Case Name: Adolph Goldmark, Respondent, v. Magnolia Metal Company, Appellant, Impleaded with Magnolia Anti-Friction Metal Company
Court: New York Supreme Court, Appellate Division
Jurisdiction: New York
Decision Date: 1898
Citations: 28 A.D. 264
Docket Number: 
Parties: Adolph Goldmark, Respondent, v. Magnolia Metal Company, Appellant, Impleaded with Magnolia Anti-Friction Metal Company.
Judges: 
Reporter: Appellate Division Reports
Volume: 28
Pages: 264–271

Head Matter:
Adolph Goldmark, Respondent, v. Magnolia Metal Company, Appellant, Impleaded with Magnolia Anti-Friction Metal Company.
Attachment — number of sureties required on the undertaking—liability of 'a new corporation, organized to take the place of another, for'the latter’s debts.
The question whether one or more sureties shall be required oh an undertaking given upon the granting of an attachment, rests, under the provisions of sections 640 and 811 of the Code of Civil Procedure, in the discretion of the judge granting the attachment, to whom the undertaking is presented for approval; but in the first department it has been the invariable practice to require two sureties, if' individuals, except where a responsible surety company has become liable on the undertaking.
A domestic manufacturing corporation (known as the Magnolia Anti-Friction Metal Company) caused a similar corporation to be organized under the laws of a foreign State, whose entire issue of capital stock was distributed pro rata among the shareholders of the old company, who became the stockholders of the new one, the consideration being solely the good Will and.assets of the old company, which were transferred to the new, and the only asset retained being a patent formula, for the use of which the new company was granted a perpetual license. The business was carried on in the old place without change or interruption, and the directors and managers continued practically the same In an action at law to charge the new company with liability upon a contract, made by the old company with the plaintiff, these facts appeared, and it was alleged that the new company knew of the existence of the contract in'.question at the time it took over all the property of its predecessor, and that with such knowledge it recognized the agreement; and there was some evidence from which an inference could be drawn that the new corporation assumed the payment of the liabilities of its predecessor.
Held, that a case was presented sufficient to justify the denial of a motion to vacate an attachment issued against the property of the new corporation and to entitle the plaintiff to an opportunity to establish upon the trial his alleged cause of action.
.• Appeal by the defendant, the Magnolia Metal Company, from so much of an order of the Supreme Court, made at the New York Special Term and entered in the office of the clerk of the county of New York on the 9th day of. February, 1898, as denies- the said defendant’s motion to vacate an attachment heretofore granted in the action.
In September, 1890, the Magnolia Anti-Friction Metal Company, upon sufficient consideration, promised to pay to the plaintiff one cent per pound on all sales of magnolia metal in Austria and Italy for a period of five years thereafter. These sales were to be made during the period mentioned through, a London firm called “ The Magnolia Anti-Friction Metal Company of Great Britain.” Between March 1, 1893, and March 1, 1895, that firm sold in the countries named 951,337 pounds of the metal, which fact the plaintiff learned from the firm itself and its bookkeeper, Mr. William E. Watson, In May, 1893, the defendant Magnolia Anti-Friction Metal Company caused to be organized the Magnolia Metal Company, under the laws of West Virginia, the former surrendering .to the new company its assets, business, good will and place of business, and itself ceased to do business. The entire issue of capital stock of 'the new company was distributed pro rata among the shareholders of the old company, the consideration for its issue being solely the assets and good will of the old company, and the stockholders, assets, business and place of business of the two companies were identical. The only asset claimed to be retained by the old company, and not surrendered to the new, was the patent formula, but a perpetual license to use the patent was given to the new company, and it thereafter went on and manufactured the metal without objection. The directors and managers of the two companies continued practically the same, and the business went on without change or interruption. There was neither increase nor diminution of assets. The old company was a corporation organized under the laws of Mew York. The attachment herein was granted against the new company, a West Virginia corporation. The motion to vacate the attachment was placed upon two grounds : (1) That the moving affidavit does not support the warrant by any competent proof as to the amount due, if any, under the contract; and (2) that the complaint does not state facts sufficient to constitute a cause of action against the Magnolia Metal Company.
Alexander S. Bacon, for the appellant. .
L. A. Gould, for the respondent.

Opinion:
O'Brien, J.:
The proof as to the amount due, which is based upon the sale of metal in Italy and Austria, is founded upon information which the plaintiff says lie obtained from the Magnolia Anti-Friction Metal Company of Great Britain, and their bookkeeper, one Watson, which firm, the plaintiff states, was the agent of the appellant. The latter criticises the sufficiency of such statements as competent proof of the facts, upon the ground that the plaintiff does not show how he knew that the London firm were its agents, and does not state from what particular member of the firm, in addition to the bookkeeper, he received the other information. We think that a moment's consideration will show that these objections are hypercritical. In addition.to the original affidavits, we have those of the appellant, on which the motion to vacate the attachment was made,, and the replying affidavits of the plaintiff; and upon all of these we are to determine whether the attachment was properly granted. It therefrom appears, beyond question, that the firm that handled the magnolia metal in Great Britain ivas the one stated by the plaintiff to be the defendant's agent; and the only dispute arising is, that the appellant insists that the firm was not its agent, but that the metal which it handled was sold directly to it. This fact, however, as to whether it handled the metal as agent, or as the result of a contract of absolute sale, is entirely immaterial if in fact the firm did sell in Austria and Italy the metal on which the plaintiff bases his claim for compensation, as' under his alleged contract, he was entitled to the agreed sum on all metal sold in Italy and Austria during the years specified, no matter under what arrangement or by whose direct agency. The important and material thing for the purposes of the attachment, was to show that the plaintiff had received information from a reliable- source, furnishing him with; the data upon which to base his claim for compensation, and from which.it" could be seen that he had presented a prima facie case entitling him to the amount stated in his complaint and for which the attachment was issued. -
The insistence that the affidavit does not allege the plaintiff's belief in the truth of the allegations made to him, is also unt-ena-. able. The plaintiff .was not obliged, continually to repeat that, on information and belief, he alleged each fact, for, in his complaint, he states the facts which constitute his cause of action, and that is verified in the usual form, in which he- asserts that it is true to his own knowledge, " except as to the matters therein stated to be alleged upon information and belief, and, as to those matters, I believe it to be true ; " and from his affidavit used in support of the complaint, we. have a full statement as to what the plaintiff alleges of his own knowledge and what is upon information.
It is further objected that the undertaking on the attachment was insufficient because the plaintiff joined with one other person, while the practice requires, two sureties other than the plaintiff. Section 640 of the Code of Civil Procedure provides that the judge " must require a written undertaking upon the part of the plaintiff with sufficient sureties." Of course, adding the name of the plaintiff to the undertaking does not strengthen it in any way, as he is liable for damages irrespective of the undertaking, and cannot be regarded as other than a principal. So that when the Code speaks of " sureties," it means, in addition to the plaintiff, if he signs the undertaking, more than one surety. Section 811 of the Code, however, to some extent modifies this by declaring that " where a provision of this act requires a bond of undertaking, with sureties, to be given by or in behalf of a party or other person, he need not join with the sureties in the execution thereof unless the provision requires, him to execute the same; and the execution thereof by one surety is sufficient, although the word 'sureties' is used, unless the provision expressly requires two or more sureties." While, therefore, the question as to whether one or more sureties shall execute an undertaking is to be determined by the judge granting the attachment to whom the undertaking is presented for approval, yet we think it proper to call attention to the fact that, in this department, it has been the invariable practice to ' require two sureties, if individuals, although this rule has been relaxed where, in lieu thereof, a responsible surety company has become liable on the undertaking.
This brings us to'the most serious question involved, as to whether-the complaint states facts sufficient to constitute a cause of action against the appellent, the Magnolia Metal Company. In this action the plaintiff seeks to charge that company directly upon a common-law liability for breach of contract, and such an action is not to be confounded with a suit in equity brought by a creditor to reach the assets of a firm or corporation which have been transferred to an entirely new and different concern or corporation.
In substance, the complaint alleges that the contract was made with the Anti-Friction- company, and there is no distinct allegation •that the Magnolia -Company expressly assumed the obligations of the ; Anti-Friction company. It is claimed, however, that, notwithstanding the absence'of such an allegation, taking the facts as trues which we must dp in determining the sufficiency of the contract,, it is made to appear that the organization doing business under the present name, Magnolia.Metal Company, is liable upon the contracts entered into. Under the former name of the Magnolia Anti-Friction Metal Company.
Leaving out of consideration cases where the transfer from the old to the-new corporation amounts, to a fraud upon creditors, wherein' .it has been held that the latter could follow the assets in the hands .of the new company,-it must be regarded as' the general rule that .the liability of .the- new corporation for the.debts of the. old does not result"from operation of law, but must follow from the contract relation based'upon the. assumption of the debts of the old corporation by the new. As with' other general rules, however, there would appear to' be exceptions thereto, one class of exceptions, as claimed, -being exemplified'in the well-considered decision of Austin v. Tecumseh Nat. Bank (49 Neb. 419),. by " cases where, as in Reed v. First Nat. Bank of Weeping Water, supra (46 Neb. 168), the circumstances attending the creation of the new corporation and ^.succession to the business, franchise and property of the old, are such as-to raise the presumption or warrant the finding that it is a mere continuation of the .former — that it is, in short, the same corporate body under % different name." Another .instance cited -is that of City Nat. Bank of Poughkeepsie v. Phelps (97 N. Y. 51),. which was a case. of a State bank transformed into a National bank under the provisions of the National Banking Act, wherein, it was said ': "Although, in form, their property and rights as State banks purport to be transferred to them, in their new status of national banks', yet, in substance, there is UO actual transfer from one body to another, but a continuation of the saíne body under a changed jurisdiction. As between it and those who have contracted with it,-it retains its identity, notwithstanding its acceptance of • the privilege of organizing under , the National Banking Act," In the case of The Metropolitan Bank v. Claggett (141 U.S. 527), which arose originally in this State,'the judge writing the opinion of the court says: - " The change or con version of the Metropolitan Bank into the Metropolitan National' Bank did notc close its business of banking,' nor destroy its -identity,, or its corporate existence, but simply resulted, in a continuation of the same body with the same officers and stockholders,- the same property, assets and banking business, under a changed jurisdiction j that it remained one and the same bank, and went on doing business uninterruptedly." It was therein held that the change from a State to a National" bank did not destroy its identity or its corporate existence, "or discharge it as a National bank from its liability to holders of its outstanding circulation issued in accordance with State laws. And in Williams v. Colby (6 N. Y. Supp. 459) the presiding justice of this court said: " This corporation, composed of the same individuals as the firm, could not seize upon the assets of the firm and withdraw them from the creditors of the firm. If they could do this as to one creditor, they could do it .as to all — a proposition too monstrous to need a moment's discussion." (See, also, Hibernia Ins. Co. v. St. Louis & Hew Orleans Transportation Co., 10 Fed. Rep. 600; Mott v. Sun Mut. Ins. Co., 16 id. 140 ; N. Y. & Brooklyn Ferry Co. v. The Mayor, 146 N. Y. 145.)
In the bank cases above cited, it is true, the transition is effected pursuant to statute, while here it was the result of the consent and vote of the stockholders. . But in both the question must relate to the legal effect of the transition, when accomplished, upon the rights of creditors of the body corporate in its original form as a domestic-corporation, and to whether such - creditors can enforce -their claims at law against the foreign corporation into which the original body corporate has been transformed, without any express assumption of" such claims or recognition thereof by the' new corporation.
It is insisted that in the ease at bar, the transfer of the capital, assets and good will of the business, and the continuance thereof under a new organization- and changed name, are analogous to a transfer of the capital, assets and business of a State bank, and the continuance thereof under a new name, to an organization pursuant to the National Banking Act, for the reason that in each case the officers, directors, stockholders, assets and business continue the saíne, but the name is changed, and the domestic corporation transfers the jurisdiction to which it owes allegiance and continuance as a foreign corporation. It will be seen, therefore, that the plaintiff,. while recognizing the principle that a firm or corporation, in the absence of an agreement to that effect, -does not become liable for debts of another firm or corporation whose assets it may have purchased or taken over, bases his right to recover upon the identity of the. two corporations. In other words, the plaintiff's position is, that while there has been a change of dress, a removal to another jurisdiction and the' assumption of anew name, it is the self-same identical body that obtains and holds .all the property and assets, just as it formerly owned and held them, and chargeable likewise with the same liabilities; that while there may have been a formal change of place and name, it is in substance the same body, possessed-of the same rights, in possession and control of the same property, and liable for the same obligations.
This question is a novel one and by no -means free from - doubt. But while we do not decide it, we wish to point out that it is not to be confused or obscured by cases cited by the appellant of an insolvent concern going out of existence and transferring its assets to a new. corporation, which continues its, business with fresh capital and added parties, or of an .insolvent corporation reorganized through a foreclosure in order to scale down its debts. For here there is no insolvency, no added shareholders, no new capital, and though there is a formal, there is no actual transfer of title or even real change of possession, it being an arrangement which, as said in Metropolitan Bank v. Claggett (141 U. S. 527), " simply resulted in a continuation of the same body with the same officers and stock-' holders, the same property, assets and business under a' changed jurisdiction."
It is further alleged by the plaintiff that, after the old company had ceased doing business,- the Magnolia Company " treated and. recognized said agreement with plaintiff as a valid and subsisting agreement,, and offered and attempted to make a new 'agreement between plaintiff and said Magnolia Co., based upon or as modification of said former agreement." It is also alleged that the new company. knew of the existence of the contract between the plaintiff and the old company at the time it took over all the property of the latter, and that, with' such knowledge, it treated and recognized the - agreement, and that thereafter the metal was sold in Italy and Austria by the English firm, either as agents or as pxxrchasers from the new company. There is the further allegation that the Magnolia Company paid all the debts of the Anti Friction companyand as we can, upon a motion of. this kind, look beyond the complaint, we have some evidence in the deposition of one of the officers of that company from which the inference could be drawn, if such evidence were given upon the. trial, that the Magnolia Company assumed the payment of the liabilities of the Anti-Friction company. There is, therefore, a showing which, if true, would enable the plaintiff upon a trial to charge the Magnolia Company directly with the debt due to him. Upon a motion to vacate .an attachment, the sufficiency of the complaint is not to be discussed and treated with the same elaboration as when the question' of its sufficiency is presented upon a demurrer. Undoubtedly it is the duty of the court to examine the pleading with a view to seeing if it is frivolous or so barren of substantial averments that no reasonable arguments can be urged in its support. But it would add greatly to the labors of the judges at Special Term if, upon every motion, the sufficiency of a pleading could be brought in question and should then be disposed of with the same elaboration as upon a demurrer. We think we have sufficiently indicated our view that the plaintiff has made such a showing that he should not upon this motion be turned out of court, but that he is entitled to a hearing upon a trial as to his ability to sustain his cause of action against the appellant.
Our conclusion, therefore, is that the order appealed from should be affirmed, with ten dollars costs and disbursements.
Patterson and Ingraham, JJ., concurred; Van Brunt, P. J., and McLaughlin, J., dissented.