Sommer v. Yakima Motor Coach Co. , 174 Wash. 638 ( 1933 )

The genius of the common law has always been its capacity to expand and encompass new conditions. Arising, as it does, from the customs of the people, it must, to serve any useful purpose, reflect the necessary legal consequences of such customs. In his work, Law, Its Origin, Growth and Function, Mr. James C. Carter says (p. 71):

"It has often been said by the most approved writers that custom is one of the sources of law, and indeed Blackstone views the body of our unwritten law as being custom, or founded upon custom; but the sort of custom thus intended is ancient custom, reaching so far back that its beginning is not known. Such a limitation of custom in the making of law seems to me to be without foundation, and the object in giving the last illustration is to show that present custom, provided it is established, is as efficient as if it were centuries old."

Naturally, when confronted with new problems, when exploring new fields in the relationships of men, the courts seek analogies in older and more thoroughly explored fields. When such analogies are found, however, there seems to be a distinct tendency to pigeonhole the new relationship and make it conform to the rules applied to the old. When this happens, the law applicable to the new relationship is not allowed a development free enough to cope with consequences which may be the necessary outgrowth of the new conditions.

In dealing with the relationship of dominant and servient corporations, the courts have sought and found analogies in the rules of law appertaining to fraud and agency, through the application of which they have held the dominant corporation responsible for the acts of the servient. This is well enough, but it will not do to confine such responsibility of the dominant corporation to cases only where the conventional rules of fraud may be applied, or where the conventional relationship of agency exists.

It seems to me that the dominant corporation's responsibility for the acts of its subsidiary are to be measured by the use it makes of the latter. If the dominant corporation is merely a stockholder of the subsidiary and does not look to it for anything beyond dividends, then the corporations are entitled to be regarded and treated as distinct entities. But where the dominant corporation completely controls the destiny of the servient, when it uses the subsidiary merely as a convenience — as an instrumentality or incident to a larger purpose — without concern or interest in the latter's capacity to earn dividends, it should not be allowed to escape responsibility for its puppet's acts on the theory of separate entity. Platt v.Bradner Co., 131 Wash. 573, 230 P. 633.

Here, the Washington company is not merely a stockholder of the Yakima. The latter is under complete domination by the Washington company and in utter financial bondage to it. That the Washington company has no concern with the dividend-paying capacity of the Yakima, is apparent. The former takes ten per cent of the latter's gross earnings for managerial and accountancy services. It rents busses to the Yakima at the rate of twenty-five cents a mile — a rate sufficient to amortize the cost of a bus within a year. Obviously it (the Washington company) so manages the affairs of the Yakima that substantially all of the latter's earnings are absorbed in operating expenses. After payments of interest, service charges and bus rental to its parent, nothing can be left of the Yakima's earnings to be allocated to dividends. It is financially irresponsible — it is judgment proof — all because of the method by which its business is conducted by the Washington company. The latter should not be allowed to escape responsibility for the Yakima's acts through the thin disguise of separate corporate entities.

In my opinion, the facts bring the case clearly within the rule of Platt v. Bradner, supra.