## Facts

- Anthony P. Abraham was an experienced real estate entrepreneur who acquired an option to buy a tract of land.
- Abraham negotiated with a representative of Lake Forest, Inc. to sell the option as part of a transaction in which a newly formed subsidiary would take title and pursue development.
- Lake Forest created (or used) a newly formed subsidiary, NEI Corporation, Alabama (Alabama), to acquire and develop the property.
- Alabama purchased Abraham’s option for $375,500, paying $172,117.50 in cash and issuing a promissory note for the remaining $203,382.50.
- Alabama later made payments on the note totaling $50,845.64, leaving a substantial unpaid balance.
- To acquire the property, Alabama borrowed funds from a bank and granted the bank a mortgage on the property as security.
- Alabama’s contemplated development did not occur, and Alabama sold the property.
- After payment of the mortgage balance and closing costs, the sale generated net proceeds of $33,185.36, paid by check made payable to Alabama.
- The check payable to Alabama was endorsed and deposited into the bank account of NEI Corporation (NEI), rather than being retained by Alabama.
- The corporate ownership chain was vertical: NEI wholly owned Lake Forest, and Lake Forest owned all of Alabama’s stock.
- Abraham reduced the unpaid note balance to judgment against Alabama for $152,536.86 plus interest, but Alabama could not satisfy the judgment.
- Abraham then sued Lake Forest and NEI, seeking to disregard Alabama’s separate corporate existence and hold Lake Forest and NEI responsible for Alabama’s obligation and/or for the diverted sale proceeds.
- The trial court dismissed Abraham’s claims against Lake Forest and NEI, and Abraham appealed.

## Issues

1. Whether Lake Forest and NEI could be held liable for Alabama’s debt to Abraham by disregarding Alabama’s corporate separateness (alter ego/instrumentality/veil piercing).
2. Whether Lake Forest and NEI could be held liable, at least to the extent of the $33,185.36 net sale proceeds, for causing Alabama’s assets to be transferred to NEI while Abraham remained an unpaid creditor.

## Decision

- The appellate court declined to impose parent-company liability for Alabama’s entire unpaid debt on a broad veil-piercing theory.
- The appellate court concluded that the $33,185.36 in net sale proceeds belonged to Alabama and should not have been shifted to NEI ahead of an unpaid creditor.
- The appellate court reversed the trial court’s dismissal to the extent necessary to hold Lake Forest and NEI responsible for the diverted proceeds.
- The appellate court rendered judgment in Abraham’s favor for $33,185.36 (with interest and costs as provided in the judgment), reflecting the amount transferred out of Alabama and into NEI’s account.

## Legal Principles

- A corporation is generally treated as a separate legal person, even when wholly owned by another corporation, and parent ownership alone does not make the parent liable for the subsidiary’s debts.
- Disregarding the corporate form is an exceptional remedy and is applied when the corporate structure is used to work an injustice, such as using a subsidiary as a mere instrumentality to defeat creditor claims.
- Even when full veil piercing is not warranted for all corporate obligations, a court may grant narrower relief where a parent or controlling affiliate causes the subsidiary to transfer identifiable assets to the parent while leaving a creditor unpaid.
- When a corporation is unable to pay its debts, corporate assets function as a fund for creditors; controlling owners may not take corporate value for themselves in preference to creditor payment.
- A parent or affiliate that receives a subsidiary’s assets under these circumstances may be required to return the value received (or be cast in judgment to the extent of the transfer) to prevent an inequitable result.

## Conclusion

The court maintained Alabama’s separate corporate status for purposes of the full promissory-note debt, but it did not permit NEI and Lake Forest to benefit from the transfer of Alabama’s net land-sale proceeds into NEI’s account while Abraham remained unpaid; it therefore imposed liability on the parent entities to the extent of the diverted $33,185.36.


Abraham v. Lake Forest, Inc., 377 So. 2d 465 (1980)