Last Updated 03 Aug 2020

Hildreth vs Tidewater Equipment Co

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John Hildreth was the sole shareholder, director, and officer HCE, Inc, a corporation in New Jersey. HCE-NJ began to do business in Maryland in early 1997. According to the Maryland code, it is required for foreign corporations to register with the Maryland Department of Assessments and Taxation before doing intrastate business in Maryland, and it is required to have a resident agent in Maryland. In February 1998, HCE-NJ rented equipment from Tidewater Equipment Company, Inc. and again in September 1998. Tidewater and HCE-NJ signed a series of contracts, none of which were signed by Hildreth.

When payments ceased after February 1999 repossessed the equipment and sued Hildreth holding him personally liable for the debts by HCE-NJ. Issue Is there a basis for piercing the veil of HCE-NJ and imposing personal liability for the corporate obligation on Hildreth? Rule In order for a court to pierce the corporate veil, two requirements must exist: (1) domination of a corporation by its shareholders; and (2) use of that domination for an improper purpose (defrauding creditors, circumventing a statute, or evading an existing obligation. Application

In order for us to prove that Hildreth be held personally liable for the corporation’s obligation, we must consider various factors that can show if Hildreth practiced domination on the corporation and if that domination was used for an improper purpose. Hildreth was the sole shareholder and was personally involved in the management of the business. He was a “sole shareholder, director and officer” to this New Jersey corporation. Although HCE-NJ contracted with Tidewater, Hildreth, as a shareholder, was personally involved in the business transactions between HCE-NJ and Tidewater in agreement for renting construction equipment.

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Hildreth also failed to follow Maryland law by registering HCE-NJ with the Maryland Department of Assessments and Taxation before doing intrastate business in Maryland. Although Hildreth held no obligation to reveal that HCE was an unregistered foreign corporation to Tidewater, the situation can be used in court under Maryland law to pierce the corporate veil to promote justice and to prevent inequity. In this case, HCE owed Tidewater for the renting of construction equipment in the amount of $47,246.

Another consideration is the fact that Hildreth may be using his position as a shareholder to avoid the corporation’s obligation towards Tidewater. The courts used Herbert Brune’s work as a reference to the case. According to Brune, the corporate veil may be pierced to prevent the evasion of legal obligations. It states that “the courts may consider a corporation as unencumbered by the fiction of corporate entity and deal with substance rather than form as though the corporation did not exist, in order to prevent evasion of legal obligation.

HCE-NJ neglected to pay the payments due to Tidewater, which led the repossessing of construction equipment. The balance owed towards Tidewater was $47,246. The plaintiff has shown that there was an unfairness and inequitable result from this occurrence. Tidewater provided the equipment in return for payment, where HCE-NJ became unable to satisfy its obligation under contract resulting into unfair practices.

For Hildreth to say that he is not personally liable for corporation debt, it can be seen as protection for himself from legal obligations. In defense, Hildreth cannot be held liable on the corporation’s obligation due to the fact that there was a lack of domination. There is no proof that Hildreth, as a shareholder, caused the corporation to act on his detriment or personal benefit. The only mention of Hildreth with Tidewater is when he informed, Kolbe, a Tidewater representative, of the office locations.

Transactions and contracts were dealt and signed between Tidewater and an employee of HCE-NJ, not Hildreth. There is also no evidence that the shareholder caused the corporation to fail to follow corporate formalities. In addition, there is no allegation of fraud on either Hildreth or HCE-NJ. As for Brune’s work, the idea that “if a shareholder uses a corporation form in order to prevent evasion of legal operation” can only be used when the corporation demonstrates the “alter ego” doctrine.

According to the “alter ego” doctrine, which allows personal liability of a corporate officer if the stockholders or the business itself fails to treat the entity as a corporation. There is no evidence that Hildreth exercised such complete domination over HCE-NJ to conclude that the corporation had no “separate mind, will or existence of its own. ” Conclusion Although the courts reversed their judgment in favor of Hildreth, I find that Hildreth did not act only as a shareholder, but also as a director and officer of the New Jersey corporation.

It shows that there is a possibility for the alter ego doctrine to take place since Hildreth wasn’t only a shareholder, but also participated in the business transactions between HCE-NJ and Tidewater. With the legal obligation of the corporation to pay Tidewater, and this not being met, I find that it results in injustice and inequity between the parties. It would be unjust for Hildreth to be able to shield himself from the corporate obligations by using the corporate entity as a defense. Therefore, I affirm judgment from the earlier decision of the court, in favor of Tidewater.

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