Case Name: Edward Davis, Inc., Respondent, v. Edward F. Albee, Appellant, Impleaded with Felix Adler and Others, Defendants
Court: New York Supreme Court, Appellate Division
Jurisdiction: New York
Decision Date: 1916-04-20
Citations: 172 A.D. 414
Docket Number: 
Parties: Edward Davis, Inc., Respondent, v. Edward F. Albee, Appellant, Impleaded with Felix Adler and Others, Defendants.
Judges: 
Reporter: Appellate Division Reports
Volume: 172
Pages: 414–416

Head Matter:
Edward Davis, Inc., Respondent, v. Edward F. Albee, Appellant, Impleaded with Felix Adler and Others, Defendants.
First Department,
April 20, 1916.
Corporations — membership corporation — liability of directors — pleading—complaint — estoppel to deny liability — misjoinder of causes of action.
Where, in an action to enforce the liability of a director of a membership corporation, under section 11 of the Membership Corporations Law, the plaintiff for a first cause of action alleges all the necessary jurisdictional facts, and states that the defendant was a director at the time the debt was contracted, and for a second cause of action repeats the same facts, but instead of stating that defendant was a director, alleges that the defendant and his codefendants were held out by the corporation with the permission and consent of the defendants as being the directors of said corporation, and the credit for the indebtedness mentioned and described in a certain paragraph was extended by said plaintiff on the belief and reliance of the fact and the holding out thereof to the public, the second cause of action is insufficient under the statute and does not contain the necessary allegations for an action based upon fraud or misrepresentation, since the allegations of “holding out” are mere conclusions and there are no averments that the representations were false.
As no attempt was made to set forth a cause of action sounding in tort or inconsistent in theory with the first cause of action, a demurrer for misjoinder should be overruled.
As the liability sought to be enforced is purely statutory and not based upon fraud or misrepresentation, the plaintiff can only enforce the same by alleging and proving that the defendant was in fact a director and within the provisions of the statute.
A person cannot become a director of a corporation by estoppel. He may, however, by his conduct be estopped to deny his liability, but such liability must be based upon fraud and deceit and not on the statute. In such a case the statute is only available for the purpose of determining the measure of damages.
Appeal by the defendant, Edward F. Albee, from an order and determination of the Appellate Term of the Supreme Court in favor of the plaintiff, entered in the office of the clerk of the county of New York on the 14th day of December, 1915, reversing an order of the City Court of the City of New York denying plaintiff’s motion for judgment on the pleadings and granting said motion.
The pleadings consisted of an amended complaint and a demurrer thereto.
Maurice Goodman, for the appellant.
David W. Kahn, for the respondent.

Opinion:
Page, J.:
The plaintiff sues the defendant upon a liability arising by virtue of section 11 of the Membership Corporations Law (Consol. Laws, chap. 35; Laws of 1909, chap. 40) 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 therein 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 the 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 sustaining 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. (Davis, Inc., v. Adler, 92 Misc. Rep. 458.)
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.
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.
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.
Clarke, P. J., Laughlin, Dowling and Davis, JJ., concurred.
Determination modified as directed in opinion, and as modified affirmed, with costs to appellant. Order to be settled on notice.