Business Associations

Use of Corporate Entity to Evade Contractual Obligations. Scott v. McReynolds afforded the Court of Appeals an opportunity to pierce the corporate veil. Plaintiff and defendant McReynolds were partners in the business of selling butane-propane gas and appliances. In a contract dissolving the partnership, McReynolds agreed not to sell gas or appliances within a specified area.

Shortly thereafter, the other defendant, a corporation, was formed, and it sold gas within the exempted area in competition with plaintiff. McReynolds was president of the defendant corporation, was actively engaged in the business and was a "prime mover in the organization of the corporation." He owned 49 of the 100 shares of its capital stock and together with his wife owned one-half of the entire stock. In a suit to enjoin McReynolds and the corporation, one defense was that the corporation was not bound by the contract in which McReynolds agreed not to compete. The Court of Appeals affirmed an injunction running against both McReynolds and the corporation.