XI. EFFECT AS CONTINUATION OF CORPORATION OR CREATION OF NEW CORPORATION

§ 4952. Importance of question. As hereafter stated at some length,25 if a statute and proceedings thereunder have the effect of merely continuing the existence of a corporation, although it may be with somewhat different powers, and under a different name, and a different management, without destroying its identity as a corporate body, rights and liabilities acquired or incurred by it before the change are not in any way affected.26 But it is very different when an existing corporation is dissolved and ceases to exist, and an entirely new and distinct corporation is created.27 It is often important, therefore, and sometimes as difficult as it is important, to determine whether there is a mere continuation of an existing corporation, without change of identity, or the creation of a new and different corporate body.

§ 4953. General rule. The term "reorganization" does not necessarily imply that a new corporation is created. Nor, on the other hand, does it necessarily imply that an old corporation is merely continued. Its effect in any particular case must depend upon the intention of the parties and the terms of the statute 28 under which it

(U. S.) 392, 19 L. Ed. 117. See also Central Improvement Co. v. Cambria Steel Co., 210 Fed. 696.

The fact that property transferred by a company to a new company organized to take over the property and issue stock to the stockholders of the old company, was, at the time of its transfer, mortgaged for its full value to secure a valid indebtedness of the old company, does not preclude, it has been held, the right of an unsecured creditor of the old corporation to recover from the new corporation where the conveyance of the property was not subject to the mortgage. Sweeney v. Heap O'Brien Min. Co., 194 Mo. App. 140, 186 S. W. 739, following Northern Pac. R. Co. v. Boyd, 228 U. S. 482, 57 L. Ed. 931.

In an earlier case, it was held that while the sale under foreclosure to a committee according to whose plan

the stockholders of the mortgagor company appear to obtain some benefit in the purchasing company, is open to the closest scrutiny where the property is worth more than the mortgages foreclosed, yet general creditors cannot complain of any such arrangement where they have no interest because the property is not worth more than the mortgage debt. Wenger v. Chicago & E. R. Co., 114 Fed. 34.

25 See § 4984, infra.

26 National Exch. Bank v. Gay, 57 Conn. 224, 4 L. R. A. 343, 17 Atl. 555; Miller v. English, 21 N. J. L. 317.

27 Bellows v. Hallowell & A. Bank, 2 Mason 31, Fed. Cas. No. 1,279; Bruffett v. Great Western R. Co., 25 III. 353. See also § 4953, infra.

28 See the following decisions: Colorado. Clough v. Rocky Mountain Oil Co., 25 Colo. 520, 55 Pac. 809. Illinois. Morgan County v. Thomas,

takes place, although generally a new corporation is created.29 the words of Justice Story, "to ascertain whether a charter creates a new corporation, or merely continues the existence of an old one, we must look to its terms, and give them a construction consistent with the legislative intent, and the intent of the corporators." 30 Especially is it true that a new corporation is created where it is formed by the purchasers of the corporate property at a judicial or execution sale.31

On the other hand, the terms of the statute under which a corporation is reorganized or reincorporated, and the intention of the parties, may be such as to merely continue the existing corporation without any change in the identity of the body, even though the powers of the corporation as reorganized may be different from the powers which it had before the reorganization. Whether this is so depends upon the intention.32 It is to be noted, however, that most of the decisions holding that no new corporation is created by acting pursuant to statute are cases of mere reincorporation rather than reorganization, as explained below.83

Whether a new corporation is created depends largely upon the

76 Ill. 120; Bruffett v. Great Western R. Co., 25 Пl. 353.

North Carolina. Marshall v. Western North Carolina R. Co., 92 N. C. 322.

Ohio. State v. Sherman, 22 Ohio St. 411; Atkinson v. Marietta & C. R. Co., 15 Ohio St. 21.

Texas. Houston & Texas Cent. R. Co. v. Shirley, 54 Tex. 125.

Virginia. Supreme Lodge Knights of Pythias v. Weller, 93 Va. 605, 25 S. E. 891.

Wisconsin. National Foundry & Pipe Works v. Oconto City Water Supply Co., 105 Wis. 48, 81 N. W.

125.

The legal identity of the new corporation with the old ordinarily depends upon the intention of the incorporators. Allen v. North Des Moines M. E. Church, 127 Iowa 96, 69 L. R. A. 255, 109 Am. St. Rep. 366, 4 Ann. Cas. 257, 102 N. W. 808.

29 Fitz v. Minnesota Cent. Ry. Co., 11 Minn. 414; Huff v. Winona & St. P. R. Co., 11 Minn. 180. See also cases cited in preceding note.

Where an act of the legislature provided that, upon the happening of a certain contingency, the stockholders of a railroad company should "reorganize the said company as a new corporation," changed the amount of the capital stock, and provided for the stockholders of the existing corporation by reserving for them a certain amount of the stock of the new corporation, it was held that the reorganization created an entirely new and distinct corporation. Marshall v. Western North Carolina R. Co., 92 N. C. 322.

30 Bellows v. Hallowell & A. Bank, 2 Mason 31, Fed. Cas. No. 1,279. 31 See § 4955, infra.

32 Miller v. English, 21 N. J. L. 317; First Society of Irving M. E. Church v. Brownell, 5 Hun (N. Y.) 464; Marshall v. Western North Carolina R. Co., 92 N. C. 322; Young v. Rollins, 85 N. C. 485; Wilson v. Chesapeake & O. R. Co., 21 Gratt. (Va.) 654.

33 See § 4954, infra.

facts of the particular case.34 A provision in a lease that the lessee should organize a company to assume the lease and carry on the business, and also that the stock of the new company should first be offered to stockholders of the lessor company to subscribe for at their option, does not make the new company identical with the old, even if all or nearly all the stock was so subscribed for, and hence statutory liens for supplies furnished the new company do not attach to the title of the lessor as owner. 35

36

§ 4954. "Reincorporation" as creating new company. Whether a new corporation is formed, upon complying with statutory provisions relating to reincorporation or by virtue of a special statute creating a company, depends upon the wording of the statute, read in the light of the intent of the legislature and of the incorporators.3 However, reincorporation, as the term has already been defined,87 does not, ordinarily, create a new corporation.38 Thus, the filing of articles of incorporation to correct defects in a former attempted incorporation makes the new corporation merely a continuation of the existing de facto corporation.39 So where an incorporated religious

34 Capital State Bank of Oklahoma City v. Western Casualty & Guaranty Ins. Co., 47 Okla. 549, 149 Pac. 149.

35 United Mines Co. v. Hatcher, 79 Fed. 517, rev'g 75 Fed. 368.

36 Bellows v. Hallowell & A. Bank, 2 Mason 31, Fed. Cas. No. 1,279; Muller v. State Life Ins. Co., 27 Ind. App. 45, 60 N. E. 958.

37 See § 4839, supra.

38 Polk v. Mutual Reserve Fund Life Ass'n, 137 Fed. 273; Muller v. State Life Ins. Co., 27 Ind. App. 45, 60 N. E. 958, construing statute relating to insurance companies. Compare Miller v. English, 21 N. J. L.

317.

The identity of a corporation is not destroyed, nor are its legal obligations obliterated, by the mere fact of reincorporation under the same or a different name. Strahm v. Fraser, 32 Cal. App. 447, 163 Pac. 680.

A mere reincorporation, retaining the same name and with the same capital stock and stockholders, for

In re

the purpose of continuing business under changed regulations and conditions, does not create a new corporation so as to make the company liable to pay an organization tax. Consolidated Kansas City Smelting & Refining Co., 13 N. Y. App. Div. 50, 43 N. Y. Supp. 51, where company incorporated under the Manufacturing Act of 1848 reincorporated under the Business Corporations Law of 1892.

The reincorporation of an insurance company, under the New York statutes, under which a different name was assumed and a new plan of insurance adopted, does not, it has been held, create a new corporation in the ordinary sense, nor does such reincorporation pursuant to a statute in existence at the time the policies were taken out constitute an impairment of the contract rights of the policyholders. Polk V. Mutual Reserve Fund Life Ass'n, 137 Fed. 273.

society elected new trustees and reorganized under a general law authorizing such societies to reincorporate, and conferring somewhat larger powers, and it appeared that their intention was not to create a new and distinct corporation, but merely to continue the old one, the intention was given effect, and it was held that the reincorporation did not create a new corporation.40

However, reincorporation is sometimes held to create a new corporation as where it extends the life of the original corporation, increases the amount of indebtedness it may incur, and gives the reincorporated company all the rights, privileges and powers conferred by a new statute upon corporations organized under it. And it is undoubtedly true, as said in an early case in New Jersey,42 that "the question of identity, that is, whether the new act creates a body politic or corporate, or merely revives an old one, is one of intention."

§ 4955. Reorganization in connection with judicial or execution sale. Whether a new company formed after the purchase on foreclosure of the assets of another company is merely the old company under another name, so as to be liable for the debts of the old company, or is a bona fide purchaser for a consideration so as not to be liable for the debts of the old company, is sometimes difficult to determine. If the property, or property and franchises, of a corporation are about to be sold under an execution against it, or under a power in a mortgage, or under a decree foreclosing a mortgage, or at any other judicial sale, the stockholders or creditors, or any other persons, may organize a corporation under a general law for the purpose of purchasing at such sale, and continuing the business; and when the scheme is carried out, and the transfer made, the purchasing corporation is clearly a new corporation, succeeding to the property and franchises purhcased by it, and entirely distinct from the old corporation. The same is true, of course, where natural persons purchase

meet some of the defects in the original articles of incorporation or amendments thereto, the reincorporated company is ordinarily substantially the same company and liable to creditors and on contracts to the same extent as before. Benesh V. Mill Owners' Mut. Fire Ins. Co., 103' Iowa 465, 72 N. W. 674.

40 Miller v. English, 21 N. J. L. 317.

41 Com. v. Licking Valley Bldg.

Ass'n, No. 3, 118 Ky. 791, 82 S. W. 435.

42 Miller v. English, 21 N. J. L. 317, 324.

43 See New Orleans, M. & C. R. Co. v. Carter, 107 Miss. 1, 64 So. 842.

44 Armour v. E. Bement's Sons, 123 Fed. 56; Venner v. Farmers' Loan & Trust Co. of New York, 90 Fed. 348, 353; Midland Ry. Co. v. Fisher, 125 Ind. 19, 8 L. R. A. 604, 21 Am. St. Rep. 189, 24 N. E. 756; People v. Cook, 110

at such a sale, and afterwards form a corporation to take a transfer from them.45

§ 4956. Reorganization by voluntary transfer of assets to new company. There is a reorganization rather than a mere amendment of the charter, where the objects of the company are changed, and a statute provides that an amendment shall not change such objects, and where the intent of the parties was to create a new corporation, and the property of the old was transferred to the new corporation which expressly assumed the debts of the old company.46

§ 4957. Extension of corporate existence as creation of new corporation. The extension and revival of charters has been considered in a former chapter. As there stated, a mere extension of the charter of a corporation before its expiration, whether by a special act or under a general law, does not have the effect of creating a new and distinct corporation, unless such an intention appears, but merely continues the existence of the old corporation, without in any way affecting its identity or its existing rights and liabilities.48 A like construction has been placed by the courts upon statutes