B-128839, SEP. 12, 1956

B-128839, SEP. 12, 1956

TO MR. HARRY M. GLOSS:

REFERENCE IS MADE TO LETTER OF AUGUST 20, 1956, WRITTEN IN YOUR BEHALF BY SAMUEL J. FREEDMAN, ATTORNEY, PROTESTING THE WITHHOLDING OF THE PAYMENT OR PAYMENTS DUE UNDER CONTRACT NO. N104-48608, DATED APRIL 30, 1956, COVERING A QUANTITY OF SWITCHES FURNISHED THE DEPARTMENT OF THE NAVY.

THE RECORD DISCLOSES THAT DURING THE PERIOD FROM NOVEMBER 1954 TO FEBRUARY 1955, THREE CONTRACTS WERE AWARDED TO THE FIRM OF HARRY M. GLOSS, INCORPORATED, BASED ON ITS BIDS FOR CERTAIN SUPPLIES TO BE DELIVERED TO THE ADMINISTRATIVE OFFICE IN ACCORDANCE WITH THE TERMS OF EACH PROPOSAL. NONE OF THE ITEMS CALLED FOR WERE FURNISHED, AND AS A RESULT OF THE DEFAULT OF THE CORPORATION THE MATERIALS WERE PURCHASED FROM OTHER SOURCES OF SUPPLY RESULTING IN DAMAGES (EXCESS COSTS) TO THE UNITED STATES IN THE APPROXIMATE SUM OF $11,089.11. THE INDEBTEDNESS IS NOT DISPUTED. HOWEVER, YOUR ATTORNEY'S PROTEST IS PREDICATED UPON THE ALLEGATION THAT SINCE YOU DID NOT PERSONALLY GUARANTEE THE PERFORMANCE OF THOSE CORPORATE TRANSACTIONS, AND SINCE THE PRESENT CONTRACT WAS EXECUTED BY YOU AS AN INDIVIDUAL, AS DISTINGUISHED FROM THE CORPORATION BEARING YOUR NAME, YOU CANNOT BE HELD LIABLE FOR THE REPORTED DEBT.

THE GENERAL RULE IS THAT A CORPORATION IS TO BE CONSIDERED A LEGAL ENTITY DISTINCT FROM ITS STOCKHOLDERS, AND PROPERTY OR RIGHTS REQUIRED BY IT, OR LIABILITIES INCURRED, ARE TO BE DISTINGUISHED FROM THOSE OF THE MEMBERS COMPOSING THE CONCERN. BUT, IT IS EQUALLY WELL SETTLED IN LAW THAT WHEN THAT NOTION OF LEGAL ENTITY WOULD DEFEAT PUBLIC CONVENIENCE OR JUSTIFY A WRONG, THE LAW WILL REGARD THE CORPORATION AS AN ASSOCIATION OF PERSONS. MCCASKILL CO. V. UNITED STATES, 216 U.S. 504; UNITED STATES V. MILWAUKEE REFRIGERATOR TRANSIT CO., 142 E. 247. COURTS WILL LOOK BEYOND CORPORATE ENTITY WHENEVER JUSTICE REQUIRES. METROPOLITAN HOLEING CO. V. SNYDER, 79 F.2D 263; PALMOLIVE CO. V. CONWAY, 43 F.2D 226.

THE NAVY REGIONAL ACCOUNTS OFFICE AT BOSTON STATES THAT FROM JUNE 1949 TO JULY 1952, CONTRACTS WERE AWARDED TO YOU AS AN INDIVIDUAL, WHILE DURING SEVERAL YEARS THEREAFTER THEY WERE EXECUTED IN THE NAME OF THE CORPORATION. THERE IS NOTHING IN THE FILE TO INDICATE THAT ANYONE OTHER THAN YOU (AND MEMBERS OF YOUR IMMEDIATE FAMILY WHOSE NAMES APPEAR ON THE ARTICLES OF INCORPORATION) HAS ANY INTEREST IN HARRY M. GLOSS, INCORPORATED. THE FACTS OF RECORD SUPPORT THE CONCLUSION THAT IT IS A SOLE-OWNED CORPORATION. THUS, THERE DOES NOT APPEAR TO BE ANY REAL BASIS FOR HOLDING THAT THE INTERESTS OF THE CORPORATION AND THAT OF THE INDIVIDUAL WERE SEPARATE AND DISTINCT.

IN VIEW OF THE FOREGOING, AND ON THE PRESENT RECORD, THE INTERESTS OF THE GOVERNMENT WOULD APPEAR TO REQUIRE THE WITHHOLDING OF ALL PAYMENTS DUE UNDER THE SUBJECT CONTRACT IN PARTIAL LIQUIDATION OF THE ACKNOWLEDGED DEBT OF THE CORPORATION. FURTHER ARRANGEMENTS SHOULD BE MADE WITH THE CLAIMS DIVISION OF OUR OFFICE TO LIQUIDATE THE BALANCE DUE WITHIN A REASONABLE TIME IN ORDER TO AVOID THE NECESSITY OF INSTITUTING MORE FORMAL COLLECTION ACTION.