Case Name: TILLEY et al. v. COYKENDALL
Court: New York Supreme Court, Appellate Division
Jurisdiction: New York
Decision Date: 1902-02-07
Citations: 74 N.Y.S. 631
Docket Number: 
Parties: TILLEY et al. v. COYKENDALL.
Judges: 
Reporter: West's New York Supplement
Volume: 74
Pages: 631–638

Head Matter:
(69 App. Div. 92.)
TILLEY et al. v. COYKENDALL.
(Supreme Court, Appellate Division, First Department.
February 7, 1902.)
Judgment against Corporation—Enforcement against Individual.-
Judgment against B., a corporation, for negligent management of its tug, S., cannot be enforced by equity suit against G., on allegations that, in the action against B., service was made on C. on the belief that he was president of B.; that 0. demanded and obtained a copy of the complaint therein, and an answer was interposed admitting incorporation of B., and its ownership and possession of the tug, and, on trial of question of negligence, judgment was rendered against B.; that, prior to the act of negligence, C. purchased all the stock, bonds, and property of B„ the stock and bonds to remain in possession of a third person till full payment, which was after the judgment against B.,—the stock, however, being delivered before the trial and such judgment; that, at the time of the negligence, C. was in possession of. all the property of B., operating it for his own benefit under the name of B.; and that after said purchase the corporate organization of B. was not maintained; it not being alleged that O. holds any property of B. as trustee, or has acquired any pi\ perty liable to satisfaction of claims against B.
Laughlin and O’Brien, JJ., dissenting.
Appeal from special term, New York county.
Action by James Tilley and others against Samuel D. Coykendall. From a judgment sustaining a demurrer to the complaint (71 N. Y. Supp. 457), plaintiffs appeal.
Affirmed.
Argued before VAN BRUNT, P. J„ and McLAUGHLIN, PATTERSON, O’BRIEN, and LAUGHLIN, JJ.
Nelson Zabriskie, for appellants.
Amos Van Etten, for 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 corporation. The defendant demurred to the complaint on the grounds (i) 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 unskillfully managed the same, while having in tow a canalboat belonging to the plaintiffs, that it caused such canalboat 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 canalboat, 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 (61. N. Y. Supp. 495); 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,—$5,750 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 canalboat, 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 pur chased 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. Assurance Soc., 160 N. Y. 19, 54 N. E. 712, 46 L. R. A. 288, 73 Am. St. Rep. 659. 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 canalboat 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 he would, 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 with 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 same 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 satisfaction 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 servants' 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 authorize the maintenance of an action in equity of this character. - The cases chiefly relied upon are Railroad Co. v. Schmidt, 177 U. S. 230, 20 Sup. Ct. 620, 44 L. Ed. 747, and Baltimore & O. Tel. Co. v. Interstate Tel. Co., 4 C. C. A. 184, 54 Fed. 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 creditors' 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.
VAN BRUNT, P. J., concurs, PATTERSON, J., concurs in result.