Friedenwald Co. v. Asheville Tobacco Works

Avery, J. : A corporation chartered and doing business in the corporate name of The Asheville Tobacco Works, became, about the 23rd of March, 1892, completely merged by a transfer of all of its property, rights and franchises, to a new company incorporated and organized by the same stockholders and directors as the Asheville Tobacco Works and Cigarette Company — the shareholders of the former company receiving two shares of stock in the new in lien of every one previously held in the old corporation. ' The new organization continued the business and adopted the contracts already made by its predecessor including that for the material for which the debt sued on was created. The effect of such a merger was to create a novation, so far as the creditors of the old company were concerned and to substitute the new one as debtor for it. 2 Cook on S. & S., Section 669, note 3 ; 1 Spelling on Pr. Oorp., Section 93. As the nature and objects of the old were substantially the same as those [555] of the new association and the latter was organized merely for the purpose of enlarging its business, i-t was not necessary to obtain the consent of the creditors of the former to the change, since their rights continued after such a merger or consolidation the same as against the new as against the old corporation, before, any transfer of stock or property was made. 2 Morawitz Pr. Oorp., Sec. 811. Changes of this kind are to be distinguished from the reorganization of insolvent corporations, which are provided for by statute in some of the States. 2 Beach Pr. Corp., Sec. 791. The new corporation being formed by the same stockholders and managed by the same officers that composed and governed its predecessor, the adjudications to which we have adverted and which permit such mergers without the assent of creditors, rest upon the idea that the old association under a new name is, by virtue of an implied agreement, the debtor under the same contracts and in the same amounts as if no change had been made. With the knowledge that the law makes them answerable for all such outstanding indebtedness, it is difficult to understand why the same officers and persons acting under a new name, should be surprised when sued for debts created by them, and should not be able to understand and make defence to the claims of indebtedness without a recitation by the pleader of the history of their conduct of the business. Besides the' stipulation which the law would imply to pay the debts of the old concern, the new association after its organization as is alleged both in the amended complaint and the two first filed made an express promise to assume the indebtedness for which the two actions were brought and if that be true the transfer of the property was a sufficient consideration to support such a promise. The plaintiffs had at first instituted two actions in the Superior Court of Buncombe county by summons, dating [556] respectively October 23rd and October 24th, 1892, and tbe two were subsequently consolidated by order of tbe court. In the complaints first filed in each of the distinct actions the plaintiffs had in general terms alleged an. indebtedness on the part of the new corporation growing out of the contracts made by the old. After the consolidation and after a trial and verdict which was set aside by the presiding Judge, an order was' made in the court below allowing plaintiffs to file the amended complaint, in which there is a recital of the history of the merger. Was such a complaint amenable to the objection that it set up a new cause of action ? We think not. The theory that underlay both of the original declarations was that tbe association last formed stood in the place of its predecessor and made the former liable for all of the outstanding debts. If we should conclude that the new allegations were essential to the maintenance of the action, not as contended by the plaintiffs, a mere recital of evidential facts, it is nevertheless clear that the cause of action was the same whether defectively or sufficiently stated. We think that the order allowing the plaintiffs thirty days to amend, warranted the substitution of the amended complaint for the two theretofore filed and that it set forth more fully the cause of action originally relied on in both actions but states no new cause If it be true that the plaintiff could, by virtue of the provisions'of Section 685 of The Code, have attacked some conveyance made by the original corporation to that in which it was merged within sixty days after its execution, it does not appear that any such steps were taken. The charter of the first corporation was not annulled nor did it expire, but its existence was merged into a new one. Hence, the statute referred to in the demurrer {The Code, Section 667) has no bearing upon the question before us. The objection that two causes of action, the one arising [557] out of tort and the other out of contract, have been improperly joined, is untenable. The new organization, as we have seen, was effected merely to enable the same-' persons, with the same and possibly a little additional capital to enlarge the business. The law treats the new organization if formed as alleged in the complaint and admitted by the demurrer, as to all intents and purposes the same body, still answerable for its own contracts made under a different name. If the old company has ceased to exist and been merged in the new, it has no separate entity, is not liable to be dissolved and can not be made a party to the action. The only question presented by the appeal is whether there was error in overruling the demurrer. If the objection to the validity of a part of the contract declared upon could be drawn in question by demurrer ore terms and if it were well taken, the fact would still remain that a part of the demand is predicated upon a different contract. But we do not understand that the action was brought to enforce an executory contract, and, if not, the objection is without merit, or at all events the defendant could avail itself of the statute, if at all, only by plea as in case of the statute of limitations and not by demurrer. Curtis v. Piedmont Co., 109 N. C., 401; Cozart v. Land Co., 113 N. C., 294; Roberts v. Woodworking Co., 111 N. C., 432. The action is against the corporation and founded upon the identity of the two bodies, but if it had been alleged that the defendant had perpetrated a fraud it would not have followed that its officers were necessary parties. Mining Co. v. Mining Co., 99 N. C., 445. It seems to us after a careful consideration of the grounds-specified in the demurrer that there was no error in overruling it. The judgment is affirmed. Affirmed..