) Conseco Inc., as such instrumentality, was, on June 26, 1950, using the said gantry crane in the scrapping and salvaging of the said ship. (15) Willie Deal was at said time operating the said gantry crane. (16) While Willie Deal had been employed by Conseco Inc. prior to June 26, 1950, and while he was on that date its employee in name, he was actually on the business of the defendant. (17) The defendant, through its servant, agent and employee, one Anderson, had charge of the scrapping and salvaging of the ship and directed the activities of Willie Deal. (18) The work in which Willie Deal was engaged and in which the said crane was being employed on June 26, 1950, was solely the business of the defendant. (19) The defendant, through its agent, Anderson, on said date directed the said Willie Deal to so operate the crane in scrapping and salvaging the ship. (20) Pursuant to the defendant's instructions as aforesaid the said Willie Deal was using the crane in dragging the hull of the said ship upon the ship-ways at the shipyard.
Count three contains the same allegations as counts one and two with one exception. Instead of alleging that the defendant was using the crane or that Conseco was using it as an instrumentality of the defendant, it alleges: (12) The defendant employed Conseco Inc. as its servant and agent for the purpose of scrapping the said ship. (13) The defendant at all times herein alleged, and on June 26, 1950, had control and direction of the work of scrapping the said ship so performed by Conseco Inc. (14) The defendant, through its servant Conseco Inc., and the servants and employees of Conseco Inc., was on June 26, 1950, using the said gantry crane in the scrapping and salvaging of the ship. (15) Willie Deal, an employee of Conseco Inc., was at said time operating the said crane. (16) Willie Deal and the crane were then and there on the business of the defendant. (17) Pursuant to the defendant's instructions Willie Deal was using the crane in dragging the hull of said ship upon the ship-ways at the shipyard.
General and special demurrers were filed to count one, the only original count remaining after amendments, and general and special demurrers were renewed to count one as amended and demurrers were also filed to counts two and three. Many demurrers were eliminated by amendments or agreements of parties. Demurrers were overruled and exceptions pendente lite filed. The jury found for the plaintiff, and the defendant excepts to the overruling of its demurrers and its motion for a new trial.
1. None of the counts is subject to the general or special demurrers insofar as the allegations of negligence in failing to anticipate the danger from the squall and to guard against it are concerned. The allegations in these counts do not show that the damages resulted from an act of God.
2. The first count is duplicitous, in that it seems to be predicated on two different theories: first, the duty of the defendant as sublessee to exercise ordinary care in using the crane (6 Am. Jur. 404, § 306); and second, the theory of disregarding the separate entities of the defendant and its subsidiary. There is no special demurrer to this count for duplicity, and the count is good as against general demurrer on the first theory above referred to.
3. Count three is also duplicitous but is good against a general demurrer under Code § 105-502. However, count three is subject to the special demurrer aimed at the insufficiency of the allegations to show the control of the defendant over Conseco to establish liability upon the defendant. In order to show such liability, it is necessary, as against a special demurrer, to allege the retention of the right to control the time and manner of executing the work or actual control over the time and manner of executing the work. See Mount v. Southern Ry. Co., 42 Ga. App. 546 ( 156 S.E. 701).
4. Count two is subject to general demurrer. Volumes have been written on the subject of "piercing the corporate veil," etc. Many theories have been advanced as to the reasons why courts should disregard the separate corporate existence of a one-man corporation or a subsidiary corporation. By whatever means the conclusion to disregard corporate entity is arrived at, when it is reached it merely means that under the facts of the case the person or corporation in control of the subservient corporation is held liable for the acts or omissions of the subservient corporation. No hard and fast rule can be laid down, but it seems clear that so long as the law authorizes the formation of subservient corporations, the law would defeat its own purpose by disregarding its own creature merely because a parent corporation, or other sole owner, controls the subsidiary, or one-man corporation, and uses it and controls it to promote his or its ends. This principle has been stated many times. Upchurch Packing Co., v. U.S. 53 F. Supp. 791, affd., 151 Fed. 2d, 983, cert. denied, 327 U.S. 803; New Colonial Ice Co. v. Helvering, 292 U.S. 435 ( 54 Sup. Ct. 788, 78 L. ed. 1348); Exchange Bank of Macon v. Macon Construction Co., 97 Ga. 1 ( 25 S.E. 326, 33 L.R.A. 800); Newton Mfg. Co. v. White, 42 Ga. 148; Liberty Lumber Co. v. Silas, 181 Ga. 774 ( 184 S.E. 286); Shingler v. Shingler, 184 Ga. 671 ( 192 S.E. 824); Page v. Haverty, 129 Fed. 2d, 512; Schwob Mfg. Co. v. Huiet, 69 Ga. App. 285 ( 25 S.E.2d 149); Jones v. Major, 80 Ga. App. 223 ( 55 S.E.2d 846); Hollingsworth v. Ga. Fruit Growers, 185 Ga. 873 ( 196 S.E. 766).
Construing count two against the pleader, it alleges that Conseco was dealt with as a separate entity but that it was used by the defendant as an instrument. There are no allegations of fraud or misconduct on the part of either the defendant or Conseco. It is not alleged that there was an ulterior motive existing, or that there was bad faith at any time during the dealings between the parties. It is not alleged that Conseco is insolvent, or that the failure to hold the defendant liable will result in any injustice due to circumstances in which it would be unconscionable not to hold the defendant liable. We, of course, cannot say in advance what set of facts would require the enforcement of this claim against the defendant. The petition and exhibits show that the plaintiff contracted with Conseco with knowledge of the facts; that it entered into an elaborate contract with Conseco; that the parties entered into a second contract, after difficulties arose about the first one, in which various settlements were agreed upon and in which all business dealings were closed out with the exception of several items and the further agreement that Conseco might use two cranes to complete the salvage of the ship. In these circumstances, we do not think that such a case has been alleged in count two as would authorize a disregard of the conscious and intelligent acts of the parties in dealing with each other as distinct entities. There is no allegation that the incorporation of Conseco was a sham or that it was used to defeat a public convenience, to justify wrong, protect fraud, defend crime, or any other reason which in equity and good conscience would justify the disregard of Conseco's separate entity. See 13 Am. Jur. § 1383, and pocket parts; Fletcher, Cyclopedia Corporations, Vol. 1, chapters 41, 42, 43, 44 and pocket parts; Nadler, Georgia Corporation Law, §§ 60-66; California Law Review, Vol. 14, pp. 12-21; Columbia Law Review, Vol. 12, pp. 496-518; 18 C. J. S. 380, § 7b.
The court did not err in overruling the general demurrers to counts one and three.
The court erred in overruling the general demurrer to count two and in overruling the stated special demurrer to count three. The other demurrers were properly overruled. These errors rendered subsequent proceedings nugatory.
Judgments affirmed in part and reversed in part. Sutton, C. J., and Worrill, J., concur.