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[3][4] In Kentucky, a party claiming harm resulting from fraud in the inducement must establish six elements of
fraud by clear and convincing evidence as follows: a) material representation b) which is false c) known to be false
unless declarant falsely represents his opinion of a future happening.”); see also Major v. Christian County Live-
stock Market, 300 S.W.2d 246, 249 (Ky.1957) (“One may commit ‘fraud in the inducement’ by making representa-
tions as to his future intentions when in fact he knew at the time the representations were made he had no intention
of carrying them out[.]”)
fraud in the inducement fails for two reasons.
First, no evidence in the record demonstrates that Tony H. Smith's alleged representations were made to induce Lak-
er Express to act or refrain from acting. While all of these representations refer to Smith Services promising to pay
Laker Express at some point in the future, the representations at issue began roughly one month after Smith Ser-
having Tony H. Smith sign a personal guaranty, or demanding a security interest or other adequate assurances.
Second, Laker Express produced no evidence that Tony H. Smith, or any agent of Smith Services, knew at the time
that Smith Services incurred the various unpaid fuel charges on its account that Smith Services would not, in fact,
pay Laker Express. See Major, 300 S.W.2d at 249. Moreover, the only evidence of record regarding Tony H.
FN2. Jeff Ison is the President of Laker Express.
Q: And what did you say to him?
Smith: Well, at this time, that was the first time that I had remembered ever talking to him. And I apologized to
him for the situation, and told him the situation, and explained to him how that, you know, the procedures of pos-
© 2010 Thomson Reuters. No Claim to Orig. US Gov. Works.
sibly getting his money. And then at that point in time, I told him that I couldn't pay him what we-what that [sic]
Smith Services owed him at that time.
Q: How much was that, at that time?
Smith: It was twenty thousand-plus dollars. I don't know exactly. But it was a considerable amount. It was about a
six weeks [sic] period there that we were hauling sand. I had three trucks running, and they were running six, sev-
en hundred dollars a day.
Q: Okay.
Smith: And at that time, I told him from that time on, that we would pay him on a month-to-month basis for what-
but that the fuel that we purchased and had already purchased, you know, I mean I couldn't-Smith Services could-
n't pay him till they got paid on the debt. And Smith Services never received the money, and in turn, this is where
[6] As to the portion of Laker Express's claim alleging fraud by omission, we also conclude that the trial court did
not err in granting summary judgment. Regarding this cause of action, we stated in Rivermont Inn, Inc. v. Bass Ho-
tels Resorts, Inc., 113 S.W.3d 636, 641 (Ky.App.2003), that
[f]raud by omission is not the same, at law, as fraud by misrepresentation, and has substantially different ele-
(Internal citations omitted).
[7] As stated above, a duty of disclosure may arise from a fiduciary relationship, partial disclosure of material facts,
or by statute. Here, Laker Express does not contend that a fiduciary relationship existed between itself and Smith
osition:
Q: Has Smith Services, or Tony H. Smith, ever done anything to mislead you with regard to this account?
...
© 2010 Thomson Reuters. No Claim to Orig. US Gov. Works.
Ison: Mislead me? He told me he would try to pay me, you know. You know, as to this point in time, I've
never been paid.
Q: Okay. Other than telling you he'd pay you, and he didn't pay you, anything else?
Ison: Not that I can think of.
However, while we also disagree that Smith Services or Tony H. Smith owed Laker Express a statutory duty to dis-
close the fact of its dissolution, this issue warrants further discussion. Laker Express argues that such a duty is creat-
ed under Kentucky Revised Statute (KRS) 271B.14-060. In relevant part, KRS 271B.14-060, entitled “Known
claims against dissolved corporation [,]” provides:
(1) A dissolved corporation may dispose of the known claims against it by following the procedure described in
this section.
(d) State that the claim will be barred if not received by the deadline.
(3) A claim against the dissolved corporation shall be barred:
(a) If a claimant who was given written notice under subsection (2) of this section does not deliver the claim to
the dissolved corporation by the deadline;
(b) If a claimant whose claim was rejected by the dissolved corporation does not commence a proceeding to en-
allows certain acts to be taken against the corporation, following corporate dissolution. Generally, for the purpose of
being sued, a corporation is deemed to exist until its debts are paid. See Economy Bldg. & Loan Ass'n v. Paris Ice
Mfg. Co., 113 Ky. 246, 68 S.W. 21, 24 Ky. L. Rptr.107 (1902); Stearns Coal & Lumber Co. v. Douglas, 299 Ky.
314, 185 S.W.2d 385 (1944). The General Assembly enacted KRS 271B.14-060 in 1988 following the 1984 Model
Business Corporation Act, and it is identical to section 14.06 of the Model Act. According to the Model Act's offi-
© 2010 Thomson Reuters. No Claim to Orig. US Gov. Works.
noticed may be extinguished in as few as one hundred twenty days following that notice, provided that the notice
states such a deadline and the creditor fails to timely deliver its claim to the dissolving corporation. Alternatively, if
the creditor does timely deliver its claim to the corporation, but its claim is rejected, then its claim will be extin-
guished if it fails to commence a proceeding to enforce its claim within ninety days of the rejection notice.
review of the other statutes contained in this chapter regarding dissolution reveals no further support for the affirma-
tive duty of disclosure Laker Express proposes. In the absence of a more specific expression of legislative policy to
the contrary, we do not construe a legislative purpose to create an affirmative duty of a Kentucky corporation to no-
tify its creditors of dissolution. Consequently, Smith Services or Tony H. Smith had no duty to disclose the fact of
dissolution to Laker Express. As this element fails, so too must Laker Express's claim of fraud by omission.
in the Kentucky Revised Statutes.
II. DIRECT LIABILITY FOR COLLECTION OF ACCOUNT
Next, Laker Express contends that evidence of record demonstrates Tony H. Smith and Smith Heating and Air Con-
ditioning, LLC, are directly liable for Smith Services' fuel charges and, consequently, summary judgment on this
LLC's agents and employees purchased fuel from Laker Express between 2003 through 2005 and because it believed
that the LLC's agents were actually the agents of Smith Services. This argument is curious, at best: regardless of
their principal, none of these agents used Smith Services' account to purchase fuel, and Laker Express makes no
contention that it is owed for any fuel charges subsequent to February of 2002. As such, this argument has no merit.
the benefit of its creditors, and when it parts with this property, getting in return nothing the creditor can subject,
the law will follow the property into the hands of the taker and make it liable to the extent of the value of the
property received.
above, and KRS 271B.14-070 (dealing with “unknown” or subsequently arising claims against the corporation), to
the extent that if a creditor receives notice of the corporation's dissolution and does not timely act to enforce any
claims it may have, then its claims are extinguished. However, KRS 271B.14-070(4) continues to recognize the rule
stated in Reeves:
[12] Here, Laker Express produced evidence in the form of Smith Services' 2003 tax return, which was the last re-
turn Smith Services filed. It includes that, as of 2003, Tony H. Smith had received “shareholder loans” (i.e., assets)
from Smith Services in the amount of $173,434. Tony H. Smith produced no promissory notes or agreements me-
morializing these loans. Tony H. Smith does not contend that he has repaid these loans, and no evidence of record
statutes did apply, as its complaint was filed before Smith Services was administratively dissolved. As such, it was
error for the circuit court to dismiss Tony H. Smith as a party defendant. Kentucky law allows a creditor who timely
files its claim to proceed directly against a shareholder of a dissolved corporation to the extent of the corporate as-
sets received by that shareholder, and Laker Express has produced some evidence creating a genuine issue of mate-
rial fact as to whether Tony H. Smith had received assets of Smith Services for which he could now be personally
[13][14][15] In general, a corporation is treated as a legal entity separate and apart from its shareholders. However,
when the corporation is used to justify wrong, protect fraud or defend crime, the law regards the corporation as an
association of persons. Dare To Be Great, Inc. v. Commonwealth, ex rel. Hancock, 511 S.W.2d 224, 227 (Ky.1974).
Two related theories have been used to hold the shareholders of a corporation responsible for corporate liabilities:
© 2010 Thomson Reuters. No Claim to Orig. US Gov. Works.
For the reasons herein stated, we AFFIRM the Laurel Circuit Court's opinion as it relates to the issues of fraud and
to the dismissal of Smith Heating and Air Conditioning, LLC, as a party-defendant. We REVERSE the Laurel Cir-
cuit Court's opinion as it relates to piercing the corporate veil of Smith Services and dismissing Tony H. Smith as a
party-defendant, as genuine issues of material fact remain regarding these issues, and REMAND for further findings
not inconsistent with this Opinion.
ALL CONCUR.
Ky.App.,2010.
Bear, Inc. v. Smith
303 S.W.3d 137
END OF DOCUMENT
© 2010 Thomson Reuters. No Claim to Orig. US Gov. Works.
sibly getting his money. And then at that point in time, I told him that I couldn't pay him what we-what that [sic]
Smith Services owed him at that time.
Q: How much was that, at that time?
Smith: It was twenty thousand-plus dollars. I don't know exactly. But it was a considerable amount. It was about a
six weeks [sic] period there that we were hauling sand. I had three trucks running, and they were running six, sev-
en hundred dollars a day.
Q: Okay.
Smith: And at that time, I told him from that time on, that we would pay him on a month-to-month basis for what-
but that the fuel that we purchased and had already purchased, you know, I mean I couldn't-Smith Services could-
n't pay him till they got paid on the debt. And Smith Services never received the money, and in turn, this is where
[6] As to the portion of Laker Express's claim alleging fraud by omission, we also conclude that the trial court did
not err in granting summary judgment. Regarding this cause of action, we stated in Rivermont Inn, Inc. v. Bass Ho-
tels Resorts, Inc., 113 S.W.3d 636, 641 (Ky.App.2003), that
[f]raud by omission is not the same, at law, as fraud by misrepresentation, and has substantially different ele-
(Internal citations omitted).
[7] As stated above, a duty of disclosure may arise from a fiduciary relationship, partial disclosure of material facts,
or by statute. Here, Laker Express does not contend that a fiduciary relationship existed between itself and Smith
osition:
Q: Has Smith Services, or Tony H. Smith, ever done anything to mislead you with regard to this account?
...
© 2010 Thomson Reuters. No Claim to Orig. US Gov. Works.
Ison: Mislead me? He told me he would try to pay me, you know. You know, as to this point in time, I've
never been paid.
Q: Okay. Other than telling you he'd pay you, and he didn't pay you, anything else?
Ison: Not that I can think of.
However, while we also disagree that Smith Services or Tony H. Smith owed Laker Express a statutory duty to dis-
close the fact of its dissolution, this issue warrants further discussion. Laker Express argues that such a duty is creat-
ed under Kentucky Revised Statute (KRS) 271B.14-060. In relevant part, KRS 271B.14-060, entitled “Known
claims against dissolved corporation [,]” provides:
(1) A dissolved corporation may dispose of the known claims against it by following the procedure described in
this section.
(d) State that the claim will be barred if not received by the deadline.
(3) A claim against the dissolved corporation shall be barred:
(a) If a claimant who was given written notice under subsection (2) of this section does not deliver the claim to
the dissolved corporation by the deadline;
(b) If a claimant whose claim was rejected by the dissolved corporation does not commence a proceeding to en-
allows certain acts to be taken against the corporation, following corporate dissolution. Generally, for the purpose of
being sued, a corporation is deemed to exist until its debts are paid. See Economy Bldg. & Loan Ass'n v. Paris Ice
Mfg. Co., 113 Ky. 246, 68 S.W. 21, 24 Ky. L. Rptr.107 (1902); Stearns Coal & Lumber Co. v. Douglas, 299 Ky.
314, 185 S.W.2d 385 (1944). The General Assembly enacted KRS 271B.14-060 in 1988 following the 1984 Model
Business Corporation Act, and it is identical to section 14.06 of the Model Act. According to the Model Act's offi-
© 2010 Thomson Reuters. No Claim to Orig. US Gov. Works.
noticed may be extinguished in as few as one hundred twenty days following that notice, provided that the notice
states such a deadline and the creditor fails to timely deliver its claim to the dissolving corporation. Alternatively, if
the creditor does timely deliver its claim to the corporation, but its claim is rejected, then its claim will be extin-
guished if it fails to commence a proceeding to enforce its claim within ninety days of the rejection notice.
review of the other statutes contained in this chapter regarding dissolution reveals no further support for the affirma-
tive duty of disclosure Laker Express proposes. In the absence of a more specific expression of legislative policy to
the contrary, we do not construe a legislative purpose to create an affirmative duty of a Kentucky corporation to no-
tify its creditors of dissolution. Consequently, Smith Services or Tony H. Smith had no duty to disclose the fact of
dissolution to Laker Express. As this element fails, so too must Laker Express's claim of fraud by omission.
in the Kentucky Revised Statutes.
II. DIRECT LIABILITY FOR COLLECTION OF ACCOUNT
Next, Laker Express contends that evidence of record demonstrates Tony H. Smith and Smith Heating and Air Con-
ditioning, LLC, are directly liable for Smith Services' fuel charges and, consequently, summary judgment on this
LLC's agents and employees purchased fuel from Laker Express between 2003 through 2005 and because it believed
that the LLC's agents were actually the agents of Smith Services. This argument is curious, at best: regardless of
their principal, none of these agents used Smith Services' account to purchase fuel, and Laker Express makes no
contention that it is owed for any fuel charges subsequent to February of 2002. As such, this argument has no merit.
the benefit of its creditors, and when it parts with this property, getting in return nothing the creditor can subject,
the law will follow the property into the hands of the taker and make it liable to the extent of the value of the
property received.
above, and KRS 271B.14-070 (dealing with “unknown” or subsequently arising claims against the corporation), to
the extent that if a creditor receives notice of the corporation's dissolution and does not timely act to enforce any
claims it may have, then its claims are extinguished. However, KRS 271B.14-070(4) continues to recognize the rule
stated in Reeves:
[12] Here, Laker Express produced evidence in the form of Smith Services' 2003 tax return, which was the last re-
turn Smith Services filed. It includes that, as of 2003, Tony H. Smith had received “shareholder loans” (i.e., assets)
from Smith Services in the amount of $173,434. Tony H. Smith produced no promissory notes or agreements me-
morializing these loans. Tony H. Smith does not contend that he has repaid these loans, and no evidence of record
statutes did apply, as its complaint was filed before Smith Services was administratively dissolved. As such, it was
error for the circuit court to dismiss Tony H. Smith as a party defendant. Kentucky law allows a creditor who timely
files its claim to proceed directly against a shareholder of a dissolved corporation to the extent of the corporate as-
sets received by that shareholder, and Laker Express has produced some evidence creating a genuine issue of mate-
rial fact as to whether Tony H. Smith had received assets of Smith Services for which he could now be personally
[13][14][15] In general, a corporation is treated as a legal entity separate and apart from its shareholders. However,
when the corporation is used to justify wrong, protect fraud or defend crime, the law regards the corporation as an
association of persons. Dare To Be Great, Inc. v. Commonwealth, ex rel. Hancock, 511 S.W.2d 224, 227 (Ky.1974).
Two related theories have been used to hold the shareholders of a corporation responsible for corporate liabilities:
© 2010 Thomson Reuters. No Claim to Orig. US Gov. Works.
For the reasons herein stated, we AFFIRM the Laurel Circuit Court's opinion as it relates to the issues of fraud and
to the dismissal of Smith Heating and Air Conditioning, LLC, as a party-defendant. We REVERSE the Laurel Cir-
cuit Court's opinion as it relates to piercing the corporate veil of Smith Services and dismissing Tony H. Smith as a
party-defendant, as genuine issues of material fact remain regarding these issues, and REMAND for further findings
not inconsistent with this Opinion.
ALL CONCUR.
Ky.App.,2010.
Bear, Inc. v. Smith
303 S.W.3d 137
END OF DOCUMENT
