Minton v. Cavaney

Supreme Court of California · 1961 · Corporations

56 Cal. 2d 576 (1961)

Updated August 22, 2026

CorporationsAlter egoPiercing the corporate veilUndercapitalizationDirector liabilityRes judicatainadequate capitalizationequitable owner

Facts

Seminole Hot Springs Corporation operated a public swimming pool under a lease, and plaintiffs' daughter drowned in the pool. Plaintiffs recovered a $10,000 wrongful death judgment against Seminole, but the judgment was unsatisfied. Evidence showed that Cavaney was Seminole's director, secretary, and treasurer, that he was to receive one of three shares if stock were issued, that the corporation used his office for records and mail for a time, and that Seminole had no substantial assets and no adequate capitalization. Cavaney stated that the corporation had no assets and never functioned as a corporation, although defendant also introduced evidence that he served only temporarily and as an accommodation to his clients.

Issue

Whether the evidence supported imposing personal liability on Cavaney under the alter ego doctrine for Seminole's corporate debt, and whether plaintiffs could rely solely on their prior judgment against Seminole without giving Cavaney an opportunity to relitigate negligence and damages. The case also presented whether the doctrine could apply to a tort judgment and whether Cavaney's claimed accommodation status as a director avoided liability.

Rule

The alter ego doctrine applies to abuses of the corporate privilege, including when equitable owners or active participants provide inadequate capitalization and actively participate in corporate affairs. A person who serves as a corporate director cannot avoid the statutory duties and responsibilities of that office by claiming to have accepted it merely as an accommodation. The doctrine is not limited to contract debts and may apply to tort claims. However, a person sought to be held personally liable for a corporate judgment is not bound by that judgment unless he was a party or controlled the prior litigation, including the ability to determine whether an appeal should be taken.

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One of 10 multiple-choice questions for this case. Pick an answer to see why.

Blue Mesa Adventures, Inc. operated a public zip-line course outside Santa Fe using leased land and rented equipment. The corporation had only $500 in initial capital despite obvious injury risks, and its vice president-director, Lena Ortiz, was expected to receive one-third of the stock and helped manage daily operations. After a visitor obtained an unpaid negligence judgment against the corporation, the visitor sued Lena personally.

Which is the strongest argument for imposing personal liability on Lena?

Explanation. The majority opinion recognizes that alter ego is not limited to contract debts and may apply to tort claims. It also emphasizes that inadequate capitalization plus active participation in corporate affairs, along with evidence of equitable ownership, can justify personal liability. The absence of actually issued shares does not preclude an inference of equitable ownership where the person was to receive a substantial ownership interest.