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Rainbow Temp Services, Inc. v. Korba

A-4854-06T2 (N.J. Super. App. Div. 2008) (Unpublished)

CORPORATIONS; VEIL PIERCING — If the owner of a corporation never discloses that his or her business is a corporation, that owner may be personally liable for the debts and obligations incurred to a supplier who is unaware that it is dealing with a corporation.

An employment agency employed individuals and assigned them to a customer as temporary workers. The invoices for the employees’ services were billed to the customer without any indication that the business was a corporation. Similarly, the checks used by the customer to pay invoices did not reveal the nature of the entity. The agency sued its customer when its customer failed to pay for its services. A default judgment was entered against it and its sole shareholder. Subsequently, customer and its shareholder entered into an agreement with several of the customer’s creditors to settle debts owed. The agreement provided that upon default, any creditor could pursue any remedy available as if the agreement had not been made. The customer and its shareholder defaulted, and in response the agency filed a motion to enter default judgment against the shareholder individually. The lower court found in favor of the employment agency in a substantial amount for the value of unpaid services for its employees, and found the shareholder personally liable for the debt. The shareholder appealed the finding of personal liability.

The Appellate Division affirmed the lower court’s ruling. It first found that the shareholder had not met his burden of disclosing his corporation’s status to the employment agency. The Court noted that the original contract was silent as to whether the business was a corporation, and the shareholder testified that he was unsure whether he advised the agency his business was a corporation. Additionally, it disagreed with the shareholder’s argument that the settlement agreement with the various creditors served as a novation which would have discharged any personal obligations the shareholder had prior to the date of the new agreement. The Court said the agreement stated any creditor could pursue a remedy then available as if the agreement had never been entered, thereby not serving to extinguish prior contracts. Therefore, it found the shareholder’s personal obligations survived this settlement agreement with creditors.


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