Berkey v. Third Ave. Ry. Co. 

• Decision Date: 31 December 1926
• Citation: 244 N.Y. 84,155 N.E. 58
• Parties: BERKEY v. THIRD AVE. RY. CO. (two cases).
• Court: New York Court of Appeals Court of Appeals

244 N.Y. 84

155 N.E. 58

BERKEY

v.THIRD AVE. RY. CO. (two cases).

Court of Appeals of New York.

Dec. 31, 1926.

Actions by Minnie Best Berkey and Charles P. Berkey against the Third Avenue Railway Company. From an order of the Appellate Division (217 App. Div. 504, 217 N. Y. S. 156), reversing a judgment of the Trial Term, which dismissed complaints, and granting new trial, defendant appeals.

Order reversed, and judgment of the Trial Term affirmed.

Crane and Pound, JJ., dissenting.

Appeal from Supreme Court, Appellate Division, First department.

Alfred T. Davison and Addison B. Scoville, both of New York City, for appellant.

George F. Canfield, R. Randolph Hicks, and Thomas F. Compton, all of New York City, for respondents.

CARDOZO, J.

[1] The plaintiff boarded a street car at Fort Lee Ferry and One Hundred and Twenty-Fifth street on October 4, 1916, in order to go east on One Hundred and Twenty-Fifth street to Broadway, and thence south on Broadway to Columbia University at One Hundred and Seventeenth street. She was hurt in getting out of the car through the negligence of the motorman in charge of it. The franchise to operate a street railroad along the route traveled by the plaintiff belongs to the Forty-Second Street, Manhattanville & Saint Nicholas Avenue Railway Company (described for convenience as the Forty-Second Street Company), and no one else. Substantially all the stock of that company is owned by the Third Avenue Railway Company, the defendant, which has its own franchise along other streets and avenues. Stock ownership alone would be insufficient to charge the dominant company with liability for the torts of the subsidiary. Elenkieg v. Siebrecht, 238 N. Y. 254, 144 N. E. 519, 34 A. L. R. 592;Stone v. Cleveland, C., C. & St. L. R. Co., 202 N. Y. 352, 95 N. E. 816,35 L. R. A. (N. S.) 770.

[2] The theory of the action is that under the screen of this subsidiary and others, the defendant does in truth operate for itself the entire system of connected roads, and is thus liable for the torts of the consolidated enterprise. Chicago, M. & St. P. R. Co. v. Minneapolis Civic & Commerce Ass'n, 247 U. S. 490, 38 S. Ct. 553, 62 L. Ed. 1229;Davis v. Alexander, 269 U. S. 114, 46 S. Ct. 34, 70 L. Ed. 186.

We are unable to satisfy ourselves that such dominion was exerted. The Forty-Second Street Company deposits in its own bank account the fares collected on its route. It pays out of that account and no other the wages of the motormen and conductors engaged in the operation of its cars. It was not organized by the defendant as a decoy or a blind. It was not organized, so far as the record shows, by the defendant at all. There is no evidence that at the time of its formation the defendant had any interest in it as shareholder or otherwise. Its franchise goes back to the year 1884, and through all the intervening years it has preserved its corporate organization with property adequate to the maintenance of life. Its balance sheet for the year ending July, 1917, shows assets of $12,456,847.86. The values there stated are much in excess of the debts and liabilities, including in the reckoning of liabilities the outstanding capital stock. In no possible view, even if they are to be scaled down to some extent, are they unsubstantial or nominal. True, the subsidiary lost money that year, but so also did its parent. The fact remains that it was functioning as a corporation continuously and actively. It was so functioning at the trial in 1924. There is no evidence or suggestion that it has ceased to function since.

The question is whether other circumstances yet to be noted neutralize these indicia of separate life and operation. The defendant, as we have seen, was the owner, in 1916, of substantially all the stock of the subsidiary corporation. Its president in reporting to the stockholders the financial situation at the end of the fiscal year informed them that to make the picture accurate, the statement must exhibit the consolidated income, and this was obviously true. Other ties must be shown in addition to the one resulting from ownership of shares. The members of the two boards of directors were nearly, though not quite, the same. Each road had the same executive officers, i. e., the same president, treasurer, general manager, paymaster and counsel. The parent has made loans to the subsidiary from time to time, sometimes for construction, sometimes for operating expenses. The loan for construction expenses ($6,415,152.92) is represented by a demand note. There is nothing to show whether the money was borrowed for the original construction in 1884 or for later changes of construction when the road was electrified. The parent is also the holder of the second mortgage bonds, $1,487,000, the first mortgage bonds, however ($1,200,000), being issued to the public. The operating loans are temporary advances for electric power, for materials or supplies, and for the salaries of executive officers. As a matter of convenience, these are made in the first instance out of the treasury of the parent company. They are then charged to the account of the subsidiary, and repaid generally the following month and not later than the following year. Repayment is inconsistent with an understanding that the parent, in making the advances, was operating on its own account the cars of a connecting line. The charges are more than book entries, mere devices of an accountant. Drafts are drawn upon the subsidiary and paid with its own money. The unpaid advances for operation in July, 1917, were only $253,029.37, and this at the end of a poor year. We are not to confuse the salaries of the executive officers with the wages of motormen and conductors. The latter, as already pointed out, were paid in the first instance, as well as ultimately, by the subsidiary itself. So were many other expenses for maintenance and repair. So were the many judgments for personal injuries recovered in the past.

One other circumstance or group of circumstances is the subject of much emphasis in the arguments of counsel. The defendant was the dominant stockholder, not only in this subsidiary, but also in many others. The routes, when connected, cover an area from the lower part of Manhattan at the south to Yonkers and other points in Westchester at the north. All the cars, wherever used, are marked ‘Third Avenue System.’ On the other hand, the transfer slips bear the name in each instance of the company that issues them. The cars, when new ones become necessary, are bought by the defendant, and then leased to the subsidiaries, including, of course, the Forty-Second Street Company, for a daily rental which is paid. The cars leased to one road do not continue along the routes of others. The motormen and conductors do not travel beyond their respective lines. With the approval of the Public Service Commission, transfer slips are issued between one route and another, but transfers could have been required by the commission if not voluntarily allowed. Public Service Com. Law, § 49, subds. 3 and 6; Consol. Laws, c. 48.

Upon these facts we are to say whether the parent corporation, the owner of a franchise to operate a street railroad on Third avenue and the Bowery and a few connected streets, has in truth operated another railroad on Broadway and Forty-Second street, and this in violation of the statutes of the state. The plaintiff's theory of the action requires us to assume the existence of a contract between the defendant on the one side and the Forty-Second Street Company on the other. The several circumstances relied upon-community of interest and, in a sense, community of management-are important only in so far as they are evidence from which the existence of a contract may fairly be inferred. The contract in the plaintiff's view was one between the two corporations by which the defendant was to use and operate the other's franchise as its own. If such a contract was made, it was not only ultra vires, but illegal, because prohibited by statute. By Public Service Commission's Law (section 54):

‘No franchise nor any right to or under any franchise, to own or operate a railroad or street railroad shall be assigned, transferred or leased, nor shall any contract or agreement with reference to or affecting any such franchise or right be valid or of any force or effect whatsoever, unless the assignment, transfer, lease, contract or agreement shall have been approved by the proper commission.’

By section 56 any violation of the provisions of the statute exposes the offending corporation to continuing fines of large amounts, and its officers and agents to prosecution and punishment as guilty of a misdemeanor. If a written contract had been made for the operation by the defendant of the subsidiary's line, no one would doubt that such contract would fall within the condemnation of section 54 of the act. The contract is not the less illegal because made by word of mouth.

We cannot bring ourselves to believe that an agreement, criminal in conception and effect, may be inferred from conduct or circumstances so indefinite and equivocal. Community of interest there must obviously be between a subsidiary corporation and a parent corporation, the owner of its stock. This community of interest would prompt the parent, not unnaturally, to mkae advances for operating expenses to the subsidiary when convenience would be thus promoted. The advances so made have for the most part been repaid, and in so far as they remain unpaid have been carried as a debt. During all this time the cars have been manned by the subsidiary's servants, who are paid for their work out of the subsidiary's fares. We do not stop to inquire whether the inference of unified operation would be legitimate in a case where a contract for such an extension of the area of activity would be permitted by the law. We feel assured that no such inference is to be drawn from acts so uncertain in their...