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Turner v. Turner9/30/2002
xcept where it is necessary to prevent fraud or enforce a paramount equity." Id. at 306 (quoting Bart Arconti & Sons, Inc., 275 Md. at 310)(emphasis added).
The Court added that "a Maryland court may pierce the corporate veil only based on fraud or proof that it is necessary to enforce a paramount equity." Id. at 306-307. The rule regarding a paramount equity is as follows:
" hen substantial ownership of all the stock of a corporation in a single individual is combined with other factors clearly supporting disregard of the corporate fiction on grounds of fundamental equity and fairness, courts have experienced `little difficulty' and have shown no hesitancy in applying what is described as the `alter ego or `instrumentality' theory in order to cast aside the corporate shield and fasten liability on the individual stockholder." Residential Warranty Corp., 126 Md. App. at 307 (quoting Travel Committee, Inc. v. Pan American World Airways, Inc., 91 Md. App. 123, 158-59 (1992) (quoting DeWitt Truck Brokers, Inc. v. W. Ray Flemming Fruit Co., 540 F.2d 681, 685 (4th Cir. 1976)).
The burden of proof was on appellant. See Damazo v. Wahby, 259 Md. at 634. The factors to determine "whether a paramount equity should be enforced include, inter alia, `whether the corporation was grossly undercapitalized, ... the dominant stockholder's siphoning of corporate funds, ... the absence of corporate records, and the corporation's status as a facade for the stockholders' operations.'" Residential Warranty Corp., 126 Md. App. at 307 (quoting Dewitt, 540 F.2d at 686-87).
Corporate estoppel "is generally employed where the person [or entity] seeking to hold the officer personally liable has contracted or otherwise dealt with the association in such a manner as to recognize and in effect admit its existence as a corporate body." Cranson v. International Business Machines Corp., 234 Md. 477, 481 (1964). Cranson is instructive.
In Cranson, Albion C. Cranson, Jr., the president of Real Estate Service Bureau (the "Bureau"), entered into negotiations on behalf of the Bureau with IBM to purchase electric typewriters. These negotiations culminated in the purchase of typewriters during the period from May 17, 1961 to November 8, 1961. Although the Bureau's certificate of incorporation had been signed and acknowledged prior to May 1, 1961, it was not filed until November 24, 1961, due to an oversight by the Bureau's attorney. By that time, eight typewriters had been purchased. Clearly, Cranson entered into the negotiations in a representative capacity and never intended to assume any personal obligation. Nevertheless, when IBM was unable to collect payment from the Bureau, it sued Cranson for the monies. After the trial court granted summary judgment in favor of IBM, Cranson appealed.
On appeal, the Court considered whether Cranson was personally liable to IBM. In considering the application of the corporate estoppel doctrine, the Court "emphasized the course of conduct between the parties," id. at 487, and the "substantial dealings between [the parties] on a corporate basis." Id. The Court explained, at 234 Md. at 486:
here the parties have assumed corporate existence and dealt with each other on that basis, the Court will apply the estoppel doctrine on the theory that the parties by recognizing the organization as a corporation were thereafter prevented from raising a question as to its corporate existence.
The Court also noted that "the courts of other jurisdictions have held that where one has recognized the corporate existence of an association, he is estopped to assert the contrary with respect to a claim arising out of such dealings."
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