Collinsville Nat. Bank v. Esau
| Decision Date | 17 September 1918 |
| Docket Number | 9058. |
| Parties | COLLINSVILLE NAT. BANK v. ESAU et al. |
| Court | Oklahoma Supreme Court |
Rehearing Denied Dec. 11, 1918.
Syllabus by the Court.
Where the officers of an existing corporation organize a new corporation, and stock in the new corporation is exchanged for stock in the old without the payment of any other consideration therefor, and the officers of the old become the officers of the new corporation, which continues to transact business at the same place as the old, and the new acquires all the property and assets of the old corporation held, that such transaction does not amount to a sale, but a merger of the two corporations.
Where there is a merger of two or more corporations, one of which continues the transaction of business, and all the constituent corporations cease the transaction of business, a creditor of the corporation becoming functus officio may enforce his claim against the corporation acquiring its property and assets to the extent of property and assets thus acquired.
Additional Syllabus by Editorial Staff.
A natural person may sell all his property for a fair consideration when the transaction is bona fide, and the buyer will not be required to take care that the seller provides for and pays all his debts.
A corporation, unlike a natural person, by disposing of all its property, may not only deprive itself of the means of paying its debts, but may deprive itself of corporate existence and place itself beyond the reach of the process of law.
A "sale" is accomplished by a meeting of minds upon a common understanding of the contracting parties, the payment or its equivalent of the consideration, accompanied by the delivery of the property.
[Ed Note.-For other definitions, see Words and Phrases, First and Second Series, Sale.]
A "conversion" is accomplished by exerting dominion wrongfully over property in denial of the rights of the owner or inconsistent with it.
[Ed. Note.-For other definitions, see Words and Phrases, First and Second Series, Conversion.]
A "consolidation" occurs where two or more existing corporations are united into a single corporation and the existence of the uniting corporation is terminated and the organization succeeds in a general way to the franchise of and acquires the property and assets and assumes the obligations of the constituent companies.
[Ed. Note.-For other definitions, see Words and Phrases, First and Second Series, Consolidation.]
A "merger" of corporations takes place where one of the constituent corporations remains in existence absorbing or merging in itself all the other companies and succeeds to the franchises of and acquires the property and assets of the constituent corporations.
[Ed. Note.-For other definitions, see Words and Phrases, First and Second Series, Merger.]
Commissioners' Opinion, Division No. 3.
Error from District Court, Rogers County; W. J. Campbell, Judge.
Action by A. A. Esau against the Farmers' & Merchants' Bank and the Collinsville National Bank. Judgment for plaintiff, and the Collinsville National Bank brings error. Affirmed.
Adams & Wills, of Claremore, for plaintiff in error.
Goldesberry & Boone, of Collinsville, and H. Jennings, of Claremore, for defendant in error Esau.
The parties will be referred to according to the relative positions they occupied in the lower court.
It is substantially alleged in the petition that on the 29th day of July, 1910, the defendant the Farmers' & Merchants' Bank was a banking corporation transacting business at Collinsville, Okl. On that day the plaintiff deposited with the Farmers' & Merchants' Bank the sum of $2,000 to be held in escrow with some contracts for the purchase of real estate entered into between the plaintiff and one James D. Ward.
The money was deposited with the said bank as evidence of good faith and was to have been forfeited only by a failure on the part of the plaintiff to carry out his contract with Ward. Before the limitation fixed in the escrow contract for the performance of the terms and conditions thereof, the plaintiff settled with Ward and paid him the entire purchase price of all the land bought by plaintiff. After the plaintiff settled with Ward, he went to the bank and demanded the money thus deposited, and it refused payment.
On the 14th day of October, 1912, the officers and stockholders of the Farmers' & Merchants' Bank organized the Collinsville National Bank, and on the 26th day of the same month and year the two banks merged, and the Collinsville National Bank succeeded to the franchise and acquired all of the property and assets of every kind and nature whatsoever of the Farmers' & Merchants' Bank, and the officers of the old bank became officers of the new bank, and the new bank continued to transact business in the same building where the old bank transacted business, and that such merger and transfer was in fraud of the rights of the plaintiff. It asks judgment for the sum of $2,000, the amount so deposited.
For answer to the petition, the Collinsville National Bank files a general denial and pleads a purchase by the Collinsville National Bank of the property and assets of the Farmers' & Merchants' Bank.
The issues thus joined present but a single question to be determined by this court, and that question is whether there was a sale by the Farmers' & Merchants' Bank of all its property and assets to the Collinsville National Bank.
Judgment in the lower court was for the plaintiff.
The defendant the Collinsville National Bank relies upon two cases by this court to which we are referred in its brief, the first of which is Overstreet v. Citizens' Bank, 12 Okl. 383, 72 P. 379. The facts in that case are, substantially: That in the month of January, 1896, the Farmers' & Merchants' Bank and the Citizens' Bank, each of which were banking corporations organized under the laws of the territory, were doing business in the town of Norman, Cleveland county, state of Oklahoma. The banking business was not sufficiently profitable for the support of two banks, and, after a conference of the officers and directors of the two banks, it was agreed that the Farmers' & Merchants' Bank would retire from business if arrangements were made for the payment of its depositors. It had on deposit something over $15,000, and, in order to meet the liability thus created, the Farmers' & Merchants' Bank deposited in the Citizens' Bank about $6,000 in cash, and executed its note to the Citizens' Bank for the sum of $9,037.90 at 7 per cent. interest. The proceeds of this note, together with $6,000 in cash, were placed to the credit of the Farmers' & Merchants' Bank upon the books of the Citizens' Bank. The deposits in the Farmers' & Merchants' Bank were then transferred to the books of the Citizens' Bank, and the latter bank paid all these depositors from the deposit held by it to the credit of the Farmers' & Merchants' Bank. At the time of the execution of the note by the Farmers' & Merchants' Bank, it transferred to the Citizens' Bank as collateral security as payment of the note, promissory notes, and other credits to the amount of $15,000 to $20,000, the actual value of which was considerably less. At the time of the trial, less than one-half of the collaterals had been collected, and there was still a balance due upon the principal note executed by the Farmers' & Merchants' Bank to the Citizens' Bank.
The principal question disposed of by this case is that no fraud entered into the transfer of the property and assets of the Farmers' & Merchants' Bank to the Citizens' Bank.
The next case to which our attention is called is that of Ezzard v. State National Bank, 157 P. 127, and the facts in that case are substantially that the State National Bank was a banking corporation, and that prior to May, 1911, the Oklahoma State National Bank was a banking corporation, and that it guaranteed the payment of $2,000 loaned by Mollie Ezzard to I. M. Holcomb. After entering into the guaranty for the payment of the sum of $2,000 loaned by Ezzard to Holcomb, the Oklahoma City National Bank bodily sold all of its property and assets to the Citizens' Bank.
The principal question determined by the last-cited case is the right of one corporation to sell all of its property and assets to another corporation without the purchasing corporation becoming liable for the debts and obligations of the selling corporation, so long as the transaction is bona fide. While the reported cases by this court hold that one corporation may in good faith sell all of its property and assets to another corporation without becoming liable for the debts and obligations of the latter in the absence of an express agreement to that effect, nevertheless there is a line of cases which hold to the contrary; a distinction with reference to transactions of this character existing between corporations and a natural person. A natural person may sell all his property for a fair consideration if the transaction is bona fide, and the buyer will not be regarded to take care that the seller provides for and pays all his debts. A corporation, unlike a natural person, by disposing of all its property, may not only deprive itself of the means of paying its debts, but may deprive itself of corporate existence and place itself beyond the reach of the process of law. There seems to be a great confusion in the reported cases, due, we believe, to a failure to distinguish between a sale conversion, consolidation, and merger. A "sale" is accomplished by a meeting of the minds upon a common understanding of the contracting parties, the payment or its equivalent of the consideration, accompanied by a delivery of the property. In that case the seller...
To continue reading
Request your trial