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property,72 and provided their payment has not been assumed,7 nor their payment imposed by the foreclosure decree 74 or by statute.75 So where an individual purchases the assets of a corporation at a foreclosure sale and then resells to a new company composed largely of the members of the company whose assets were sold, and there is no fraud, the new company is not liable for the debts of the old.76 Use of the property for the construction of which the old company was indebted does not, it has been held, make the new company liable for the debt." The reorganized company is not liable for a deficiency judgment after foreclosure of a mortgage.78

This principle also applies when a corporation purchases the property and franchises of another corporation at a sheriff's or marshal's sale on an execution against the latter, and receives a conveyance in pursuance thereof. If the sale is authorized by law, the corporation takes the property free from any liability for existing debts of the other corporation, not secured by prior liens, and from all obligations of the other corporation of a strictly personal character.79

litigate in such suit questions which have been adjudicated as against the old corporation. Oregon R. & Nav. Co. v. Balfour, 90 Fed. 295.

Where an original corporation found itself unable to continue business as a going concern and the sale of its property became inevitable, an agreement between the stockholders and bondholders of the company providing that a new company be organized to purchase the property at foreclosure sale was held by the court to constitute an agreement for the sale and purchase of the property of such a nature as to give to the original and the new companies the status of vendor and purchaser. Liability for debts of the original corporation was not, therefore, imposed upon the new corporation. Appeal of Columbus, S. & H. R. Co., 109 Fed. 177.

The rule that a consolidated corporation is liable for the debts of the constituent corporations rests upon agreement, express or implied, and applies only to voluntary consolidations. It does not apply where the property and franchises of a corpora

tion are sold, under a decree foreclos-
ing a mortgage thereon, to another
corporation, and the property and
franchises of both are then consoli-
dated in the hands of the purchasing
corporation. In such a case, the con-
solidated corporation is not liable, un-
less made so by valid statutory pro-
vision, for the debts of the corpora-
tion whose property and franchises
have been sold. Houston & T. Cent.
R. Co. v. Shirley, 54 Tex. 125.

72 See § 4993, infra.
73 See § 4982, supra.
74 See § 4992, infra.
75 See § 4991, infra.

76 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.

77 Moyer v. Ft. Wayne, C. & L. R. Co., 132 Ind. 88, 31 N. E. 567.

78 Equitable Trust Co. of New York v. United Box Board & Paper Co., 220 Fed. 714.

79 Gulf, C. & S. F. Ry. Co. v. Newell, 73 Tex. 334, 15 Am. St. Rep. 788, 11 S. W. 342.

Where a person buys the property

The same rule applies to a sale under the power in a deed of trust given by a railroad company or other corporation, under legislative authority, to secure its bonds or other obligations. A corporation purchasing under such a sale takes the property and franchises conveyed by the deed of trust free from all debts of the other corporation not secured by a lien paramount to the deed of trust.80

A corporation purchasing the property of another corporation, at a foreclosure sale or otherwise, does not become liable for the debts of the latter merely because the stockholders of the old company become stockholders of the new without the payment of any money, where they do so by virtue of an arrangement subsequent to the purchase.81

Upon a reorganization after foreclosure, the foreclosure purchaser representing the majority stockholders acquires the property subject to any equitable rights which the minority stockholders have therein, and the latter cannot be compelled, as a condition of stock in the reorganized company being allotted to them, to pay their pro rata share of the claims of the general creditors of the old company which had been cut off by the foreclosure.82

The bondholders of the new company have priority over claims against the old company which were not a lien as against their bonds which they exchanged for bonds in the new company.23

§ 4989. Effect of identity of name of two companies. As shown in another section, a corporation is not the same as another corporation, to whose property and franchises it has succeeded, merely because it has the same name; 34 and the fact that a corporation formed to purchase the franchises and property of another corporation at a mortgage foreclosure sale has the same name as the other corporation does not make it a mere continuation of the latter, so as to render it liable for its debts.85

§ 4990.

Contracts of old company as binding on new company. If the reorganization is in connection with a judicial or execution

of a railroad company at a sale on execution against it, and conveys the same to a corporation, the latter is not liable to creditors of the old corporation for or on account of the price paid at the execution sale. Kittel v. Augusta, T. & G. R. Co., 78 Fed. 855.

30 Morgan County v. Thomas, 76 Ill. 120.

1 Stewart's Appeal, 72 Pa. St. 291. 82 Bogert v. Southern Pac. Co., 226 Fed. 500, 512.

83 Venner V. Farmers' Loan & Trust Co. of New York, 90 Fed. 348. 84 See § 4984.

85 Memphis Water Co. v. Magens, 15 Lea (Tenn.) 37.

sale, the contracts of the old company ordinarily are not binding upon the new company, 86 unless the decree under which the sale is made so provides,87 or liability is created by statute,88 or the contract is a lien upon the property purchased,89 or the contract is one running with the land,90 or the new company has ratified the contract.9 91 So where a new company, although composed of the

86 United States. Wiggins Ferry Co. v. Ohio & M. R. Co., 142 U. S. 396, 407, 35 L. Ed. 1055.

Iowa. Amsden v. Dubuque & S. C. R. Co., 13 Iowa 132.

Texas. Gulf, C. & S. F. R. Co. v. Newell, 73 Tex. 334, 15 Am. St. Rep. 788, 11 S. W. 342.

Virginia. Sherwood v. Atlantic & D. Ry. Co., 94 Va. 291, 26 S. E. 943. Wisconsin. Menasha v. Milwaukee & N. R. Co., 52 Wis. 414, 420, 9 N. E. 396.

See also cases cited in § 1407, supra. Rule applies to contract by railroad company for free pass to the grantor of a right of way, to travel over the road during his life. Helton v. St. Louis, K. & N. W. R. Co., 25 Mo. App. 322.

Under a Kansas statute providing that purchasers of a railroad at foreclosure sale may organize a new company, but that "such organization shall in no wise affect any liability against the old corporation existing at the time of the organization of said new company," the latter is not liable on a contract of employment of the old company in existence when the new company was formed. Keeler v. Atchison, T. & S. F. Ry. Co., 92 Fed. 545.

Upon reorganization, after a foreclosure sale, the reorganized company is not liable on contracts for services for a term of years, but may discharge the employee before the end of the term. This rule was held not affected by a notice which was posted, stating the foreclosure sale to the new company and that it would carry on the

business of the old company "whose employees are invited to continue in their present positions." Aldridge v. Fore River Ship Building Co., 201 Mass. 131, 87 N. E. 485.

87 See Hukle v. Atchison, T. & S. F. Ry. Co., 71 Kan. 251, 6 Ann. Cas. 83, 80 Pac. 603; Southern Ry. Co. v. Franklin & P. R. Co., 96 Va. 693, 702, 44 L. R. A. 297, 32 S. E. 485.

88 See Mason City & F. D. R. Co. v. Union Pac. R. Co., 124 Fed. 409.

89 Dayton, X. & B. R. Co. v. Lewton, 20 Ohio St. 401, 410, lien in nature of vendor's lien. See also Sherwood v. Atlantic & D. Ry. Co., 94 Va. 291, 26 S. E. 943; Menasha v. Milwaukee & N. R. Co., 52 Wis. 414, 9 N. W. 396.

90 Midland Ry. Co. v. Fisher, 125 Ind. 19, 8 L. R. A. 604, 21 Am. St. Rep. 189, 24 N. E. 756; Rome, W. & O. R. Co. v. Ontario Southern R. Co., 16 Hun (N. Y.) 445. See also Joy v. St. Louis, 138 U. S. 1, 34 L. Ed. 843; Close v. Burlington, C. R. & N. Ry. Co., 64 Iowa 149, 19 N. W. 886. And see 1407, notes 26-31, supra.

Covenants of a continuing nature in a contract run with the property and are binding on the reorganized corporation which purchases the property at foreclosure sale, on the same principle as covenants for rent are binding on the assignee of a lease. Town of Boonton v. Boonton Water Co., 69 N. J. Eq. 23, 61 Atl. 390, aff'd 70 N. J. Eq. 692, 64 Atl. 1064, applying rule to covenants in contract by water company to furnish water to a town.

91 Wiggins Ferry Co. v. Ohio & M.

same stockholders, purchases the corporate property at a judicial sale, there is no privity between the purchaser and the mortgagor or mortgagee so far as mere personal covenants in the mortgage are concerned, and while the purchaser takes title subject to the mortgage it is bound only by such covenants therein as run with the land.92

Sometimes the foreclosure decree provides that any purchaser may, before a deed is executed to him or it, abandon or disclaim any contract executed by the mortgagor company.93

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§ 4991. Liability as imposed by statute. Statutes in some states make the claims of certain creditors superior to the rights of purchasers at judicial or execution sales of corporate property.94 However, statutes providing that a purchaser of a railroad takes subject to the debts and obligations of such road have been held not applicable to one purchasing at foreclosure sale.95

A North Carolina statute, giving judgments against corporations for torts priority of lien over mortgages executed by the corporation, applies to a judgment against a reorganized company for its tort so as to give it priority over a mortgage executed by the old company.96

R. Co., 142 U. S. 396, 407, 35 L. Ed. 1055; State v. Quintard, 80 Fed. 829. See also § 1407, notes 32-34, supra.

Application of rule to leases, see St. Joseph Union Depot Co. v. Chicago, R. I. & P. Ry. Co., 89 Fed. 648; Jacksonville, L. & St. L. R. Co. v. Louisville & N. R. Co., 150 Ill. 480, 37 N. E. 924, aff'g 47 Ill. App. 414; Frank v. New York, L. E. & W. R. Co., 122 N. Y. 197, 25 N. E. 332.

Continuing to receive coal under a contract held not a ratification where without knowledge of an option clause in the contract. Sloss Iron & Steel Co. v. South Carolina & G. R. Co., 85 Fed. 133.

92 Equitable Trust Co. of New York v. United Box Board & Paper Co., 220 Fed. 714, holding that the reorganized company was not liable for a deficiency judgment.

93 See Farmers' Loan & Trust Co. of New York v. Chicago & A. Ry. Co.,

44 Fed. 653; Chicago & E. R. Co. v. Towle, 10 Ind. App. 540, 37 N. E. 358, and also § 1407, note 35, supra.

94 St. Louis, A. & T. H. R. Co. v. Miller, 43 Ill. 199; Frazier v. East Tennessee, V. & G. Ry. Co., 88 Tenn. 138, 12 S. W. 537; Fordyce v. Du Bose, 87 Tex. 78, 26 S. W. 1050; Kansas City, M. & O. Ry. Co. v. Cole, - Tex. Civ. App., 145 S. W. 1094, holding, however, under such statute, that reorganized company was not liable on a contract of the old railroad company with a municipality to maintain its general offices and shops in such municipality.

See also § 1408, supra, and see § 4736 et seq., supra, chapter on Consolidation.

95 Kansas City Southern R. Co. v. King, 74 Ark. 366, 85 S. W. 1131.

96 Guardian Trust & Deposit Co. v. Fisher, 200 U. S. 57, 50 L. Ed. 367, aff'g 115 Fed. 184.

§ 4992. Liability imposed by decree. The decree ordering the sale often provides that the purchaser shall pay certain claims not otherwise entitled to priority, or that the purchase shall be subject to such claims. In such a case, of course, the purchaser takes subject to such claims.97 This matter has been considered at some length in the chapter on Mortgages.98

§ 4993. Prior liens. The purchaser takes subject to prior liens and incumbrances, under the rule of caveat emptor.99

§ 4994. Debts of receivership. Unless it is otherwise provided by statute or decree, the purchaser ordinarily takes free from claims. against the receiver.1 Often, however, the foreclosure decree expressly provides that the purchasers shall take the property subject to all receivership debts, where the property has been in the hands of a receiver. And if receivers of a railroad apply net income to improving and repairing the property instead of paying preferred claims for services and materials, the new company as reorganized after a foreclosure sale is liable for the payment of such preferred claims.3 Where the order discharging a receiver and requiring the turning over of all the property in his hands to a reorganized company was made expressly subject to an agreement by the new company to pay all outstanding debts and claims against the receivership, the new company is not liable on a judgment against the old company which

97 Continental Trust Co. of New York v. American Surety Co., 80 Fed. 180.

If the reorganized company accepts the property after a foreclosure sale, it cannot question the validity of the order confirming such sale in so far as it imposes liability for debts on the new company. Farmers' Loan & Trust Co. v. Central R. Co. of Iowa, 5 McCrary 421, 17 Fed. 758.

If the decree expressly preserves liability for debts of the old company, then the new company is liable on a covenant of warranty in a deed executed by the old company. Wood v. Dubuque & S. C. R. Co., 28 Fed. 910. But where bonds are issued by the reorganized company after purchase

at foreclosure sale, some of which are
exchanged for bonds of the old com-
pany, the new company and its bond-
holders, neither of which were parties
to the foreclosure suit, are not bound
by the foreclosure decree in so far as
it gives a prior lien to an unsecured
creditor of the old company. Venner
v. Farmers' Loan & Trust Co. of New
York, 90 Fed. 348, 353.

98 See § 1405, supra.
99 See § 1404, notes 99, 100, supra.
1 See § 1404, note 94, supra.

2 Central Railroad & Banking Co. of Georgia v. Farmers' Loan & Trust Co., 79 Fed. 158.

3 Bell's Adm'r v. St. Johnsbury & L. C. R. Co., 85 Vt. 240, 81 Atl. 630.

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