Court Opinion

ID: 5247791
Source: CourtListenerOpinion
Date Created: 2022-01-06 18:04:31.695615+00
Date Added: 2024-06-11T08:27:53.662113
License: Public Domain

Scott, J. (dissenting):
On January 14, 1910, the defendant executed and delivered a written guaranty to the corporation of Morse & Rogers, whereby he guaranteed “ the payment at maturity of any and all purchases from and after the date thereof, made by or in the name of H. Henry.” It was expressly agreed that the guaranty was to be a continuing one, covering all future purchases of goods until notice of revocation. Notice of sale, delivery of goods, non-payment at maturity, extensions and indulgences were waived.
The corporation of Morse & Rogers sold goods to the said H. Henry until March, 1913, when it became merged with the plaintiff, also a corporation. Plaintiff continued to sell goods to said H. Henry until May, 1915, when he failed to pay for the goods purchased and a judgment was recovered against him which remains unpaid. Plaintiff sues upon the above-described guaranty, and the question involved is whether such guaranty survived the merger of Morse & Rogers with plaintiff and may be enforced by the latter.
The merger took place under section 15 of the Stock Cor*298poration Law, which reads as follows: “ Any domestic stock corporation and any foreign stock corporation authorized to do business in this State lawfully owning all the stock of any other stock corporation organized for, or engaged in business similar or incidental to that of the possessor corporation may file in the office of the Secretary of State, under its common seal, 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 vest in and be held and enjoyed by it as fully and entirely and without change or diminution as the same were before held and enjoyed by such other corporation, and be 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 creditors thereof. Any bridge corporation may be merged under this section with any railroad corporation which shall have acquired the right by contract to run its cars over the bridge of such bridge corporation.”
There has been much discussion of the effect of a merger of corporations, and a distinction has frequently been drawn between a merger and a consolidation. (See Matter of Bergdorf, 149 App. Div. 529, 532, and cases there cited.) In the view which I take of the question under consideration it is not necessary to pursue that discussion. Certainly the language of the statute quoted above is as strong as could have been devised to effect a devolution or transfer to the resultant corporation of all property and rights of every description capable of transference from one corporation or person to another. But there are certain things which even the Legislature may not do by any language however strong. It may not make a contract for an individual, and may not extend the operation of a contract beyond the fair intendment of the individual who made it and who is to be bound by it. Hence it cannot by statute work the assignment or transference of a contract which is in its nature unassignable. The contract of guaranty has generally been considered to be such a contract. It- has always been held to be strictissimi *299juris. The guarantor is entitled to determine for himself the terms of his guaranty as to extent, terms and the person for whom, as well as the person to whom the guaranty shall run, and he is entitled to insist that his obligation shall not be enlarged in any direction or to any extent without his assent. It is of no consequence whether or not he is or may be harmed by the deviation to which he has not assented. (Barns v. Barrow, 61 N. Y. 39.) The person to whom the guaranty is given is quite as important as the person who is guaranteed. In the case just cited Commissioner Dwight remarks that in case of a guaranty of credit the guarantor may be presumed to have relied upon the prudence and discretion of the person to whom the guaranty is given and who is to extend the credit, quoting the ancient case of Philip v. Melville (15 F. C. 204), cited in Burge on Suretyship (at p. 68). Accordingly, in Barns v. Barrow (supra) a guaranty of performance by one Barrow to sell on commission and to account for goods consigned to him by John W. Barns was held not to apply to goods consigned to Barrow by a firm of which John W. Barns was a member, it appearing that neither the defendant, the guarantor, nor Edward F. -Barrow for whom he became surety knew that the goods were to be consigned by the firm and not by John W. Barns personally.
So, also, in Bennett v. Draper (139 N. Y. 266) the action was upon a guaranty given by the defendant to guarantee the firm of H. C. Bennett & Co. the repayment of any moneys, up to a certain sum, advanced by that firm to the copartnership of John H. Draper & Co. Hiram C. Bennett, one of the members of the obligee firm died, but the business was continued under the same firm name, and with partners having the same individual names. It was held that the guaranty did not survive the change in the firm and that the new firm could not recover upon it for advances made to Draper & Co., upon the ground that the contract of guaranty was incapable of assignment without the consent of the guarantor. It is quite clear that the contract here sued upon could not have been assigned by Morse & Rogers to the plaintiff corporation, and I am of the opinion that it was equally incapable of transference by act of the Legislature. I can find nothing to the contrary in Matter of Bergdorf (206 *300N. Y. 309). In that case it appeared that one' Bergdorf had made a will by which he nominated the Morton Trust Company as one of his executors. After the will was made, but before the death of the testator, the Morton Trust Company was merged into the Guaranty Trust Company under the provisions of sections 36 to 40, inclusive, of the Banking Law (Consol. Laws, chap. 2; Laws of 1909, chap. 10). The question presented was as to the right of the latter company to receive letters testamentary. In the Court of Appeals it was claimed by the Guaranty Trust Company that the Morton Trust Company still existed but as a part of the Guaranty Trust Company and that the two corporations were identical. The court refused to take this view, holding that the Morton Trust Company still remained an independent corporation, but with very limited powers and that its rights, franchises and interests in and to every species of property, real, personal or mixed and things in action being transferred to and vested in the Guaranty Trust Company by virtue of the merger statute which in effect, although not in identical language, is similar to the statutory provisions for the merger of stock corporations. It was also held that the designation of the Morton Trust Company as executor created an inchoate interest or privilege appertaining to that company, and this, it was considered, passed to the Guaranty Trust Company by the terms of the merger act. It was pointed out by the court that such a transference was within the power of the Legislature because “ The right to make a testamentary disposition of property is not an inherent right; nor is it a right guaranteed by the fundamental law. Its exercise to any extent depends entirely upon the consent of the Legislature as expressed .in. their enactments. It can withhold or grant the right, and if it grants it, it may make its exercise and its extent subject to such regulations and requirements as it pleases. It may declare the rules under which the administration of the estate may be committed to executors and make compliance with them mandatory.” It can readily be seen that this reasoning has no application to a case in which it is sought to extend the operation of a contract of guaranty beyond its clear import, thus altering to an extent the contract.
In City National Bank of Poughkeepsie v. Phelps (97 N. Y. *30144) the question was whether a continuing guaranty of credit given to the City Bank while a State institution inured to the benefit of the same institution after it had become a National bank. It was held that it did because: “Although, inform, 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 no actual transfer from one body to another, but a continuation of the same 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.” Thus the contract of guaranty was held to survive the change from a State bank to a National bank because there was no actual change in the obligee, and consequently no extension of the obligor’s contract. So in People v. Backus (117 N. Y. 196) there was no change in the person of the obligee, but merely an extension of its term of fife.
There are expressions in Bank of Long Island v. Young (101 App. Div. 88) which are favorable to the contention of the plaintiff here, but they were not essential to the decision of the case, which went on another ground.
There is a certain class of cases, in which what may be termed fidelity bonds are given, to which a different rule might well be applied. Such was Pennsylvania & N. R. R. Co. v. Harkins (149 Penn. St. 121). That case involved a bond given to insure the faithful performance by a railroad employee of his services as such, and it was held that the benefit of the bond extended to the corporation with which the original employer was merged. In that case it could make no possible difference to the insurer in whose employ the insured was, providing the duties to be performed by him were not materially altered or his responsibilities increased. But where the guaranty is of credit it is of material importance to the guarantor not only to whom the credit is extended, but also by whom it is to be extended, for as already said he is entitled to rely upon the discretion and prudence of the person whom he selects as the one to extend the credit.
Upon principle I am of the opinion that the merger of Morse & Bogers with plaintiff did not operate to transfer or extend defendant’s obligation to plaintiff so as to cover *302credits extended to H. Henry after the merger had been affected.
It follows that the determination of the Appellate Term should be affirmed, with costs.
Determination reversed, with costs in this court and in the Appellate Term to the appellant; judgment of Municipal Court reversed and new trial ordered, with costs in that court to abide event.