Theberge v. Darbro, Inc.

684 A.2d 1298 (1996)

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Theberge v. Darbro, Inc.

Maine Supreme Judicial Court
684 A.2d 1298 (1996)

  • Written by Brett Stavin, JD

Facts

Michael and Thomas Theberge (plaintiffs) owned seven rental properties in Maine. On August 19, 1986, the Theberges sold the properties to the Worden Group for $900,000. Under the terms of the sale, the Worden Group executed a promissory note payable to the Theberges for $180,000. The promissory note was secured by a mortgage on the properties. Worden Group later sold the properties to Horton Street Associates (Horton Street). To finance the acquisition, among other actions, Horton Street assumed the $180,000 promissory note payable to the Theberges. The Theberges did not release the Worden Group from liability on the promissory note. After an unexpected downturn in the real estate market, Horton Street sold two of the properties, and it applied part of the proceeds to the promissory note, reducing the principal owed. The Theberges and Worden Group sued Darbro, Inc. (Darbro), Albert Small, and Mitchell Small (defendants), the owners of Horton Street. The Theberges argued that Darbro and the Smalls should be liable for the balance of the promissory note because they were the alter ego of Horton Street and should therefore not be protected by Horton Street’s corporate veil. Specifically, the Theberges and Worden Group argued that Albert made representations that he would stand behind the financial obligations of Horton Street. The trial court pierced the corporate veil of Horton Street and held that Darbro and the Smalls were liable for the balance of the promissory note. However, in doing so, the trial court acknowledged that Darbro and the Smalls did not act fraudulently or illegally, but instead used sharp business practices by not formally personally guaranteeing Horton Street’s obligations. Darbro and the Smalls appealed.

Rule of Law

Issue

Holding and Reasoning (Glassman, J.)

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