not making the consolidated company liable for torts committed by one of the constituent companies, as where the right of action against constituent companies is not impaired thereby and full provision is made for the lien of judgments obtained either before or after the consolidation.36

§ 4740. Changing statutory liability by agreement. The statutory liability of a consolidated corporation for the debts and liabilities of its constituent corporations cannot be impaired by any agreement between the corporations, as to creditors who have not joined in or assented to the agreement.37 But it is otherwise where the creditors are parties to the agreement. An agreement for consolidation which provides that the new corporation shall owe no debts on account of the business of the constituent companies prevents recovering from the new corporation, by stockholders of the constituent companies who have signed it, upon any claims which they may have had against the constituent companies.38

§ 4741. Special agreement to pay or assume liabilities-In general. Sometimes one corporation, upon taking over the property of another corporation, expressly assumes its debts and liabilities. This is not common, however, in the case of statutory consolidations or mergers, where the law itself imposes such liability upon the consolidated or continuing company. The most usual case of assumption is where one corporation purchases the property of another, and there is no statutory consolidation or merger, so that in the absence of such an agreement the purchasing company ordinarily is not liable for the debts or claims against the other company.39 In any event, where the agreement is based on a valuable consideration, and the receipt of the property of the other company is a sufficient consideration, the company assuming such debts or liabilities becomes liable therefor.40 If the creditors of the old corporation assent to the

change of liability, there is a clear novation, and they may in all jurisdictions maintain an action against the new corporation. Even in the absence of a novation, they may in most jurisdictions maintain an action on the promise of the new corporation, as being a promise made for their benefit, although in some jurisdictions a suit in equity is necessary 42 Of course, the agreement must be proved, and it must be shown that it was made by some person or persons authorized to bind the corporation.43 Whether a new corporation has expressly or impliedly assumed the obligations of the old company is ordinarily a question for the jury where dependent upon oral testimony." The consolidation agreement may provide that the debts of the constituent companies shall remain their debts and not be assumed by the consolidated company.45

§ 4742. Necessity for writing. Where a corporation transfers all its property to another corporation, and the latter, in consideration thereof, assumes all its debts, the agreement is an original one, and is not within the clause of the statute of frauds requiring a promise to answer for the debt of another to be in writing.46

executed by the absorbed company. Manny v. National Surety Co. of New York, 103 Mo. App. 716, 78 S. W. 69. An agreement between two corporations that one shall assume all the liabilities of the other, including liability created by a guaranty of dividends on certain stock, in consideration of the transfer of all the assets of the corporation whose liabilities are SO assumed, is based upon a sufficient consideration and may be enforced. Greene v. Middlesborough Town & Lands Co., 22 Ky. L. Rep. 1715, 61 S. W. 288.

41 See § 4804 et seq., infra. 42 See § 4804 et seq., infra,

43 Where the property and franchises of a railroad corporation have been sold and conveyed under a deed of trust, and the purchasers reorganize, there must be shown, in order to prove a new promise by the reorganized company to pay a debt owing by the company as originally organized, some action, on the part of the directors of the reorganized company,

from which the promise can be clearly inferred. American Cent. R. Co. v. Miles, 52 Ill. 174.

That it appears from the corporate articles that a corporation was formed pursuant to a certain agreement relative to the purchasing of the assets of another company and the assumption of the debts of such company does not necessarily prove that the corporation did actually assume the obligations of such former company. Klein v. East River Elec. Light Co., 90 N. Y. App. Div. 92, 86 N. Y. Supp. 164.

44 Good v. Ferguson & Wheeler Land, Lumber & Handle Co., 107 Ark. 118, Ann. Cas. 1915 A 544, 153 S. W. 1107.

45 Cleveland City Ry. Co. v. First Nat. Bank, 68 Ohio St. 582, 67 N. E. 1075. But see § 4736, supra, where statute otherwise provides.

46 In re Amsdell-Kirchner Brewing Co., 240 Fed. 492; Calumet Paper Co. v. Stotts Inv. Co., 96 Iowa 147, 59 Am. St. Rep. 362, 64 N. W. 782,

§ 4743. -Debts or liabilities included. Whether a debt is included within those expressly assumed by the corporation depends of course upon the wording of the agreement assuming the debts.47 If a corporation succeeds to the property and franchises of another corporation, and expressly agrees to assume all its debts or liabilities, it thereby assumes all its liabilities, of whatever, nature. Thus, a railroad company which receives a transfer of the property and franchises of another company, under which it agrees to assume all the latter's liabilities, thereby assumes debts contracted by the latter for the construction of the lines of road transferred and secured by a mortgage or deed of trust thereon.48 An assumption of all the "indebtedness" of another corporation "of whatsoever kind and to whomsoever due," includes demands for unliquidated damages, although they are not technically a debt.49 So assumption of all liabilities includes liabilities on indemnity bonds.50

Generally, it is held that the assumption of all indebtedness of the other company includes liability for torts of the latter,51 although

47 In re Halstead & Co., 204 Fed. 115, aff'd 215 Fed. 85; Royal Baking Powder Co. v. Hoagland, 180 N. Y. 35, 72 N. E. 634.

When a railroad company condemns land for a right of way, and a judgment for damages is rendered against it, and it is afterwards consolidated with another company under an agreement by which the consolidated company takes the property subject to the consolidating company's debts, the judgment is binding on the consolidated company. Chicago & S. E. Ry. Co. v. Galey, 141 Ind. 360, 39 N. E. 925.

48 Welsh v. First Division of St. Paul & P. R. Co., 25 Minn. 314.

Where a corporation takes a transfer of all the assets of another corporation, and assumes all its debts, bondholders of the latter corporation become creditors of the former. Blake v. Domestic Sew. Mach. Co., 64 N. J. Eq. 480, 38 Atl. 241.

49 Billmyer Lumber Co. V. Merchants' Coal Co., 66 W. Va. 696, 26 L. R. A. (N. S.) 1101 with note, 66 S. E. 1073.

50 Manny v. National Surety Co. of New York, 103 Mo. App. 716, 78 S. W. 69.

51 St. Louis & S. F. R. Co. v. Marker, 41 Ark. 542; Smith v. Los Angeles & P. Ry. Co., 98 Cal. 210, 33 Pac. 53; Louisville & N. R. Co. v. Biddell, 112 Ky. 494, 66 S. W. 34, where company assumed bonded indebtedness and all "other indebtedness." See also Proctor v. San Antonio St. Ry. Co., 26 Tex. Civ. App. 148, 62 S. W. 938.

Where a consolidated railroad company assumes the payment of all debts and liabilities, and the fulfillment of all obligations, of the consolidating companies, it becomes liable to an action to recover damages for personal injuries caused by the negligence of one of the consolidating companies prior to the consolidation. St. Louis & S. F. R. Co. v. Marker, 41 Ark.

542.

Where one railroad corporation took over another, with all its stock and property, rendering itself subject both to the bonded debt and to all "other indebtedness" of the absorbed road, the rights of "creditors" not to be

1

there is authority which is in support of a view to the contrary.52

Where by contract one corporation assumes the liabilities of a corporation transferring its property, the obligations assumed may be expressly limited to certain lines. In such case obligations of the vendor arising in lines of liability not so assumed are not enforceable against the vendee.53 For example, where the new corporation took a bill of sale of the assets of the old corporation, in which it covenanted to pay all the debts and obligations of the old corporation "excepting" its mortgage bonds, it was held that it did not assume payment of the mortgage bonds.5

54

Assumption of "the business indebtedness" includes contract obligations.55 It has been held that the assumption of debts existing at the time of the sale does not include a contingent future liability on a contract,56 but the Supreme Court of Texas held the contrary upon the question being certified to it.57 An agreement to pay all liabili ties of another company includes, it has been held, liability for the value of the stock of the company to be figured at its book value rather than its market value.58

Of course, if a continuing contract with a corporation is such that by its terms it is terminated by a sale and transfer of the business and property of the corporation, the purchasing corporation does not assume any liability thereunder for any period after the sale and transfer. For instance, where the by-laws of a corporation provided that the secretary should be elected for a year, subject to removal by the directors, and that his duties should be to keep the accounts of the corporation, and transact all its business, it was held that the term of office of the secretary terminated on a sale of its business by

affected by the transaction, the absorbing road became liable for torts of the absorbed road committed prior to the absorption. Louisville & N. R. Co. v. Biddell, 23 Ky. L. Rep. 1702, 66 S. W. 34.

52 Von Cotzhausen v. H. W. Johns Mfg. Co., 100 Wis. 473, 76 N. W. 622.

Assumption of current liabilities does not include liability for personal injuries. Hawkins V. Central Georgia R. Co., 119 Ga. 159, 46 S. E.

82.

of

53 Anderson v. War Eagle Consol. Min. Co., 8 Idaho 789, 72 Pac. 671.

54 Fernschild v. D. G. Yuengling

the corporation, and that the vendee, therefore, although it agreed to fulfil all the contracts of the corporation, was not liable to the secretary for his salary for the unexpired portion of the year for which he was elected.59

When a corporation purchases the property and franchises of another corporation, and agrees to pay all its predecessor's "debts," it may be sued upon a judgment recovered against the old company in an action pending at the time of the transfer. It is not necessary. that the suit against it be brought upon the original cause of action.60

§ 4744. Effect on rights of creditors. Even though a company taking over all the property of another corporation agrees to pay its debts, a creditor of the old company is not bound to resort to the new company.61 Although one corporation assumes the debts of another, a creditor of the latter has equitable rights and is entitled to a preference as against the property of the old company in the hands of the new or purchasing company, unless the creditor has expressly or impliedly released the old company and agreed to look to the new or purchasing company alone for payment.62 However, there is no release by implication merely because of the taking of renewal notes from the new company nor because of obtaining judgment on such renewal notes, nor because of the acceptance of the benefit of a deed of assignment for the benefit of creditors.63

§ 4745. Defenses. When a corporation which has succeeded to the property of another corporation, and assumed its liabilities, is sued upon a contract of the old company, it is in no better position as to the defenses which it may make than the old company would be. For example, though a lease made to a corporation may have been voidable on the ground of fraud, yet, where it has ratified the same by acting under it and receiving the benefit of it, a corporation succeeding to its rights under the lease, under an agreement by which it assumes all its liabilities, cannot set up the fraud as a defense in an action to recover rents due under the lease.64

59 Union Compress Co. v. Douglass, 60 Ark. 591, 31 S. W. 455.

60 Noll v. Chattanooga Co. (Tenn. Ch. App.), 38 S. W. 287.

61 Darcy v. Brooklyn & N. Y. Ferry Co., 127 N. Y. App. Div. 167, 111 N. Y. Supp. 514.

62 Lowther V.

Lowther-Kaufmann

Oil & Coal Co., 75 W. Va. 171, 83
S. E. 49.

63 Lowther V. Lowther-Kaufmann Oil & Coal Co., 75 W. Va. 171, 83 S. E. 49.

64 Barr v. New York, L. E. & W. R. Co., 125 N. Y. 263, 26 N. E. 145.