name, without any substantial change in the personnel of the concern,85 or (e) some other kind of transaction where the corporation originally liable still remains in existence and acting, at least to some extent, as a corporation notwithstanding its control may be vested in some other company.8 86

Of course, if the new company, whether a consolidation, merger, purchase, lease, or what not, is the result of the taking over of the assets of the old company, it may be liable upon the debts of the old company either by ratification thereof,87 estoppel 88 or novation.89

The liability of an insurance company on contracts of another company which it has absorbed or attempted to absorb 90 is a question beyond the scope of this work.

§ 4730. Liens and obligations running with the property-In general. It is a well settled rule that liens or obligations running with the property are not affected by any sale of the property or combination of the corporation owning the property with any other corporation or corporations, at least unless the holder of the obligation otherwise agrees. This is equally true whether the transaction involving the transfer of the property takes the form of a statutory consolidation, or a statutory merger, or is merely a purchase by one company of the assets of another, or is any other form of transfer of the property or control thereof,91 unless the lien or obligation is cut off by a foreclosure sale.92

85 See § 4760, infra.

86 See § 4761, infra.

87 Parsons Mfg. Co. v. Hamilton Ice Mfg. Co., 78 N. J. L. 309, 73 Atl. 254.

88 Parsons Mfg. Co. v. Hamilton Ice Mfg. Co., 78 N. J. L. 309, 73 Atl. 254.

89 Parsons Mfg. Co. v. Hamilton Ice Mfg. Co., 78 N. J. L. 309, 73 Atl. 254.

90 Timberlake v. Supreme Commandery, United Order of Golden Cross of World, 208 Mass. 411, 36 L. R. A. (N. S.) 597 with note, 94 N. E. 685.

91 United States. Central Railroad & Banking Co. v. Georgia, 92 U. S. 665, 23 L. Ed. 757; The Key City, 14 Wall. 653, 20 L. Ed. 896; Rutten v. Union Pac. Ry. Co., 17 Fed. 480; Schutte v. Florida Cent. R. Co., 3 Woods 692, Fed. Cas. No. 17,434.

VII Priv. Corp.-66

The most common form of lien,

Mississippi. Mississippi Valley R. Co. v. Chicago, St. L. & N. O. R. Co., 58 Miss. 846.

Nebraska. Lincoln St. Ry. Co. v. Lincoln, 61 Neb. 109, 84 N. W. 802. If a creditor of a corporation has a specific lien upon the income of its property, he may enforce the same in equity against a corporation formed by its consolidation with another, and which has acquired the property. Butten v. Union Pac. Ry. Co., 17 Fed. 480.

As to a mechanic's lien, see United Mines Co. v. Hatcher, 79 Fed. 517.

92 Infra, chapter on Reorganization.

within this rule, is a mortgage.93 Likewise, a maritime lien is not affected by consolidation.94

Where one of the consolidating corporations has notice of a lien upon its property, the consolidated corporation is chargeable with such notice.95

§ 4731. Obligations and covenants running with the property. The general rule that a corporation succeeding to the property and franchises of another corporation is not liable for the debts or contracts of the latter, unless it expressly agrees to assume the same,9 does not apply to obligations and covenants of the other corporation which adhere to and run with the property acquired. These are binding upon the purchasing corporation, whether it expressly assumes them or not, if it takes possession of and uses the property. In an Indiana case, where a railroad company had, in a deed conveying to it a right of way, agreed to build a fence along the same, and the right of way, together with its other property and franchises, was purchased by another company, it was held that the right of the original grantor to have the fence built was not a mere general right against the grantee corporation, not enforceable against the corporation purchasing at the foreclosure sale, but was a right blended with the right to use and occupy the land, that the grantee's covenant to construct the fence was a covenant running with the land, and that the purchasing corporation, in taking and occupying the land, became bound to perform the same.97 However, the principle

93 Columbia & M. Elec. Co. v. North Branch Transit Co., 258 Pa. 447, 102 Atl. 214.

94 The Key City, 14 Wall. (U. S.) 653, 654, 20 L. Ed. 896.

95 Schutte v. Florida Cent. R. Co., 3 Woods 692, Fed. Cas. No. 17,434. 96 See § 4733, infra.

97 The court said in this case: "We regard the performance of the agreement to build a fence as a condition of the right to enjoy the easement granted by the owners of the land. The right which the appellee seeks to enforce is more than a general claim for money, for it is a right blended with that of the appellant to use and occupy the land with its track. The appellant's liability does not rest upon the claim against the old company, but

involved in the case just referred to does not apply to purely personal contracts of the old corporation. A contract by a railroad company not to extend its road in a certain direction does not create an obligation running with the road, but is a purely personal contract, and therefore it is not binding upon another corporation purchasing the company's road and franchises.98 The same is true of a contract. between a railroad company and lumber dealers to carry lumber for a specified time at specified rates. It is not binding upon a corporation which purchases the railroad and franchises.99 So a life pass issued by a street railroad company does not bind its successor unless by agreement to recognize the same.1

§ 4732. Consolidation or agreement to assume liabilities as creating lien. Upon a consolidation, unless it is otherwise provided by statute, there is no lien created on the property of the constituent corporations, in favor of its unsecured creditors, according to the Supreme Court of the United States, as well as other courts, although the contrary has been held in Ohio in a case involving the same indebtedness passed on in the federal case referred to. The same conflict exists as to whether an express assumption of the debts of consolidating or selling corporations creates a lien upon the property of the latter in the hands of the consolidated or purchasing corporation. The federal courts hold that no lien is created, as does

*

*

who acquires such a privilege acquires
it subject to the conditions and bur-
dens bound up with it, and must, if
he asserts a right to the privilege,
bear the burden which the contract
ereating the privilege brought into ex-
istence.
In this instance the
covenant written in the deed was an
essential part of it, and the agreement
to construct the fence was part of
the consideration for the land." Mid-
land Ry. Co. v. Fisher, 125 Ind. 19,
8 L. R. A. 604, 21 Am. St. Rep. 189,
24 N. E. 756.

98 Menasha v. Milwaukee & N. R. Co., 52 Wis. 414, 9 N. W. 396.

99 Tawas & B. C. R. Co. v. Iosco Circuit Judge, 44 Mich. 479, 7 N. W. 65.

1 Eddy v. Hinnant, 82 Tex. 354, 356, 18 S. W. 562; Dallas Consol. Traction

Ry. Co. v. Maddox (Tex. Civ. App.), 31 S. W. 702.

2 Mortgage given by consolidated company has priority over claims of unsecured creditors of constituent companies. Wabash, St. L. & P. R. Co. v. Ham, 114 U. S. 587, 29 L. Ed. 235. But see Blair v. St. Louis, H. & K. R. Co., 24 Fed. 148.

3 See McMahon v. Morrison, 16 Ind. 172, 79 Am. Dec. 418, giving priority to claim of a bona fide purchaser from the consolidated company.

4 Compton v. Wabash, St. L. & P. Ry. Co., 45 Ohio St. 592, 18 N. E. 380, 16 N. E. 110.

5 Wabash, S. L. & P. R. Co. v. Ham, 114 U. S. 587, 29 L. Ed. 235, rev'g 15 Fed. 763; Hervey v. Illinois Midland Ry. Co., 28 Fed. 169. It follows that ordinarily such unse

the New Jersey court, while the Ohio court holds that a lien is thereby created."

In other cases, it has been held that if a transferee corporation agrees to pay the debts of the transferror corporation, or if the transfer is for stock of the transferee company which is distributed among the stockholders of the transferror, and the transferee corporation afterwards becomes insolvent, the creditors of the transferror company have a prior lien on the assets so transferred, where the debts of the transferror have not been paid.

Unrecorded mortgages.

§ 4733. A consolidated corporation takes the property of the consolidating corporations subject to unrecorded mortgages executed by the consolidating corporations prior to the consolidation, and it cannot defeat such a mortgage by alleging ignorance thereof.10 The reason is that a consolidated corporation does not occupy the position of a bona fide purchaser of such property. A different rule might apply, it would seem, in case of the purchase by one company of all the property of another, for a valuable and adequate consideration paid to the transferee corporation, and in good faith and without actual notice of the unrecorded mortgage.

§ 4734. Extent of mortgage lien. The lien of a mortgage given by one of the consolidating corporations will cover, in the hands of the consolidated corporation, not only the specific property which it covered in the hands of the old corporation, but also all acquisitions which issue from and become a part of the estate.11 A mortgage

cured creditors have no priority over bona fide mortgages of the consolidated corporation. Wabash, St. L. & P. R. Co. v. Ham, 114 U. S. 587, 29 L. Ed. 235.

6 Blake v. Domestic Sew. Mach. Co., 64 N. J. Eq. 480, 38 Atl. 241.

7 Where a railroad consolidation agreement stipulated that certain equipment bonds of a consolidating company should be protected by the consolidated company, it was held that the holders thereof acquired the right to require that the property of the company issuing them be applied to their payment, and that, as the consolidation agreement was a matter of public record, they could enforce this

upon the property of a constituent company, expressly providing that it should cover new equipment to replace old and useless equipment, has been held to cover such new equipment purchased by the consolidated corporation.12

§ 4735. Priorities. Undoubtedly a lien on property taken over by another company is entitled to priority over subsequent liens created by the latter company. It follows that mortgages executed by constituent corporations before the consolidation are entitled to priority over a subsequent mortgage executed by the consolidated company.13 The lien of an unrecorded mortgage on the property of a constituent company has precedence of the liens of a judgment creditor of the consolidated corporation, and is good as against a purchaser under execution on such a judgment.14 Where both of the constituent companies of a consolidated railway company had given mortgages covering after-acquired rolling stock, equipment purchased by the consolidated company to replace rolling stock of one of the constituent companies is subject to a prior lien of the mortgage on the property of such company as against the lien of the other mortgage.15

§ 4736. Regulation of liability by statute-In general. Subject to constitutional limitations, the legislature undoubtedly has the power, in conferring upon corporations authority to consolidate, to impose upon the consolidated corporation, not only all the burdens and all the liabilities which were imposed upon or existed against the con solidating corporations, but also new burdens and liabilities, and if the authority to consolidate is accepted and acted upon, the burdens and liabilities imposed by the statute will attach. On the other hand, the legislature may expressly relieve the consolidated corporation of burdens and liabilities to which the consolidating corporations were subject, provided no constitutional restriction is violated.

Frequently, and usually in the case of statutory consolidations, the statute expressly provides as to the assumption of liabilities of

12 National Bank of Wilmington & Brandywine V. Wilmington, N. C. & S. R. Co., 9 Del. Ch. 258, 81 Atl. 70.

13 Spence v. Mobile & M. Ry. Co., 79 Ala. 756; Pittsburgh, C., C. & St. L. Ry. Co. v. Lynde, 55 Ohio St. 23, 44 N. E. 596.

14 Mississippi Valley R. Co. v. Chicago, St. L. & N. O. R. Co., 58 Miss. 846.

15 National Bank of Wilmington & Brandywine v. Wilmington, N. C. & S. R. Co., 9 Del. Ch. 258, 81 Atl. 70.