corporations are not the same, may well be said to be fraud, either in fact or in law.52 Identity of name does not necessarily show identity of the two corporations.53 And the fact that a banking company is organized under the same name as that of a former company, that it appoints the same persons as officers, and that it receives and issues the notes of the former, does not make it a mere continuation of the former, so as to render it liable on its notes.5 54 On the other hand, the fact that the name of a corporation is changed does not necessarily show that it is a different corporation after the change. A mere change in the name of a corporation does not affect its identity, and it may be liable under the new name for debts contracted under the old.55 The continuance of the old company as a corporation de jure, after it had ceased to exist as one de facto, on a reorganization, does a continuation of an original corporation whose entire assets and business it has taken over, the original corporation having ceased to do business without making provision for the payment of its debts, one having a judg ment against the original corporation may recover judgment based on an original judgment against the new corporation. Douglas Printing Co. v. Over, 69 Neb. 320, 95 N. W. 656. If the reorganization is merely a change of name by creating a lessee company, the old company is chargeable with a mechanic's lien for labor and materials furnished the lessee company. Hatcher v. United Leasing Co., 75 Fed. 368. Where one corporation has certain liabilities and a second corporation takes over the entire assets and renders itself subject to the liabilities of the first corporation, a third corporation taking over the assets of the` second corporation becomes subject to the liabilities of the first corporation, where the three corporations are comprised of substantially the same persons. Higgins v. California Petroleum & Asphalt Co., 147 Cal. 363, 81 Pac. 1070. But where the creditors of a company organized a new corporation to which the property of the old company was transferred in consideration of the debts, and nothing was reserved for the benefit of the stockholders, and the debts were to be paid either in capital stock of the new company at par or in cash at fifty per cent at the election of each creditor, and every creditor accepted the offer but one, it was held that he could not complain nor hold the new company liable for his debt. Wheeler v. Acme Harvesting Mach. Co., 175 Ill. App. 69, 76. 52 See Hibernia Ins. Co. v. St. Louis & N. O. Transp. Co., 4 McCrary 432, 13 Fed. 516; Blanc v. Paymaster Min. Co., 95 Cal. 524, 29 Am. St. Rep. 149, 30 Pac. 765; Chase v. Michigan Tel. Co., 121 Mich. 631, 80 N. W. 717. 53 See § 4960, supra. 54 Bellows v. Hallowell & Augusta Bank, 2 Mason 31, Fed. Cas. No. 1,279; Wyman v. Hallowell & Augusta Bank, 14 Mass. 57, 7 Am. Dec. 194. 55 Trustees of University v. Moody, 62 Ala. 389; Dean v. La Motte Lead Co., 59 Mo. 523; First Society of Irving M. E. Church v. Brownell, 5 Hun (N. Y.) 464; Acres v. Moyne, 59 Tex. 623. Mere change in name does not exonerate a corporation from liability not bar a suit by creditors of the old company to enforce their claims against its property in the hands of the new company.56 The burden of showing that the new company is not a mere continuation or reorganization of an old company is on the corporation seeking to avoid liability for debts of the old company.57 § 4985. Transfer as fraudulent as to creditors of old company. If the stockholders of a corporation organize another corporation, and transfer all the assets of the former to the latter, without paying the debts of the former, the transfer, irrespective of the actual intent of the parties, constitutes a fraud upon the creditors of the old corporation, and the new corporation is liable in equity for the debts of the old, at least to the extent of the assets received by it, or the assets themselves may be followed by the creditors of the old corporation, so long as they have not passed into the hands of bona fide purchasers for value.58 This applies with peculiar force where the members of the old corporation and the new are the same persons, or mostly so.59 It is immaterial, it seems, that some new stockholders have invested their money in the reorganized company, at least so far as liability to the extent of the property acquired from where it remains substantially the same concern. Wilhite v. Convent of Good Shepherd, 117 Ky. 251, 78 S. W. 138. 56 Berthold v. Holladay-Klotz Land & Lumber Co., 91 Mo. App. 233, 238. 57 Wolff v. Shreveport Gas, Electric Light & Power Co., 138 La. 743, L. R. A. 1916 D 1138, 70 So. 789. 58 United States. Hibernia Ins. Co. v. St. Louis & N. O. Transp. Co., 4 McCrary 432, 13 Fed. 516; Harrison v. Arkansas Valley Ry. Co., 4 McCrary 264, 13 Fed. 522. Alabama. Metcalf v. Arnold, 110 Ala. 180, 55 Am. St. Rep. 24, 20 So. 301. Indiana. Magic Packing Co. v. Stone-Ordean Wells Co., 158 Ind. 538, 64 N. E. 11. Louisiana. Hancock v. Holbrook, 40 La. Ann. 53, 3 So. 351. Missouri. Slattery v. St. Louis & N. O. Transp. Co., 91 Mo. 217, 60 Am. Rep. 245, 4 S. W. 79. New Jersey. Couse v. Columbia Powder Mfg. Co. (N. J. Eq.), 33 Atl. 297. New York. Cole v. Millerton Iron Co., 133 N. Y. 164, 28 Am. St. Rep. 615, 30 N. E. 847; Booth v. Bunce, 33 N. Y. 139, 88 Am. Dec. 372. Pennsylvania. Montgomery Web Co. v. Dienelt, 133 Pa. St. 585, 19 Am. St. Rep. 663, 19 Atl. 428. Tennessee. Vance v. McNabb Coal & Coke Co., 92 Tenn. 47, 20 S. W. 424. Reincorporation by a transfer of assets by one company to another, either under the same or a different name, does not preclude the right of creditors to follow the assets in the hands of the new company. Koch v. Speedwell Motor Car Co., 24 Cal. App. 123, 140 Pac. 598, 600. 59 Metcalf v. Arnold, 110 Ala. 180, 55 Am. St. Rep. 24, 20 So. 301; Montgomery Web Co. v. Dienelt, 133 Pa. St. 585, 19 Am. St. Rep. 663, 19 Atl. 428. the old company is concerned.60 Thus, if a corporation, being indebted, conveys all its property, upon a nominal or grossly inadequate consideration and without making provision for its creditors, to a new corporation brought into existence through the agency of the officers of the old company, and for the sole purpose of the transfer, the transfer is fraudulent, as a matter of law, and without regard to the actual intent of the parties; and the creditors of the old company may follow the assets into the hands of the new, if rights of innocent purchasers have not intervened.61 A fortiori, a corporation organized to take over the assets of another, merely for the purpose of defrauding creditors, is liable for the debts of the old company. And there cannot be an effective reorganization merely for the purpose of avoiding the obligation of a contract.63 While some of the cases seem to limit this liability, in case of fraud, to the property received from the old company,64 yet the better rule, it seems, is that such liability is not so limited but extends to all the debts of the old company, although in excess of the value of the property received.65 § 4986. Contracts of old company as binding on new company. Generally, the contracts of the old company are binding on the new company where the reorganization is not in connection with a judicial or execution sale,66 especially where the new company expressly 60 Strahm v. Fraser, 32 Cal. App. 447, 163 Pac. 680. 61 Vance v. McNabb Coal & Coke Co., 92 Tenn. 47, 20 S. W. 424. 62 American Creosote Works, Ltd. v. C. Lembcke & Co., 165 Fed. 809. 63"The organization of the new corporation is clearly fraudulent and for the purpose of avoiding the obligation of the contract. Courts do not uphold such transactions." George v. Rollins, 176 Mich. 144, 142 N. W. 337. 64 See cases cited supra this section, and see § 4758, in chapter on Consolidation. 65 The liability, where known to the new company, may be collected out of any and all property belonging to the corporation and is not limited to the property of the old corporation. Seymour v. Boise R. Co., 24 Idaho 7, 132 Pac. 427, and see § 4751 et seq., chapter on Consolidation. 66 See cases cited in the notes below. But see Goldmark v. Magnolia Metal Co., 44 N. Y. App. Div. 35, 60 N. Y. Supp. 425, aff'd 170 N. Y. 579, 63 N. E. 1117. A company which is merely an old company under another name is liable on the royalty contracts of the old company for mining under a lease. Higgins v. California Petroleum & Asphalt Co., 147 Cal. 363, 81 Pac. 1070. A contract by the promoters of a new company, known of by it, to make a payment to the assignor of the street franchise in consideration of his services in obtaining the franchise and assigning it, is binding on the new corporation. Mulverhill v. Vicksburg Railroad, Power & Manufacturing Co., 88 Miss. 689, 40 So. 647. 67 assumes the liabilities of the old company or it ratifies such contracts.68 A reorganized company created after the expiration of the charter of another company merely to take over its property is a "successor" or "assign" of the old company within the terms of a lease executed by the old company and binding it to pay a certain annual rent so long as it or its "successors" or "assigns" occupied the property.69 § 4987. Liability for torts of old company. Where a new corporation is organized to take over the property of another corporation and to carry on its business, the former is liable for the torts of the latter, where merely a continuation of the old company.70 § 4988. Liability where reorganization in connection with judicial, execution or trustee's sale-General rule. When a corporation purchases the franchises and property of another corporation at a sale under a decree foreclosing a mortgage thereon, or other judicial sale, or where natural persons purchase at such sale and afterwards transfer to a corporation, the new corporation is not liable for the 67 Where a continuing contract was made with a corporation by which the other party to the contract was to have control of the sales of its products, and a percentage thereof, and the corporation afterwards became incorporated under the laws of another state, retaining the same name, place of business, officers and stockholders, and the new company purchased the property of the old company and assumed its liabilities, it was held that the contract was a subsisting obligation which passed to the new company with other liabilities. Reynolds v. Myers, 51 Vt. 444. 68 Paul v. Caldwell Furnace Foundry Co., 27 Ohio Cir. Ct. 768, where contract was for personal services. 69 Arlington Hotel Co. v. Rector, 124 Ark. 90, 186 S. W. 622. 70 United States. McWilliams V. New York, 134 Fed. 1015. Florida. J. I. Kelley Co. v. Pollock & Bernheimer, 57 Fla. 459, 131 Am. St. Rep. 1101, 49 So. 934. Louisiana, Wolff V. Shreveport Gas, Electric Light & Power Co., 138 La. 743, L. R. A. 1916 D 1138, 70 So. 789. Mississippi. Meridian Light & Railroad Co. v. Catar, 103 Miss. 616, 60 So. 657, claim for injury to a passenger. New Jersey. Parsons Mfg. Co. v. Hamilton Ice Mfg. Co., 78 N. J. L. 309, 73 Atl. 254. Washington. Jones v. Francis, 70 Wash. 676, 127 Pac. 307. Where the vendee corporation has taken over the assets and business of the vendor corporation, and the membership of the two corporations is substantially identical, a claim for damages for negligence against the vendor corporation may be enforced against the vendee. McWilliams v. New York, 134 Fed. 1015. On a voluntary reorganization, the new company is liable on a judgment against the old company for personal injuries inflicted by the old company. Seymour v. Boise R. Co., 24 Idaho 7, 132 Pac. 427. debts of the old company," provided they are not prior liens on the 71 United States. Wiggins Ferry Co. v. Ohio & M. Ry. Co., 142 U. S. 396, 35 L. Ed. 1055; Hoard v. Chesapeake & O. Ry. Co., 123 U. S. 222, 31 L. Ed. 130; Sullivan v. Portland & K. R. Co., 94 U. S. 806, 24 L. Ed. 324; Armour v. E. Bement's Sons, 123 Fed. 56. Illinois. Morgan County v. Thomas, 76 Ill. 120; Hatcher v. Toledo, W. & W. R. Co., 62 Ill. 477; American Cent. Ry. Co. v. Miles, 52 Ill. 174. Indiana. Moyer v. Ft. Wayne, C. & L. R. Co., 132 Ind. 88, 31 N. E. 567; Midland Ry. Co. v. Fisher, 125 Ind. 19, 8 L. R. A. 604, 21 Am. St. Rep. 189, 24 N. E. 756; Lake Erie & W. Ry. Co. v. Griffin, 92 Ind. 487. New York. Ferguson v. Ann Arbor R. Co., 17 App. Div. 336, 45 N. Y. Supp. 172. Pennsylvania. Pennsylvania Transp. Co.'s Appeal, 101 Pa. St. 576; Stewart's Appeal, 72 Pa. St. 291. South Carolina. Hammond v. Port Royal & A. Ry. Co., 15 S. C. 10, 16 S. C. 567. Tennessee. Memphis Water Co. v. Magens, 15 Lea 37. Texas. Houston & T. Cent. R. Co. v. Shirley, 54 Tex. 125. Wisconsin. National Foundry & Pipe Works v. Oconto City Water Supply Co., 105 Wis. 48, 81 N. W. 125; Menasha v. Milwaukee & N. R. Co., 52 Wis. 414, 9 N. W. 396; Neff v. Wolf River Boom Co., 50 Wis. 585, 7 N. W. 553; Gilman v. Sheboygan & F. du L. R. Co., 37 Wis. 317; Smith v. Chicago & N. W. Ry. Co., 18 Wis. 1; Vilas v. Milwaukee & P. du C. Ry. Co., 17 Wis. 497. ing agreed to erect a station for two railroad companies, each of which was to pay part of the cost, the balance to be paid by himself, built the station as agreed, but did not receive payment from one of the companies. Later this company's road was sold under a mortgage foreclosure and bought in by the bondholders, who organized a new corporation to own and run it. The new corporation used the station, and the plaintiff sued it for the amount which the former owners of the road agreed to pay him. It was held that he could not recover. Moyer v. Ft. Wayne, C. & L. R. Co., 132 Ind. 88, 31 N. E. 567. Under the Wisconsin statute providing that a person or association, becoming the owner or assignee of the rights, powers, privileges and franchises of a corporation under mortgage sale, may at any time within two years organize a new corporation and have the same rights, privileges and franchises as the old company had at the time of the sale, such a reorganized corporation is not a continuation of the old corporation, but a new body, entitled to hold and enjoy the property formerly owned by the old corporation, free from the latter's liabilities, including liens against such property not prior to that through which the new corporation acquired title. National Foundry & Pipe Works v. Oconto City Water Supply Co., 105 Wis. 48, 81 N. W. 125. A reorganized corporation, having the same officers and attorneys as the old and succeeding to its property by purchase at a receiver's sale, is not a purchaser without notice of the rights in such property of parties to pending litigation between them and the old corporation involving the right to a lien on the property, and cannot re In an Indiana case, plaintiff, hav VII Priv. Corp.-80 |