Opinion ID: 1800959
Heading Depth: 1
Heading Rank: 1

Heading: The Assignment Controversy

Text: The facts giving rise to the assignment controversy are not in dispute. In January, 1948, the lessee, St. Louis National Baseball Club, was merged into another Missouri corporation, National Sports, Incorporated. The latter had acquired all except a fraction (less than 1%) of the preferred and common stock of the former. The merger was effected pursuant to our General Business and Corporation Act. Laws 1943, p. 410, § 4997.1 et seq., Mo.R.S.A., R.S.1949, § 351.010 et seq. A plan of merger having been previously submitted to, and approved by, the stockholders of both corporations, as required by the statute, § 65, articles of merger were entered into in which National Sports, Incorporated, was designated as the surviving corporation under § 62 of the act. Such articles also provided for a change in name from National Sports, Incorporated, to St. Louis National Baseball Club, Inc. The merger, as well as the change in name, became effective January 10, 1948, upon the issuance by the Secretary of State, under § 68, of a certificate of merger (and of change in name), which was duly recorded in the Office of the Recorder of Deeds of the City of St. Louis on February 19, 1949. We need not further particularize the facts respecting the merger because the single question presented under the assignment controversy is one of law; that is, whether merger, under the facts outlined, operated as, or constituted an assignment of the lease in violation of paragraph 14 [1] thereof so as to entitle Dodier to declare a forfeiture under paragraph 15 [2] . We have been cited to no case holding devolution through corporate merger, as here involved, to be within the prohibition of a covenant against assignment without the lessor's consent. That precise question does not appear to have been at issue in any of the adjudicated cases. Forfeitures of leaseholds are looked upon with disfavor. They will not be enforced unless the breach is unequivocal. J. E. Blank, Inc., v. Lennox Land Co., 351 Mo. 932, 174 S.W.2d 862, 868-869. In construing restraints, courts are careful not to go beyond express stipulations. Plaintiff spells out an intention to limit the right granted to the particular corporate entity named in the lease by ascribing to the word assign its broad sense or meaning transfer, coupled with the circumstance that another paragraph of the lease prohibited lessee from using the premises for any other purpose than that of playing championship baseball games in the National League, and so negatived the idea that the nonassignability clause was to prevent the use of the park for some other purpose. It is then argued that the vesting of the rights of the merging, tenant corporation in the surviving corporation was entirely voluntary, and not (in the sense of involuntary) by operation of law; that under the 1943 act, there was an extinguishment of the merging corporation, and, by the very wording of the statute, the merger transferred the lessee's rights in the lease, and hence there was a violation of the covenant for which forfeiture was provided. Respondent, conceding that any assignment by the tenant without the landlord's consent was prohibited, urges that by the use of the words successor in interest in the covenant in question, it was expressly contemplated that there might be a successor who was not an assignee, and contends that the passing of the leasehold title to the merged corporation was by operation of law resulting from the merger, and did not constitute an assignment. Dodier's claim of voluntariness is based on the fact that the directors and stockholders approved and brought about the merger. They took all the steps necessary to bring the statute into operation, but we do not regard this circumstance as determinative of the question of whether the transfer of the leasehold (as an asset of the merging corporation) was by operation of law. It was said in United States v. Seattle-First National Bank, 321 U.S. 583, 64 S.Ct. 713, 716, 88 L.Ed. 944: But in a broad sense, few if any transfers ever take place `wholly by operation of law' for every transfer must necessarily be a part of a chain of human events, rarely if ever other than voluntary in character. Thus to give any real substance to the exemption, we must take a more narrow view and examine the transfer apart from its general background. We must look only to the immediate mechanism by which the transfer is made effective. If that mechanism is entirely statutory, effecting an automatic tranfer without any voluntary action by the parties, then the transfer may truly be said to be `wholly by operation of law. Here the actual transfer to respondent of the legal and beneficial title to the securities owned by the state bank was not affected by or dependent on any of the voluntary acts relating to the consolidation agreement or the ratification or approval thereof. Nor was any voluntary deed, conveyance, assignment or other instrument utilized. Rather the transfer occurred solely and automatically by virtue of Section 3 of the National Banking Act [12 U.S.C.A. § 34a]. § 70 specifies the effect of merger, in pertinent part, thus: (a) The several corporations parties to the plan of merger    shall be a single corporation, which    shall be that corporation designated in the plan of merger as the surviving corporation,   . (b) The separate existence of all corporations parties to the plan of merger   , except the surviving    corporation, shall cease. (c) Such surviving    corporation shall have all the rights, privileges, immunities, and powers and shall be subject to all the duties and liabilities of a corporation organized under this Act. (d) Such surviving    corporation shall thereupon and thereafter possess all the rights, privileges, immunities, and franchises, as well of a public as of a private nature, of each of the merging    corporations; and all property, real, personal, and mixed, and all debts due on whatever account, including subscriptions to shares, and all other choses in action, and all and every other interest, of or belonging to or due to each of the corporations so merged   , shall be taken and deemed to be tranferred to and vested in such single corporation without further act or deed; and the title to any real estate, or any interest therein, under the laws of this State vested in any of such corporations shall not revert or be in any way impaired by reason of such merger   . (e) Such surviving    corporation shall thenceforth be responsible and liable for all the liabilities and obligations of each of the corporations so merged   . Neither the rights of creditors nor any liens upon the property of any of such corporations shall be impaired by such merger or consolidation. Dodier says that the fundamental question upon which this appeal must be decided is whether, under the statute above set out, the merging corporation (St. Louis National Baseball Club) ceased to exist, its theory being that such merging corporation was dissolved and did cease to exist, so that there was necessarily a transfer (and, therefore, an assignment) of the leasehold. The former statute (in effect at the date of the execution of the lease, § 5361, R.S.1939, and Mo.R.S.A., then § 4954, R.S.1929, and Mo.St.Ann.), merely provided that Any two corporations (of the kind therein mentioned) may amalgamate, unite and consolidate said corporations and form one consolidated corporation, etc. The provisions of the 1943 act, in which merger and consolidation are separately treated, do not appear to have undergone judicial construction in this jurisdiction. They are, of course, not the same. Distinctions to be drawn between the two are thus noted in 19 C.J.S., Corporations, § 1604: A true consolidation, which exists where a new corporation springs into existence to assume the liabilities of the former corporations and the prior corporations are dissolved and cease to exist, should be distinguished from a merger, which `means something more than a mere consolidation,' and which exists where one corporation is continued and the others are merged in it without the formation of a new corporation. And in 13 Am.Jur., Corporations, § 1176, it is said: As the term [consolidation] is correctly used, there can never be a consolidation of corporations except where all the constituent companies cease to exist as separate corporations and a new corporation, the consolidated corporation, comes into being.    The second of such groups [transactions whereby the interests of two or more corporations become identified] comprehends a merger which consists of a combination whereby one of the constituent companies remains in beingabsorbing or merging in itself all the other constituent corporations. It is therefore not the equivalent of consolidation. The principle is epitomized in Freeman v. Hiznay, 349 Pa. 89, 36 A.2d 509, 511, 154 A.L.R. 423: It is true that while, in the case of a merger, one of the combining corporations continues in existence and absorbs the others, in a consolidation of all the combining corporations are deemed to be dissolved and to lose their identity in a new corporate entity which takes over the properties, powers and privileges, as well as the liabilities, of the constituent companies: In re Buist's Estate, 297 Pa. 537, 541, 147 A. 606, 607. It will be recalled that § 70 provides in (a) that The several corporations parties to the plan of merger    shall be a single corporationthat one designated in the plan of merger as the surviving corporation; and in (b) that The separate existence of all corporations parties to the plan of merger   , except the surviving    corporation, shall cease. We think these provisions are to be construed as working a dissolution of the merging corporation, and we so hold. Such consequence is solely by force of the statute, and hence by operation of law. By the same token, it must be held that the transfer of assets, as an incident of the merger, is effectuated under and by force of the statute itself (§ 70(d) providing that all property    shall be taken and deemed to be transferred to and vested in such single corporation without further act or deed). The same is true, of course, as to liabilities under (c). Such was the construction put upon a merger statute quite similar to ours in the recent case of Wisconsin Electric Power Co. v. Wisconsin Dept. of Taxation, 251 Wis. 346, 29 N.W.2d 711. The merged corporation having succeeded to the rights of the original lessee by operation of law, it follows that there was no assignment within the prohibition of the covenant in question, and the trial court was correct in so holding.