Board of Transportation v. Martin , 296 N.C. 20 ( 1978 )

249 S.E.2d 390 (1978) 296 N.C. 20

BOARD OF TRANSPORTATION
v.
David J. MARTIN and wife, Marilyn B. Martin, W. G. Parker, Trustee, L. Carl Liles, Dillard Powell, Substitute Trustee, The Carolina Bank, C. Thomas Biggs, Trustee, Home Savings & Loan Association, John K. Culbertson, Trustee, North Carolina National Bank, Southern National Bank of North Carolina, Carolina Builders Corporation, First Citizens Bank & Trust Company, Reynolds Metal Company, County of Wake, Town of Cary, White Packing Company, Inc., Friedrich Refrigerators, Inc., United States of America and its agency, Department of the Treasury, Internal Revenue Service, City of Raleigh, Central Carolina Bank & Trust Company, Earl J. Latta, Inc., Guarantee State Bank, Trustee.

No. 24.

Supreme Court of North Carolina.

November 28, 1978.

Atty. Gen. Rufus L. Edmisten by Associate Atty. Gen. R. W. Newsom, III, Raleigh, for the State.

Maupin, Taylor & Ellis by Richard C. Titus and Thomas F. Ellis, Raleigh, for defendants-appellees Martin.

BRITT, Justice.

Plaintiff did not except to any fact found by the trial court. Thus, the question presented is whether the court erred in its conclusions of law and in entering an order thereon. Hinson v. Jefferson, 287 N.C. 422, 215 S.E.2d 102 (1975). The court concluded (1) that the parcel of land owned by South Hills Shopping Center, Inc., (South Hills) and the parcel of land owned by defendants Martin individually constituted a unit for the purpose of determining damages, and (2) that South Hills and its trustee in bankruptcy are proper parties to the action. We hold that the court erred in its conclusions and in entering an order based on said conclusions.

While the factual situation in Barnes v. Highway Commission, 250 N.C. 378, 109 S.E.2d 219 (1959), differs somewhat from the facts in the instant case, we find some guidance from the following excerpts from that opinion:

"There is no single rule or principle established for determining the unity of lands for the purpose of awarding damages or offsetting benefits in eminent domain cases. The factors most generally emphasized are unity of ownership, physical unity and unity of use. Under certain circumstances the presence of all these unities is not essential. The respective importance of these factors depends upon the factual situations in individual cases. Usually unity of use is given greatest emphasis.

"The parcels claimed as a single tract must be owned by the same party or parties. It is not a requisite for unity of ownership that a party have the same quantity or quality of interest or estate in all parts of the tract. . . . Different owners of adjoining parcels may not unite them as one tract, nor may an owner of one tract unite with his land adjoining tracts of other owners for the purpose of showing thereby greater damages. Light Co. v. Moss, 220 N.C. 200, 207, 17 S.E.2d 10."

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"As indicated above, the factor most often applied and controlling in determining whether land is a single tract is unity of use. Regardless of contiguity and unity of ownership, ordinarily lands will not be considered a single tract unless there is unity of use. It has been said that ``there must be such a connection, or relation of adaptation, convenience, and actual and permanent use between them, as to make the enjoyment of the parcel taken, reasonably and substantially necessary to the enjoyment of the parcel left, in the most advantageous and profitable manner in the business for which it is used.' Peck v. Railway Co. (1887), 36 Minn. 343, 31 N.W. 217. The unifying use must be a present use. A mere intended use cannot be given effect. . ." 250 N.C. pp. 384-385, 109 S.E.2d pp. 224-25.

In Barnes this court held that two parcels of land owned by a single owner or owners might be treated as one tract where the parcels were contiguous and were similarly used. In the case before us, one parcel of land is owned jointly by two individuals; the other parcel is owned by a corporation of which one of the two individuals is the sole shareholder. The question on these facts, then, is whether the Barnes' requirement that there be unity of ownership between the owners of the two parcels has been met. Absent unity of ownership, the two parcels of land cannot be regarded as a single tract for the purpose of determining a condemnation award. We have not previously resolved this question, and the courts of our sister states which have addressed it appear divided in their opinions.

In Jonas v. State, 19 Wis. 2d 638, 121 N.W.2d 235, 95 A.L.R. 2d 880 (1963), a factual situation similar to that in the instant case was presented. In that case the condemnees argued that the corporate entity should be disregarded to the end that lands owned by it and adjoining lands owned by certain of its shareholders should be treated as a unit for purpose of assessing damages. Answering that argument, the Supreme Court of Wisconsin stated:

"A corporation is treated as an entity separate from its stockholder or stockholders under all ordinary circumstances. Although courts have made exceptions under some circumstances, this has been done where applying the corporate fiction ``would accomplish some fraudulent purpose, operate as a constructive fraud, or defeat some strong equitable claim * *.' Those who are responsible for the existence of the corporation are, in those situations, prevented from using its separate existence to accomplish an unconscionable result. In the present case, those who created the corporation in order to enjoy advantages flowing from its existence as a separate entity are asking that such existence be disregarded where it works a disadvantage to them. We do not consider it good policy to do so." 121 N.W.2d pp. 238-239.

In Sams v. Redevelopment Authority, 431 Pa. 240, 244 A.2d 779 (1968), the two plaintiffs, operating a scrap metal yard as a partnership, owned the parcel of land condemned; they also owned an adjoining parcel on which a corporation, all of whose stock was owned by them, operated a foundry. Plaintiffs argued that there was unity of use and that the corporate veil should be pierced in order to establish a single user for purposes of allowing increased damages. In rejecting that argument, the Supreme Court of Pennsylvania said:

"After thoroughly researching case authority in this Commonwealth, we are firmly convinced that recovery has never been permitted under the unity of use doctrine absent joint identical users of both parcels of land. In fact, the very concept of unity of use, in our view, dictates that there be identical users as well as identical ownership of the properties involved. It is difficult to conceive that a unity of use can exist when there are two separate and distinct legal entities operating each parcel of land. It is a contradiction in terms to speak of a unity of use where there is more than a single user, since implicit in the definition of unity of use is the connotation that both parcels are so completely integrated, inseparable and interdependent so as to make the operation of one impossible without the operation of the other. Where there are separate users (completely different entities) of the parcels involved, the use of both cannot be said to be so inseparable as to make them a unit for purposes of damages in a condemnation proceeding."

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"The corporate entity or personality will be disregarded only when the entity is used to defeat public convenience, justify wrong, protect fraud or defend crime. See Fletcher, Corporations, § 41 (Rev. Ed. 1963), and the numerous cases cited therein; Stevens, Corporations, § 18 (1949). Gagnon v. Speback, 389 Pa. 17, 131 A.2d 619 (1957); Satler v. Rice, 184 Pa.Super. 550, 135 A.2d 775 (1957). Here the corporate shareholders are requesting that the corporate enterprise, voluntarily formed for certain business advantages, ought to be disregarded for their benefit in order to receive increased damages as a result of the present condemnation proceedings. This we refuse to do." 244 A.2d p. 781.

Plaintiff has relied on the rule set out in the above cases. Defendants Martin rely on authority from other jurisdictions where results contrary to those based upon the rule adopted in Wisconsin and Pennsylvania have been obtained on a variety of theories. See: Housing Authority of Newark v. Norfolk Realty Company, 71 N.J. 314, 364 A.2d 1052 (1976) ("Normal business considerations. . . may indicate that a bifurcated ownership of the assets of a functionally integrated enterprise is more desirable than ownership by a single entity."); Erly Realty Development, Inc. v. Ryan, 43 A.D.2d 301, 351 N.Y.S.2d 457 (Sup.Ct., App. Div., 1974), cert. denied, 34 N.Y.2d 515, 357 N.Y.S.2d 1025, 313 N.E.2d 796 (Ct.App., 1974) (close control of one ownership entity by the other held tantamount to ownership); In Re North Park Urban Renewal Project, 67 Misc. 2d 259, 324 N.Y.S.2d 158 (1971); M. T. M. Realty Corp. v. State of New York, 47 Misc. 2d 44, 261 N.Y.S.2d 815 (1965); Guptill Holding Corp. v. State of New York, 23 A.D.2d 434, 261 N.Y.S.2d 435 (1965).

We have carefully reviewed the opinions of the courts of our sister states and we find the reasoning of the decisions in Wisconsin and Pennsylvania more persuasive. We, therefore, hold that a parcel of land owned by an individual and an adjacent parcel of land owned by a corporation of which that individual is the sole or principal shareholder cannot be treated as a unified tract for the purpose of assessing condemnation damages.

A corporation is an entity distinct from the shareholders which own it. Troy Lumber Co. v. Hunt, 251 N.C. 624, 112 S.E.2d 132 (1960). This is true whether the owner of the corporation be another corporation, a single individual, or a group of individuals. Huski-Bilt, Inc. v. Trust Co., 271 N.C. 662, 157 S.E.2d 352 (1967); Acceptance Corp. v. Spencer, 268 N.C. 1, 149 S.E.2d 570 (1966). Where persons have deliberately adopted the corporate form to secure its advantages, they will not be allowed to disregard the existence of the corporate entity when it is to their benefit to do so. Schenley Distillers Corp. v. United States, 326 U.S. 432, 66 S. Ct. 247, 90 L. Ed. 181 (1946); see generally: 18 Am.Jur.2d, Corporations §§ 13-15.

Defendants have also relied on cases from other jurisdictions which cite Barnes, supra, for the principle that unity of ownership may be found although the party seeking to have two parcels of land treated as one tract does not have the same quantity or quality of interest in both parcels. See, e. g., People v. Hemmerling, 58 Cal. Rptr. 203 (Cal.App., 1967); City of Milford v. .2703 Acres of Land, 256 A.2d 759 (Del.Super., 1969); Sauvageau v. Hjelle, 213 N.W.2d 381 (N.D., 1973). These cases are distinguishable from the case before us. In each of them the party seeking to have two parcels of land treated as one tract held a fee interest alone or as a tenant by the entirety in one parcel and a fee interest as a tenant in common in the other. The quantity or duration of interest in the two parcels was the same; only the quality of the interest, the manner in which the interest was held, was different. In each case there was a single claimant who held an interest in both parcels. In the case before us there is no difference in the quantity and quality of the estate claimed in the two parcels, but a different party owns each of them.

Even if we chose to follow the rule of the New York and New Jersey cases, a course we have rejected, two substantial obstacles would still preclude treating the two parcels of land in this case as a single tract. The first of these is the difficulty presented by the bankruptcy of South Hills. The second is the requirement that both parcels be presently, actually, and permanently used in such a manner that the enjoyment of the parcel taken is reasonably and substantially necessary to the enjoyment of the remaining parcel; this is referred to as unity of use. Barnes, supra, 250 N.C. at 385, 109 S.E.2d 219.

At the time of the taking herein involved, South Hills was attempting a corporate reorganization under Chapter X of the Federal Bankruptcy Act. Under Chapter X title to the property of South Hills vested in the trustee in bankruptcy. 11 U.S.C. § 586. The property's ultimate disposition is subject to the confirmation and consummation of a plan of reorganization. 9 Am.Jur.2d, Bankruptcy § 1609. Whether the debtor, South Hills, will ever reacquire title to its property is therefore uncertain. See, generally: 9 Am.Jur.2d, Bankruptcy §§ 1493-1600.

The parcel of land owned by defendants Martin is not subject to the jurisdiction of the bankruptcy court. Neither Martin nor South Hills presently has the power to act upon the property of the corporation. Between the trustee in bankruptcy and defendants there is clearly no unity of ownership.

Finally, even if unity of ownership were proven in this case, it would still be necessary to show unity of use.

"The unifying use must be a present use. A mere intended use cannot be given effect. If the uses of two or more sections of land are different and inconsistent, no claim of unity can be maintained." Barnes, supra at 385, 109 S.E.2d at 225.

In the case before us the parcel of land owned by South Hills had been developed and was being used for a large, commercial shopping center. The parcel of land owned by the Martins was an undeveloped tract. While grading operations had been undertaken on it and water and sewer lines had been extended to it, this parcel of land was not presently being used in a manner which made its continued use essential to the enjoyment of the tract owned by South Hills. The intended future development of the Martin tract for use in conjunction with the South Hills tract is not adequate to support a finding of unity of use.

For the reasons stated, the order appealed from is vacated and the cause is remanded for further proceedings consistent with this opinion.

Order vacated and cause remanded.