A & I Realty Corp. v. Kent Dry Cleaners, Inc.
| Decision Date | 19 December 1969 |
| Citation | 61 Misc.2d 887,307 N.Y.S.2d 99 |
| Parties | A & I REALTY CORP., Plaintiff, v. KENT DRY CLEANERS INC. and Kent Leasing Co. Inc., Defendants. |
| Court | New York District Court |
This action for loss of rent as a result of a breach of lease was tried before this court without a jury on November 25, 1969.
The basis for the cause of action is a lease entered into on or about January 6, 1961 between the plaintiff corporation and the defendant, Kent Leasing Co., Inc. That lease provided for a term of five years commencing on May 1, 1961 at a monthly rental of $145.00. On June 25, 1962 the defendant, Kent Leasing Co. Inc. notified the plaintiff that it was closing the premises on July 3, 1962. On that date the tenant removed from the premises and has paid no rent since. On March 5, 1963 the aforesaid premises were rerented by the landlord for a term of two years and eight months to commence on May 1, 1963 for a rental of $125.00 a month from May 1, 1963 until April 30, 1964; $150.00 a month from May 1, 1964 until December 31, 1964, and $175.00 per month from January 1, 1965 to December 31, 1965, with an option to the tenant to renew the lease for 1966 and 1967 at $175.00 per month.
Accordingly, plaintiff brings this action for the difference between the rental under its lease with the defendant, Kent Leasing and the actual rent received for the months ensuing during the balance of the term. In addition, plaintiff claims that Kent Dry Cleaners Inc. was the true party to the agreement, and, in effect, seeks to pierce the corporate veil of Kent Leasing Co. Inc. and to hold Kent Dry Cleaners Inc. liable for its damages.
The defendants, in addition to denying the allegations of the complaint, allege by way of an affirmative defense a 'surrender and acceptance,' and further that the defendant, Kent Dry Cleaners Inc. was a separate entity and not a party to the agreement. The defendants also allege the statute of limitations pointing out that the action was commenced by the service of a summons and complaint on the 22nd day of October, 1968.
The claim against Kent Dry Cleaners Inc. made by the plaintiff in an effort to pierce the corporate veil was based upon a series of circumstances. Namely; the stockholders were the same for both corporations; the leasing company had no assets of its own; and the operations a both companies were so intermingled as to give them no independent identities.
Where a corporation is so dominated and the interference with its activities so obtrusive that when there is an attempted separation between the parent and the subsidiary, such attempt will work a fraud upon the law, by the general rules of agency the parent company might be considered the principal and the subsidiary the agent (Berkey v. Third Avenue Railway Co., 244 N.Y. 84, 155 N.E. 58, 50 A.L.R. 599). However, in this case not only wasn't Kent Leasing Co. Inc. a subsidiary of Kent Dry Cleaners Inc., but there was one additional factor which must be present and was not. The leasing company did nothing to mislead or misrepresent its own condition. In Berkey, Supra, the action was in negligence not contract. '* * * a corporation is viewed as an entity separate from its stockholders if 'no rule of common sense or common justice is thereby violated' and 'no wrong or fraud is shielded by the corporate charter" (Hellenic Lines Limited v. Winkler, 249 F.Supp. 771, 776). The plaintiff was neither misled nor over-reached. Kent Dry Cleaners Inc. was originally the tenant and the landlord was told prior to the signing of this lease that the new lease would be executed by Kent Leasing Co. Inc. and that that corporation had no assets.
Soviero v. Franklin National Bank, 2 Cir., 328 F.2d 446, cited by the plaintiff, involved a bankrupt that conveyed its only asset, a parcel of real property to an affiliate corporation without consideration, and in so doing intended to thwart its creditors.
'The use of straw men, corporate or individual, is a practice long known to the law and a seller who without inquiry accepts a corporate purchaser with whom he could, absent the guarantee of a person or corporation of substance, have refused to contract, cannot claim to have been defrauded if the corporate purchaser has no substance.' (Sloan Foundation v. Atlas, 42 Misc.2d 603, 606, 248 N.Y.S.2d 524, 527--528; Wagner v. Manufacturers Trust Co., 237 App.Div. 175, 261 N.Y.S. 136, aff'd 261 N.Y. 699, 185 N.E. 799).
The plaintiff in accepting Kent Leasing Co. Inc. as the tenant knew its purpose, and the fact that it had no assets and accepted that corporation as the sole contracting party. Its...
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