Consumer's Co-Op v. Olsen

419 N.W.2d 211 (1988)

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Nature of the Case

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Facts

ECO was formed in 1980 by Chris Olsen (D). The corporation was a small corporation loosely run at first as a part-time endeavor servicing only one customer with a part-time employee. Six months after formation, D began to work for ECO full time. The offices were held by D and his mother and father. Except for two board meetings no formal records were ever kept. D had opened a personal charge account with Consumer's (P) and shortly thereafter his incorporation, it was changed to a corporate account. D testified at trial that no personal charges were ever made on the corporate account. There was testimony at trial that abundant measures were taken to ensure that all corporate business was done in the corporation's name; affixed and printed to all equipment were labels. By the end of 1981, ECO had a negative shareholder equity, and by the end of 1982 that $2,723,02 deficiency turned into $62,815.60 at the end of 1983 it was $148,927.92, and it finally topped off at $189,362.26 at the end of 1984. No dividends were paid at any time. ECO then filed for Chapter 11 bankruptcy and that meeting was properly recorded. P had extended credit to ECO on an open account for the purchase of bulk fuel. By July 1983, ECO had remained current but from that point onward failed to do so but P continued to extend credit for another nine months. This was notwithstanding its policy to terminate credit on accounts with over 60-day balances. There was no evidence to indicate that corporate funds were used to pay personal expenses. There was substantial evidence that substantial personal assets were used to subsidize the operations. P sued D personally for the open account balances. The trial court allowed the corporate veil to be pierced; control by D and the corporation was undercapitalized. P appealed the judgment to D for $38,851.42