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Bank of America, N.A. (U.S.A) v. Genna

A-5460-06T3 (N.J. Super. App. Div. 2008) (Unpublished)

CORPORATIONS; SHAREHOLDERS LIABILITY — Where a shareholder draws money from a corporation’s line of credit after the corporation has ceased operating, an inference can be drawn that the corporate status had also been disregarded before the corporation ceased operating, thereby making the shareholder liable for the full amount due on the line of credit.

A bank sued a company and its individual owner, alleging that each had defaulted on a line of credit. The lower court entered a judgment against the owner in his individual capacity. The lower court found that the corporate borrower was the only obligor on the line of credit and also found that “it did not appear that [the individual owner] signed personally” or otherwise guaranteed the corporation’s obligation. “However, it was conceded that [the individual owner] had drawn against this line of credit after the corporation had closed its doors and had ceased operating.” From this, the lower court “drew an inference that the corporate status had also been disregarded before the corporation ceased operating, and held [the individual owner] liable for the full amount due” on the line of credit. The individual owner appealed, again arguing “that any piercing of the corporate veil should be limited to events that occurred after the corporation ceased functioning.” The Appellate Division was unsympathetic. It believed that the lower court, sitting without a jury, was entitled to determine, considering “the proofs as a whole,” that the owner had disregarded his company’s corporate status. Further, it supported the lower court’s findings that “adherence to the fiction of separate corporate existence would perpetuate a fraud or injustice” under the circumstances presented. Consequently, the Court refused to “second-guess the [lower court]” or “question the [lower court’s] appropriate decision to draw inferences against [the individual owner] due both to [the individual owner’s] drawing from the line of credit after the corporation had ceased functioning and its failure to comply with his discovery obligations.”


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