Court Opinion

ID: 8309635
Source: CourtListenerOpinion
Date Created: 2022-10-17 13:46:34.688774+00
Date Added: 2024-06-11T16:44:40.535563
License: Public Domain

Treat, D. J.,
concurring. My views in this case were fully expressed in the opinion on the demurrer to the bill. In the light of the decision by the United States supreme court then referred to, the plaintiff can pursue its demand against a new corporation which is, though nominally a different corporation,’actually the same under a different name, having obtained all the assets of the old.
The facility with which new corporations are formed under local statutes to succeed to rights of property by transfer from the old corporations is to be considered, and such transfers are not to be held in equity destructive of prior and existing rights. A corporation with obligations determined or undetermined cannot change its name or assume the form of a new corporation, and thus escape its obligations, or relieve the new corporation of the obligations of the old; at least, to the extent of such obligations and assets.
*520It is said that the new corporation acquiring the property of the old for adequate consideration should not be answerable for the debts of the old; that it could buy the property, no lien thereon existing, free from all demands at large; and consequently the new corporation, like any other purchaser, is not responsible, personally or otherwise, for the debls of the vendor. That proposition need not be disputed. But what is the case before the court ? The Babbage Company had possibly incurred a liability for its violations of contracts. The original parties had not asserted their demand. The questions were whether the Babbage Company was liable for violations of contracts of affreightment. The plaintiff paid the losses and, became subrogated to the rights of the shippers. In the mean time the Babbage Company ceased practically to exist, and transferred all its property to the St. Louis & New Orleans Transportation Company, whereby it had technically no property to respond to plaintiff’s demand. Can the transferee, under the circumstances, be held to answer the demand ?
The plea avers substantially that the new corporation purchased, for valuable consideration, the property of the old corporation, paying therefor $50,000 in stock of the new, and assuming the obligations of the old to the extent of $42,000; that said obligations have been met, and additional obligations, which Capt. Lourey has paid, to the extentyof about $13,000.
It is the duty of the court to examine the whole transaction, and to cut through mere paper transfers designed to obstruct or destroy the rights of parties. The evidence sufficiently discloses that the new corporation was a mere continuance of the old, with substantially the same parties in interest—a mere change of name. Whether that change, with attendant transfers, was designed or not to defeat all outstanding demands of the old corporation, it is evident that substantially the two corporations are the same, and that the new must respond to the obligations of the old. The evidence is clear enough that there was a hidden purpose in the change of corporative existences to escape possible liabilities which equity does not tolerate. A mere change of name cannot avoid obligations. The new corporation took all the property of the old, went forward with its business, had the same stockholders, except a few formal ones, was, in short, the old corporation, and now seeks to escape the obligations of the old, rescuing the property of the latter from the demands the former was bound to meet. Can this be done? The old corporation and its property were liable to the demands of the plaintiff. The new cor*521poration must respond to the extent of the property acquired, and possibly to the full extent; that is, if property sufficient therefor is in its possession. This is a proceeding in equity, wherein mere color-able pretenses are to be disregarded. Shiftings of corporate names cannot defeat positive rights, any more than the change of the name of a natural person can absolve him from his personal obligations.
The evidence discloses that the obligations of the Babbage Company still subsist against its corporate successor; at least, to the extent of assets acquired.
If those views are not sound, a corporation with demands pending can transfer all its assets to a new corporation, and thus leave the demands inoperative, although said new corporation is the old, only in change of name. The evidence shows that since this cause was instituted a new consolidation has occurred, whereby another transfer of property has been liad. Is it to be considered in equity that such transfers and practical dissolutions of corporations will prove effectual to defeat existing and valid demands? Or will the corporate successors be held to the obligations of their predecessors; at least, to the extent of the assets acquired ? It may be that between the old and new, in connection with lien or general demands, an accounting may he had, so that unpaid creditors may know what remains. If the new? company has paid the full value of the property acquired, then it possibly may not be answerable; but if it has merely issued to the old its stock therefor, why should it not, at least to the extent of that stock, which represents values for property acquired, meet the obligations to which such stock should fairly be held subject?
Property to the amount of $92,000 was transferred, and $42,000 indebtedness was actually paid. Hence property of the old corporation is in possession of the new to the extent of $50,000, which ought to be subject to the obligations of the old company. The fact that the new corporation has issued its stock to the old for said $50,000 cannot defeat the rights of parties.