Bartle v. Home Owners Cooperative

New York Court of Appeals · 1955 · Corporations

309 N.Y. 103 (1955)

Updated August 22, 2026

CorporationsPiercing the corporate veilparent-subsidiarylimited liabilitycorporate separatenessfraudequitymisrepresentation

Facts

Home Owners Cooperative, a cooperative corporation formed mostly by veterans to provide low-cost housing, organized Westerlea Builders, Inc. as a separate corporation to carry out construction when it could not secure an outside contractor. Home Owners owned Westerlea’s stock, controlled its affairs, and contributed Westerlea’s original capital of $25,000 plus additional sums of $25,639.38. As construction costs rose, Westerlea encountered financial difficulty, and on January 24, 1949, its creditors took over construction responsibilities under an extension agreement; Westerlea was later adjudicated bankrupt in October 1952. The trial court found that the outward indicia of the two corporations’ separate existence were maintained, the creditors were not misled, there was no fraud, and Home Owners did not injure creditors by depleting Westerlea’s assets or otherwise.

Issue

Whether the corporate veil of Westerlea Builders, Inc. should be pierced so that Home Owners Cooperative, its parent and sole stockholder, could be held liable for Westerlea’s contract debts. Also, whether liability could be imposed on theories of equitable pledge or unjust enrichment despite the separate corporate form.

Rule

A corporation may be formed for the purpose of avoiding personal liability, and the corporate veil is generally pierced only to prevent fraud or to achieve equity. Where separate corporate identities are maintained and there is neither fraud, misrepresentation, nor illegality, a parent corporation is not liable for the subsidiary’s debts merely because it owns the stock and controls the subsidiary’s affairs.

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One of 10 multiple-choice questions for this case. Pick an answer to see why.

In Buffalo, Maple Haven Residences, a cooperative housing corporation, formed Elm Ridge Builders, Inc. as its wholly owned subsidiary to construct townhomes after no outside contractor would take the job. Elm Ridge had its own contracts, invoices, bank account, and letterhead, and suppliers knew they were dealing only with Elm Ridge; when Elm Ridge later became insolvent, a supplier sued Maple Haven for the unpaid balance solely because Maple Haven owned all the stock and directed construction decisions.

Should the court most likely hold Maple Haven liable for Elm Ridge’s debt?

Explanation. The governing rule is that a corporation may be organized to limit liability, and a parent is not liable for a subsidiary’s debts merely because it owns the stock and controls the subsidiary’s affairs. Where separate corporate identities are maintained and there is no fraud, misrepresentation, or illegality, veil piercing is not warranted.