Seymour v. Boise Railroad Co., Ltd.

• Decision Date: 10 May 1913
• Parties: HENRY SEYMOUR, Respondent, v. BOISE RAILROAD CO., LTD., Appellant
• Court: Idaho Supreme Court

132 P. 427

24 Idaho 7

HENRY SEYMOUR, Respondent, v. BOISE RAILROAD CO., LTD., Appellant

Supreme Court of Idaho

May 10, 1913

CORPORATION-SALE OF FRANCHISES AND PROPERTY-CONSTITUTIONAL PROVISION-LIABILITY OF PURCHASER-SALE OF FRANCHISE AND PROPERTY HELD THEREUNDER-RIGHTS OF CREDITORS.

1. Under the provisions of sec. 15, art. 11 of the state constitution, a corporation is prohibited leasing or alienating its franchise and property "so as to release or relieve the franchise or property held thereunder from any of the liabilities of the lessor or grantor, or lessee or grantee, contracted or incurred in the operation, use, or enjoyment of such franchise, or any of its privileges."

2. Under the provisions of sec. 15, art. 11 of the state constitution, the franchise of a corporation and property held thereunder are still liable for the payment of any liability incurred by the grantor or lessor or grantee or lessee of such corporation prior to any lease, sale or alienation of the franchise, and any pre-existing liability incurred in the operation, use or enjoyment of such franchise becomes a preferred claim against the franchise and property transferred and is superior to any subsequent bonds mortgages or encumbrances placed thereon by the purchaser or transferee of such property.

3. A judgment obtained for personal injuries inflicted by a corporation in operating its street-cars is a liability contracted or incurred in the operation, use or enjoyment of the franchise of such corporation within the meaning of sec 15, art. 11 of the state constitution, and becomes a claim against the franchise and property of such corporation in the hands of a purchaser or grantee of the franchise and property held thereunder.

4. Where a new corporation is formed by stockholders and directors of an existing corporation, and the directors of the new corporation are the same persons who were a majority of the directors of the old corporation, and 98 per cent of the issued stock of the new corporation is held by the same persons who were stockholders in the old corporation, and the new corporation purchases all the franchises and property of the old corporation and pays therefor in shares of the capital stock of the new corporation and in cash to the amount of 87 1/2 per cent of the par value of $150,000 worth of first mortgage bonds of the new corporation, held, that the transaction amounts in fact and law to a reorganization of the old corporation, and that the new corporation is liable for a judgment against the old corporation which was rendered for damages on account of personal injuries inflicted by the old corporation.

APPEAL from the District Court of the Third Judicial District for Ada County. Hon. Carl A. Davis, Judge.

Action to have a judgment entered against a corporation for personal injuries declared to be a debt and liability of a new corporation that purchased and took over all of the franchises and property of the debtor corporation. Judgment for plaintiff. Defendant appealed. Affirmed.

Judgment affirmed. Costs awarded in favor of respondent.

Cavanah Blake & MacLane, for Appellant.

Plaintiff and respondent did not seek to recover in this action on the first count in his complaint on the theory that a corporation taking over all the franchises and property of another company was liable for the debts and liabilities of the selling corporation.

"The general rule undoubtedly is, that a corporation which purchases all the property of another corporation is not liable for the debts of the latter." (2 Cook on Corporations, 6th ed., sec. 673 (and cases cited). See, also, Anderson v. War Eagle Cons. Min. Co., 8 Idaho 789, 72 P. 671.)

The respondent in this case is pursuing a purely legal remedy. He is simply seeking to recover a personal judgment against the appellant. He is not seeking to follow the franchises and property of the Boise Traction Company, and in this action he is not entitled to the relief which he asks for.

It may be said that, as a general rule, a corporation is not liable for the negligence or other torts of another corporation to whose property and franchises it has succeeded. (Cooper v. Utah Light & Ry. Co., 35 Utah 570, 13 Am. St. 1075, 102 P. 202; 2 Clark & Marshall, Corp., sec. 342.)

B. F. Neal and G. H. Rust, for Respondent.

"If the facts stated show that the primary rights, or the cause of action or the remedy to be obtained are equitable, then the action itself is equitable, governed by the doctrines of equitable jurisprudence and falling within the equitable jurisdiction of the court." (Pomeroy, Equity Jur., 3d ed., sec. 354, p. 548; Martin v. Atchison, 2 Idaho 624 (590), 33 P. 47; Coleman v. Jaggers, 12 Idaho 125, 118 Am. St. 207, 85 P. 894.)

We deny that the cause of action stated in the first count is an action at law. It is an action in equity, with like allegations and facts and like prayer for relief as Cooper v. Utah L. & R. R. Co., 35 Utah 570, 136 Am. St. 1075, 102 P. 202, and is controlling in that case. Art. 11, sec. 15 of the Idaho constitution has been construed in California, Kentucky, Utah and Washington, which have the identical section. (Lee v. Southern Pac., 116 Cal. 97, 58 Am. St. 140, 47 P. 932, 38 L. R. A. 71; City of South Pasadena v. Pasadena L. & W. Co., 152 Cal. 579, 93 P. 490; Weyeth Hdw. etc. Co. v. James Spencer etc. Co., 15 Utah 110, 47 P. 604; Blackrock etc. Co. v. Tingey, 34 Utah 369, 131 Am. St. 850, 98 P. 180; Cooper v. Utah L. & Ry. Co., supra.)

A corporation buying all of the property of another corporation and paying therefor in stock of the former corporation issued to the stockholders of the latter corporation must either pay the obligations of the latter corporation or have its property sold to pay such obligations. (Cook, Corporations, 6th ed., secs. 673, 2037; Thompson on Corporations, 2d ed., sec. 6105.)

AILSHIE, C. J. Sullivan and Stewart, JJ., concur.

OPINION

AILSHIE, C. J.

STATEMENT OF FACTS.

The respondent here, who was the plaintiff in the lower court, commenced his action against the appellant, the Boise Railroad Co., alleging that it is engaged in the business of a common carrier of passengers in and over the public streets and alleys of Boise City under and by virtue of franchises granted by the proper municipal authorities.

The first count of the complaint on which the judgment was entered, among other things, alleges the following facts: That the Boise Railroad Co. has an authorized capital of 9,000 shares of the par value of $ 100 each, of which the sum of 1,500 shares is preferred stock and 7,500 shares is common stock; that the corporation was organized on or about the 27th day of November, 1906, by John J. Blake, Charles A. Hutchinson, and A. R. Cruzen, each of whom subscribed one share of the stock of the corporation; that thereafter and on the same day the secretary of the corporation filed his certificate in the office of the secretary of state, certifying that 2,002 shares of the capital stock of the corporation of the par value of $ 200,200 had been subscribed, that the articles of incorporation provided for a board of directors, consisting of five members; and that, among other things, the articles provided that the company was incorporated for the purpose of acquiring by purchase or otherwise street railway rights and privileges and franchises from cities and municipalities, or from private corporations or persons, and to do all things in connection with acquiring and maintaining and operating street railways, and particularly to acquire, maintain and operate a street railway in Boise City on certain streets therein enumerated of the estimated length of about eight and a half miles; that at the time of making and filing these articles of incorporation by the Boise Railroad Co., the Boise Traction Co., Ltd., was and had been since about the 29th day of March, 1904, a public service corporation duly organized under the laws of the state of Idaho, having its principal place of business at Boise City, and that it was at such time the owner of and operating lines of street railway upon all of the streets and alleys of Boise City, described in the articles of incorporation of the defendant, the Boise Railroad Co., as the streets upon which the latter company proposed to operate its lines of street railway, and that at such time the Boise Traction Co. had the exclusive right and privilege by virtue of a franchise duly granted to it by the ordinances of Boise City to maintain and operate street railway lines upon the streets designated in the articles of incorporation of the Boise Railroad Co.; that the first board of directors of the defendant, Boise Railroad Co., was composed of John J. Blake, A. R. Cruzen, Charles A. Hutchinson, I. W. Anderson, and S.D. Sinkler, and that such persons continued to be the members of the board of directors of the defendant corporation until about the 6th day of August, 1909; that on about the 12th day of June, 1906, and while the Boise Traction Co. was the owner of street railway lines operated in Boise City over the streets, alleys and public places designated in the complaint, the plaintiff, through the negligence and wrongful act of the Boise Traction Co., was injured and damaged, and thereafter prosecuted his action against the Boise Traction Co. for his damages and subsequently obtained a judgment against such company for the sum of $ 1,000 damages and $ 86.40 interest, which judgment and decree was entered against the Boise Traction Co. on the day of December, 1909.

"That on or about the 1st day of September, 1906, the annual meeting of the stockholders of the Boise Traction Company Limited, was held in Boise, Idaho, there being present at said meeting C. A. Hutchinson...