Edward Davis, Inc. v. Adler — 158 N.Y.S. 623

Majority

p. 623

EDWARD DAVIS, Inc., v. ADLER et al.

(Supreme Court, Appellate Division, First Department.

April 20, 1916.)

Headnote

1. Corporations @=3360(1)—Action Against Director—Sufficiency of Complaint—Statute.

In a suit under Membership Corporations Law (Laws 1909, c. 40; Con-sol. Laws, c. 35) § 11, making the directors thereof jointly and severally liable for any debt of the corporation contracted while they are directors, payable within one year or less, if an action for the collection thereof be brought against the corporation within one year after the debt becomes due and an execution is returned wholly or partly unsatisfied, and if the action be commenced within one year thereafter, a complaint which alleged the jurisdictional facts, except that, instead of alleging defendant to be a director of the corporation, it alleged that he was held out by it with his permission as being its director and that the credit was extended in reliance on that fact, was insufficient for failure to allege that defendant was in fact a director.

[Ed. Note.—For other cases, see Corporations, Cent. Dig. §§ 1503, 1505; Dec. Dig. @=>360(1).]

p. 624

2. Corporations <@=360(1)—Action Against Director—Fraud.

Such complaint did not contain the necessary allegations for an action based upon fraud or misrepresentation, since the allegations of “holding out” were mere conclusions, unsupported by facts, and since there were no allegations showing that the representations were false.

[Ed. Note.—For other cases, see Corporations, Cent. Dig. §§ 1503, 1505; Dec. Dig. <@=360(1).]

3. Action <@=45(1)—Misjoinder op Causes—Construction of Complaint.

In such suit, where no attempt was made to set forth a cause of action sounding in tort or inconsistent with the theory with the first cause of action, the demurrer for misjoinder was not well taken.

[Ed. Note.—For other cases, see Action, Cent. Dig. §§ 378-383, 385-402; Dec. Dig. <5=45(1).]

Appeal from Appellate Term, First Department.

Action by Edward Davis, Incorporated, against Felix Adler and Edward E. Albee, impleaded with others. Erom a determination of the Appellate Term (92 Mise. Rep. 458, 156 N. Y. Supp. 157 ), reversing an order of the City Court and granting plaintiff’s motion for judgment on the pleadings, defendants appeal.

Determination modified and affirmed.

Argued before CEARKE, P. J., and EAUGHEIN, DOWEING, PAGE, and DAVIS, JJ.

Maurice Goodman, of New York City, for appellants.

David W. Kahn, of New York City, for respondent.

The plaintiff sues the defendant upon a liability arising by virtue of section 11 of the Membership Corporations Law (Laws 1909, c. 40; Consol. Laws, c. 35) which provides that:

“The directors of every membership corporation * * * shall be jointly and severally liable for any debt, of the corporation contracted while they are directors, payable within one year or less from the date it was contracted, if an action for the collection thereof be brought against the corporation within one year after the debt becomes due, and an execution issued thereon * * * be returned wholly or partly unsatisfied, and if the action against the directors to recover the amount unsatisfied be commenced within one year after the return of such execution. * * * ”

The complaint sets forth two causes of action. The first alleges all the necessary jurisdictional facts and states that the defendant was a director of the corporation at tire time the debt was contracted. The second repeats the same facts, except that, instead of stating that defendant was a director of the corporation, it alleges that the defendant and his codefendants—

“were held out by the said Vaudeville Comedy Club, with the permission and consent of the defendants, as being the directors of said Vaudeville Comedy Club, and the credit for the indebtedness mentioned and described in said paragraph ‘Third’ hereof was extended by said plaintiff * * * on the belief and reliance of the fact and the holding out thereof to the public. * * * ”

The defendant has demurred to the complaint on the ground of misjoinder of causes of action, and has demurred to the second alleged cause of action on the ground that it does not state facts sufficient to constitute a cause of action. The Special Term of the City Court denied plaintiff’s motion for judgment on the pleadings, in effect sus

p. 625

taining both demurrers. This was reversed by the Appellate Term; the majority of the court holding that the second cause of action was identical with the first in theory, except that it set forth the evidentiary facts making the defendant a director by estoppel, instead of pleading the ultimate fact and relying upon the estoppel to establish it at the trial.

[1] I am of the opinion that with respect to the second cause of action the determination of the Appellate Term must be reversed. The liability sought to be enforced being purely statutory, and not based upon fraud or misrepresentation, the plaintiff could only enforce the liability provided by the statute by alleging and proving that the defendant was in fact a director and within the provisions of the statute. It is clear that a man cannot become director of a corporation by estoppel. He might by his conduct be estopped to deny his liability, but it would be a liability based upon fraud and deceit, and not the statutory liability. In such case the statute would only be available for the purpose of determining the measure of damages.

[2] The second cause of action is insufficient as an action upon the statute, and it does not contain the necessary allegations for an action based upon fraud or misrepresentation, since the allegations of “holding out” are mere conclusions unsupported by facts, and there are no allegations showing that the representations were false. The demurrer to it is accordingly well taken, and would have to be sustained, had the defendant made a cross-motion for such relief.

[3] No attempt was made to set forth a cause of action sounding in tort or inconsistent in theory with the first cause of action. The demurrer for misjoinder was not well taken.

The determination of the Appellate Term should be modified, by denying the plaintiff’s motion as to the second cause of action, and, as modified, affirmed, with costs to the appellant. All concur.