Case Name: Frederick B. Irvine, Appellant, v. The New York Edison Company, Respondent
Court: New York Supreme Court, Appellate Division
Jurisdiction: New York
Decision Date: 1911-03-10
Citations: 143 A.D. 344
Docket Number: 
Parties: Frederick B. Irvine, Appellant, v. The New York Edison Company, Respondent.
Judges: 
Reporter: Appellate Division Reports
Volume: 143
Pages: 344–356

Head Matter:
Frederick B. Irvine, Appellant, v. The New York Edison Company, Respondent.
First Department,
March 10, 1911.
Corporations — merger — liability for debts of merged corporation -< remedy of creditors — consolidation of corporations — Stock Corporation Law and Business Corporations Law construed.
Where one corporation assigned all its property and franchises to another corporation, it is presumed that full value was paid and that no obligation was imposed on the assignee to pay the debts of the assignor in the absence of proof to the contrary.
Although section 58 of the former Stock Corporation Law provided that where one corporation owns all the stock of another corporation a merger shall be without prejudice to any liabilities of the merged corporations, or to the rights of any creditor thereof, those words merely preserve the rights of creditors as against the merged corporation enabling them to maintain an action against it, and, if a recovery be had and the judgment not paid, then to take such proceedings as may be proper for the recovery of assets transferred if full value were not paid therefor.
The possessor corporation does not by the merger alone assume the liabilities of the merged corporations so as to he liable in an action at law to its creditors.
Section 13 of the former Business Corporations Law, providing that on the consolidation of corporations the rights of creditors of either corporation shall not be impaired, but the new corporation shall be liable for the debts of the former corporations as if it had itself incurred the liability, does not make the new corporation liable for the debts of a corporation'which sold its property and franchises to and merged with one of the consolidating corporations, where the consolidating corporation was not liable for the debts of the merged corporation. This because the consolidation cannot in and of itself impose any greater obligation than existed against the corporation consolidated thereunder. Scott, J., dissented, with opinion.
Appeal by the plaintiff, Frederick ¡B. Irvine, from a judgment of the Supreme Court in favor of the defendant, entered in the office of the clerk of the county of ¡New York on the 20th day of January, 1910, upon the dismissal of the complaint by direction of the court at the close of plaintiff’s case on a trial at the New York Trial Term, and also from an order entered in said clerk’s office on the 4tli day of February, 1910, denying the plaintiff’s motion for a new trial made upon the minutes.
Martin S. lynch, for the appellant.
Edward W. Hatch, for the respondent.

Opinion:
McLaughlin, J.:
This action is brought to recover the amounts paid by one of the plaintiff's assignors, James Irvine, the accommodation indorser, upon a note made by the New York Equipment Company and indorsed for the benefit of the Block Lighting and Power Company, a domestic corporation, which, in February, 1900, was merged into another domestic corporation, the New York Gas, Electric Light, Heat and Power Company, pursuant to section 58 of the then Stock Corporation Law. The latter company was subsequently consolidated with the Edison Electric Illuminating Company of New York, its name being thereafter changed to the New York Edison Company., This action was brought upon the theory that the defendant is liable for the debts of the Block Lighting and Power Company, which was primarily liable upon the note which the plaintiff's assignors were compelled to pay. Upon the trial the complaint was dismissed at the close of plaintiff's case, and from the judgment entered to that effect, and from an order denying a motion for a new trial, plaintiff appeals.
It appears that on the 13th of December, 1898, the Block Lighting and Power Company assigned and transferred all of its property, including its franchise, to a domestic corporation known as the Manhattan Lighting Company and both of these corporations were, on the 1st of February, 1900, merged into and became the New York Gas, Electric Light, Ileat and Power Company. It does not appear what was paid for the property and franchise transferred, but in the absence of proof upon the subject it must be assumed that full value was paid and that no obligation was imposed upon the Manhattan Company, in the absence of an agreement to the contrary, to pay the debts or obligations of the Block Lighting and Power Company. (Klein v. East River Electric Light Co., 182 N. Y. 27; Fernschild v. Yuengling Brewing Co., 154 id. 667.) This transfer, therefore, in no way affects the alleged liability of the defendant in this action. The record fails to disclose any of the particulars connected with or growing out of the merger, except that it was under and pursuant to section 58 of the then Stock Corporation Law. That section provided that " Any stock corporation lawfully owning all the stock of any other stock corporation " engaged in a similar business " may file in the office of the Secretary of State a certificate .of such ownership and of the resolution of its board of directors to merge such other corporation and thereupon it shall acquire and become and be possessed of all the estate, property, rights, privileges and franchises of such other corporation and they shall he managed and controlled by the board of directors,of such possessor corporation and in its name, but without prejudice to any liabilities of such other corporation or the rights of any creditor thereof." (Gen. Laws, chap. 36 [Laws of 1892, chap. 688], § 58, added by Laws of 1896, chap. 932.) The statute does not prescribe the manner in which creditors of the merged corporation may enforce their rights, and so far as I have been able to discover, that question has not been judicially determined. The statute provides that the property of the merged corporation shall be held and enjoyed by the possessor corporation in its name, " but without prejudice to any liabilities of such other corporation or the rights of any creditor thereof." The words quoted simply preserve, as it seems to me, the rights of creditors as against the merged corporation, enabling them to maintain an action for the recovery of a judgment, and if a recovery be had and the judgment not paid, then to take such proceedings as may seem proper for the recovery of assets transferred if full value were not paid therefor..
It seems to me quite clear that the possessor corporation does not, by the merger alone, assume the liabilities of the merged corporation so as to be liable in actions at law to its creditors. The fact that the Hew York Gas, Electric Light, Heat and Power Company owned all of the stock of the Block Lighting and Power Company—which must be assumed since the merger was under section 58 — did not render it liable for the debts of the latter company and there is nothing in the statute to indicate that such an absolute liability was imposed upon it by the merger, irrespective of the assets which it may have acquired. What, if any, assets the Hew York Gas, Electric Light, Heat and Power Company received from the merged corporation does not appear. Ho attempt whatever was made upon the trial to show that either it or the defendant received any assets of the Block Lighting and Power Company or the Manhattan Lighting Company.
But it is urged that when the Hew York Gas, Electric Light, Heat and Power Company was consolidated with the defendant, it thereupon, under section 12 of the Business Corporations Law (Gen. Laws, chap. 41; Laws of 1892, chap. 691) became liable for the plaintiffs claim. This section as it then existed provides that " the rights of creditors of any corporation that shall so be consolidated shall not in any manner be impaired, nor any liability or obligation for the payment of any money due or to become due to any person or persons, or any claim or demand for any cause existing against any such corporation or against any stockholder thereof be released or impaired by any such consolidation; but such new corporation shall succeed to and be held liable to pay and discharge all such debts and liabilities of each of the corporations consolidated in the same manner as if such new corporation had itself incurred the obligation or liability to pay such debt or damages This statute, while permitting corporations to consolidate, nevertheless preserves to the creditors of the corporations which are consolidated all their rights unimpaired, and furnishes them a remedy concurrent in its nature. They may enforce the liability either against the corporation, whose debt it was, or against the new corporation, whose debt it has become by virtue of the statute. (Matter of Utica Nat. Brewing Co., 154 N. Y. 268 ; Gale v. Troy & Boston R. R. Co., 51 Hun, 470.)
But if the view already expressed as to the effect of the merger of the Block Lighting and Power Company into the New York Gas, Electric Light, Heat and Power Company be correct, then this statute does not aid the plaintiff or make the defendant liable, because at the time the .consolidation took effect the New York Gas, Electric Light, Heat and Power Company, so far as appears, was under no obligation to plaintiff to pay his claim or any claim of the Block Lighting and Power Company. The consolidation could not, in and of itself, impose any greater obligation than the corporation consolidated was under.
It is suggested that the Block Lighting and Power Company ceased to exist as an entity after the merger with the gas company. It is unnecessary to determine this question. If the Block Company as an entity continued to exist after the merger, then that entity was not, by the consolidation, taken into the defendant. If the entity of the Block Company were merged in the gas company, then it ceased to exist after the merger and was not resurrected by the consolidation.
The judgment and order appealed from, therefore, should be affirmed, with costs.
Ingraham, P. J., Laughlin and Miller, JJ., concurred ; Scott, J., dissented.