Edward Davis, Inc. v. Adler

Plaintiff sues defendants as directors of a membership corporation on tbeir liability under section 11 of tbe Membership-Corporations Law.

For tbe first cause of action tbe complaint alleges recovery of a judgment against tbe corporation on its check for $1,500 which was not paid, tbe return of execution unsatisfied and tbe fact that defendants were *460directors of the corporation within a period which would render them liable for the debt.

The second “ cause of action ” is based on the same allegations, except as to the defendants actually being directors of the corporation. In place thereof, it is alleged that they were “ held out by the said corporation with the permission and consent of the defendants, as being its directors,” and “that credit for the indebtedness sued upon was extended on reliance of the fact and the holding out thereof,” etc.

Defendants interposed a demurrer to the second cause of action on the ground that it did not state facts sufficient to constitute a cause of action, and to the complaint as a whole on the ground that causes of action had been improperly united in that the two causes of action did not belong to any one of subdivisions 1 to 9, inclusive, of section 484 of the Code of Civil Procedure and do not arise out of the same transaction and are not consistent with each other; and,.further, that the first cause of action sounds in contract and the second in tort.

■ The learned judge below was of opinion that the second causeof action was based on misrepresentation; that it was not well pleaded as such because it lacked several essential elements; but that causes of action in tort and contract were thus improperly united. I do not agree with these views. It may be that the second cause of action is not properly pleaded because an allegation that defendants were “ held out as directors ” can be regarded as stating only a legal conclusion; but I do not understand that defendants’ objection is addressed to that point. Taking the allegation at its face value, I read the second cause of action to allege that defendants are liable as directors by way of estoppel. I know of no rule which forbids the application of the doctrine of estoppel to prevent a defendant from claim*461ing that he was not a director after he hás, with his permission, heen held out as such and the plaintiff has relied on such holding out to his damage. Nor do I see any valid objection to the form of pleading the facts constituting the estoppel instead of averring the ultimate fact to which the estoppel applies, although there is an intimation in Andrews v. Ætna Life Ins. Co., 92 N. Y. 596, to the effect that such form of pleading is rather exceptional. It seems quite evident that if a plaintiff should, after he has acted on the faith of the representation and an estoppel has thus been created, ascertain that the actual facts are otherwise, he cannot truthfully plead other than the facts constituting the estoppel,

Whether an estoppel is in the true sense á separate and second cause of action may well be doubted. Indeed, it has been frequently held that an estoppel of this character need not even be pleaded (Feinberg v. Allen, 143 App. Div 866), although in the concurring opinion it is suggested that the question whether an estoppel need be expressly pleaded does not seem to have been settled in this state. However that may be, the defendant has no cause of complaint where the pleader sets out both the ultimate fact and the estoppel unless indeed it be that this produces an inconsistency which renders the complaint defective. From this aspect, it is not important whether the allegations constitute two causes of action or merely two counts of one 'cause of action; because I cannot see that they are inconsistent. Both may be true, and the plaintiff is, at all events, entitled to have both sets of facts upon which a recovery may be based presented for tlie determination of the jury. Shirley v. Bernheim, 123 App. Div. 428. They do hot suggest so much ah inconsistency as was held to' be permissible in Logan v. Whitley, 129 App. Div. 666. See also Rubin v. Cohen, *462129 App. Div. 395. Defendants cite, among other cases, Wiles v. Suydam. 64 N. Y. 173,.but that case has no application. There it was sought to recover on a debt of the corporation against the same person as a stockholder of the corporation on his liability as such and against him as a director of the same corporation for failure to file an annual report. It was pointed out that the one action was based on contract, while the other sought to recover on a penalty, and that, although recovery was asked upon only one debt of the corporation, there were really two causes of action which did not, in the language of section 484, subdivision 9 of the Code “ arise out of the same .transaction or transactions connected with the same subject of action.” Except, therefore, as to the possible criticism that the second cause of action in the instant case sets out only a legal conclusion (to which, as I have said, no objection was taken), I believe that the complaint is good whether it be regarded as stating two causes of action or only two counts upon the same cause of action.

Order reversed, with ten dollars costs and disbursements to the appellant, and motion granted, with ten dollars costs, with leave to the respondents to answer within six days upon payment of such costs and disbursements.

(dissenting). The plaintiff has brought an action upon a complaint setting forth two causes of action. In both causes of action the plaintiff seeks to hold the defendants liable upon a check made to his order by a. membership corporation “under and. by virtue of section 11 of article 2 of- chapter 40' of the Laws of. 1909, known also as the Membership Corporations Law. ’ ’ Under that section the directors of a mem*463bership corporation are made liable for certain debts of the corporation under certain circumstances. The first cause of action sets forth all the facts necessary to establish that statutory liability, including the fact that the defendants were, at the time the debt was contracted, directors of the membership corporation. The second cause of action contains the same allegations as the first cause of action except that it omits the allegation that the defendants were directors of the corporation and substitutes in its place an allegation that they “ were held out as directors ” and that credit for the. indebtedness was extended by the plaintiff to the corporation “ on the belief and reliance of the fact and the holding out thereof to the public and in particular to the plaintiff that said defendants were directors.” The defendants demurred to this complaint upon the ground, first, that the causes of action have been improperly united and, second, that the second alleged cause of action does not state facts sufficient to constitute a cause of action. The learned justice below has sustained the demurrer upon the second ground.

I agree with Mr. Justice Bijur in the view that the plaintiff has attempted in his complaint to set forth the same cause of action in two forms or counts and that if the second alleged cause of action states facts sufficient to constitute a cause of action the two causes of action are properly united. It seems to me, however, that the second cause of action is insufficient on it's face.

■ There can be no doubt that the liability of the directors of a membership corporation is purely statutory and the plaintiff has himself pleaded the' statute. The defendants under the statute can be held liable only if, at the time that the debt was incurred,- they were directors of the corporation. The. plaintiff must allege facts sufficient: to constitute a cause of action and the first *464element of any liability on tbe part of these defendants is their status as directors. The second alleged cause of action certainly fails to plead as an ultimate fact that the defendants were directors but the complaint contains allegations which by a liberal construction might properly be considered as showing that they are estopped from denying that they are directors and it is now urged that these allegations are sufficient. In a somewhat similar case (Andrews v. Ætna Life Ins. Co., 92 N. Y. 596) the Court of Appeals pointed out that the complaint “ tenders no issue upon the actual fact.” It is “ apparently framed to preclude the inquiry * * * It is an attempt on the part of the pleader to frame a cause of action upon facts constituting an equitable estoppel instead of averring the fact as to which the estoppel applies, and relying upon the estoppel, to establish the fact upon which the right of action depends.”

While there has perhaps been some doubt in this state as to the necessity of a plea of estoppel where a party intends to rely.upon facts constituting an equitable estoppel which will preclude the opposite party from proving-a cause of action or a defense pleaded, it has, I think, never been doubted that a party may introduce as evidence of the ultimate fact -evidence of an equitable-estoppel without pleading such estoppel. See. Feinberg v. Allen, 143 App. Div. 866. It seems to me quite clear, therefore, that the only effect we can give to the allegations which are intended to set forth, an equitable estoppel is- that they are allegations of -evidence by which the-plaintiff intends to prove the.ultimate fact. While perhaps a pleading.which sets-forth: the evidence-instead of the.'ultimate, fact is.inartificial,., still such -pleading -is-Sufficient provided the facts actu-, ally alleged áre-'-sufficient ,tol'raise.::a .presumption: a/’ law 'that the' ultimate fact'exists.."Such. pleadinglis,: *465however, insufficient if the facts raise only a rebuttable presumption of fact. See the prevailing and dissenting opinions and cases cited in DeCordova v. Sanville, 165 App. Div. 128, reversed on dissenting opinion 214 N. Y. 662. In this case I think that, even if an inference or deduction that the defendants were directors of the corporation can be drawn from the allegation that the defendants were held out by the corporation as directors with their permission and consent, this inference would clearly be merely one of fact and such an inference could certainly be rebutted by explanation of the admissions or by affirmative proof to the contrary. It could therefore not be doubted, I think, that a pleading which merely set forth this evidence would be insufficient. It is urged however that if the complaint alleges facts sufficient to establish an equitable estoppel then it sets forth a cause because, if such facts are proven, the defendants will be precluded from introducing any evidence to rebut the inference which may be drawn from the defendants holding themselves out.as directors. This contention, however, seems to me unsound for two reasons. The ultimate fact to be established is that the defendants were directors; the pleadings must allege this fact either expressly or by necessary inf er-enc'é óf law from other facts and even though the facts alleged herein be proven they do not lead to any necessary inference that the defendants were directors but lead only to the possible inference of fact that defendants were directors, and to the necessary inference of law that the defendants are precluded from showing the contrary and this inference of law is no possible part óf the cause of action but is material only upon the manner of trial.' Moreover, even though all these facts may be true the defendants, may yet be in a position to show that the'plaintiff has.thereafter accepted the Credit of the actual, directors or done some other 30 *466act which would prevent the equitable estoppel from being enforced, and yet be unable to deny the actual facts alleged. They certainly should not be required in such a case to plead their own evidence as an affirmative defense to show how they intend to meet the evidence set forth by the plaintiff.

It seems to me that in construing pleadings there is only one safe rule to follow. The pleadings must allege the essential fact that is the basis of the attempted cause of action and while the allegations of the complaint are to be liberally construed, they must, when so construed, be sufficient to show either expressly or by a necessary inference that the- essential fact exists and pleadings which “ tender no issue upon the actual fact and are apparently framed to preclude the inquiry ” are insufficient.

Order should be affirmed, with costs.

Order reversed, with ten dollars costs and disbursements to appellant.