Edward Davis, Inc. v. Adler

Bijur, J. 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 [460] directors 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 [461] ing 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, [462] 129 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. Finch, J., concurs.