AMERICAN COLOR, a division of      )
SULLIVAN GRAPHICS, INC.,           )
                                   )    Robertson Chancery
      Plaintiff/Appellee,          )    No. 12258
                                   )
VS.                                )
                                   )    Appeal No.
INNOVO, INC.,                      )    01A01-9703-CH-00120
                                   )
      Defendant/Appellant.         )


                  IN THE COURT OF APPEALS OF TENNESSEE
                       MIDDLE SECTION AT NASHVILLE

       APPEAL FROM CHANCERY COURT OF ROBERTSON COUNTY
                   AT SPRINGFIELD, TENNESSEE

                    HONORABLE ALEX W. DARNELL, JUDGE



                                         FILED
Patrick Johnson                          November 14, 1997
Cavalier Building, Suite 508
95 White Bridge Road                     Cecil W. Crowson
Nashville, TN 37205                     Appellate Court Clerk
ATTORNEY FOR PLAINTIFF/APPELLEE

Lisa M. Sherrill
509 West Court Square
Springfield, TN 37172
ATTORNEY FOR DEFENDANT/APPELLANT


                MODIFIED, AFFIRMED AND REMANDED.



                              HENRY F. TODD
                              PRESIDING JUDGE, MIDDLE SECTION




CONCUR:
BEN H. CANTRELL, JUDGE

CONCUR IN RESULTS:
WILLIAM C. KOCH, JR., JUDGE
AMERICAN COLOR, a division of                 )
SULLIVAN GRAPHICS, INC.,                      )
                                              )       Robertson Chancery
       Plaintiff/Appellee,                    )       No. 12258
                                              )
VS.                                           )
                                              )       Appeal No.
INNOVO, INC.,                                 )       01A01-9703-CH-00120
                                              )
       Defendant/Appellant.                   )



                                     OPINION

       The defendant, Innovo, Inc., has appealed from a non jury judgment, in the amount of

$58,856.26, in favor of the plaintiff, American Color, a division of Sullivan Graphics, Inc., for

merchandise sold and services rendered to the defendant.



       The complaint states that the suit is brought upon a sworn account as authorized by

T.C.A. § 24-5-107, but no sworn itemized statement of account is exhibited to the complaint.

Instead, the complaint, which is verified by the oath of its general manager, narrates a series of

charges represented by invoices attached to the complaint on which the complaint alleges a

balance of $58,856.26 is due.



       In thirteen numbered paragraphs, the complaint alleges amounts due from defendant upon

thirteen invoices which are exhibited to the complaint.



       The answer of defendant which is verified by the oath of its president, admits that it owes

some of the invoices, denies knowledge of two and, as to the remaining invoices, makes the

following defense:

                       The products were supplied to Nasco Group, Inc., the
               parent of Innova. Nasco has since changed its name to
               Spirco, Inc., and has filed for protection under the bankruptcy
               code.


       This Court has tabulated the assertions of the complaint and answer as follows:



                                               -2-
         Date                    Amount                Defendants Answer

       12/24/92                $   116.37              Admit
       12/29/92                  1,339.05              Nasco received product
       01/22/93                 15,678.93              Nasco received product
       01/22/93                    841.10              Admit
       01/29/93                  1,603.18              Admit
       01/29/93                    624.60              Nasco received product
       01/29/93                 13,013.82              Nasco received product
       01/29/93                    815.12              Nasco received product
       01/29/93                 10,825.00              Nasco received product
       01/31/93                 11,120.82              Nasco received product
       02/12/93                    950.44              Nasco received product
       02/15/93                  1,190.75              Nasco received product
                              $58,118.88

       It appears that defendant’s sworn answer admitted owing plaintiff $2,560.65, denied

knowledge of $11,640.12 and, as to the remainder of the charges, stated that the product was

supplied to the “parent” of defendant which is in bankruptcy.



       The Trial Judge filed the following memorandum:

                       This is an action on an account that is severely
                contested on most of the general elements for which a debt
                may be challenged.

                        (1)    There is a challenge to the amount due and
                whether the pleadings bar the Plaintiff from a judgment larger
                than a prayer of some $46,000.00.

                       (2)    There is some form of accord and satisfaction
                alleged. This comes about when the defense alleges that a
                promissory note was substituted as satisfaction for a debt
                allegedly made. The substitution being a future guaranty of
                payment.

                        (3)    The Defendant alleges that the obligation, if
                any, is not that of Innovo but of a subsidiary of Innovo,
                Nasco.

                        The Plaintiff agrees that the work done was for Nasco,
                a subsidiary company of Innovo. The Plaintiff disagrees as to
                who is the obligor, claiming that Innovo was the guarantor of
                the debt and that all of the proceedings, billings, charges and
                payments were made in light of that type of arrangement. The
                Plaintiff sought an amendment to the prayer for damages and
                asked that the amendment be allowed and that the judgment
                conform to the proof and there be no limit of $46,000.00 by
                virtue of the prayer in the complaint.

                       American Color prepared the advertising agenda and
                the products for the defendant. Kathrine Bahr, who was the

                                             -3-
credit manager of the Plaintiff company, testified that the
company, set up a ledger card on all its accounts and that the
one ledger card maintained for the charges was in the name of
Innovo. This ledger card then was supplemented by the
charges and payments on the account. Ms. Bahr said there
was not a separate account for Nasco in any of its capacities,
whether Nasco Sportswear or Nasco Express. Ms. Bahr
serves as the credit manager of the Plaintiff and she was
personally responsible for and oversaw the accounts of the
company and specifically the one involving Innovo.

        Before 1992 the bill of the Plaintiff actually went to
Zamora and Associates and they would then pay the company.
Beginning in 1992, Innovo decided to have the billings made
direct to them or at least they were made to them at
somebody’s request. Ms. Bahr admitted that she had
received a check from Nasco but she claims that the payment
was made subsequent to a bill made to Innovo.

        Ms. Patricia Anderson Lasko, the CEO and President
of Innovo testified with respect to the company’s attempted
financial arrangements with the Plaintiff company. This
witness testified that Innovo was a holding company and that
some of the subsidiaries were Innovo, Inc., Nasco, Inc., and
Nasco Products. She testified that each one of these
companies had its own accounts and did its own receipts and
disbursements and handled its own business items. The
witness acknowledged that there were some credit problems
particularly in 1992 and there was an attempt to have a
funding of the debt and future responsibilities done by
promissory notes which would cover the debts and purchases
of the three subsidiary companies of Innovo.

        The substance of the testimony of Ms. Lasko was that
Nasco was the beneficiary of the products furnished by the
plaintiff and Innovo did not have an obligation to pay for
Nasco’s purchases. She insisted that each company was
independent in its own operations and dealings with
American Color and Innovo was not to be charged with the
responsibility in view of the independence of Nasco.

       As part of the testimony in this cause there was
furnished the deposition of Ismael Zamora. Mr. Zamora is
engaged as a graphic designer and his wife is a sales
representative. They began doing business with Innovo in
1990. He began doing work for Innovo and then took a full-
time job with Innovo and did work with American Color for
the benefit of Innovo. Some of the accounts or the billing by
American Color was through Mr. Zamora and some went
another direction but he did participate in the payments to
American Color.

        Weighing all of the testimony including the
aforementioned highlights shows that the balance falls to the
Plaintiff. The Plaintiff has shown by a preponderance of the



                             -4-
              testimony that the Defendant is obligated in the amount of
              $58,856.25.

                     (1)     The motion to amend the prayer for damages
              to conform to the proof is allowed.

                      (2)    The Court finds that the offer of the
              promissory note as satisfaction to debt was not accepted by
              the Plaintiff.

                     (3)     The materials were furnished to the subsidiary
              Nasco; but Innovo, by all the proof, is the entity to be charged
              with the debt.

                     This Opinion shall be filed as a part of the record in
              this Cause, but is not to be copied in the decree herein.


       The Trial Judge awarded judgment to plaintiff against the defendant for $58,828.26, the

amount alleged to be due in the sworn complaint.



              On appeal, defendant presents the following issues for review:

              I.     Did the trial court err in disregarding the corporate
              form by holding the defendant, Innovo, Inc., responsible for
              the debts incurred by its sister corporations?

                      A.      Can corporations be held liable for the debts
                              incurred by their sister corporations?

                      B.      When and how should the court determine
                              whether it is appropriate to disregard the
                              corporate form?

                      C.      Did the evidence presented by American
                              Color justify disregarding the corporate
                              forms of the subsidiary corporations?


       Plaintiff presents its issues in the following form:

              1.       The trial court was correct in ruling that the appellant
              is liable for charges to an open account made by itself and
              sister corporations when: (1) The “course of dealings”
              between the parties indicated that the appellee looked to the
              appellant for payment on this account and appellant made no
              objections thereto; (2) the appellant, as agent for its sister
              corporations, is liable since credit was extended to it alone.

              2.     The trial court abused its discretion in failing to award
              prejudgment interest.




                                              -5-
        The defendant’s only defense to the “sworn amount” (sworn complaint with invoices),

was a sworn answer that “the product” (the subject of the invoices), was delivered to a subsidiary

of the same corporation of which defendant was also a subsidiary. Defendant does not explain

how it, a subsidiary, is litigating its liability while its parent corporation is in bankruptcy.



        Defendant’s sworn answer is not an unequivocal denial as contemplated by T.C.A. § 24-

5-107, but an effort to shift the liability to a sister corporation when there is evidence that the

course of dealing between the parties was that the goods and services would be furnished to the

sister corporation “at the request of defendant,” that defendant would pay plaintiff for such goods

and services and collect from the sister corporation. There is evidence of an effort to change the

course of dealing to direct billing and to collection from the sister corporation, but the permanent

accomplishment of such change is not shown.



        The evidence does not preponderate against the findings of the Trial Judge. However,

this Court finds that part of the debt ($3,298.03) which defendant did not deny in its sworn

answer should bear pre-judgment interest. Upon remand the amount of said interest will be

computed and the judgment of the Trial Court will be increased in this amount. The judgment

so rendered will bear statutory interest from the date of the original judgment October 28, 1996,

until paid. Costs of this appeal will be paid by defendant and its surety.


                   MODIFIED, AFFIRMED AND REMANDED.




                                                HENRY F. TODD
                                                PRESIDING JUDGE, MIDDLE SECTION

CONCUR:



BEN H. CANTRELL, JUDGE


CONCUR IN RESULTS:
WILLIAM C. KOCH, JR., JUDGE

                                                 -6-
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