182 A. 692 | Pa. | 1936
Argued January 28, 1936.
On December 4, 1930, Joseph Kulka brought an action in trespass against Samuel Nemirovsky, individually, and trading as Samuel Machinery Company, in which he recovered a verdict of $10,000 on April 4, 1933. A judgment n. o. v. was entered for the defendant and, on appeal to this court, that judgment was reversed and the verdict of the jury reinstated on January 30, 1934, (Kulka v. Nemirovsky,
The question presented was whether the persons who formed the partnership were identical with those who formed and were the sole members of the corporation to which the property of the partnership was transferred. The facts developed on trial were not in serious dispute, and it will serve no useful purpose to recite them here. The corporation which succeeded the Samuel Machinery Company, the unincorporated association, was capitalized at $10,000, divided into 100 shares. A bill of sale was executed by Samuel Nemirovsky, Goldie, his wife, and Morrison, a son, members of the partnership, transferring all the assets of the Samuel Machinery Company to the Samuel Machinery Company, Inc., the corporation; *236 they are specified in this agreement as coöwners of the property transferred. The shares were to be divided among the three of them; one was to receive 34 shares and the other two were each to receive 33 shares, although the articles of incorporation specified otherwise. Of the shares received by Goldie, there is testimony that a son Phillip was to receive one-half. No shares were actually ever issued. The court below concluded from the evidence before it that the Samuel Machinery Company, the unincorporated association, was a partnership composed of three members, Samuel, Morrison and Goldie, and that the corporation, Samuel Machinery Company, Inc., was composed of the identical persons. It further concluded that, because of the identity of the owners of these two businesses, the property transferred to the corporation was liable for the Kulka judgment. This appeal followed.
We dismiss without merit appellant's argument that there is no justification for the court's conclusion that there were others than Samuel and Morrison interested in the unincorporated association. We agree with that finding for, on the whole, it is obvious that the son, Phillip, and the mother, Goldie, were accepted by Samuel and Morrison, the two active members of the concern, as having rights in the assets and profits of the partnership. The evidence shows Phillip was treated as entitled to the payment of salary and Goldie as owner of part of the assets of the business. Whether the conclusion be drawn that the business operated under the fictitious name of Samuel Machinery Company was made up of Samuel, Morrison and Goldie, or of Samuel, Morrison, Goldie and Phillip, the identity of the shareholders of the corporation which took over its assets is similar to that of the partnership which preceded it.
That Kulka was a creditor of the unincorporated association cannot be questioned even though at the time that the corporation was formed and the assets of the partnership transferred to it his claim had not been liquidated. *237
Recently in Merwine v. Mt. Pocono Light Improvement Co.,
We have frequently considered the liability of a successor corporation for a debt of the corporation from which it derived all of its assets. In Montgomery-Webb Co. v. Dienelt,
Where individuals have transferred their property to a corporation whose shares were owned exclusively by them, we have likewise disregarded the fiction of a corporate entity separate and distinct from its members, and have probed to discover whether the corporation was not, in fact, the individuals cloaked in the guise of a corporation. SeeAtlas-Portland Cement Co. v. American Brick and Clay Co.,
We have considered the liability of a corporation which succeeded to the assets of a partnership in but one case. InCoaldale Coal Co. v. State Bank,
An examination of authorities outside of this jurisdiction discloses that there is not an entire unanimity on the question of the liability of a corporation which succeeds to the assets of a partnership. Many cases cited as holding there is no such liability will, on closer examination, show no substantial identity between the parties interested in the corporation and the parties interested in the partnership. In In re JohnsonHeart Co.,
There is no good reason for the application of one principle of liability to corporations succeeding to the assets of corporations or individuals and another when a partnership is concerned. A partnership in substance is a quasi legal entity, and its assets are to be first applied to partnership creditors. When a partnership transfers its assets to a corporation composed of substantially the same members as was the partnership, the creditor cannot be deprived of his prior right against the partnership assets and he may follow these assets into the corporation and enforce payment of his claim therefrom.
It is argued that a creditor should resort to the shares of stock and that these shares in substance represent the property. It is sufficient to say that credit was not given on such security. A creditor should not be forced to speculate on the value of such shares irrespective of whether or not they are equivalent in value to the property whose ownership they represent. Neither should he be subjected to the incidents attendant upon securing a lien or ownership of such shares through processes of execution and then hazard the company's policy with respect to the property so represented. The control over *240 the property by the corporation reduces the property value of the shares when subjected to sale. See In re Braus, 237 Fed. 139. The position of a creditor becomes more difficult where, as here, the stock is that of a small or closed corporation. Such stock is practically unmarketable and in no manner represents the value of the corporation's assets. Nor should the creditor be put to further burden by conducting the business through stock ownership. It would be an inequitable rule to so delay a creditor and to force him to resort to such circuitous methods if we are to see that complete justice is done.
The partners by their transfer of all the assets to the corporation deprived a partnership creditor of the right to have such assets first appropriated to the payment of his claim. There being a substantial identity between the members of the corporation and the partnership, the creditor may pursue the assets of the partnership directly into the hands of the corporation. In the case of Ziemer v. Bretting Mfg. Co.,
In view of our conclusion, it is unnecessary to discuss appellant's third point regarding the right to issue an execution on a judgment against a decedent without first issuing a sci. fa. against his personal representatives. The execution was not made on the personal property of Samuel Nemirovsky but on the assets of the partnership found in the possession of the corporation. Because of the identification of its shareholders with the parties interested in the partnership, liability followed the property as a matter of law though there was no express assumption of the debt or actual fraud in the transfer.
Judgment affirmed. *241