Court Opinion

ID: 5483940
Source: CourtListenerOpinion
Date Created: 2022-01-10 02:03:50.826443+00
Date Added: 2024-06-11T08:33:39.628651
License: Public Domain

Van Voorhis, J.
(dissenting). The judgment of the Appellate Division should be reversed on the law, as it seems to me, and plaintiff should have judgment declaring defendant to be liable for the debts of the bankrupt, Westerlea Builders, Inc., and that defendant holds its real property subject to the claims of creditors of Westerlea. Not only is Westerlea a wholly owned subsidiary of defendant Home Owners, having the same directors and management, but also and of primary importance, business was done on such a basis that Westerlea could not make a profit. Home Owners owned a residential subdivision; Westerlea was organized as a building corporation to erect homes for stockholders of Home Owners upon lots in this tract. Home Owners arranged with Westerlea for the construction of houses and then would sell the lots on which such houses had been erected to Home Owners’ stockholders — at prices fixed by Home Owners’ price policy committee in such amounts as to make no allowance for profit by Westerlea. The object was to benefit Home Owners ’ stockholders by enabling them to obtain their houses at cost, with no builder’s profit.
The consequence is that described by Latty, Subsidiaries and Affiliated Corporations at pages 138-139: * ‘ The subsidiaries had, to begin with, nothing, made nothing, and could only end up with nothing. It is not surprising that the parent was held liable in each case.” And again: “ This set-up is often, though not necessarily, found in combination with a scheme whereby the corporation cannot possibly make profits (or can at the most make only nominal profits), and whereby all the net income in the course of the corporation’s business is drained off as operating charges of one sort or another. The presence of this additional factor should remove any doubt that may remain as to the right of the creditor of the corporation not to be limited to the corporate assets for the satisfaction of his debt.”
In the present instance, Westerlea was organized with a small capital supplied by Home Owners, which soon became exhausted. Thereafter, it had no funds and could acquire none over and *108beyond the actual cost of the houses which it was building for stockholders of Home Owners. Those stockholders obtained the entire benefit of Westerlea’s operations by obtaining these houses at cost. Not only was Westerlea allowed no opportunity to make money, but it was placed in a position such that if its business were successful and times remained good, it would break even, otherwise it would inevitably become insolvent. The stockholders of Home Owners became the beneficiaries of its insolvency. This benefit to the stockholders of Home Owners was analogous to dividends, at least it was something of value which was obtained by them from Home Owners by virtue of their stock ownership. Under the circumstances, this benefit to its stockholders was a benefit to Home Owners as a corporation.
It follows that Westerlea was merely an agent of Home Owners to construct houses at cost for Home Owners’ stockholders, and therefore Home Owners is rendered liable for Westerlea’s indebtedness.
Conway, Ch. J., Desmond, Dye, Fuld and Burke, JJ., concur with Froessel, J.; Van Voorhis, J., dissents in an opinion.
Judgment affirmed.