W. Joseph McPhillips, Inc. v. Ellis

• Decision Date: 21 December 2000
• Citation: 278 A.D.2d 682,717 N.Y.S.2d 743
• Parties: W. JOSEPH McPHILLIPS, INC., Plaintiff,<BR>v.<BR>FRANK P. ELLIS et al., Doing Business as THE BALSAM HOUSE, Respondents.<BR>NEIL McPHILLIPS et al., Appellants.
• Court: New York Supreme Court — Appellate Division

278 A.D.2d 682

717 N.Y.S.2d 743

W. JOSEPH McPHILLIPS, INC., Plaintiff,

v. FRANK P. ELLIS et al., Doing Business as THE BALSAM HOUSE, Respondents.NEIL McPHILLIPS et al., Appellants.

Rose, J.

Decided December 21, 2000.

Crew III, J.P., Peters, Mugglin and Lahtinen, JJ., concur.

Rose, J.

In 1995 plaintiff, an insurance agency, commenced this action against defendants to recover unpaid premiums on insurance policies issued through plaintiff by Continental Insurance Corporation to defendant Frank P. Ellis in 1994. At that time, Ellis and defendant Josef Roettig were doing business as The Balsam House in the Town of Chester, Warren County. A gas explosion and fire that destroyed much of defendants' business premises in July 1994 resulted in a claim for the loss against Continental, which subsequently made partial payments in excess of $500,000. Following an initial damage estimate of $373,000, a second contractor calculated the cost to repair defendants' building and fixtures at $3,289,554. Continental responded to this estimate by requesting extensive documentation concerning defendants' claims. On September 25, 1995, before this documentation was produced, Roettig informed Continental that defendants wished to "drop the pending claim and appraisal procedures * * * [and] put aside [their] efforts to obtain full payment under the policies for [their] damages." Roettig indicated that instead, due to limited financial resources, they would pursue litigation against the gas company allegedly responsible for the explosion.

In response to the action, Ellis answered and asserted three counterclaims against plaintiff and its officers and principal shareholders, Neil McPhillips and Paul R. McPhillips (hereinafter collectively referred to as the officers). After replying to the counterclaims, the officers moved for leave to amend their reply to add the affirmative defense of waiver and for summary judgment dismissing the counterclaims. Supreme Court granted the officers leave to amend their reply, but denied the motion for dismissal. The officers appeal.

In denying dismissal of the counterclaims against the officers personally, Supreme Court found that they were properly asserted pursuant to CPLR 3019, and that there were issues of fact as to whether the officers had participated in plaintiff's alleged breach of contract and negligence. Supreme Court correctly concluded that the counterclaims were not procedurally defective because counterclaims may be asserted against any "other persons alleged to be liable" to a defendant (CPLR 3019 [a]), even if such claims do not arise out of the transaction or occurrence from which the plaintiff's claim arises (Siegel, Practice Commentaries, McKinney's Cons Laws of NY, Book 7B, CPLR C3019:1, at 205). Supreme Court failed to consider, however, the well-settled principle that a corporate officer is not normally liable in his or her personal capacity on contracts executed on behalf of the corporation unless the officer expresses some intention to be personally bound, for the officer is in effect an agent of the corporate principal (see, Key Bank v Grossi, 227 AD2d 841, 843; Walz v Todd & Honeywell, 195 AD2d 455; Westminster Constr. Co. v Sherman, 160 AD2d 867; 3 White, New York Corporations ¶ 715.09 [13th ed]).

Here, Ellis alleges that the officers breached a promise to require the payment of premiums only when The Balsam House was operational and producing income. However, there is no evidence that the officers intended to personally bind themselves to such a promise, assuming that it constituted an enforceable contract (see, General Obligations Law § 5-701). Thus, Supreme Court...