Berkey v Third Avenue Railway
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''Berkey v. Third Avenue Railway Co'' 244 N.Y. 84 (1926) is a classic veil piercing case by Judge
Benjamin N. Cardozo Benjamin Nathan Cardozo (May 24, 1870 – July 9, 1938) was an American lawyer and jurist who served on the New York Court of Appeals from 1914 to 1932 and as an Associate Justice of the Supreme Court of the United States from 1932 until his deat ...
in
United States corporate law United States corporate law regulates the governance, finance and power of corporations in US law. Every state and territory has its own basic corporate code, while federal law creates minimum standards for trade in company shares and governan ...
.


Facts

Minnie Berkey had an accident on a
tram A tram (also known as a streetcar or trolley in Canada and the United States) is an urban rail transit in which Rolling stock, vehicles, whether individual railcars or multiple-unit trains, run on tramway tracks on urban public streets; some ...
line operated by the Forty-second Street, etc., Railway Company. She suffered personal injury. The
Third Avenue Railway The Third Avenue Railway System (TARS), founded 1852, was a streetcar system serving the New York City boroughs of Manhattan and the Bronx along with lower Westchester County. For a brief period of time, TARS also operated the Steinway Lines i ...
owned it, along with another two corporations with street railways on different routes. Third Avenue not only owned nearly all the stock, the
board of directors A board of directors is a governing body that supervises the activities of a business, a nonprofit organization, or a government agency. The powers, duties, and responsibilities of a board of directors are determined by government regulatio ...
and executive officers were also nearly the same. Ms Berkey sued the parent, Third Avenue Railway Co, to compensate her for personal injury. However, it was contrary to New York law at the time for one street railway company to assign its franchise to another without the Railway Commission's approval. So it was argued that a transfer in any liabilities from one to the other was an illegal contract, and therefore transfer of tort liability for Ms Berkey's personal injury was also illegal.


Judgment

The New York Court of Appeals held that the Third Avenue Railway Co was not liable for the debts of the subsidiary. The domination of the parent company over the subsidiary had to be complete for the parent company to be treated as liable for the debts of the subsidiary. It was needed that the subsidiary be merely the
alter ego An alter ego (Latin for "other I") means an alternate Self (psychology), self, which is believed to be distinct from a person's normal or true original Personality psychology, personality. Finding one's alter ego will require finding one's other ...
of the parent, or that the subsidiary be thinly capitalized, so as to perpetrate a fraud on the creditors. Cardozo J said the following.


See also

*
US corporate law United States corporate law regulates the governance, finance and power of corporations in US law. Every state and territory has its own basic corporate code, while federal law creates minimum standards for trade in company shares and governa ...
*'' Walkovszky v. Carlton'', 223 N.E.2d 6 (NY 1966) *''
Salomon v A Salomon & Co Ltd is a landmark UK company law case. The effect of the House of Lords' unanimous ruling was to uphold firmly the doctrine of corporate personality, as set out in the Companies Act 1862, so that creditors of an insolvent company could not sue the ...
'' *''
Adams v Cape Industries plc ''Adams v Cape Industries plc'' 990Ch 433 is a UK company law case on separate legal personality and limited liability of shareholders. The case also addressed long-standing issues under the English conflict of laws as to when a company would ...
'', two UK law cases which took a much more restricted approach *''
DHN Food Distributors Ltd v Tower Hamlets LBC ''DHN Food Distributors Ltd v Tower Hamlets London Borough Council'' 9761 WLR 852 is a UK company law case where, on the basis that a company should be compensated for loss of its business under a compulsory acquisition order, a group was recog ...
'', a less restrictive UK case by
Lord Denning MR Alfred Thompson Denning, Baron Denning, (23 January 1899 – 5 March 1999), was an English barrister and judge. He was called to the Bar of England and Wales in 1923 and became a King's Counsel in 1938. Denning became a judge in 1944 when he w ...
.


Notes

{{reflist New York state case law United States corporate case law 1927 in United States case law 1927 in New York (state) Streetcars in New York (state)