Court Opinion

ID: 5422124
Source: CourtListenerOpinion
Date Created: 2022-01-08 16:31:32.738917+00
Date Added: 2024-06-11T08:31:17.249255
License: Public Domain

Frankenthaler, J.
(dissenting). The merger of corporations is governed by section 85 of the Stock Corporation Law. Down to 1923 upon the merger of one corporation in another, although the merging corporation acquired.all the property and rights of the merged corporation, in the absence of a covenant of assumption by the possessor company that corporation was not liable for any of the debts of the merged corporation, the creditors of the merged company, however, retaining the right to resort to the property of their debtor for satisfaction of their demands. (Matter of Bergdorf, 206 N. Y. 309.)
As a result of the merger in this instance all of the rights and property of the merged company vested in the possessor company, and under the 1923 amendment (Stock Corp. Law of 1923, § 85 [Laws of 1923, chap. 787]) “ the possessor corporation shall be deemed to have assumed all the liabilities and obligations of the merged corporation and shall be Hable in the same manner as if it had itself incurred such liabilities and obligations.”
The contract made by the merged company with the plaintiff was thus transferred by operation of law to the possessor corporation, as was also the contract or bond of the defendant, which had been procured by the merged corporation, as an incident to the performance of its contract with the plaintiff. Unless we hold that the possessor company succeeded to the rights of the merged company in the bond given by defendant as weU as in the contract, performance of which was secured by the bond, it would foUow that aU of the rights and assets of the merged company were not transferred to the possessor corporation.
Prior to the 1923 amendment it was held that nothing was lost, forfeited or destroyed by a merger. (Matter of Bergdorf, supra; McElwain Co. v. Primavera, 180 App. Div. 288.) In the case last cited the surety contended that his HabiHty had ceased on the *739merger of the obligee, but the court decided adversely to his contention, Smith, J., saying (p. 296): “ 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 the 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.” So in the case at hand it is inferable there was no personal equation so far as the merged corporation is concerned, and a decision that the liability of the defendant ceased with the merger would seriously impair the efficacy of the legislation. The possessor company in this case was no mere assignee or purchaser, for the merger was the gathering unto itself and embodying and continuing by that corporation of an existing corporate life. (Cardozo, Ch. J., in Guaranty Trust Co. v. N. Y. & Queens County Ry. Co., 253 N. Y. 190, 201.)
It seems to me that defendant cannot successfully claim that its obligation ended with the merger. The defendant was chargeable with knowledge of the statute when it executed the bond, and in the absence of resort to the agreed upon fifteen-day notice for the termination of its liability, is required to indemnify plaintiff for the defaults subsequent to the merger.
In support of the partial defense it is stated in the majority opinion that the identity of the merged corporation was absorbed and lost in the merger. Assuming, notwithstanding the intimation to the contrary in the Guaranty Trust Co. Case (253 N. Y. at p. 201), that the corporate life was ended by the (merger in this instance, the same was true in the Primavera case, and yet it was held in the latter case that as to the bond the possessor corporation stepped into the shoes of the merged company; the existence of the corporate legal equation, as well as the theory of personal equation, was discarded; and the surety was required to make good to a company as to which it had no contractual obligation.
With respect to the further objection urged in the majority opinion that by merger the surety for the operations of a small corporation may be held liable for the operations of a large corporation; the bond in this case is not such a bond as is referred to in that connection. The operations as to which the defendant is sought to be held are those growing out of the company’s dealings with the plaintiff alone. I think there is no presumption that because a possessor corporation may be a big corporation, *740with much larger interests than those of the merged corporation, that such a possessor corporation is ill managed or insolvent; and if by merger the big possessor corporation becomes bankrupt it is difficult to imagine how the surety could be prejudiced.
The decision of the Supreme Court of' Pennsylvania in the Bensinger Case (100 Penn. St. 500); cited by my brethren, is based on common-law principles, and has no relevancy to the question before us.
I think that the matter set up as a partial defense as well as the total defense is insufficient.