## Facts

- John and Thelma Laya contracted to buy a mobile home from Erin Homes, Inc.; Michael Ferns signed the contract as the corporation’s president.
- The Layas traded in a truck and paid the remaining purchase price in cash.
- Erin Homes, Inc. did not deliver the mobile home; the Layas alleged the home was misused and damaged and they received neither the home nor the benefit of the bargain.
- Erin Homes, Inc. was formed by Ferns and another shareholder; records showed little to no director/shareholder meeting activity and no meetings after a 1980 change in control.
- Stock records indicated shares were issued without evidence of cash payment for the shares; a promissory note for stock was later canceled, and there was no evidence Ferns paid for his shares.
- Ferns supplied equipment, but the corporation largely assumed Ferns’s debts on the equipment, with no clear record of paid-in capital or stock issued in exchange.
- The Layas sued for breach of contract and sought to hold Ferns personally liable by piercing the corporate veil based on alleged undercapitalization and disregard of corporate formalities.

## Issues

1. In a contract action, what showing is required to pierce the corporate veil and impose personal liability on a participating shareholder-officer?
2. Whether veil piercing could be resolved in the shareholder’s favor on summary judgment where the record contained evidence of undercapitalization, ignored formalities, and potential unfairness to the contracting party.

## Decision

- The Supreme Court of Appeals of West Virginia reversed the circuit court’s summary judgment that dismissed Ferns as an individual defendant.
- The court held that the record presented genuine disputes of material fact on capitalization, compliance with corporate formalities, and whether limiting liability to the corporation would be unfair.
- The case was remanded for further proceedings, leaving the veil-piercing question for resolution on a fuller evidentiary record.

## Legal Principles

- Corporate separateness is presumed, but the corporate form may be disregarded when respecting it would produce injustice or inequitable consequences.
- In contract cases, veil piercing requires: (1) unity of interest and ownership such that the corporation and shareholder no longer have separate personalities, and (2) an inequitable result if the acts are treated as those of the corporation alone.
- Parties dealing with a corporation are generally presumed not to have assumed the risk of grossly inadequate capitalization.
- Grossly inadequate capitalization, combined with disregard of corporate formalities and resulting basic unfairness, is sufficient to support veil piercing to reach a participating shareholder.
- Veil piercing should rarely be decided on summary judgment because it typically turns on multiple fact questions for the trier of fact.

## Conclusion

The court reinstated claims against the corporation’s controlling officer-shareholder because evidence of undercapitalization and ignored corporate formalities, coupled with alleged unfairness to the purchasers, created triable issues that made summary judgment inappropriate.


Laya v. Erin Homes, Inc., 177 W. Va. 343, 352 S.E.2d 93 (1986)