statute they obtain a new and independent corporate existence by direct grant from the state and not in any degree by purchase and transfer from the old corporation.1

Where the intention is to form a new corporation with new capital it is fair to presume that an assumption of the old company's obligations was not in contemplation, though the shareholders and officers in the two companies be identical.2

§ 726. Reorganization. In some cases, a corporate organization may be entirely abandoned and a new corporation formed to supersede it, carry on its business and assume its obligations, and may assume control and manage the funds of its predecessor without the consent or the right of interference of the creditors of the former corporation.

In order to do so, however, it should be substantially identical with its predecessor, in constitution, powers and management. It is plain that, in order to succeed

1 People v. Cook, 110 N. Y. 443; 18 N. E. 113; R. R. Co. v. Georgia, 98 U.S. 359; R. R. Co, v. Comm'rs, 112 U. S. 609; Carpenter v. Black Hawk Min. Co., 65 N. Y. 43, 50; Thomas v. R. R. Co., 101 U. S. 71; Comm'rs v. Smith, 10 Allen, 448, 455; Memphis, etc., R. R. Co. v. Comm'rs, 112 U. S. 619; Eldridge v. Smith, 34 Vt. 484, 490; Fanning v. Osborne, 102 N. Y. 441; 7 N. E. 307; People v. Brooklyn, etc., R. R. Co., 89 Id. 75, 84; Coe v. C. P. & I. R. R. Co., 10 Ohio St. 372, 386; Shields v. Ohio, 95 U. S. 323.

2 See Gray v. Nat. St. Co., 115 U. S. 116; President, etc., v. Moore, 21 Miss. 157; Shaw v. Norfolk, etc., R. R. Co., 82 Mass. 407; Penn., etc., Co.'s App., 101 Pa. St. 576; Smith v. Chicago, etc., R. R Co., 18 Wis. 17; Neff v. Wolf, etc., Co., 50 Wis. 585; 7 N. 553; Houston, etc., R. R. Co. v. Shirley, 54 Tex. 125; Commercial B'k v. Lockwood, 2 Harr. Bel. 8; Menasha v. Milwaukee, etc., R. R. Co., 52 Wis. 414; 9 N. 396; Lake Erie, etc., Co. v. Griffin, 92 Ind. 487; Gilman v. Sheboygan, etc., R. R. Co., 37 Wis. 317; Sappington v. Little Rock, etc., R. R. Co., 37 Ark. 23; Cook v. Detroit, etc., R. R. Co., 43 Mich. 349; 5 N. 390. It is often provided otherwise by statute or provisions in the charter of the new company. See Indianala R. R. Co. v. Fryer, 56 Tex. 609; Louisville, etc., R. R. Co. v. Boney, 117 Ind. 501; 20 N. E. Rep. 432; Indianapolis R. R. Co. v. Jones, 24 Ind. 465; Montgomery, etc., R. R. Co. v. Baring, 51 Ga. 582; Thompson v. Abbott, 61 Mo. 176.

to the rights of the original corporation and obviate the necessity of the consent of creditors with respect to their equitable lien upon assets, it could amount to little more than revivor of the former organization under a new name.1

§ 727. The usual object of reorganization.—The object of a reorganization is usually the exact opposite of an assumption of liabilities of a preceding corporation and seeks an escape from them altogether. There are various occasions when it becomes expedient to form a new or reorganized corporation out of the constituents of an original corporation but the motives for so doing are usually the same; that is, to escape the embarrassments and complications of the latter and preserve and enjoy the benefits of its property and effects freed from its obligations and duties. If the new corporation is formed in whole or in part, by other parties than the stockholders, it is a misuse of terms to call it a reorganization. In reorganizations of railroad corporations, the scheme usually include the bondholders and their interests and they acquire the property taking stock in the new corporation, to represent their interest letting

1 McVicker v. American Opera Co., 40 F. 861.

In S. F. & N. P. R. R. Co. v. Bee, 48 Cal. 398 the court said: "The capital stock and the assets of the San Francisco and Humboldt Bay R. R. Co., therefore, constitute a fund, devoted by law to the payment of the debt to Bee, and the debts of that corporation, if any, to other persons; and it was certainly not competent to the members of that corporation to dissipate this fund and place it beyond the reach of creditors by merely going through the process of reincorporation, taking on a new corporate name, transferring the assets of the old corporation to the new one without consideration, and issuing the capital stock in the new corporation to the holders of the capital stock of the old corporation, the withdrawal of its assets, to the injury of its creditors-which is forbidden by the statute, and it should not be countenanced or aided by a court of equity.” See also Brum v. Merchants' Mut. Ins. Co., 16 Fed. Rep. 140; Martin v. Zellerbach, 38 Cal. 300; Hilbernia Ins. Co. v. St. Louis, etc., Transp. Co., 3 McCrary, 368; Barclay v. Quicksilver Min. Co., 9 Abb. Pr. N. S. 283; 6 Lans. 25; Booth v. Bunce, 33 N. Y. 139; Mitchell v. Beekman, 64 Cal. 117.

in stockholders in the old corporation on agreed terms. Such arrangements are beneficial and valid when fairly conducted and consummated; but are too often made instrumentalities for " freezing out" minority stockholders and junior mortgagees. These are usually left remediless at law and nearly so in equity owing to the fact that whatever the fruits of litigation they would go to the corporation represented by the majority and the bondholders and not to themselves. But it is plain. upon every principle of corporation law, that no reorganization can be effected which will be legally binding upon all parties without statutory authority for the purpose; and that no mortgage bondholder can be bound against his objection to a release of the property from his lien.1

1 Hollister v. Stewart, 111 N. Y. 614; 19 N. E. 782. When legitimately brought about for proper purposes reorganizations are favored by the courts. Robinson v. Phil., etc., R. R. Co., 28 Fed. Rep. 340; Yates v. Boston, etc., R. R. Co., 53 Conn. 33; McIntosh v. Flint, etc., R. R. Co., 34 Fed. Rep. 582; Hancock v. Toledo., etc., R. R. Co., 14 Chicago L. News, 153; Shaw v. R. R. Co., 100 U. S. 605. See also, Matthews v. Murchison, 15 Fed. Rep. 691; Bliss v. Mattison, 45 N. Y. 22. An insolvent railroad company had issued several series of mortgage bonds, some of which mortgages covered all of its property, and others only part. The principal of some of the mortgages was due, and the company had defaulted on the interest on all of them. In addition, it had a large floating debt, running into millions. There was no fair possibility of its being able to pay the accrued interest on the bonds and the floating debt without a sale of all its properties. Held, that a decree foreclosing all the mortgages, entered by consent of the creditors, would not be set aside at the suit of some of the stockholders on the ground that the principal of some of the mortgages was not yet due, as it was to the interest of the railroad company that the rights of all the mortgage bondholders should be cut off to enable the company to effect a reorganization which would secure and extend its bonded debt, and reduce the rate of interest thereon, and provide the necessary means to satisfy the floating debt. Carey v. Houston & T. C. Ry. Co., 45 F. 438. Equity will protect and enforce the agreements between the various parties to a reorganization scheme. Cornell v. Utica, etc., R. R. Co., 61 How. Pr. 184; Penn. Transp. Co., App. 101 Pa. St. 576; Sage v. Cent. R. R. Co., 99 U. S. 334; Wetmore v. St. Paul, etc., R. R. Co., 5 Dill. 531. See, generally, Ritcher v. Jerome, 123 U. S. 233: St. Louis, etc., Co. v. Sandoval, etc., Co., 116 Ill. 170; 5 N. E. 370; Sanzey v. Iowa, etc., Glass Co., 63 Ia. 707; 17 N. 429; Hazard v. Vt., etc., R. R. Co., 17 Fed. Rep. 753; Child v. N. Y., etc., R. R. Co., 129 Mass. 170.

§ 728. How usually accomplished. Re-organizations are usually brought about in pursuance of enabling acts or general statutory provisions. But the interests of dissenting stockholders cannot be transferred to the reorganized company without their consent and under statutes, passed subsequent to incorporation, any more than to a consolidated company. It would be otherwise if the reorganization should be provided for in the charter or articles of association, or in the general law existing at the time of filing articles. The prescribed statutory formalities must be substantially pursued in order to bind the stockholders.1

§ 729. Revivor.-Corporate existence is frequently renewed at the expiration of the period fixed by the charter, and if different features are not superadded thereby, the management of the assets may be continued according to the new charter as before, without the consent of the creditors.2

That would be a revivor while the term "reorganization" is generally used to denote the formation of an independent corporation.

§ 730. Lien of creditors cannot be impaired by reoganization. Reorganization can only be effected, as a general rule, subject to the liens of creditors upon any and all property so acquired. Such lien would follow the

1 If the stockholders desire to become members of the new organization they must avail themselves of the privilege within a reasonable time. Vatable v. N. Y., etc., R. R. Co., 96 N. Y. 49.

2 The identity of the corporation is not affected by the new lease of life conferred upon it. Nat. Ex. B'k v. Gay, 57 Conn. 224; 17 Atl. Rep. 555. See also, Day v. Ins. Co., 75 Ia. 694; 38 N. W. 113; Atty.-Gen. v. Perkins, 73 Mich. 303; 41 N. W. Rep. 426.

3 McVicker v. Am. Opera Co., 40 Fed. Rep. 861. Where a new corporation is formed, and a part of its stock is issued to the stockholders of an old corporation in consideration of their holdings in the latter, all of whose property is transferred to the new one, the transaction is void as to creditors of the old cor

property and hold good in the hands of the purchasing corporation. But the creditors would not acquire an equitable lien upon the property of the new corporation which was not derived from the original, nor would they become its creditors.1

A company incorporated by the creditors and shareholders of an insolvent corporation, for the purpose of purchasing its property at foreclosure or judicial sale, and continuing its business is not properly a reorganized but a new corporation. The lien of the creditors. upon the assets of the original corporation does not become a lien upon those of the new except by consent and novation.2

§ 731. Substitution of new corporation as debtor by statute. New companies formed by consolidation of two or more are sometimes made liable by statute for the debts and obligation of the consolidating companies.3

poration, being, in effect, a transfer of property by a debtor with a reservation of an interest therein to himself.

Montgomery Web. Co. v. Dienelt, 25 W. N. C. 549, (Pa.); 19 A. 428.

1 Wyman v. Hallowell, etc., B'k, 14 Mass. 58; Bellows v. Hallowell, etc., B'k, 2 Mason, 31; and see Port Gibson v. Moore, 13 Sm. & M. 157; Commercial B'k v. Lockwood, 2 Harr. (Del.) 17; Marshall v. Western North Car. R. R. Co., 92 N. Car. 322, 331; Bruffett v. Gt. West. R. R. Co., 25 Ill. 353. Slatterly v. St. L. & N. O. Tr. Co., 91 Mo. 217; 4 S. W. 79; S. C. Sav. B'k v. Sachtleben, 67 Tex. 420; 3 S. W. 733; Hurt v. Terrill, 83 Va. 167; 1 S. E. 911.

2 Penn. Transp. Co.'s App. 101 Pa. St. 576; Lake Erie, etc. Ry. Co. v. Griffin, 92 Ind. 487; Menasha v. Milwaukee, etc., R. R. Co., 52 Wis. 414; 8 N. 612; Houston, etc., R. R. Co. v. Shirley, 54 Tex. 125; Neff v. Wolf River Boom Co., 50 Wis. 585; 7 N. 553; Hammond v. Port Royal, etc., Ry. Co., 15 S. Car. 10; Cook v. Detroit, etc., Ry. Co., 43 Mich. 349; 5 N. 390; Gilman v. Sheboygan, etc., R. R. Co., 37 Wis. 317; s. c. 16 S. Car. 567; Sappington v. Little Rock, etc., R. R. Co., 37 Ark. 23.

3 Such a statute has been enacted in New York. L. N. Y., 1869, ch' 917, sec. 5. It provided for the consolidation of railroad companies, and provided that all debts and liabilities of either company, except mortgages, shall attach to the new corporation. It was held that bonds and the attached coupons secured by mortgage on the property of one of the consolidating companies became a debt against the new corporation without an impairment of the lien of the mortgage upon the property of the original mortgagor. Polhemus v. Fitch