Law School Resources
Brunswick Corp. v. Waxman, (1979)
1. Brunswick Corp. v. Waxman, (1979);
pg. 345, briefed 2/24/97
2. Facts:
Waxman formed a no-asset corporation to act as a
signatory on a series of sales agreements for
bowling alley equipment with Brunswick. The
no-asset corporation then leased the equipment to
five separate partnerships which operated five
separate bowling alleys. The bowling alleys failed
before the no-asset corporation could pay the entire
purchase price. The corporation held no directors
meetings, issued no stock, and adopted no bylaws.
3. Procedural Posture:
Brunswick moved to collect against Waxman personally
for the liabilities of the no-asset corporation.
4. Issue:
Whether the owners are personally liable under the
“instrumentality rule” for the liabilities of the
corporation when the creditor knew that the
corporation had no assets at the time of
contracting, and did not rely on the owner’s
personal guarantee.
5. Holding:
No.
6. Reasoning:
The instrumentality rule has three factors: 1)
domination and control over the corporation by those
who are held liable which is so complete that the
corporation has no separate mind will or existence
of its own, 2) the use of this domination and
control to commit fraud or wrong or any other
dishonest or unjust act, and 3) injury or unjust
loss resulting to the plaintiff from such control
and wrong. Here, there was no fraud, no
misappropriation of corporate funds, and
consequently no fraud to Brunswick. Brunswick was
under no illusion than the no-asset corporation was
merely and agent for its owners. Brunswick, a
sophisticated corporation, was not misled. It had
full knowledge that it was doing business with a
no-asset corporation, and proceeded anyway. It can
not be heard to complain now that the corporation
has defaulted.
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