Aeroglide Corporation v. Zeh

• Decision Date: 10 April 1962
• Docket Number: No. 155,Docket 27096.,155
• Citation: 301 F.2d 420
• Parties: AEROGLIDE CORPORATION, Plaintiff-Appellee, v. William A. ZEH, Robert W. Gillispie, Jr., Isidore Krupski, Harold E. Goodale, Alfred W. Topping, Joseph P. Celic, Thomas H. White, J. Dwight Reeve, John P. Kujawski, Joseph Sieminski and Walter Truskolaski, Defendants-Appellants.
• Court: U.S. Court of Appeals — Second Circuit

301 F.2d 420 (1962)

AEROGLIDE CORPORATION, Plaintiff-Appellee, v. William A. ZEH, Robert W. Gillispie, Jr., Isidore Krupski, Harold E. Goodale, Alfred W. Topping, Joseph P. Celic, Thomas H. White, J. Dwight Reeve, John P. Kujawski, Joseph Sieminski and Walter Truskolaski, Defendants-Appellants.

No. 155, Docket 27096.

United States Court of Appeals Second Circuit.

Argued December 14, 1961.

Decided April 10, 1962.

Reginald C. Smith, Riverhead, N. Y. (Griffing, Smith, Tasker & Lundberg and Solomon Raffe, Riverhead, N. Y., on the brief), for defendants-appellants.

Harold Harper, New York City (Harper & Matthews, New York City, on the brief; Thomas D. Green, Jr., New York City, of counsel), for plaintiff-appellee.

Before LUMBARD, Chief Judge, and MOORE and HAYS, Circuit Judges.

MOORE, Circuit Judge.

Defendants-appellants appeal from a judgment holding them jointly and severally liable for $13,302.51 with interest, the amount remaining due upon machinery purchased from plaintiff-appellee, Aeroglide Corporation (Aeroglide), by Suffolk Farmers Cooperative Association, Inc. (the Cooperative) of which they were directors. The case was tried to the court without a jury. Jurisdiction is based upon diversity of citizenship, appellants being citizens of New York and appellee being a North Carolina corporation.

The defendants were farmers. They served the Cooperative as directors without salary. On May 23, 1956, Cooperative's board of directors, after discussing proposals submitted by Aeroglide, constituted Zeh, Gillispie, Krupski and Prusinowski (now deceased), a committee to negotiate for the purchase of certain machinery by the Cooperative. The committee visited Aeroglide's plant in Raleigh, N. C., and on May 28, 1956, the Cooperative's president, Zeh signed a contract for the purchase of grading and packaging machinery at a cost of $61,000. Other orders were given by telephone and, except for one parts order, were confirmed in writing. On the face of the written proposals, contracts and confirmations appeared the words "(subject to conditions printed on reverse side of this sheet)" and on the reverse side under "CONDITIONS" the statement that "Legal title to the equipment will remain in the Seller until full payment as herein stipulated has been received by Seller. Buyer agrees to do anything necessary to see that title so remains in the Seller."

Thereafter and on May 31, 1956, the board of directors was advised of the committee's action and authorized the payment of one-third ($20,333.33) of the contract purchase price ($61,000). Between May 18 and November 12, 1956, the Cooperative had purchased from Aeroglide machinery, the total price of which was $84,922.96 and up to January 8, 1957, had paid $71,620.45, leaving $13,302.51 unpaid.

On and prior to February 26, 1957, the Cooperative was indebted to Springfield Bank for Cooperatives, Springfield, Massachusetts (the Bank) for some $75,000, and was being pressed by the Bank for security as a condition to a further extension. Without Aeroglide's knowledge or consent, on February 26, 1957, the board of directors, Zeh, Goodale, Topping, White, Reeve, Kujawski, Sieminski and Truskolaski, voting in favor of the resolution, Gillispie, Krupski and Celic, being absent and not voting, authorized the execution and delivery of a chattel mortgage to the Bank of all machinery and equipment on hand which included all the machinery purchased from Aeroglide except two items costing some $4,000. On February 27, 1957, Zeh as president and Krupski as treasurer executed a chattel mortgage in favor of the Bank of all the machinery purchased from plaintiff with the abovementioned exceptions. Subsequently in September, 1957 the assignee for the benefit of the Cooperative's creditors sold the tangible personal property including the machinery covered by the mortgage and realized $39,968.19 thereon.

The legal situation was as follows: the sales agreements reserving title in Aeroglide had never been filed. Therefore, whereas the agreements were valid as between Aeroglide and the Cooperative,¹ they were not binding upon the Bank which took the mortgage without notice.² In effect the action of the directors in authorizing the mortgage on February 26, 1957, was to transfer Aeroglide's property to the Bank. Alleging that this act by the participating directors constituted a conversion of its property, Aeroglide claims the unpaid purchase price as damages. The trial court found that the value of the machinery was in excess of the unpaid $13,302.51 and awarded a judgment in this amount.

Aeroglide concedes that the directors are not liable for the conversion merely because they were directors and officers of the corporation at the time. "The ordinary doctrine is that a director, merely by reason of his office, is not personally liable for the torts of his corporation; he must be shown to have personally voted for or otherwise participated in them." Fletcher, Private Corporations § 1137 (perm. ed. rev. repl. 1947). This rule was recently cited with approval in Armour & Co. v. Celic, 2 Cir.1961, 294 F.2d 432, 439, which involved a suit on another transaction against eight of these same directors. The law of New York, the place of the wrong, is applicable. Under New York law, the execution and delivery of a chattel mortgage, without transfer of possession, affecting property to which the mortgagor has not acquired title, constitutes a conversion. "The conditional vendee is still, in...