Case ID: ohio-st_100/html/0505-01.html
Source: Caselaw Access Project
Author: {"author": "\n      By the Court.", "license": "Public Domain", "url": "https://static.case.law/"}
Date Created: 2024-08-24T03:29:51.129683

The Auglaize Box Board Co. v. Hinton et al.
    
      Corporations — Liability on judgment — Rendered against predecessor — Due process against successor — Effect of appearance and defense — Damages for personal injtiries to employe — Merger of corporations.
    
    (No. 16264
    Decided October 21, 1919.)
    Error to the Court of Appeals of Auglaize county.
    The plaintiff in error brought suit against the defendants in error in the common pleas court of Auglaize county. The petition prayed judgment upon certain notes of The Bloomer Brothers Company to The Westera Strawboard Company, which were endorsed to the plaintiff, and for foreclosure of a mortgage upon the property of The Bloomer Brothers Company. Bessie Hinton was made defendant, it being alleged in the petition that she had a judgment against The Bloomer Brothers Company. She filed an answer and cross-petition. The answer contained six defenses, which attacked the validity of the notes on the grounds that they were without consideration, that they were illegal and void, that they were executed for the purpose of defrauding the creditors and stockholders of the Bloomer Company; that if they were based upon a consideration they were given for a greater amount than was due, and even if they had been valid they had been paid and discharged.
    By way of cross-petition she alleged that at the November term, 1908, of the common pleas court of Auglaize county, she had recovered a judgment for $6,575 against the Bloomer Company, which was in full force and unpaid; that she had made a levy ' on certain property described; that the plaintiff had possession of property of the defendant company, which it had wrongfully failed and refused to disclose, or permit to be sold to satisfy her judgment; and that the plaintiff was the successor of a former corporation, to-wit, The Western Strawboard Company, and had become the owner of all of the property of that company with knowledge of its transactions with The Bloomer Company. The cross-petition asked an accounting of the transactions between the Straw-board Company and The Bloomer Brothers Company and the plaintiff company.
    The issues were referred to a master commissioner, who found that the notes were valid and not paid, and that part of them were secured by the mortgage. Both parties excepted. The court overruled the exceptions of Bessie Hinton, and sustained the exceptions of plaintiff, and entered judgment in its favor and a decree foreclosing the mortgage. The property was sold under the decree and the fund distributed under order of the court.
    In an amended answer and cross-petition tendered by Bessie Hinton, she alleged that from the month of May, 1905, the Strawboard Company had assumed by its officers and directors and stockholders complete and active control of the plant and business of The Bloomer Brothers Company and had continued to operate and control the same until the early part of 1908; that, in its management, control and operation of the plant and business of The Bloomer Brothers Company the Straw-board Company held out The Bloomer Brothers Company as being the owner of said plant and business, real estate and buildings, and conducted and operated said business in the name of The Bloomer Brothers Company.
    The cross-petition contained further allegations showing the complete identity of The Bloomer Brothers Company with The Western Strawboard Company; that the Strawboard Company, through its officers, agents and attorneys defended in the name of The Bloomer Brothers Company against the claim of Bessie Hinton, which was brought against The Bloomer Brothers Company; and that the plaintiff, The Auglaize Box Board Company, is in possession and control of all the real estate and personal property described in the petition, the same being the identical property that was held out as belonging to The Bloomer Brothers Company, aforesaid, to the exclusion of this defendant and all other creditors, and by reason thereof prevents a satisfaction of defendant’s judgment out of said property. The amended cross-petition further alleges that the plaintiff is the successor of The Western Strawboard Company and is the same and identical with The Western Strawboard Company heretofore referred to; that it has taken over all the property, tangible and intangible, of the said Western Strawboard Company, and that it has, at all times, had full knowledge of all the dealings, transactions and negotiations existing between The Bloomer Brothers Company and The Western Strawboard Company. It prayed for an accounting and settlement of the affairs of the different companies, relative to all the rights, credits., claims, liabilities and obligations existing between said various companies, with a view to protecting the right of the cross-petitioner defendant.
    The application of the defendant, Bessie Hinton, for leave to file the amended answer and cross-petition above referred to, was denied by the court. On error, the court of appeals found that the court of common pleas erred in refusing leave to file the amended answer and cross-petition, and ordered that the same be filed, which order was affirmed by this court. On trial in the common pleas court judgment was entered in favor of Bessie Hinton against the plaintiff in error. The court of appeals on appeal entered a like judgment. By an amendment to its reply in the court of appeals the plaintiff in error alleged that the enforcement of the judgment against it would be in violation of the Constitution of the United States. The court of appeals at the request of plaintiff in error entered a finding of facts with separate conclusions of law.
    Among the facts found are the following: That the plaintiff company, The Western Strawboard Company and The Bloomer Brothers Company were corporations organized under the laws of Ohio, with their places of business at St. Marys, Ohio; that the Strawboard Company was the first of the three to commence business, and engaged in the manufacture of strawboards, out of which paper boxes are made; that The Bloomer Brothers Company was organized and began operations about the year 1901; that its business was the manufacture of boxes and its requirements for the purpose were obtained almost exclusively from the Strawboard Company; that in May, 1905, the Bloomer Company was indebted to the Strawboard Company for box boards theretofore furnished in the amount of $30,000; that notes were given for this indebtedness, and a mortgage executed securing the payment of the notes, which was duly recorded; that in September, 1905, The Bloomer Brothers Company executed a deed of general warranty for the premises, excepting the mortgage, to C. S. Barrett for and on behalf of the Strawboard Company; that possession was taken by the Straw-board Company at the time; that The Bloomer Brothers Company was insolvent and its indebtedness was largely to the Strawboard Company; that under an arrangement made by the parties, and ail the stockholders of the Bloomer Company, the Strawboard Company took possession of the property and agreed to save harmless- the stockholders of The Bloomer Brothers Company for liability for all indebtedness due from that company; that The Western Strawboard Company took possession of all the property and assets of every description owned by The Bloomer Brothers Company, and thereafter exclusively and continuously operated the plant, furnishing such new capital as was required from time to time; that on the 31st of January, 1907, Bessie Hinton was an employe in the factory of the Bloomer Company, which was being operated solely by the Strawboard Company; that on that day she sustained a personal injury while operating a machine in the factory, and in the following October brought suit against The Bloomer Brothers Company for damages, and in February, 1909, recovered a judgment for $6,575, no part of which has been paid; that the judgment is unreversed and unmodified; that The Bloomer Brothers Company has never formally dissolved and its last Board of Directors was chosen on the 16th of May, 1905; that at the time Bessie Hinton sustained the injuries referred to The Bloomer Brothers Company had in fact ceased to exist and the Strawboard Company, for its. own purpose, was operating the plant formerly owned by The Bloomer Brothers Company, ostensibly as a separate concern,' and in the name of the latter company, but actually as an instrumentality for carrying on a part of the business of the Strawboard Company and entirely for and on account of the •latter corporation; that this continued until about the time the Strawboard Company transferred all its property to The Auglaize Box Board Company; that subsequent to the taking over by the Straw-board Company of all the assets and business of the Bloomer Company, no officer or other person for the latter company did anything whatever by way of domination over any of the property theretofore owned by the Bloomer Company, or in connection with any of its business; that in October, 1906, the Strawboard Company purchased from The Fidelity & Casualty Company of New York a policy of employers’ liability insurance for the Bloomer Company, and the Strawboard Company out of its own company, but in the name of the Bloomer Company, paid the premium for said contract of indemnity, which contained, among other provisions, the stipulation that the insurer would, at its own cost, defend suits for claims for damages; that this indemnity insurance was obtained by the Strawboard Company solely in its own behalf and for its own purposes; that pursuant to a requirement of the contract of indemnity the president of the Strawboard Company, who' at no time had been an officer or stockholder of the Bloomer Company, caused the indemnity company to be informed of the injury to Bessie Hinton; that the Casualty Company thereupon employed and paid counsel for the defendant in the suit, who appeared in the cause as counsel adversely to the claim of Bessie Hinton; that the Strawboard Company was not a party to the record of the suit of Bessie Hinton against the Bloomer Company and no proceeding was ever brought directly against the Strawboard Company to enforce payment of her claim; that in the petition in said suit Bessie Hinton averred on information and belief that the Bloomer Company had entirely lost all corporate existence and had been succeeded by the Strawboard Company, which, at the time she was injured and when her suit was brought was the real party in interest and the real owner of the property of the Bloomer Company, and owned and operated the business of the Bloomer Company, and that she was unable to determine positively as to said ownership, wherefore she attached interrogatories for answer by the defendant Bloomer Company; that a demurrer filed by the defendant was sustained to the interrogatories, an<J on motion all averments, just referred to, were stricken out of her pleading; that The Auglaize Box Board Company was organized about March, 1908, and with the exception of Anthony Culliton, who subscribed for and was mere nominal owner of one share, the incorporators and initial subscribers to the capital stock were the same persons who were stockholders of the Strawboard Company, but the amounts of stock held were not identical; that on or about the 18th of March, 1908, the Box Board Company arranged with the Straw-board Company to acquire the business and all the property of the latter, corporation in consideration of the assumption by the Box Board Company of certain specified indebtedness of the Strawboard Company, not including the judgment of Bessie Hinton against the Bloomer Company, the sum of about $42,000 cash, and about $37,000 stock of the Box Board Company to be delivered to the stockholders of the Strawboard Company; that the amount of cash was paid and stock issued and the floating indebtedness of the Strawboard Company was discharged and the remainder of the cash payment almost immediately disbursed to the stockholders of the Strawboard Company; that the $37,000 stock was passed directly to the stockholders of the Strawboard Company and was never in the treasury of that company; that the Box Bqard Company succeeded to the business and all the property of the Strawboard Company and that the Box Board Company was a mere continuation or reorganization of the Strawboard Company; that the aggregate of indebtedness thus assumed, the amount of cash paid and the par value of the new stock were substantially equal to the value of the property and business acquired by the Box Board Company from the Strawboard Company; that upon the completion of the payment of the consideration and the passing of the new stock the Box Board Company succeeded to the business of all the property of the Strawboard Company; that the preamble to the resolution authorizing the president and secretary of the Box Board Company to submit the proposition above referred to recites, “This company was. incorporated for the purpose of purchasing and taking over all the property and business of The Western Strawboard Company;” and that the present suit was brought to foreclose the mortgage above referred to and Bessie Hinton was made a party defendant because of the lien of her judgment.
    As conclusions of law the court of appeals found that the judgment of Bessie Hinton against the Bloomer Company is in law a judgment against the Strawboard Company; that the Box Board Company is liable for the payment of the judgment with interest sought to be enforced. To the judgment entered on these findings error is prosecuted here.
    
      Messrs. E. H. & W. B. Turner and Messrs. Stueve & Tangeman, for plaintiff in error.
    
      Mr. L. C. Hirsch; Mr. J. H. Goeke and Mr. Anthony Culliton, for defendants in error.
   By the Court.

The record contains evidence in support of the finding of facts made by the court of appeals, and in harmony with its uniform practice under similar circumstances this court will not further inquire as to the weight of the evidence. From this finding of facts it appears that for more than a year prior to and on the day of the injury to the defendant in error, Bessie Hinton, The Western Strawboard Company was the owner and in absolute control and possession of all the assets of The Bloomer Brothers Company, which had in fact ceased to exist; that the Strawboard Company continuously and exclusively operated the plant entirely for and on account of itself until it transferred all its property to the plaintiff in error; that during all this time no officer or other person for or on behalf of the Bloomer Company, exercised any dominion over any of the property or business of that company, although thé business and plant were operated ostensibly as a separate concern and the books were kept by the Strawboard Company as though the Bloomer Company were operating' the plant; that by the arrangement the Strawboard. Company had agreed to save harmless the stockholders of the Bloomer Company from liability for.all indebtedness of every description due from the Bloomer Company; that the Strawboard Com-, pany procured and paid for the liability insurance policy “solely in its "own behalf and f.or its own purposes;” and that, in pursuance of notice from the Strawboard Company, the Casualty Company employed counsel to defend the suit brought by Bessie Hinton.

In such circumstances the conclusion is unavoidable that during that period whatever acts were done in the conduct of the business, whatever liabilities were created, were in legal effect the acts and liabilities of the Strawboard Company.

So far as this case is concerned, the essential things are that the injury to Bessie Hinton was actually caused by the Strawboard Company; that any negligent acts done in causing it were the acts of that company; and that any legal liability which resulted from such wrongful or negligent acts attached to and against the Strawboard Company. The Bloomer Company, as found by the court, had “ceased to exist.” The Strawboard Company having procured the liability insurance policy and paid for it “solely in its own behalf,” and having pursuant to its terms procured the Casualty Company to defend the suit of Bessie Hinton and employ counsel to that end, it will be presumed to have done so because it had caused the injury and because of its knowledge that any legal liability on account of it was its own liability.

But it is earnestly contended that as the suit was against the Bloomer Company, and the Strawboard Company by name was not a party to the suit, the court of appeals erred in its conclusion of law . that the judgment of Hinton against the Bloomer Company was a judgment against the Strawboard Company.

It is elementary that in order that a judgment may be conclusive against a party he must have had opportunity to he heard. This is a necessary requisite of due process of law.

The decisive question in this case is whether there was due process of law against the Straw-board Company.

It is urged that a recent case decided by the supreme court of the United States, Postal Telegraph Cable Co. v. City of Newport, Kentucky, 247 U. S., 464, rules this case.

In that case there were three separate and distinct companies, and it was held that there was not such privity of estate between successor companies and the original holding company as to conclude the successors as to a judgment rendered two years after the original company had parted with title.

The court say at page 470: “By way of rejoinder, defendant denied its identity with the Postal Telegraph Cable Company of New York, defendant in the former action, denied that defendant in the present action was * * * successor of said company or had succeeded to all its rights,” etc. And at page 474 the court say: “Since the case proceeded to judgment upon the pleadings, it is elementary that every uncontradicted allegation of fact by the unsuccessful party must be taken as true.”

In discussing the conclusive effect of judgment, it is said by the court at page 476:

“The doctrine of res judicata rests at bottom upon the ground that the party to be affected, or some other with whom he is in privity, has litigated or had an opportunity to litigate the same matter in a former action in a court of competent jurisdiction. * * * The opportunity to be heard is an essential requisite of due process of law in judicial proceedings. * * * And as a State may not, consistently with the Fourteenth Amendment, enforce a judgment against a party named in the proceedings without a hearing or an opportunity to be heard * * *, so it cannot, without disregarding the requirement of due process, give a conclusive effect to a prior judgment against one who is neither a party nor in privity with a party therein.”

Now in this case there is no attempt to hold two different companies, two separate active entities. There was but one company in fact and law which committed the wrong, and that company, the Straw-board Company, was the real and active defendant in the case. There was no such company as the Bloomer Company actually in existence at the time of the injury and at the time of the beginning of the suit. It had lost its identity and was merged in the identity of the Strawboard Company, which defended the suit.

The wrongdoer was in court defending the suit, with full opportunity to be heard, and exercising that privilege.

A wrongfully injures B, and B brings suit intending to make A the party defendant, but sues him by a wrong name. A comes into court and makes defense to the merits, but says nothing about the misnomer. Judgment is entered for plaintiff. The real party has had his day in court and is bound by the judgment.

In 21 R. C. L., 1324, it is said: “All the cases agree that one summoned by a name not his own and who appears and does not plead misnomer waives it, and is bound by the judgment in the wrong name.” See also 3 Cyc., 524, and cases cited.

Moreover, it appears in this case that in her petition Bessie Hinton averred on information and belief that the Bloomer Company had entirely lost all corporate existence and had been succeeded by the Strawboard Company, which at the time was the real owner and party in interest. She attached interrogatories for the defendant Bloomer Company to answer. The court on motion struck out these averments and sustained a demurrer to the interrogatories.

In view of the facts afterward developed and found by the court of appeals, it must be said that the motion and the demurrer were filed and urged by the Strawboard Company, which was in complete control of the defense, in that case. It will not now be heard to assert a misnomer, nor to object that it was not named as defendant, as it had itself in fact insisted that the suit proceed against the Bloomer Company, which it was aware had lost its existence, although the Strawboard Company conducted the business ostensibly as a separate concern.

There is a consistent determination by courts to look through corporate forms, and this disposition is shown with increasing firmness as the interests of justice require.

In State, ex rel., v. Standard Oil Co., 49 Ohio St., 137, it was held: “That a corporation is a legal entity, apart from the natural persons who compose it, is a mere fiction, introduced for convenience in the transaction of its business, and of those who do business with it; but like every other fiction of the law, when urged to an interest and purpose not within its reason and policy, may be disregarded.”

To the same effect are The Cincinnati Volksblatt Co. v. Hoffmeister, 62 Ohio St., 189; First Natl. Bk. of Chicago v. Trebein Co., 59 Ohio St., 316, and Parkside Cemetery Assn. v. The C., B. & G. L. Traction Co., 93 Ohio St., 161, 168.

The court below properly held that the judgment was in law a judgment against the Straw-board Company.

As shown in the finding of facts which we have set out in the statement of this case, the plaintiff in error here succeeded to the business and all the property of the Strawboard Company, and plaintiff in error was a mere continuation and reorganization of the Strawboard Company. With the exception of the nominal owner of one share, the incorporators and initial subscribers to the capital stock were the same persons who held the Strawboard Company stock, though in different amounts. The amount of indebtedness assumed by the plaintiff in error, the amount of cash paid to and the amount of stock in the Box Board. Company issued to the stockholders of the Strawboard Company were substantially equal to the value of the assets acquired by the Box Board Company, exclusive of the Hinton judgment.

The preamble of the resolution of the plaintiff in error, making its offer to buy, recites: “This company was incorporated for the purpose of purchasing and taking over all the property and business of The Western Strawboard Company.”

The authorities cited in defendant in error’s brief sustain the proposition that in these circumstances the plaintiff in error, being a mere continuation of the Strawboard Company, whose stockholders received the cash from and stock in the new company, is liable for the payment of the judgment involved in this case. We also cite Andres v. Morgan, Trustee, 62 Ohio St., 236, to the same effect.

The judgment will be affirmed.

Judgment affirmed.

Nichols, C. J., Jones, Wanamaker, Robinson, Johnson and Donahue, JJ., concur.

Matthias, J., not participating.