April 5, 1991.
MICHAEL E. KVASSAY, d/b/a Kvassay Exotic Foods, Appellant/Cross-Appellee,
ALBERT MURRAY, et al., Appellees/Cross-Appellants.
Plaintiff Michael Kvassay, d/b/a Kvassay Exotic Food, appeals
the trial court's finding that a liquidated damages clause was
unenforceable and from the court's finding that damages for lost
profits were not recoverable. Kvassay contends these damages
occurred when Great American Foods, Inc., (Great American)
breached a contract for the purchase of baklava. Great American
and Albert and Deana Murray, principals of Great American,
cross-appeal the trial court's ruling that Kvassay could pierce
Great American's corporate veil to collect damages awarded at
On February 22, 1984, Kvassay, who had been an independent
insurance adjuster, contracted to sell 24,000 cases of baklava to
Great American at $19.00 per case. Under the contract, the sales
were to occur over a one-year period and Great American was to be
Kvassay's only customer. The contract included a clause which
provided: "If Buyer refuses to accept or repudiates delivery of
the goods sold to him, under this Agreement, Seller shall be
[15 Kan. App. 2d 428]
entitled to damages, at the rate of $5.00 per case, for each case
remaining to be delivered under this Contract."
Problems arose early in this contractual relationship with
checks issued by Great American being dishonored for insufficient
funds. Frequently one of the Murrays issued a personal check for
the amount due. After producing approximately 3,000 cases,
Kvassay stopped producing the baklava because the Murrays refused
to purchase any more of the product.
The Murrays formed Sunshine Ceramics, Inc., in 1974. The
company was inactive during the late 1970's and early 1980's and
failed to make a number of required corporate filings. In August
1984, the name of the corporation was changed to Great American
Foods, Inc. The Murrays also operated fast food restaurants in
Wichita under the name of Great American Subs, Inc., and
controlled an entity named Murray Investments. The Murrays
conducted business for all of their entities and personal
business from one street location in Wichita. In August 1984, the
Murrays opened a bank account in the name of Great American
Distributors, Inc., although no incorporation papers were ever
filed. The Murrays frequently paid the bills of their various
entities with personal checks and often wrote checks to
themselves on corporate accounts. In addition, there were times
when one entity would pay the Murrays' personal expenses or the
expense of other Murray entities.
In April 1985, Kvassay filed suit for damages arising from the
collapse of his baklava baking business. Great American
counterclaimed and, in May 1988, the trial court sustained a
defense motion to bifurcate the case. The court conducted bench
hearings on the validity of the liquidated damages clause and the
question of piercing the corporate veil. The trial court ruled
that liquidated damages could not be recovered and that Great
American's corporate veil could be pierced by Kvassay. The court
also held "as a matter of law" that Kvassay would not be able to
recover damages for lost profits in the action because they were
too "speculative and conjectural." Kvassay attacked this latter
ruling through a motion to modify, arguing a ruling on the issue
was premature. The motion to modify was denied, although the
court did announce that Kvassay could attempt to prove loss of
profits at the jury trial.
[15 Kan. App. 2d 429]
A jury trial on the issues of breach of contract and damages
was held in February 1990. On the second day of trial, before any
evidence on the question of loss of profits had been presented,
the trial court ruled that lost profits were not recoverable and
barred Kvassay from presenting any evidence on that question. The
jury returned verdicts in Kvassay's favor and awarded him a total
Kvassay first attacks the trial court's ruling that the amount
of liquidated damages sought by him was unreasonable and
therefore the liquidated damages clause was unenforceable.
Kvassay claimed $105,000 in losses under the liquidated damages
clause of the contract, representing $5 per case for the
approximately 21,000 cases of baklava which he was not able to
deliver. The trial court determined that Kvassay's use of
expected profits to formulate liquidated damages was improper
because the business enterprise lacked duration, permanency, and
recognition. The court then compared Kvassay's previous yearly
income (about $20,000) with the claim for liquidated damages
($105,000) and found "the disparity becomes so great as to make
the clause unenforceable."
Since the contract involved the sale of goods between
merchants, the Uniform Commercial Code governs. See K.S.A.
84-2-102. "The Code does not change the pre-Code rule that the
question of the propriety of liquidated damages is a question of
law for the court." 4 Anderson, Uniform Commercial Code §
2-718:6, p. 572 (3d ed. 1983). Thus, this court's scope of review
of the trial court's ruling is unlimited. Hutchinson Nat'l Bank
& Tr. Co. v. Brown, 12 Kan. App. 2d 673, 674, 753 P.2d 1299,
rev. denied 243 Kan. 778 (1988).
Liquidated damages clauses in sales contracts are governed by
K.S.A. 84-2-718, which reads in part:
"(1) Damages for breach by either party may be
liquidated in the agreement but only at an amount
which is reasonable in the light of the anticipated
or actual harm caused by the breach, the difficulties
of proof of loss, and the inconvenience or
nonfeasibility of otherwise obtaining an adequate
remedy. A term fixing unreasonably large liquidated
damages is void as a penalty."
To date, the appellate courts> have not interpreted this section
of the UCC in light of facts similar to those presented in this
[15 Kan. App. 2d 430]
In ruling on this issue, the trial court relied on rules
governing liquidated damages as expressed in U.S.D. No. 315 v.
DeWerff, 6 Kan. App. 2d 77, 626 P.2d 1206 (1981). DeWerff,
however, involved a teacher's breach of an employment contract
and was not governed by the UCC. Thus, the rules expressed in
that case should be given no effect if they differ from the rules
expressed in 84-2-718.
In DeWerff, this court held a "stipulation for damages upon a
future breach of contract is valid as a liquidated damages clause
if the set amount is determined to be reasonable and the amount
of damages is difficult to ascertain." 6 Kan. App. 2d at 78. This
is clearly a two-step test: Damages must be reasonable and they
must be difficult to ascertain. Under the UCC, however,
reasonableness is the only test. K.S.A. 84-2-718. K.S.A. 84-2-718
provides three criteria by which to measure reasonableness of
liquidated damages clauses: (1) anticipated or actual harm caused
by breach; (2) difficulty of proving loss; and (3) difficulty of
obtaining an adequate remedy.
In its ruling, the trial court found the liquidated damages
clause was unreasonable in light of Kvassay's income before he
entered into the manufacturing contract with Great American.
There is no basis in 84-2-718 for contrasting income under a
previous unrelated employment arrangement with liquidated damages
sought under a manufacturing contract. Indeed, the traditional
goal of the law in cases where a buyer breaches a manufacturing
contract is to place the seller "'in the same position he would
have occupied if the vendee had performed his contract.'"
Outcault Adv. Co. v. Citizens Nat'l Bank, 118 Kan. 328, 330-31,
234 P. 988 (1925). Thus, liquidated damages under the contract
in this case must be measured against the anticipated or actual
loss under the baklava contract as required by 84-2-718. The
trial court erred in using Kvassay's previous income as a
Was the trial court correct when it invalidated the liquidated
damages clause, notwithstanding the use of an incorrect test? If
so, we must uphold the decision even though the trial court
relied on a wrong ground or assigned an erroneous reason for its
decision. Sutter Bros. Constr. Co. v. City of Leavenworth,
238 Kan. 85, 93, 708 P.2d 190 (1985). To answer this question, we
[15 Kan. App. 2d 431]
must look closer at the first criteria for reasonableness under
84-2-718, anticipated or actual harm done by the breach.
Kvassay produced evidence of anticipated damages at the bench
trial showing that, before the contract was signed between
Kvassay and Great American, Kvassay's accountant had calculated
the baklava production costs. The resulting figure showed that,
if each case sold for $19, Kvassay would earn a net profit of
$3.55 per case after paying himself for time and labor. If he did
not pay himself, the projected profit was $4.29 per case.
Nevertheless, the parties set the liquidated damages figure at $5
per case. In comparing the anticipated damages of $3.55 per case
in lost net profit with the liquidated damages of $5 per case, it
is evident that Kvassay would collect $1.45 per case or about 41
percent over projected profits if Great American breached the
contract. If the $4.29 profit figure is used, a $5 liquidated
damages award would allow Kvassay to collect 71 cents per case or
about 16 1/2 percent over projected profits if Great American
breached the contract.
An examination of these pre-contract comparisons alone might
well lead to the conclusion that the $5 liquidated damages clause
is unreasonable because enforcing it would result in a windfall
for Kvassay and serve as a penalty for Great American. A term
fixing unreasonably large liquidated damages is void as a penalty
A better measure of the validity of the liquidated damages
clause in this case would be obtained if the actual lost profits
caused by the breach were compared to the $5 per case amount set
by the clause. However, no attempt was made by Kvassay during the
bench trial to prove actual profits or actual costs of
production. Thus, the trial court could not compare the $5
liquidated damages clause in the contract with the actual profits
lost by the breach. It was not until the jury trial that Kvassay
attempted to prove his actual profits lost as part of his
damages. Given the trial court's ruling that lost profits were
not recoverable and could not be presented to the jury, it is
questionable whether the court would have permitted evidence
concerning lost profits at the bench trial.
The trial court utilized an impermissible factor to issue its
ruling on the liquidated damages clause and the correct statutory
factors were not directly addressed. We reverse the trial court
on this issue and remand for further consideration of the
reasonableness of the
[15 Kan. App. 2d 432]
liquidated damages clause in light of the three criteria set out
in 84-2-718 and our ruling on recoverability of lost profits
Kvassay contends the trial court erred in ruling damages for
lost profits were not recoverable, arguing under K.S.A. 84-2-608
he should have been permitted to collect lost profits under his
contract with Great American. As noted, the trial court made this
ruling prior to hearing any evidence on the issue of lost
In ruling that Kvassay could not recover lost profits, the
1. The UCC and case law governing lost profits do
not apply to "loss of future profits for uncompleted
goods under a contract."
2. When the rules governing lost profits do apply,
"you have to have an established business, one which
meets those other criteria, sufficient length of time
that future profits can be reasonably assured by
reason of the past history of the business to have
been realized or realizable under the contract."
3. "[A]s a matter of law . . . this bakery business
was not in existence a sufficient length of time that
the calculation of future profits is sufficiently
reliable to be a basis for the recovery of damages."
As previously discussed, damages in this case are governed by the
UCC and the trial court erred in finding the UCC did not apply.
The general rule governing damages is expressed in K.S.A.
84-1-106(1): "The remedies provided by this act shall be
liberally administered to the end that the aggrieved party may be
put in as good a position as if the other party had fully
performed." The specific section governing lost profits is K.S.A.
84-2-708, which states:
"(1) Subject to subsection (2) and to the
provisions of this article with respect to proof of
market price (section 84-2-723), the measure of
damages for nonacceptance or repudiation by the buyer
is the difference between the market price at the
time and place for tender and the unpaid contract
price together with any incidental damages provided
in this article (section 84-2-710), but less expenses
saved in consequence of the buyer's breach.
"(2) If the measure of damages provided in
subsection (1) is inadequate to put the seller in as
good a position as performance would have done then
the measure of damages is the profit (including
reasonable overhead) which the seller would have made
from full performance by the buyer, together with any
incidental damages provided in this article (section
84-2-710), due allowance for costs reasonably
incurred and due credit for payments or proceeds of
[15 Kan. App. 2d 433]
A plain reading of this statute leads to the conclusion that
section (2) applies in this case because there was no market for
Kvassay's baklava after Great American breached the contract.
However, this determination does not resolve the question of the
trial court's ruling that lost profits cannot be obtained for
goods not yet produced. While no Kansas court has interpreted
84-2-708(2), one authoritative treatise on the UCC provides
guidance. "When the seller is entitled to recover for loss of
profits, he may recover for the profit on that part of the order
of goods which has not yet been manufactured by him." 4 Anderson,
Uniform Commercial Code § 2-708:22, p. 395.
Setting aside for a moment the question of Kvassay's business
experience, Kansas common law is in accord with Anderson on the
question of recoverability of loss of profits on goods not yet
"`In considering the question what damages may be
recovered by the vendor in case of the breach by the
vendee of a contract for the purchase and sale of
articles to be manufactured, it must be borne in mind
that the aim of the law is to place the vendor in the
same position he would have occupied if the vendee
had performed his contract. If this object is to be
attained, it is evident that the vendor must be
permitted to recover the profits which he would have
made if there had been no breach of the contract.'"
Outcault, 118 Kan. at 330-31.
Outcault is cited favorably in the Kansas comment to 84-2-708.
Thus, it is clear the trial court also erred in ruling profits
were not obtainable for goods that had not been produced.
The next question in this analysis becomes whether a business
must have been in existence for a "sufficient length of time that
future profits can be reasonably assured by reason of the past
history of the business to have been realized or realizable under
the contract," as found by the trial court. The official UCC
comment to 84-2-708 states: "It is not necessary to a recovery of
`profit' to show a history of earnings, especially if a new
venture is involved." By this standard, Kvassay did not need to
prove a record of profitability to claim lost profits under the
UCC and the trial court erred in so ruling.
The closely related final question is whether the trial court
erred in ruling "as a matter of law . . . this bakery business
was not in existence a sufficient length of time that the
[15 Kan. App. 2d 434]
future profits is sufficiently reliable to be a basis for the
recovery of damages." The role of the courts> in determining the
acceptability of proof of lost profits for new businesses has
been discussed in Kansas. See Butler v. Westgate State Bank,
226 Kan. 581, 602 P.2d 1276 (1979); Vickers v. Wichita State
University, 213 Kan. 614, 518 P.2d 512 (1974); Outcault,
118 Kan. 328. Although none of these cases discusses lost profits for
new businesses in light of the UCC, they are instructive.
Vickers, 213 Kan. at 620, contains this comment:
"Unquestionably, a method of establishing a loss of
profits with reasonable certainty is by showing a
history of past profitability. Past profitability of
a particular business is not, however, the only
method of proving lost future profits. The evidence
necessary in establishing lost future profits with
reasonable certainty `must depend in a large measure
upon the circumstances of the particular case. . . .'
[Citation omitted.] Absolute certainty in proving
loss of future profits is not required. [Citation
omitted.] What is required is that the court or jury
be guided by some rational standard. [Citations
omitted.] As to evidentiary matters a court should
approach each case in an individual and pragmatic
manner, and require the claimant furnish the best
available proof as to the amount of loss that the
particular situation admits. [Citation omitted.] It
is the responsibility of a district court to see that
speculative and problematical evidence does not reach
the jury. [Citation omitted.]"
There is no reason the standard should be any different under
the UCC section which specifically allows lost profits as damages
(84-2-708) and which requires that remedies under the act be
"liberally administered to the end that the aggrieved party may
be put in as good a position as if the other party had fully
performed." K.S.A. 84-1-106.
Lost profits may be recovered for new businesses if they can be
proved with reasonable certainty. Butler, 226 Kan. at 585.
Strict application of the certainty doctrine would place a new
business at substantial disadvantage. To hold recovery is
precluded as a matter of law merely because a business is newly
established would encourage those contracting with such a
business to breach their contracts. The law is not so deficient.
Vickers, 213 Kan. at 620. When 84-1-106 and 84-2-708(2) are
read in light of Vickers, it is clear that, when there has been
a breach of contract with a new business, such business should be
[15 Kan. App. 2d 435]
opportunity to prove its damages and to collect profits if the
damages can be proved.
In this case, Kvassay attempted to present an ample basis on
which to determine profits earned on the baklava produced under
the contract. Uncontested evidence offered included:
1. Kvassay did not go into the bakery business
until he had a contract with Great American requiring
the purchase of 24,000 cases of baklava at $19 per
2. After spending about two months setting up his
bakery, Kvassay produced baklava full time for about
three months, although there were some temporary
shut-downs due to cash flow problems.
3. Production was averaging about 100 cases daily,
although a peak of 150 cases was reached.
4. 3,000 cases of the 24,000 contracted for were
produced, or 12.5 percent of the contract.
5. Production staff was paid on a commission basis
based on the number of trays of baklava prepared at a
rate of $1.75-$2.00 per tray.
6. The recipe for each 14-inch x 18-inch tray of
baklava called for two pounds of phyllo dough, one
pound of margarine, one teaspoon of cloves, one
teaspoon of cinnamon, one pound of walnuts, and two
pounds of honey.
7. Each tray produced ten 8-ounce pieces of baklava
while each case delivered held twelve 8-ounce pieces
8. There were two full-time hourly employees and
additional help was hired on an hourly basis for
maintenance when needed.
In addition, before the court ruled that lost profits could not
be proved, Kvassay attempted to offer receipts from suppliers to
document his costs. The trial court never permitted those
exhibits to be admitted. Further, after the court ruled that lost
profits would not be allowed, Kvassay proffered the testimony of
two accountants as to the profitability of his enterprise and the
profit he would have earned under the contract with Great
American. Of particular note was the testimony of Tom Dechant,
C.P.A., who testified that, from an accounting standpoint, at
least five percent of the baklava contract needed to be completed
before profits could be determined with "reasonable certainty."
In this case, 12.5 percent of the contract had been completed.
Given the quantity of evidence offered to prove the
profitability of Kvassay's business, it is clear the trial court
was premature in ruling, as a matter of law, that lost profits
could not be proved. Kvassay should have been permitted to offer
his evidence and meet his burden of proof on damages.
[15 Kan. App. 2d 436]
On cross-appeal, Great American contends the trial court was
wrong in permitting its corporate veil to be pierced so the
Murrays could be held personally responsible for the corporate
debts. The crux of Great American's argument is that no fraud or
injustice was done to Kvassay and there is no "causal nexus"
between Kvassay's decision to enter into the contract and the
corporate failings which came to light during the trial. Kvassay
argues the evidence is compelling and overwhelmingly supports the
trial court's finding that the corporate entity involved operated
as a "facade for the operations of the Murrays" and worked to
Kvassay's injustice "by inducing him to enter into the contract"
Each case involving disregard of the corporate entity must rest
upon its special facts. Sampson v. Hunt, 233 Kan. 572, 579,
665 P.2d 743 (1983).
"Where the trial court has made findings of fact . .
. the function of this court on appeal is to
determine whether the findings are supported by
substantial competent evidence. . . . Substantial
evidence is evidence which possesses both relevance
and substance and which furnishes a substantial basis
of fact from which the issues can reasonably be
resolved. [Citation omitted.]" Williams
Telecommunications Co. v. Gragg, 242 Kan. 675, 676,
750 P.2d 398 (1988).
Before examining the record to determine if there is sufficient
competent evidence to support the trial court's decision, it is
helpful to understand when Kansas courts> have determined that
piercing the corporate veil is appropriate.
"We start with the basic premise that a corporation
and its stockholders are presumed separate and
distinct, whether the corporation has many
stockholders or only one. Debts of a corporation are
not the individual indebtedness of its stockholders.
However, in an appropriate case the corporate form
will be disregarded and the corporation and its
stockholders may be treated as identical. [Citations
omitted.] Power to pierce the corporate veil is to be
exercised reluctantly and cautiously. [Citations
omitted.]" Amoco Chemicals Corporation v. Bach,
222 Kan. 589, 593, 567 P.2d 1337 (1977).
"The doctrine of alter ego is used to impose
liability on the individual who uses a corporation
merely as an instrumentality to conduct his own
personal business. Such liability arises from fraud
or injustice perpetrated not on the corporation but
on third persons dealing with the corporation. Under
it the court merely disregards the corporate entity
and holds the individual responsible for his acts
knowingly and intentionally done in the name of the
corporation. [Citation omitted.]" Sampson, 233 Kan.
[15 Kan. App. 2d 437]
In determining whether disregarding the corporate entity is
appropriate, eight factors have been considered:
"(1) undercapitalization of a one-man corporation,
(2) failure to observe corporate formalities, (3)
nonpayment of dividends, (4) siphoning of corporate
funds by the dominant stockholder, (5) nonfunctioning
of other officers or directors, (6) absence of
corporate records, (7) the use of the corporation as
a facade for operations of the dominant stockholder
or stockholders, and (8) the use of the corporate
entity in promoting injustice or fraud." Sampson,
233 Kan. 572, Syl. ¶ 3.
The trial court made several factual findings which, when
considered in light of the eight factors, provide sufficient
foundation for disregarding the corporate entity.
1. Undercapitalization of the corporation.
The trial court found that, while the Murrays loaned
approximately $250,000 to Great American from mid-1983 until the
end of 1984, the infusions of cash were made on an "as needed"
basis. Further, sometimes the loans were deposits in corporate
accounts while at other times the Murrays simply paid corporate
debts from their personal accounts. The record is filled with
evidence to support these findings. An audit completed at the end
of 1984 showed Great American's total corporate funding included
$15,000 in common stock and $21,728 in "[c]ontributed capital in
excess of par value." In addition, the corporation held inventory
valued at $160,371 and property and equipment valued at
approximately $38,000. When $37,000 in original capital
investment in Great American is viewed in light of the fact that
Kvassay's contract required that Great American pay $456,000 in
one year and the Murrays only loaned the company funds when
shortages occurred, it is clear there is substantial evidence in
the record to support the conclusion that the corporation was
"never capitalized, except on a haphazard and as needed basis."
2. Failure to observe corporate formalities.
The trial court concluded the Murrays failed to observe
corporate formalities, basing its decision in part on the absence
of a number of required corporate records, as well as a complete
failure to record most of the financial transactions between the
Murrays and their various entities. Further, the court noted
[15 Kan. App. 2d 438]
American failed to file annual corporate reports for 1983 and
1984 with the Secretary of State until October 1985. The court
also noted that, while the Murrays started Great American
Distributors to conduct the business of Great American Foods,
there was never any effort to change Great American Foods'
corporate name or to register Great American Distributors. Since
each of the findings is supported by evidence offered at trial
and included in the record on appeal, there is substantial
competent evidence to show Great American Foods and the Murrays
failed to abide by general corporate formalities.
3. Nonpayment of dividends.
There is no evidence in the record that dividends were ever
paid by Great American.
4. Siphoning of corporate funds by the dominant stockholder.
The trial court noted that no ledgers or journals of expenses
paid or income received were maintained by Great American Foods
or by Great American Subs and that accounting records for the
firm were reconstructed on the basis of checks issued, without
any accompanying invoices or receipts, making it impossible to
determine what the corporate payments covered. The court did note
that Great American paid health club dues for the Murrays. The
Murrays received a number of payments from Great American but the
court noted that, since no employment contracts existed between
the Murrays and Great American, it was impossible to determine
the reasonableness or basis of such payments. In addition, the
trial court found that Deana Murray withdrew $6,000 on September
2, 1983, from Great American Foods, and Albert Murray withdrew
$1,500 on September 24, 1984, from Great American Distributors.
Albert testified that he and his wife frequently paid the bills
of their various corporations with personal checks and often
wrote themselves checks on corporate accounts. In addition, there
were times when the corporations would pay the Murrays' personal
expenses or expenses of other Murray corporations. The trial
court also noted that, on August 31, 1984, Great American
Distributors obtained a line of credit, of which $25,000 was
deposited in Great American Subs'
[15 Kan. App. 2d 439]
account. The same day, Great American Subs deposited $26,000 in a
Great American Distributors' account.
5. Nonfunctioning of other officers or directors.
This factor is not at issue here since there were no directors
other than the Murrays.
6. Absence of corporate records.
The complete absence of a number of corporate records has
already been discussed.
7. Use of corporation as facade for operations of dominant
The trial court specifically found the Murrays used their
various corporations as a facade to conduct their personal
business. A number of factors already discussed, including the
Murrays' complete failure to keep corporate records or to abide
by corporate formalities, combined with the history of
unexplained transfers of funds, provide ample evidence on which
the court could base its conclusion. In addition, it was
undisputed at trial that the Murrays conducted business for all
of their entities and personal business from one street address
8. Use of corporate entity in promoting injustice or fraud.
The trial court found the Murrays used the corporation as a
facade for their own interests and, in doing so, "worked to the
injustice of the plaintiff by inducing him to enter into the
contract." Great American focuses most of its argument that the
corporate veil should not be pierced on this point, arguing
specifically there must be proof that control of the corporation
was used to commit fraud or to perpetrate a wrong and that there
is no such proof.
Great American's emphasis is misplaced. Injustice alone will
support a disregard of the corporate entity. See Kilpatrick
Bros., Inc. v. Poynter, 205 Kan. 787, 797, 473 P.2d 33 (1970).
As discussed, there is ample evidence in the record to support
the finding that the Murrays operated their corporations as alter
egos, putting cash in when convenient and removing it when
equally convenient. The Murrays conducted business with such
unity of interest and ownership that the separate personalities
of the corporations
[15 Kan. App. 2d 440]
and themselves no longer existed. See Poynter, 205 Kan. at 798.
In effect, it was the Murrays together with Great American who
breached the contract with Kvassay. If that breach was considered
an act of Great American alone, "an inequitable result would
follow" because Kvassay would be unable to collect damages to
which he is entitled. See Poynter, 205 Kan. at 798. While the
power to pierce the corporate veil is to be exercised reluctantly
and cautiously, the corporate entity can be disregarded if it is
used to cover fraud or to work injustice, or if necessary to
achieve equity. Service Iron Foundry, Inc. v. M.A. Bell Co.,
2 Kan. App. 2d 662, 673, 588 P.2d 463 (1978).
Great American cites a number of cases from other states for
the principle that a breach of contract is insufficient to
establish the requisite injustice to allow piercing the corporate
veil. A review of Kansas cases, however, clearly shows it is
appropriate to pierce the veil to prevent injustice or to achieve
equity and it does not matter what kind of action is involved.
See Poynter, 205 Kan. at 798; Service Iron, 2 Kan. App. 2d at
Great American is correct in its assertion that there is
nothing in the record to support the finding that Kvassay relied
on Great American's corporate status in entering into the baklava
contract. However, the injustice that would result in this case
is sufficient to support a determination to pierce the corporate
veil. Thus, the trial court's determination was correct for the
wrong reason. See Sutter Bros., 238 Kan. at 93.
The trial court's decisions with respect to liquidated damages
and lost profits are reversed and the case is remanded for a new
trial on those issues. The trial court's decision on piercing the
corporate veil is affirmed.
[15 Kan. App. 2d 441]
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