Vicksburg & Yazoo City Telephone Co. v. Citizens' Telephone Co.

Whitfield, C. J., delivered the opinion of the court. This case is largely controlled by the opinion this day delivered in the case of Morrison v. Snuff Co., ante 330 (30 So. Rep., 723). That was an action at law by attachment, the plaintiff garnishing a debt due to the constituent company, which debt had been transferred to the consolidated company by the deed of consolidation. This is a bill of equity, one of whose purposes is to subject the property of the Citizens’ Telephone Company, which had all been conveyed to the Cumberland Telephone Company, to the payment of such damages as the complainant had sustained by reason of the breach, on the part of the Citizens’ Telephone Company, of the contract which it had made with the complainant’s assignor. The bill proceeds upon the theory, in this aspect of it, that the complainant had a right to reach such property so transferred as being held by the Cumberland Telephone Company, impressed with a trust for the creditors of the Citizens’ Telephone Company, which had transferred its property to the Cumberland Telephone Company. As pointed out in the opinion referred to, the remedy in equity is appropriate. We may cite, in addition to the authorities therein cited on this point, 6 Am. & Eng. Énc. L., 820. The consolidated company, where there has been a consolidation, may be sued either at law or in equity, but the fact that it may be sued at law does not make the legal remedy exclusive, nor deprive the creditor of his right to proceed in equity, on the theory of a trust, to reach the property of- the constituent company in the hands of the consolidated company. 1 Thomp. on Corp., sec. 375. The action of the court below was entirely proper, so far as regards the prayer for specific performance. But there are three separate phases to this bill, and three prayers, one appropriate to each phase, and the bill is clearly [353] maintainable in that phase of it which seeks to subject the property of the Citizens’ Telephone Company (the transferer) in the hands of the Cumberland Telephone Company (transferee), for the reason that the bill expressly charges, and the demurrer admits the charge to be true, that the Cumberland Telephone Company had full knowledge of the terms of the contract between the Citizens’ Telephone Company and the complainant’s assignor, and of the breach of said contract by the Citizens’ Telephone Company, its transferer ; in other words, the bill expressly charges and the demurrer admits that the Cumberland Telephone Company was not a tona fide purchaser. And where there has been neither a consolidation nor a merger, but a mere sale by one corporation of its property to another, that sale, if permitted by the constitution and the laws as not being against public policy or otherwise illegal, and if made for a valuable consideration, in good faith, will pass the property of the selling corporation to the purchasing corporation free from claims of mere simple contract creditors. In every such case the same rule obtains as obtains in the case of a sale by an individual to another individual. This is all made perfectly plain in 1 Thomp. on Corp., sec. 377; 6 Am. & Eng. L., 819, note 5. It would be necessary in such case that the complainant should state in his bill that there was fraud, or that the transfer was not made for a valuable consideration, or that the defendant was not a bona fide purchaser. See Powell v. Railroad Co., 42 Mo., at top of page 66. This bill meets these requirements by charging that the purchase was not made bona fide. The property here has not passed into the hands of a bona fide purchaser from the consolidated company, and is, therefore, chargeable in equity with the debt (if any shall be established) here asserted. See 1 Thomp. on Corp., sec. 378. The bill charges that all the property of every kind which had belonged to the Citizens’ Telephone Company, except its corporate franchises, had been transferred to the Cumberland Telephone Company, and that the Citizens’ Telephone Company had gone [354] entirely out of existence, and had become absolutely defunct, and that such was the well understood purpose of the transfer. It is true that the bill does not aver any technical consolidation or merger. It shows no legislative authority for a consolidation. There seems to be a great confusion as to the differences between consolidation and merger and sale. Nightly understood, there never can be a consolidation of corporations except where all the constituent companies cease to exist as separate corporations, and a new corporation, to wit, the consolidated corporation, comes into being. A merger, rightly understood, is not the equivalent of consolidation at all, but exists where one of the constituent companies remains in being, absorbing or merging in itself all the other constituent companies. This bill, whilst charging no consolidation or merger when properly understood, nevertheless does charge that the dealing between these two corporations has resulted practically, to all intents and purposes, in exactly the same conditions, so far as creditors of the Citizens’ Telephone Company and its property are concerned, as would have resulted had there been a consolidation. We think the same principle which applies in favor of the simple contract creditor against a consolidated corporation, enabling him to subject, in the hands of that consolidated company, property of a constituent corporation received by the consolidated company (such constituent corporation being debtor of the simple contract creditor), will apply in cases like this. The Citizens’ Telephone Company could not give away its property to the prejudice of the complainant; and an attempted sale by it of this property to the Cumberland Telephone Company, the latter not being a bona fide purchaser, cannot avail to defeat the equitable rights of the complainant asserted in this bill, the property being still in the possession of the Cumberland Telephone Company, not sold to a bona fide purchaser from it. Nor does it make any difference that the complainant has asserted here, not a simple contract debt, but a claim for unliquidated damages, arising out of a breach of contract on the part of the Citizens’ [355] Telephone Company. The bill is not, in this aspect, one to have unliquidated damages ascertained in a court of chancery as its sole scope and purpose. The ascertainment of these damages is a mere incident to the subject-matter of equitable cognizance conferring the chancery jurisdiction, to wit, the enforcement, on the theory of a trust, of complainant’s equitable right to satisfaction out of the property of the Citizens’ Telephone Company in the hands of the Cumberland Telephone Company. It is that subject-matter which gives the jurisdiction. The ascertainment and award of the damages is a mere incident in the exercise of that jurisdiction. This precise point is settled in Railroad Co. v. Boring, 51 Ga., 582, and in many other cases. The decree is reversed and the cause rema/nded, with leave to answer in thirty days from the filing■ of the memdate i/n the court ieloto.