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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.