## Facts

- Home Owners Cooperative, Inc. was formed in 1947 to provide low-cost housing for its members.
- In 1948, Home Owners organized Westerlea Builders, Inc. as a wholly owned subsidiary to construct homes when outside contractors were unavailable.
- As construction progressed on approximately 26 houses, costs exceeded expectations, and Westerlea experienced financial distress.
- In January 1949, Westerlea’s creditors entered an extension agreement and assumed construction responsibilities.
- In October 1952, Westerlea was adjudicated bankrupt, and the bankruptcy trustee sued Home Owners.
- Home Owners initially capitalized Westerlea with $25,000 and later contributed additional funds totaling $25,639.38.
- The trial court found that, although Home Owners controlled Westerlea as sole shareholder, both companies maintained separate corporate identities during the period credit was extended; creditors were not misled; no fraud occurred; and Home Owners did not injure creditors by depleting Westerlea’s assets.
- The trial court also found that creditors were estopped by the extension agreement from disputing the corporations’ separateness; the Appellate Division unanimously affirmed.

## Issues

1. Whether Westerlea’s corporate form should be disregarded so that Home Owners would be liable for Westerlea’s contract debts.
2. Whether Home Owners equitably pledged its assets to satisfy Westerlea’s creditors.
3. Whether Home Owners was liable under unjust enrichment for benefits allegedly obtained from Westerlea’s work at creditors’ expense.

## Decision

- The Court of Appeals affirmed the judgment for Home Owners.
- The court held that Westerlea’s corporate veil would not be pierced because the factual findings showed no fraud, no creditor deception, and no injurious conduct by Home Owners.
- The court agreed that creditors were estopped, based on the extension agreement, from denying the separate corporate identities.
- The court rejected the equitable pledge and unjust enrichment theories because the record, as found by the lower courts, did not support them.

## Legal Principles

- Incorporation to limit liability is lawful; veil-piercing is an exceptional remedy generally used to prevent fraud or avoid an inequitable result.
- Sole ownership and control of a subsidiary, without fraud, deception, or injurious misuse of the subsidiary’s assets, does not justify imposing the subsidiary’s contract debts on the parent.
- Where creditors knowingly deal with a separate corporate entity and later execute an agreement recognizing that separateness, they may be estopped from later contesting it.
- Equitable pledge and unjust enrichment require factual showings beyond a parent’s receipt of indirect project benefits, particularly where the parent contributed funds and did not siphon assets from the debtor entity.

## Conclusion

The Court of Appeals refused to impose a subsidiary’s construction-debt liability on its parent cooperative because corporate separateness was maintained, creditors were not misled, and no fraud or asset depletion was found; the court also rejected equitable pledge and unjust enrichment and treated the creditors’ extension agreement as barring a later challenge to separateness.


Bartle v. Home Owners Coop., Inc., 309 N.Y. 103, 127 N.E.2d 832 (N.Y. 1955)