Court Opinion

ID: 5247790
Source: CourtListenerOpinion
Date Created: 2022-01-06 18:04:31.691225+00
Date Added: 2024-06-11T08:27:53.660348
License: Public Domain

Smith, J. (concurring):
Defendant gave to Morse & Rogers, a corporation, a continuing guaranty that one Henry would pay for any goods *295purchased by him of said corporation from and after the date of the guaranty. Subsequently, Morse & Rogers merged into and became a part of the plaintiff corporation, which thereafter, on the faith of this guaranty, sold goods to the said Henry, for which he failed to pay, and to recover for which the action is brought. Judgment was given in behalf of the defendant and unanimously affirmed by the Appellate Term. This appeal is from the order of affirmance.
The merger took place under section 15 of the Stock Corporation Law (Consol. Laws, chap. 59; Laws of 1909, chap. 61), which provides that the corporation into which a merger is effected shall thereafter “ 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.” At the time of the giving of the guaranty this section was in force, and the guaranty must, therefore, be considered to have been given in contemplation of a possible merger of the corporation.
The language of the section is very broad and comprehensive, and the construction put upon it by the courts is a liberal one. It has been held that in case of a merger there is no question of dissolution, termination or break, but a continuance as an integral part of a whole, with the ownership in the whole of all and every right and privilege possessed by the part. (Matter of Bergdorf, 149 App. Div. 529; affd., 206 N. Y. 309.) In that case it was held that where a corporation was appointed trustee under a will and, prior to the death of the testator, merged into another corporation, the latter became entitled on the testator’s death to act as trustee, the court saying it was not the intent of the testator that governed, but that of the Legislature, and (referring to section 15 of the Stock Corporation Law) holding: “ This language means not only that every right, privilege, interest or asset of conceivable value or benefit then held by the Morton Company (except the right to be a corporation) should pass into and be absorbed by the Guaranty Company, but also that every right, privilege, interest or asset of conceivable value or benefit then existing which would inure to the *296Morton Company under an unmerged existence, should inure to the Guaranty Company. Nothing appertaining to the Morton Company was to be lost, forfeited or destroyed.”
There was no personal equation in so far as the original corporation was concerned, since its entire directorate and management might be changed without affecting the guaranty. Its entire capital stock might have changed hands and the policies of the company have been materially altered, so that a reliance on the discretion and prudence of the person extending the credit could not, as suggested in the dissenting opinion, have been a material consideration in making the contract of guaranty. The principle seems no different from that involved in the case of a fidelity bond for the performance of services, in which class of cases it is held that the bond inures to the benefit of the corporation in which a merger has been effected. (Lee v. Atlantic Coast Line R. Co., 150 Fed. Rep. 775, 787; Miller v. Lancaster, 45 Tenn. 514; Pennsylvania & N. R. R. Co. v. Harkins, 149 Penn. St. 121.) There would seem to be just as much reason for claiming a reliance on the discretion and prudence of the particular employer as of the person extending the credit.
The case of Bennett v. Draper (139 N. Y. 266), cited in the dissenting opinion as an authority against the continuing of the guaranty after the merger, was a case where the guaranty was given to a copartnership. One of the members of this copartnership died, causing a dissolution, and a new partnership was formed. It was held that the guaranty did not survive the dissolution and hence did not inure to the benefit of the new firm. That case is distinguishable from the case at bar upon two grounds: First, the death of a partner dissolves the partnership as matter of law, of which the obligor presumably had knowledge. Secondly, the contract of a surety with a copartnership has presumably a personal element, resting in the confidence of the surety in the judgment and discretion of the partnership. This was recognized as a controlling factor in the case cited, and in the opinion it is said: “ Her obligation is limited to loans made by the firm, which it may be presumed she knew, and with which alone she had contractual relations.” A contract of a surety with a corporation, however, can have no personal element, as before stated, because of the liability *297of a corporation to change its officers, its directors and even its stockholders at any time. The question asked in the opinion in Pennsylvania & N. R. R. Co. v. Harkins (supra) is very pertinent. The learned judge, discussing the liability of a surety upon the bond given to a corporation which had thereafter been merged, said: “Admitting, for the sake of argument, that the old companies were at once dissolved and a new company created by the act of merger, How are the sureties injuriously affected by this consolidation or merger? ”
The precise question here has apparently not heretofore been before the courts. It would seem, however, to have been the intention of the Legislature that nothing should be lost by the merger of corporations, and applying the liberal construction given by the courts in analogous cases involving this section, I am of the opinion that the order of the Appellate Term and judgment of the Municipal Court should be reversed and a new trial granted.
Clarke, P. J., and Shearn, J., concurred.