Court Opinion

ID: 5250005
Source: CourtListenerOpinion
Date Created: 2022-01-06 18:10:32.605015+00
Date Added: 2024-06-11T08:27:55.807166
License: Public Domain

Dowling, J. (dissenting):
The question involved in this appeal is whether upon the pleadings and proof plaintiffs had made out any cause of action in equity. The complaint sets forth, briefly, the following facts: The defendant Bernard Ratkowsky, and one Kassel Simon and others in January, 1911, *434organized the R. A. S. Realty Company, hereafter called the corporation, for the purpose of holding and handling their real estate. The capital stock of the corporation was $50,000, divided into 500 shares, of which there were issued to the defendant and Simon respectively 249 each and 1 share each to their respective wives, in payment of certain parcels of real property owned by Ratkowsky and Simon including the leasehold in question. The corporation was also to pay the defendant $92,500 in cash out of the first profits of the company. Among the properties turned over to the corporation was a leasehold on the premises 821 Broadway owned by the plaintiffs, said leasehold having been acquired by defendant and Simon from the 821 Broadway Company, a domestic corporation. There were two leases covering the property both running for twenty-one years and expiring May 27, 1924. Plaintiffs held the bond of the 821 Broadway Company for $125,000, due October 24, 1912, and as collateral security for the payment thereof the leasehold was mortgaged to them. In May, 1911, it is alleged that the entire interest of Simon in the corporation was acquired by defendant, who ever since has been president and director and held all the stock of the corporation, except the qualifying shares put in the names of the other directors, who have been members of his family or relatives. The complaint proceeds to set forth that since May, 1911, the corporation has held no stockholders’ or directors’ meetings and done none of the things ordinarily done by a corporation in its business, but defendant has conducted, managed and controlled all the corporate affairs and treated its property as his own and has collected and applied to his use all rents, income and proceeds of its properties to the extent of upwards of $425,000. Plaintiffs then allege that they believed defendant and Simon to be the owners of the leasehold until October, 1912, when they called for payment of the bond made by the 821 Broadway Company, whereupon defendant applied for an extension of time and then made known to plaintiffs that the corporation R. A. S. Realty Company had title to the leasehold; but he also told plaintiffs that he was its sole owner, that it was a close corporation confined to his family, and he was using it as the holder of title to his properties; that he was a man of large means and *435his personal credit stood back of the corporation; and that he intended to meet all of its obligations as he had in the past. Defendant promised plaintiffs that if they would extend the time of payment of the bond he would have his corporation assume payment of the principal and interest and also all obligations under the unexpired leases on the property and he would personally guarantee full performance of all of said obligations by his corporation. The defendant further induced plaintiffs to grant, in consideration of his personal guaranty, a special concession of rental amounting to $1,250 for the first year and plaintiffs agreed to extend the time of payment of the bond for four years and accepted his corporation as a lessee and to make supplemental leases to it for the balance of the term. An agreement in writing was thereupon made between the plaintiffs and the corporation December 17, 1912, extending the time of payment of the bond to October 24, 1916, and defendant caused the corporation to assume the principal and interest of the bond and plaintiffs delivered supplemental leases of the premises to the corporation covering the unexpired term of the lease. At the same time the plaintiffs gave a memorandum in writing directed to the corporation setting forth that in consideration of the renewal of the mortgage and extension of the supplemental leases and of defendant guaranteeing the mortgage and lease, plaintiffs had consented to remit $1,250 of the rent from November 1, 1912, to November 1, 1913. It is then alleged that defendant kept this written memorandum but never guaranteed the bond and leases in writing and that he paid the rent and interest to plaintiffs by his personal check and treated the obligation as his own until May, 1915, when he stopped paying rent. Default was made in the payment of interest on the bond on November 24, 1915. It is then alleged that the defendant conceived a fraudulent design before permitting default in payments due plaintiffs, whereby he was to deprive the corporation of all of its assets and render plaintiffs’ claims unenforcible and thus defraud them out of the amount of" their bond and out of the rent. In pursuance of this fraudulent plan he is claimed to have caused the corporation to convey to him at various times certain properties belonging to the corporation without consideration and to grant certain releases *436of the subleases upon a contract to pay a certain sum in deferred payments, which contract defendant caused to be discounted for cash at once, the amount whereof he retained. It is then set forth that in December, 1915, plaintiffs were obliged to obtain possession of their premises by summary proceedings and thereafter they began an action against the corporation to recover the amount of the bond wherein they recovered judgment in the sum of $130,911.57 and execution issued upon said judgment was returned unsatisfied. Thereafter plaintiffs began another action against the corporation to recover the rent and taxes which resulted in favor of the plaintiffs and against the corporation for $20,547.83 which judgment still remains unpaid. It is further alleged that before beginning these actions plaintiffs made demand upon the defendant for the payment of the sums due under the leases and bond which he refused to pay and that the corporation has no property or means with which to pay the judgments. It is then set forth that there are no creditors of the corporation other than the plaintiffs and defendant, who claims that there is $70,000 due him from the corporation.' It is then alleged that the moneys and the value of the properties of the corporation taken by the defendant and wasted by him exceed in amount any just, debts or obligations of the corporation to him, but the true amount of such excess cannot be ascertained. It is then averred that the plaintiffs have no adequate remedy at law for the relief to which they are entitled. The prayer for relief is as follows: “ Wherefore, plaintiffs demand judgment compelling the defendant Eatkowsky to pay the two said judgments recovered against the corporation with interest due thereon and for such other and further relief as may be just and equitable with the costs and disbursements of this action.”
At the close of the plaintiffs’ case the court indicated its view that the complaint and proofs showed that this was an action for damages and was triable before a jury. The court said it would allow the case to proceed as an equitable action if the complaint was amended so as to show that the prayer for relief was for an accounting. That suggestion the plaintiffs’ counsel refused to accept, saying: “ I refuse to amend. As I understand it we are asked to amend our prayer so as to *437demand an accounting and with the understanding that we are limited to such amounts as may be found due us on the accounting.”
As I understand plaintiffs’ present contention it is that they established upon the trial certain facts, which as I view them fall within four categories: First, that the R. A. S. Realty Company was a mere dummy or shell for Ratkowsky’s fraudulent purposes and to evade personal responsibility; second, that although he promised to execute a formal guaranty of the corporation’s obligations to plaintiffs, he evaded so doing, but failed to repudiate his obligation and is estopped from denying it now; third, that he failed in his obligation as a director and officer of the corporation and was guilty of fraudulent acts towards it causing loss; and fourth, that he held property belonging to the corporation and to its creditors.
When the plaintiffs’ contentions are analyzed, they reduce themselves to this sole claim of equitable jurisdiction: That upon the facts and circumstances disclosed by the record a court of equity may take jurisdiction, look through the corporate entity, and deal with the defendant as the real debtor and subject his property to the plaintiffs’ judgment against his corporation. I am unable to find anything in the case which justifies such a judgment. This action is brought to recover a*sum of money only, i. e., it is brought to compel the defendant to pay the amount of judgments against the corporation of which he was a stockholder and of which he ultimately acquired all the stock. In this complaint are mingled allegations appropriate to a number of causes of action at law. Whether any complete cause of action whatever at law is therein stated we are not called upon now to decide. Every act of the defendant of which the plaintiffs complain is therein set forth, many of which bear no possible relationship to each other and the causes of action based upon which must of necessity be different in character. If defendant was guilty of fraud whereby plaintiffs suffered damage, that would be one cause of action. If he induced plaintiffs to act to their financial loss by representations as to what he would do in the future, having no intention of carrying out that agreement, wherefore plaintiffs claim he should be estopped *438from denying that he had executed the agreement which he promised to fulfill, that would be another theory of liability. If he fraudulently took possession of the assets of the corporation and used them for his own purposes to the detriment of its creditors, he would be hable in an action for an accounting. If he induced plaintiffs to forego $1,250 of the rent due them by a fraudulent representation* they would have the right to recover that sum. But plaintiffs relied upon none of these theories of recovery, expressly repudiating the idea that their action was for an accounting and refusing to amend or to ask for that relief, upon doing which the court announced that it would keep control of the action as one in equity. They stand upon the proposition that because the defendant in effect treated the property of the corporation as his own he personally is liable to pay the amount of the judgment recovered against it. I am unable to see upon what theory such an action can be maintained and certainly whatever else may be Said as to it it clearly is an attempt to state a cause of action at law, for the sole relief which could be granted would be to direct the defendant to pay these judgments. There is no suggestion that the defendant is insolvent or that he could not pay a judgment recovered against him in an action at law, even for the aggregate of these judgments held by the plaintiffs against the corporation. While there have been cases in which the courts have disregarded the corporate entity in order to prevent fraud or injustice, there is no case which has ever ' held that an existing corporation against which judgments have been recovered can be treated as non-existent in order to compel an individual to pay those judgments recovered in actions to which he was not a party. Whatever may be its status as an action at law, 1 think this action has none in equity, and I believe that the justice at Special Term was correct in dechning tó proceed further with the trial and in sending the case back to the trial calendar to be disposed of.
I, therefore, favor the affirmance of the order appealed from, with ten dollars costs and disbursements.
Smith, J., concurred.
Order reversed, with ten dollars costs and disbursements, and action remitted to Special Term for trial.