Case Name: Newton D. Bartle, as Trustee in Bankruptcy of Westerlea Builders, Inc., Appellant, v. Home Owners Cooperative, Inc., Respondent
Court: New York Court of Appeals
Jurisdiction: New York
Decision Date: 1955-07-08
Citations: 309 N.Y. 103
Docket Number: 
Parties: Newton D. Bartle, as Trustee in Bankruptcy of Westerlea Builders, Inc., Appellant, v. Home Owners Cooperative, Inc., Respondent.
Judges: 
Reporter: New York Reports
Volume: 309
Pages: 103–108

Head Matter:
Newton D. Bartle, as Trustee in Bankruptcy of Westerlea Builders, Inc., Appellant, v. Home Owners Cooperative, Inc., Respondent.
Argued June 9, 1955;
decided July 8, 1955.
Vincent A. O’Neil and Paul J. Shea for appellant.
I. The bankrupt is the alter ego of defendant. (Long Park, Inc., v. Trenton-New Brunswick Theatres Co., 297 N. Y. 174; Kingston Dry Dock Co. v. Lake Champlain Transp. Co., 31 F. 2d 265; Chelrob, Inc., v. Barrett, 293 N. Y. 442; Geddes v. Anaconda Min. Co., 254 U. S. 590; Albright v. Jefferson Co. Nat. Bank, 292 N. Y. 31; Berkey v. Third Ave. Ry. Co., 244 N. Y. 84; Consolidated Rock Co. v. Du Bois, 312 U. S. 510; Lowendahl v. Baltimore & Ohio R. R. Co., 247 App. Div. 144, 272 N. Y. 360; Rapid Tr. Subway Constr. Co. v. City of New York, 259 N. Y. 472; International Aircraft Trading Co. v. Manufacturers Trust Co., 297 N. Y. 285.) II. Defendant is liable on the ground that the bankrupt operated solely for defendant’s members. (Matter of Muncie Pulp Co., 139 F. 546; Mangan v. Terminal Transp. System, 157 Misc. 627, 247 App. Div. 853; Steele v. Meaker Co., 131 Misc. 675, 226 App. Div. 717; Rapid Tr. Subway Constr. Co. v. City of New York, 259 N. Y. 472; New York Trust Co. v. Carpenter, 250 F. 668; Geiler v. Littlefield, 148 N. Y. 603; Trustees of Freeholders & Commonalty of Town of Brookhaven v. Smith, 118 N. Y. 634.) III. In equity the title of the real property of defendant should be held by plaintiff as trustee in bankruptcy. (Matter of Heim, 166 Misc. 931, 255 App. Div. 1007; Strong v. Dutcher, 186 App. Div. 307.) IV. The theory of unjust enrichment applies. (Gordon v. Elliman, 280 App. Div. 655; Pink v. Title Guar. & Trust Co., 274 N. Y. 167.) V. The trustee in bankruptcy is the logical party to bring this action and the State court is a proper forum for a plenary suit. The question of priority of claims as betAveen the creditors of defendant and the creditors of the bankrupt is not before this court. (Manufacturers Trust Co. v. Becker, 338 U. S. 304; Pepper v. Litton, 308 U. S. 295; Matter of Burch, 89 F. Supp. 249.)
Richard T. Mosher for respondent.
I. Appellant has not proved the degree of control, the improper purpose and the proximate causation necessary to pierce the corporate veil. (Lowendahl v. Baltimore & Ohio R. R. Co., 247 App. Div. 144, 272 N. Y. 360; Berkey v. Third Ave. Ry. Co., 242 N. Y. 84; Rapid Tr. Subway Constr. Co. v. City of New York, 259 N. Y. 472; Erie R. R. Co. v. Tompkins, 304 U. S. 64; Pagel, Horton & Co. v. Harmon Paper Co., 236 App. Div. 47; Jenkins v. Moyse, 254 N. Y. 319; Albright v. Jefferson Co. Nat. Bank, 292 N. Y. 31; Quaid v. Ratkowsky, 183 App. Div. 428, 224 N. Y. 624.) II. The extension agreement created no trust in favor of plaintiff. III. There Avas no unjust enrichment. IV. On either theory, plaintiff has established no cause of action or legal injury. (Hirschfeld v. McKinley, 78 F. 2d 124; Quintal v. Kellner, 238 App. Div. 651, 264 N. Y. 32; Barnes v. Hirsch, 215 App. Div. 10, 242 N. Y. 555.) V. Plaintiff has not been Avaived into a cause of action by defendant’s failure to move.

Opinion:
Froessel, J.
Plaintiff, as trustee in bankruptcy of Westerlea Builders, Inc., has by means of this litigation attempted to hold defendant liable for the contract debts of Westerlea, defendant's Avholly OAvned subsidiary. Defendant, as a co-operative corporation composed mostly of veterans, Avas organized in July, 1947, for the purpose of providing low-cost housing for its members. Unable to secure a contractor to undertake construction of the housing planned, Westerlea was organized for that purpose on June 5, 1948. With building costs running considerably higher than anticipated, Westerlea, as it proceeded with construction on some 26 houses, found itself in a difficult financial situation. On January 24,1949, the creditors, pursuant to an extension agreement, took over the construction responsibilities. Nearly four years later, in October, 1952, Westerlea was adjudicated a bankrupt. Meanwhile, defendant had contributed to Westerlea not only its original capital of $25,000 but additional sums amounting to $25,639.38.
Plaintiff's principal contention on this appeal is that the courts below erred in refusing to " pierce the corporate veil " of Westerlea's corporate existence; as subordinate grounds for recovery he urged that the defendant equitably pledged its assets toward the satisfaction of the debts of the bankrupt's creditors, and that the doctrine of unjust enrichment should apply.
The trial court made detailed findings of fact which have been unanimously affirmed by the Appellate Division, which are clearly supported by the evidence, and by which we are bound. It found that while the defendant, as owner of the stock of Westerlea, controlled its affairs, the outward indicia of these two separate corporations were at all times maintained during the period in which the creditors extended credit; that the creditors were in no wise misled; that there was no fraud; and that the defendant performed no act causing injury to the creditors of Westerlea by depletion of assets or otherwise.. The trial court also held that the creditors were estopped by the extension agreement from disputing the separate corporate identities.
We agree with the courts below. The law permits the incorporation of a business for the very purpose of escaping personal liability (Natelson v. A. B. L. Holding Co., 260 N. Y. 233, 238; Rapid Tr. Subway Constr. Co. v. City of New York, 259 N. Y. 472, 488). Generally speaking, the doctrine of "piercing the corporate veil " is invoked " to prevent fraud or to achieve equity " (International Aircraft Trading Co. v. Manufacturers Trust Co., 297 N. Y. 285, 292; see Halsted v. Globe Ind. Co., 258 N. Y. 176, 179; Jenkins v. Moyse, 254 N. Y. 319, 324; Quaid v. Ratkowsky, 183 App. Div. 428, affd. 224 N. Y. 624). But in the instant case there has been neither fraud, misrepresentation nor illegality. Defendant's purpose in placing its construction operation into a separate corporation was clearly within the limits of our public policy.
The judgment appealed from should be affirmed, without costs.