Liability of Shareholders. In the early 1950s, Mary Emmons opened ...

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Liability of Shareholders. In the early 1950s, Mary Emmons opened an account at M & M Wholesale Florist, Inc, to purchase flowers and florist supplies for her flower shop, called Bay Minette Flower Shop, which she operated as a sole proprietorship. In 1973, the flower shop was incorporated as Bay Minette Flower Shop, Inc Emmons continued to order supplies from M & M, as did her son when he began to manage the day-to-day operations of the shop during the 1980s. M & M, which had no knowledge that Bay Minette was now a corporation, sued Emmons and her son personally to recover a balance owing on the Bay Minette account (for purchases made after Bay Minette had incorporated). Is the fact that M & M was never informed of the subsequent incorporation of the Bay Minette Flower Shop a sufficient ground for piercing the corporate veil and holding Emmons and her son personally liable for the debt? Explain.

Question 2

In Yin v. J's Fashion Accessories, the court stated that in most cases if an agent makes a contact without identifying his principal, the agent incurs personal liability for the contract.
 a. True
  b. False
  Indicate whether the statement is true or false

[shailee]

Answer to Question 1

Liability of shareholders
The court refused to disregard the corporate form and pierce the corporate veil. The court listed the factors to be considered when determining whether to disregard the corporate form: (1) inadequacy of capital; (2) fraudulent purpose in conception or operation of the business; or (3) operation of the corporation as an instrumentality or alter ego. The court pointed out that the evidence that the account was opened while the flower shop was a sole proprietorship and that M & M was never informed of the subsequent incorporation    is not sufficient to allow a court to disregard a validly created corporate entity. Therefore, the court ruled in favor of Emmons and her son.

Answer to Question 2

TRUE