Case Name: James Tilley and Others, Appellants, v. Samuel D. Coykendall, Respondent
Court: New York Supreme Court, Appellate Division
Jurisdiction: New York
Decision Date: 1902
Citations: 69 A.D. 92
Docket Number: 
Parties: James Tilley and Others, Appellants, v. Samuel D. Coykendall, Respondent.
Judges: 
Reporter: Appellate Division Reports
Volume: 69
Pages: 92–103

Head Matter:
James Tilley and Others, Appellants, v. Samuel D. Coykendall, Respondent.
Action for damages for negligence against d corporation—a judgment recovered against it is not enforcible against one who at the time of the accident had contracted to buy all its stock, bonds and property.
The owners of a canal boat sunk by a tugboat brought an action against one Coykendall in which they alleged that they had theretofore brought an action to recover the damages sustained by them, in which it was charged that the Beverwyck Towing Company, the defendant therein, was a corporation and was tbe owner and in control of the tugboat, and that it so carelessly and unskillfully managed the same while having in tow the canal boat belonging to the plaintiffs that it caused the canal boat to sink; that the Beverwyck Towing Company interposed an answer admitting its incorporation; that the canal boat belonged to the plaintiffs, and that it was the owner of and in the possession of the tugboat, but denied that it had been negligent; that the action resulted in a judgment in favor of the plaintiffs, on which execution had been returned unsatisfied.
The complaint further alleged that the defendant Coykendall prior to the sinking Of the canal boat had purchased all of the stock, bonds and property of the corporation; that the contract of sale provided that he should pay a portion of the purchase price in cash and the balance in annual installments, and that the stock and bonds should remain in possession of a trust company until payment in full had been made; that Coykendall ultimately paid such purchase price in full, although at the time the canal boat was sunk it had not been entirely paid; that Coykendall was then in possession of all the property belonging to the corporation, including the tugboat in question, and was operating the same for his own benefit under the corporate name; that after the defendant purchased such bonds, stock and property the corporate organization of the corporation was not maintained.
The relief demanded was that Coykendall be required to pay the judgment obtained against the corporation.
Held, that the complaint was demurrable;
That Coykendall’s relation to the corporation did not make him personally liable for judgments rendered against the corporation;
That if it were true that Coykendall at the time of the sinking of the canal boat was the owner and in possession of the tugboat and was operating the same for his sole benefit, he was liable for the damages sustained by the plaintiffs on the ground of negligence, but that it could not be held liable upon that ground unless appropriate allegations to that effect were inserted in the complaint;
That the adjudication made in the action against the corporation that the tugboat was negligently managed was not binding upon Coykendall, and that he was entitled to litigate that question.
O'Bbien and Laughlin, JJ., dissented.
Appeal by the plaintiffs," James Tilley and others, from an interlocutory judgment of the Supreme Court in favor of the defendant, entered in the office of the cleric of the county of New York on the 4th day of June, 1901, upon the decision of the court, rendered after a trial at the New York Special Term, sustaining a demurrer to the complaint.
Nelson Zabrishie, for the appellants.
Amos Van Etten, for the respondent.

Opinion:
McLaughlin, J.:
This action was brought to charge the defendant' with the payment of certain judgments recovered by the plaintiffs against the Beverwyck Towing Company, a foreign corpoiation. The defendant demurred to the complaint on the grounds (1) that it did not state facts sufficient to constitute a cause of action, and (2) that there was a defect of parties defendant. The demurrer was sustained upon the first ground and from the interlocutory judgment thereafter entered the plaintiffs have appealed.
The complaint in substance alleges that the plaintiffs, in 1896, commenced an action in the Supreme Court of this State against the Beverwyck Towing Company, a corporation organized under the laws of the State of West Virginia, by the service of a summons upon the defendant in this action, whom they believed when the service was made was the president of such corporation, and that the defendant thereafter appeared and demanded a copy of the complaint, which was subsequently served and in which it was alleged that the. Beverwyck Towing Company, at a time' stated, was the owner and in control of a tugboat known as the Syracuse ; that it so carelessly and unskillfnlly managed the same, while having in tow a canal boat belonging to the plaintiffs, that it caused such canal boat to sink, whereby plaintiffs -sustained damage to the amount of $1,750, for which judgment was demanded; that an answer was interposed which admitted the incorporation of the defendant and that it was the owner and in possession of the tugboat Syracuse at the time stated. The answer also admitted plaintiffs' ownership of the canal boat, and that it was taken in tow by the Syracuse and damaged, but denied that such damage -was by reason of its negligence or that it was liable for the same; that a trial was had in November, 1898, and a verdict rendered in favor of the plaintiffs,' upon which judgment was entered, which, on appeal was affirmed; that executions were issued which were returned wholly unsatisfied.
The complaint further alleges that in 1894 the defendant purchased all of the stock, bonds and property of the Beverwyck Towing Company, for which he agreed to pay the sum of $65,750 — $5,756 at the time the agreement was signed and the balance in annual payments of $12,000 each, until the whole sum had been paid, and that the stock and bonds should remain in the possession of the Holland Trust Company until payment in full had been made, which was done in August, 1899; that'all of the stock of the corporation was delivered to the defendant in 1897; that at the time plaintiffs were damaged by the sinking of the canal boat the defendant was in possession of all the property belonging to the towing company, including the tugboat Syracuse, and was operating the same for his own benefit under the name of the Beverwyck Towing Company; that after the defendant purchased such bonds, stock and property, the corporate organization of the towing company was not maintained and could not be, since the defendant owned all of the stock of the corporation. The judgment demanded is that the defendant be required to pay the judgments obtained against the towing company.
We are of the opinion that the case was correctly disposed of by the learned justice sitting at Special Term. The theory upon which the plaintiffs seek to maintain the action is that, inasmuch as the defendant owned, or would have owned, all of the stock of the towing company when he completed his agreement to purchase, he is in fact the corporation and that in equity he ought to pay the judgments which the plaintiffs recovered. . We are unable to see upon what legal principle the defendant can thus be made liable. It may be assumed, as of course it must be for the purpose of disposing of the demurrer, that every fact alleged in the complaint, as well as such inferences as can fairly be deduced from them, are true (Greeff v. Equitable Life Assurance Society, 160 N. Y. 19), and yet", after indulging in that assumption, it is difficult to see how the defendant can be bound by the judgments recovered against the Beverwyck Towing Company, or be held personally liable to pay the same. That action was against the Beverwyck Towing Company as a corporation, the organization and existence of which, as well as the ownership of the tugboat Syracuse, were alleged in the complaint and admitted in the answer in that action. The judgment, of course, conclusively established, as between the parties to the action, such facts, and that the corporation was negligent in the management of the canal boat belonging to the plaintiffs, for which reason it was' liable to them for the damages sustained, but it was not binding upon, and did not establish such facts against any one else. The fact that this defendant, under the agreement which he had made with the. towing company to purchase all of its stock, bonds and property, and when he had fully paid the purchase price was to become its' owner, did not make him personally liable for judgments recovered against the corporation prior to the time such purchase price had been paid, nor did it make him liable if he were the owner of all the stock at the time, which he was^ not. In that event, hewoiild at most, have been simply a trustee of the property of the corporation, holding the same as such until all of the debts which it then owed, as well as all legal claims which then existed against it, had been fully paid and satisfied. Nor does the fact that the corporation had not, in compliance with the statute, kept up its organization after its agreement witli the defendant, affect the question in the slightest degree. Persons having in charge the property of a corporation are in law trustees of it until the samé has. been turned over to their legal' successors, and in this connection it will be borne in mind that there is no allegation in the complaint that the defendant holds any property of the towing company as a trustee, or that he has acquired any property which is liable in any way to the satisr faction of legal claims which the plaintiffs or any one else have against the corporation. If it be true, as alleged, in the complaint, that the defendant in this action was, at the time the action was commenced, tried and judgment rendered against the corporation, the owner and in possession of the tugboat' Syracuse, and was operating the. same for his sole benefit, .then he can, upon proper allegations, be made liable for the damages sustained by the plaintiffs by reason of his negligence, but in order to render him liable facts must be set out upon which that liability is predicated; in other words, appropriate allegations 'must be inserted in the complaint to the effect that the defendant is liable for the damages sustained by reason of his or his servant's negligent management of the tugboat. The defendant is entitled to litigate such questions. His property cannot be taken from him to satisfy a claim made by the plaintiffs until he has first had an opportunity to contest, in the manner prescribed by law, the facts upon which the plaintiffs predicate their right to the same. In reaching this conclusion the cases cited by the appellants have not escaped our attention, but none of them seem to aúthorize the maintenance of an action in equity of this character. The cases chiefly relied upon are Louisville & Nashville R. R. Co. v. Schmidt (177 U. S. 230) and Baltimore & O. Tel. Co. v. Interstate Tel. Co. (54 Fed. Rep. 51). But a critical-examination of these authorities will show that neither of them is in point. The first one was an action to reach a specific fund pledged to the payment of interest upon certain bonds, which funds, when they passed into the hands of the defendant, were impressed with a lien. The second one was an action in the nature of a credit- or's bill, wherein it was sought to follow into the hands of the railroad company, moneys which in equity were applicable to the payment of debts of the telegraph company, and which funds the railroad company took with knowledge of that equity.
The judgment appealed from is right and should be affirmed, with costs, with leave to the plaintiffs to' amend their complaint upon payment of costs in this court and in the court below.
Tan Brunt, P. J., concurred; Patterson, J., concurred in result; O'Brien and Laughlin, JJ., dissented.