Anderson v. War Eagle Consol. Min. Co.

• Decision Date: 27 January 1903
• Citation: 8 Idaho 789,72 P. 671
• Parties: ANDERSON v. WAR EAGLE CONSOLIDATED MINING COMPANY
• Court: Idaho Supreme Court

72 P. 671

8 Idaho 789

ANDERSON v. WAR EAGLE CONSOLIDATED MINING COMPANY

Supreme Court of Idaho

January 27, 1903

PLEADINGS-CORPORATIONS-MERGER-LIABILITY.-1. A denial of an allegation in the complaint, which is sufficient under the rule, is not objectionable because it ends with the words, "other than as hereinafter set forth," even if the pleader does not thereafter refer to it. 2. When it is alleged in the complaint that the obligations of a corporation organized in the state of West Virginia were assumed by reason of the absorption of its property by a corporation organized in Connecticut, both empowered to do business in the state of Idaho, and the further allegation that there was a merger of the West Virginia corporation, all of which is denied by the answer, and there is no proof of such merger, the Connecticut corporation cannot be held to respond. 3. Where one corporation buys the stock and property of another corporation, and assumes the payment of enumerated debts and the complaint does not allege fraud on the part of either the seller or buyer, the purchasing corporation cannot be held liable for a check issued eight months prior to such sale by the grantor in the transaction, unless it be enumerated in the schedule of debts assumed. 4. The fact that A. B. was the general manager of a corporation, and owned a large quantity of stock therein, and thereafter another corporation was organized, which purchased all or nearly all of the stock and property of the former corporation, he becoming general manager of the new corporation, and owning a large quantity of its stock, is not sufficient to hold the new corporation for the debts of the former; and this is especially true where it is shown that the bank check sued on was given more than eight months prior to the organization of the new company, where there is neither an allegation nor proof of fraud in the transfer.

(Syllabus by the court.)

APPEAL from District Court, Ada County.

Judgment affirmed, with costs to respondent.

S. L Tipton and Milton G. Cage, for Appellants.

The pleadings admit, and the testimony shows, that the defendant company acquired all the property, stock and business of the Twin Springs Placer Company, and hence, under the decisions the defendant cannot escape from its liability to the plaintiff in this action. (Blair v. St. Louis etc. R Co., 22 F. 36; Chicago R. R. Co. v. Howard, 7 Wall, 329.) From the evidence in this case the defendant is not a bona fide purchaser. The defendant had knowledge of the debt sued upon through the general manager of both companies, and the president and secretary of one, the same parties being incorporators and stockholders in the defendant company. To be in the position of a bona fide purchaser the defendant must aver and prove, not only that it had no notice of the plaintiff's right before its purchase, but that it had actually paid the purchase money before such notice. ( Jewett v. Palmer, 7 Johns. Ch. (N. Y.) 65; Eversdon v. Mayhew, 65 Cal. 167, 3 P. 644; Wilhoit v. Lyons, 98 Cal. 413, 33 P. 325; Davis v. Ward, 109 Cal. 190, 50 Am. St. Rep. 29, 41 P. 1010.) "A purchaser with means of knowledge is not a bona fide purchaser." (Chattanooga etc. R. Co. v. Evans, 66 F. 823.) A reorganized company is not a bona fide purchaser of the property. (3 Cook on Corporations, 2131; 1 Thompson on Corporations sec. 375; McVickers v. American Opera Co., 40 F. 861.) Officers having charge of a corporation's business must, for all practical purposes, be considered the corporation. (Ardesco Oil Co. v. Gilson, 63 Pa. 146.) As to the liability of a corporation formed by the consolidation of two or more companies, or where one company is reorganized, merged and absorbed into another corporation. (Hibernia Ins. Co. v. St. Louis etc. Transp. Co., 13 F. 516.) Where one corporation sells all its property to another corporation, and the selling corporation ceases to exist, the vendee corporation will be liable for the debts of the vendor corporation. This is a consolidation. (5 Thompson on Corporations, sec. 6547; Beach on Private Corporations, sec. 360; 1 Thompson on Corporations, sec. 392; Louisville etc. R. Co. v. Boney, 117 Ind. 501, 20 N.E. 432, 3 L. R. A. 438, and note; Thompson v. Abbott, 61 Mo. 176; Berry v. K. C. Ft. S. & M. R. Co., 52 Kan, 774, 39 Am. St. Rep. 381, 36 P. 724; Indiana etc. R. R. Co v. Jones, 29 Ind. 465, 95 Am. Dec. 654; affirmed in 40 Ind. 41; Slattery v. St. Louis etc. Co., 91 Mo. 217, 60 Am. Rep. 245, 4 S.W. 79; Brum v. Merchants' Mut. Ins. Co., 16 F. 140.) The record discloses the fact that the defendant company acquired all the property of the Twin Springs Placer Company, by exchanging Twin Springs Placer Company stock owned by the defendant for it. In other words, it divided the capital of the Twin Springs Placer Company among its own stockholders. This was a fraud upon the creditors of the Twin Springs Placer Company. ( Montgomery Web Co. v. Dienelt, 133 Pa. 585, 19 Am. St. Rep. 663, 19 A. 428; Higgins v. California etc. Co., 122 Cal. 373, 55 P. 155; Blanc v. Paymaster etc. Co., 95 Cal. 524, 29 Am. St. Rep. 149, 30 P. 765; Grenell v. Detroit Gas Co., 112 Mich. 70, 70 N.W. 413; Cole v. Millerton Iron Co., 133 N.Y. 164, 28 Am. St. Rep. 615, 30 N.E. 847.) That the court erred in refusing to allow the plaintiff to prove by parol the official character of the officers of the defendant company and also of the Twin Springs Placer Company, we cite the following cases: Boston Tunnel Co. v. McKenzie, 67 Cal. 485, 8 P. 22; City of Detroit v. Jackson, 1 Doug., (Mich.) 106; Druse v. Wheeler, 2 Mich. 438; Cahill v. Kalamazoo Mut. Ins. Co., 2 Doug. 123; Walrath v. Campbell, 28 Mich. 111; Town of Concord v. Bank of Concord, 16 N.H. 26; Goodwin v. United States etc. Life Ins. Co., 24 Conn. 591; East Tennessee etc. Ry. Co. v. Davis, 91 Ala. 615, 8 So. 349; Cabot v. Givin, 45 Me. 144.

W. E. Borah, for Respondent.

We are somewhat bewildered by the multitude of errors specified, but after all they seem to be in a great measure a different method of stating what they seem in the body of the brief to rely upon as the principal alleged error--that the court should have found from the evidence a consolidation and an assumption of liability for this debt. We think in the first place the counsel have wholly mistaken their remedy. As we have stated, this is an action at law. It is not an equitable action seeking to uncover property or to follow property, not such an action as is approved of in almost all the authorities upon which counsel rely to sustain them. Neither did they allege actual fraud or a state of facts which would constitute fraud in law. They simply sue upon a contract alleging that the defendant assumed this debt. If they have wholly failed to sustain the allegations of the complaint the action which they set forth we assume will have an end here, although it might appear, if certain facts were shown, that they would have a different remedy. Counsel cites many cases where the court holds that in equity recovery could be had, but here they must prove what they allege in their complaint--authority to consolidate--the legal consolidation under such conditions as the law says makes the company liable for the debts of the old company. There is no effort here to prove the laws of Connecticut, or any corporate powers, or any effort of the company to avail itself of the power even had it been shown to exist. I assume that it will not be contended for a moment that if Company A, existing under the laws of the state of New York, purchased the property of Company B that it would be consolidation, and neither would the latter company be liable for the debts of the other simply by reason of the purchase unless it expressly assumed and agreed to pay the debts. The War Eagle Company did not consolidate nor attempt to consolidate. It simply purchased a large portion of the property of the Twin Springs Company. For aught it appears here, the Twin Springs Company is responsible for every dollar it owes and it is certainly liable legally, speaking as the facts now appear. As we have already said, as to the consolidation, it should be noticed that the complaint sets forth and the proof discloses that these corporations existed by virtue of the laws of two different states. "A foreign corporation, which has attempted to consolidate with an Illinois corporation, does not thereby become liable at law for the latter's debts, since there is no statutory authority for such consolidation." (Cavanagh v. O. L. Co., 84 F. 295, 6 Ency. of Law, 2d ed., 805; 1 Beach on Private Corporations, sec. 335; 7 Thompson on Corporations, sec. 8246.) The plaintiff must make proof of the fact of consolidation. (1 Beach on Private Corporations, secs. 328, 344; Southgate v. Railway Co., 61 Mo. 90.) "The power to consolidate must have been conferred upon each of the constituent corporations by the state under whose laws it exists." (7 Thompson on Corporations, secs. 8207, 8217, 8218, 8231-8233, 8251, 8252; St. Louis Co. v. T. H. Co., 145 U.S. 393, 12 S.Ct. 953; Louisville etc. Ry. Co. v. Kentucky, 161 U.S. 677, 16 S.Ct. 714; Mansfield v. Drinker, 30 Mich. 126, 6 Ency. of Law, 2d ed., 102; Pearce v. Madison etc. R. R. Co., 21 How. 441; Shields v. Ohio, 59 U.S. 319.) Where a company purchases property from a corporation, or all the property of a corporation, that does not make it liable for the debts of that corporation, unless it expressly assumes to pay the debts, or unless it can be shown in equity that the sale was fraudulent and void, in which instance equity will hold the property to satisfy the debts of the selling company. As we have said, however, this is not a suit in equity, neither do they claim that there was any fraud, but they must stand or fall upon...