Case Name: Harry Burt vs. Modern Dye & Rug Works, Inc.
Court: Supreme Court of Rhode Island
Jurisdiction: Rhode Island
Decision Date: 1927-11-21
Citations: 48 R.I. 490
Docket Number: 
Parties: Harry Burt vs. Modern Dye & Rug Works, Inc.
Judges: Present: Sweetland, C. J., Stearns, Rathbun, Sweeney, and Barrows, JJ.
Reporter: Rhode Island Reports
Volume: 48
Pages: 490–493

Head Matter:
Harry Burt vs. Modern Dye & Rug Works, Inc.
NOVEMBER 21, 1927.
Present: Sweetland, C. J., Stearns, Rathbun, Sweeney, and Barrows, JJ.

Opinion:
Rathbun, J.
This is an action in assumpsit brought in the Superior Court to recover from a corporation money loaned to a copartnership the assets of which were later transferred to said corporation, and the case is before us on the plaintiff's exception to the granting of the defendant's motion for a nonsuit.
The money was loaned to George and Sarkis Deckmejian doing business as the Modern Dye and Rug Works. Thereafter Sarkis sold his interest in the business to George who continued to carry on the business. He apparently assumed the debts of the copartnership. Later George formed a new copartnership for the purpose of carrying on the same business with Carl H. Angelí. There is evidence that before this copartnership was formed Carl and George, in a conversation with the plaintiff, expressed an intention that the new firm should assume the obligations .of the old one, but what the final arrangement was does not appear. Still later George, Carl and his wife, Elizabeth Angelí, secured a charter having the name Modern Dye and Rug Works, Inc. The books of account of the first partnership were apparently used successively by George and by George and Carl H. Angelí. The corporation took over the tangible assets of the old concern consisting principally of machinery, office fixtures, trucks, etc., and perhaps the accounts receivable. Although there is no direct evidence that the accounts were taken over it does appear that for about two weeks, at least, the corporation continued the business at the same place and used the partnership books as the account books of the corporation. Within about two weeks after the charter was obtained the entry showing the indebtedness of the original copartnership to the plaintiff was torn from the books; lines^ were drawn beneath other accounts but what the lines signify does not appear.
It does not appear that there was any express undertaking to assume the obligations of either of the partnerships. Neither does it appear that the corporation paid any of the debts contracted by either of the copartnerships.
The plaintiff's contention is that the second copartnership impliedly assumed the indebtedness of the first and tjhat the corporation by taking over the chief assets of the second copartnership impliedly assumed its obligations, including the indebtedness to the plaintiff contracted by the first copartnership.
It is well settled, at least in most jurisdictions in this country, that a corporation can assume the indebtedness of a copartnership and thereby give to the creditors of the partnership a right of action against the corporation, 30 Cyc. 618; Wood v. Moriarty, 15 R. I. 518; and when co-partners merely incorporate their business by transferring all assets to a corporation and receive the stock of the corporation for such assets and the corporation pays no consideration for the partnership assets other than the stock which was issued to the copartners, it has been frequently held that the copartnership has merely taken on a corporate cloak and that, although there was no expressed assumption of liability for the debts of the old concern, the corporation had impliedly assumed the debts of the copartnership. See cases cited in Ann. Cas. 1912, D. 1278. It is equally clear that a copartnership may in good faith sell its assets free from debts and that a corporation acting in good faith may purchase the assets of a copartnership without becoming liable for the partnership obligations.
In the case before us the evidence is so meager that it is impossible to determine the class to which the transaction belongs. There was no suggestion that the corporation expressly assumed the debt due the plaintiff or any other debt of either of the copartnerships. It does not appear that the corporation has actually paid anything on account of the debt in question or any other debt of either copartnership. The certificate of incorporation was issued to the two persons comprising the second copartnership and the wife of one of them. Who became the original stockholders in the corporation or what they paid for their stock does not appear. It does not appear that the corporation issued stock in return for the assets of the second copartnership. Nothing was presented tending to show that the corporation did not pay to George Deckmejian and Carl EL Angelí full value for all assets received from them. Even assuming that the second copartnership assumed the indebtedness of the first no presumption arises from the facts presented that the corporation assumed the obligations of the partnership which the corporation succeeded.
William A. Gunning, for plaintiff.
No appearance for defendant.
The Sales in Bulk Act, Chap. 311, G. L. 1923, simply provides that certain sales in bulk shall be void as to creditors unless the purchaser, five days before the transfer, gives notice of the intended purchase to the vendor's creditors, but the act gives to the creditors no right of action against the purchaser in the event that the notice is not given.
The plaintiff's exception is overruled and the case is remitted to the Superior Court with direction to enter judgment on the nonsuit.