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Whipple v. Industrial Commission of Arizona

Supreme Court of Arizona

February 9, 1942

JOS. E. WHIPPLE and JOS. E. WHIPPLE LUMBER COMPANY, INC., a Corporation, Petitioners,
v.
THE INDUSTRIAL COMMISSION OF ARIZONA; L. C. HOLMES, LYNN LOCKHART and E. T. HOUSTON, Members of the Industrial Commission of Arizona, and C. E. WEBB, Respondents

APPEAL by Certiorari from an award of The Industrial Commission of Arizona. Award set aside.

Mr. Don T. Udall and Mr. Guy Axline, for Petitioners.

Mr. Rouland W. Hill and Mr. Howard A. Twitty, for Respondents.

OPINION

Page 877

[59 Ariz. 3] LOCKWOOD, C.J.

Claude E. Webb, petitioner, received an award of compensation, under the Workmen's Compensation Act, Code 1939, § 56-901 et seq., against Joseph E. Whipple, and/or Whipple & Brady, and/or The Joseph E. Whipple Lumber Company, Incorporated, respondents, for an injury arising out of and in the course of his employment. Respondents asked for a rehearing on the award, which was denied, and the matter is brought before us in the usual manner.

It is not seriously questioned that petitioner was injured in an accident arising out of and in the course of his employment, but it is most strenuously contended by respondents that his only employer was The Joseph E. Whipple Lumber Company, a corporation, and that petitioner had elected to reject the compensation act and to receive compensation for his injury under a certain insurance policy issued by the Mutual Benefit Health and Accident Association.

At the time petitioner was injured he was working in a small sawmill in northern Arizona, and while so working received a serious fracture of the arm. He was first treated there by Dr. K. A. Herbst, and afterwards sent to a hospital in Phoenix, where he was treated by Dr. J. M. Greer and Dr. Benjamin Herzberg. He made application for compensation to the Industrial Commission in the usual manner and a hearing was had. From the evidence adduced at the hearing the commission found that Joseph E. Whipple, and/or Whipple & Brady, and/or The Joseph E. [59 Ariz. 4] Whipple Lumber Company, Incorporated, were the employers of petitioner, and made its award accordingly.

It is the position of the commission that while the corporation was formally the employer of petitioner, as a matter of fact such corporation was merely the alter ego or cloak of Joseph E. Whipple and J.J. Brady, organized for the express purpose of enabling Whipple and Brady to engage in the sawmilling business without any personal liability for injuries to their employees under the compensation act.

The uncontradicted evidence of Joseph E. Whipple shows, in substance, as follows: The corporation was organized in the spring of 1939, with an authorized capital stock of some $36,000; no stock was at any time issued to any person therein, and the corporation never had any assets except at one time an equity in a truck. The entire property used by the corporation in its operations, including mill equipment and land, was the personal property of Whipple, and was leased by him to the corporation for the sum of $72 per month. The timber on which the corporation operated was obtained from the Forest Reserve under a permit issued to Whipple individually by the Forest Service, and he sild such timber to the corporation at actual cost, making no profit on the transaction. He received a salary from the corporation of about $100 per month, while Brady, who was the manager in actual charge of operations, received approximately $75 per month. These amounts, however, varied, being a percentage of what was left of the proceeds of the business after other expenses were paid. There was never any written contract with the corporation in regard to these salaries, it being just a general understanding between Whipple, Brady and the corporation, that after all the expenses [59 Ariz. 5] were paid the profits were split fifty-fifty. Brady owned none of the property used by the corporation.

Whenever the corporation employed anyone to work at the mill, he was told that one of the conditions of employment was that he must reject the compensation act; that the company had no property of any nature out of which compensation could be collected, and that it would secure private industrial insurance to protect the workman, the premium on such insurance to be paid half by the company and half by the workman. Some of the workmen did make a formal written rejection of the compensation act, but no such rejection was ever made by petitioner. Under these circumstances was the commission justified in finding that the corporation was merely a cloak to cover the operations of Whipple and Brady as partners or individually for the purpose of evading any liability on their part under the compensation act?

A corporation is merely a legal fiction created for the convenience of conducting business, the true human entity behind it being the stockholders who, in reality, own it and all its property, though the legal title may stand in the name of the corporation. It is now well settled as a general rule that when this fiction of the law is urged and carried on for an intent not wit h in the reason and purpose for which it is allowed by the law, the form

Page 878

should be disregarded and the corporation should be considered merely as an individual or an aggregation of persons both in equity and in law. 18 C. ...


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