Allen v. N. Des Moines Methodist Episcopal Church

• Decision Date: 10 March 1905
• Citation: 127 Iowa 96,102 N.W. 808
• Parties: ALLEN v. NORTH DES MOINES METHODIST EPISCOPAL CHURCH ET AL.
• Court: Iowa Supreme Court

127 Iowa 96

102 N.W. 808

ALLEN

v.NORTH DES MOINES METHODIST EPISCOPAL CHURCH ET AL.

Supreme Court of Iowa.

March 10, 1905.

Appeal from District Court, Polk County; James A. Howe, Judge.

Suit in equity to subject certain real estate to the lien of a judgment obtained by plaintiff against the Prospect Park Methodist Episcopal Church. Decree dismissing bill, and plaintiff appeals. Affirmed.Wm. M. Wilcoxen and Bowen & Brockett, for appellant.

E. D. Sampson, S. F. Prouty, and W. L. Smith, for appellees.

WEAVER, J.

Briefly stated, the plaintiff claims that in the year 1887 the defendant was incorporated for religious purposes under the laws of this state, and assumed the name of Prospect Park Methodist Episcopal Church, and that thereafter, by proper proceedings, the name of the corporation was changed to North Des Moines Methodist Episcopal Church. It is further alleged that prior to the beginning of this action plaintiff obtained a judgment against the corporation in the district court of Polk county, Iowa, under the name of Prospect Park Methodist Episcopal Church, which judgment is still unpaid, and that since the change in the name of the organization it has become the owner of certain real estate upon which the plaintiff asks to have the lien of such judgment established and confirmed. By a second count of her petition the plaintiff alleges that the present church organization is identical with the one against which she obtained judgment, and that the change in its name and designation was a fraudulent scheme or device to hinder and delay its creditors. The defendants admit that the North Des Moines Methodist Episcopal Church is a corporation, and owns the real estate above referred to, but deny that said corporation is identical with the Prospect Park Methodist Episcopal Church, or is in any way responsible for the debts of such church. They deny all allegations of fraud. It is also alleged that the organization known as the Prospect Park Church became indebted beyond its ability to pay, and its church property, which is the property now owned by the defendants, was sold under foreclosure of mortgage, and the title wholly lost; that in such condition it was impossible to obtain contributions for the support of the society, or to purchase or erect a new building, and the corporation and society were disbanded. Under these circumstances it is said the North Des Moines Methodist Episcopal Church was organized, and an incorporation effected as a new and independent body having no connection with or responsibility for the debts of the old organization.

From this outline of the issues it will be readily seen that the one question to be considered is whether the reorganized North Des Moines Church is a mere continuation of the old corporation under a new name, or is a new corporation, which is under no legal liability for the debts of its predecessor. That the members or some of the members of an insolvent or dormant corporation may organize a new corporation for the promotion of the same purposes to which the old one is dedicated without becoming chargeable with its debts or obligations is too well settled for dispute. On the other hand, it is equally well settled that the mere change in the name of a corporation has no effect upon its legal status or upon the rights of creditors. Among corporations organized for business purposes it has been, and still is, a matter of most frequent occurrence that in the initial struggle for existence they become hopelessly insolvent. Under such circumstances the organization of a new corporation to build, if possible, a successful business on the ruins of the old is entirely legitimate, whether considered as a proposition of law or of morals. The fact that the new organization embraces the old membership is immaterial, and in itself affords no reason why it should be held liable for the debts of the old corporation. True, the courts will watch such reorganization with care, that no fraud be accomplished, and to that end will insist that there shall be a bona fide intention to make a new and independent organization, and that it shall not take over, absorb, or convert to its use the property or assets of the old corporation to the prejudice of its creditors. There must be something more than a mere succession in business to charge the successor with the debts or delinquencies of the party succeeded. Hopper v. Moore, 42 Iowa, 563;Wyman v. Bank, 14 Mass. 58, 7 Am. Dec. 194;National F. and P. Works v. Water Co. (Wis.) 81 N. W. 125;Memphis v. Magens, 83 Tenn. 37;Texas State Fair v. Caruthers, 8 Tex. Civ. App. 474, 29 S. W. 48. The legal identity of the new corporation with the old ordinarily depends upon the intention of the incorporators. 1 Thompson's Corporations, 256; Miller v. English, 21 N. J. Law, 317; Church v. Brownell, 5 Hun, 464; 2 Morawetz Priv. Corp. § 812.

There can be no doubt in the present case that the incorporators of the North Des Moines Church intended to create a new and independent organization, which should not be chargeable with the debts of the Prospect Park Church. Their legal right to perfect such an organization is also clear. If, then, their organization was in regular statutory form, and no fraud was practiced upon the plaintiff as a creditor of the old corporation, the conclusion of the trial court must be upheld as correct. No question has been raised as to the formal or statutory sufficiency of the methods pursued, and we shall therefore confine our inquiry to the question of fraud. The Prospect Park Church was organized and incorporated in the year 1887, and obtained title to the tract of land mentioned in the pleadings. Encouraged by persons interested in the values of residence property in that neighborhood, and relying upon subscriptions and promises which eventually proved valueless, it erected a church building out of proportion to its financial ability, and incurred expenses beyond its power to meet. The property was heavily mortgaged, and this burden, with others incident to the mismanagement or misfortune attending the first years of the...