Theory of Liability and Alter Ego Research Essay

The purpose of the following list of arguments is to demonstrate how one article’s law standings are superior to that of another. Although the two papers discuss the same case, it is important to note that they have different perspectives on what judgment the court should make. When discussing the cases, the “alter ego” idea becomes the main point. It’s significant to observe that the theory and the veil-piercing idea are complementary. Both, it should be noted, are crucial law ideas intended to level the playing field and lessen instances of corruption and other fraudulent activities. The analysis employs IRAC technique to give a description of a memorandum of points and authorities, by distinguishing facts and critiquing the chosen article legal standing.

Issue

The articles chosen as per this segment include; “A Good Example of How to Lose Asset Protection” by Corporate Los Angles and “Misik v. D’Arco (Cal. Ct. App. - July 27, 2011)” from the California Appellate Report. Both these set pieces cover the famous “Misik vs. D’Arco case of fraud. In order to coherently express views as per these articles, a brief summary of the case is necessary.

Misik v. D’Arco Case Summary

Misik willingly loaned a hefty amount of $150,000 to Mr. Ballardo. The terms of the transaction involved the Ballardo issuing two pay notes each with an interest of 12% per annum. The terms of the deal changed a little since Sayrahan Inc (which D’Arco is registered as CEO) was listed as the payor on the notes. Prior to this agreement, Misik began receiving checks which were based on the terms of agreement. Some of the checks were dishonored, making Misik become somewhat suspicious. He immediately realized that he had been subject to fraud and promptly files for a lawsuit.

During the court proceedings, a number of factors are uncovered, first, Sayrahan Inc. was found indeed liable to Misik at $150,000. It was also revealed that D’Arco was the undeniable CEO of Sayrahan and had been involved in multiple company’s transactions. In addition to the above, it was noted that Sayrahan Inc. was indeed bankrupt since the number of liabilities it had significantly exceeded the assets (Gross & Associates, 2011). To put this into context, it had an outstanding debt of $150,000 to Misik alone, while it only had close to $3000 dollars in its account. The company had been declared the payer as per the notes issued to Misik. It was required to pay back the amount. The court noted that the company was in a state financial struggle to an extent of being unable to repay debts. Misik was at a risk of losing all his money. Therefore something had to be done quickly.

The option which remained on the table was to prove to the court that D’Arco was the alter ego of Sayrahan Inc. and hence the liabilities of the company could be transferred to him as is the requirements of the law. The feat proved successful, and the court found D’Arco liable for the debts of the company.

Rule

In general terms, the alter ego of liabilities refers to a doctrine where the court transfers the liabilities of a given franchise or corporation to a designated individual on the grounds that the person in question has been found to be the “alter-ego,” of the corporate in question (Malleson & Moules, 2010). The court has set aside two significant conditions that need to be fulfilled for a person to be deemed the alter ego of an LLC. The individual must be proven to be closely tied to the organization in question (Schubert, 2015). Acts such as being involved in transactions involving the company or being a significant shareholder are examples of such actions which may implicate a person. The veil-piercing theory is also well related; it refers to an instance where the court sets aside the limited liability standards of a corporation and transfers the liabilities to the shareholders and other individuals directly involved with the company (Martin, 2014). Similar to the alter ego doctrine, the court makes this judgment based on whether or not the separation between the shareholders and the corporate entity serves as a fraudulent waypoint (Slapper & Kelly, 2017). In essence, these two doctrines all serve one and the same purpose; one cannot fail to note their overall significance toward ensuring business-oriented practices. If they were nonexistent, a large number of fraudulent deeds would be reported, and investors would suffer hefty amounts of losses. The following are arguments based on such a case.

Application

The article, “Misik v. D’Arco (Cal. Ct. App. - July 27, 2011)” has a different opinion altogether in regards to the case. Viewing the case from a conventional viewpoint may reveal that D’Arco was at fault and the whole act may just have been staged so that he would get away with $150,000 that was lent to him by Misik. The article points at negligence being the most prevalent factor at play which led to the case in the first place (Misik v. D’Arco (Cal. Ct. App. - 2011). Misik entered into the agreement without closely proofreading the documents which served as meaningful representations of the case. The initial deal was between Misik and Ballardo. The notes should have been carefully proofread by Misik so that he could be certain of the terms of the agreement being adhered to.

Signing a note which lists a company (whose existence is questionable), as the payer for the amount which was entrusted to an individual is negligence in the strictest case (Suood, 2014). The article explains that the hefty interest rate had blinded Misik making him behave unprofessionally in the strictest sense of the term. As such, the article points to the fact that the court should have actually ruled in favor of D’Arco. While the alter-ego theory is also applicable, it should only be used when faults on the side of the plaintiff have been thoroughly considered, in this case, Misik was accountable for negligence.

The article ‘How to Lose Asset Protection,’ has a different view altogether. Since ensuring asset protection is the central theme of the article, it generally agrees that the court was fair for ruling in favor of Misik in light of circumstances. This was primarily because Misik employed a vital asset protection technique which is the use of the alter ego doctrine. If Misik had failed to apply the concept of the doctrine, he would have gone against the principals of asset protection by failing to protect his monetary assets.

In light of the above mentioned, the initial case holds the most ground as per this undertaking’s opinion. Misik also has his own set of flaws in accordance with the principals of the case. He displayed a considerable degree of arrogance and ignorance by not ensuring that the pay notes issued coincided with the terms of the transactions. If he was apt and focused, he would have anticipated, from a long way off that changing the conditions of the pay notes could be a fraud move. He, however, discarded the whole ordeal since he was overly excited by the 12% interest rate. In light of the above, I strongly support the opinion based on the above-mentioned article and the fact that court should have ruled in favor of Misik

The second article recognizes the fact that the court made the correct ruling since it goes hand in hand with the principals of asset protection. It fails to note the faults on the plaintiff’s side. Despite all that has been said concerning the court, one fact remains substantial. The whole case exists because Misik failed to verify the details of the pay notes as per the requirements of any transaction. The article fails to note the faults on the plaintiff’s side which is the basis of sound judgment. Although the court ruled in favor of Misik, I strongly feel that the most appropriate verdict would be to let D’Arco go scot free and for it to serve as a warning for future investors negligence has negative implications.

Conclusion

As per the above-mentioned insight, I believe that the court should strongly consider the faults of the plaintiff as well as that of the defendant. In essence, both have contributed undoubtedly to the existence of the case. The former due negligence and the latter because of fraudulent purposes. The final ruling of the court seems to have ignored the fact that the plaintiff failed to execute ethical business standards by making sure the pay notes corresponded to the terms of the agreement; by failing to do so he put himself in line for acts of fraud. The court should hence have ruled firmly against him and refuse the subsequent appeal based on the deliberated grounds.

References

Malleson, K. & Moules, R. (2010). The legal system. Oxford New York: Oxford University Press.

Martin, J. (2014). Key facts key cases: the English legal system. Abingdon, Oxon UK New York: Routledge.

Misik v. D’Arco (Cal. Ct. App. - 2011). Thoughts on recent Ninth Circuit and California appellate cases, From the California Appellate Report Retrieved From http://calapp.blogspot.co.ke/2011/07/misik-v-darco-cal-ct-app-july-27-2011.html

Schubert, F. (2015). Introduction to law and the legal system. Stamford, CT: Cengage Learning.

Slapper, G. & Kelly, D. (2017). The English Legal System. London New York: Routledge.

Suood, H. (2014). The Maldivian legal system. Male: Maldives Law Institute.

Stephen J. Gross & Associates (2011). “A Good Example of How to Lose Asset Protection” by Corporate Los Angles Retrieved from https://sjgassociates.wordpress.com/2011/08/28/a-good-example-of-how-to-lose-asset-protection/