| N.Y. App. Div. | Nov 23, 1917
Lead Opinion
The facts are stated in the opinion of my brother Scott, but he does not, I think, give due effect to the statute (Stock Corp. Law [Consol. Laws, chap. 59; Laws of 1909, chap. 61], § 15) providing for the merger of corporations, which provides: “ * * * Thereupon it shall acquire and become, and be possessed of all the estate, property, rights, privileges and franchises of such other corporation, and they shall vest in and be held and enjoyed by it as fully and entirely and without change or diminution as the same were before held and enjoyed by such other corporation, and be managed and controlled by the board of directors
In Matter of Bergdorf (206 N.Y. 309" court="NY" date_filed="1912-10-15" href="https://app.midpage.ai/document/in-re-proving-the-will-of-bergdorf-3582994?utm_source=webapp" opinion_id="3582994">206 N. Y. 309) testator had executed his will November 2,, 1904. He appointed as executors thereof and trustees of the trusts created two individuals and the Morton Trust Company," and the survivors and successors of them.” He died January 11, 1911, and his will was probated February 28, 1911. On January 27, 1910, the Morton Trust Company was merged into the Guaranty Trust Company under and in the manner provided in sections 36 to 40, inclusive, of the Banking Law (Consol. Laws, chap. 2; Laws of 1909, chap. 10). The surrogate issued letters testamentary to the individuals named in the will, but denied the petition of the Guaranty Trust Company for the issuance of such letters to it. The Court of Appeals said: “ Within the regulations and restrictions prescribed by law, a testator" may commit the custody and administration of his estate to such executor or executors as he pleases, and his selection and designation alone it is which invests them with authority and power. The letters testamentary, founded upon the probate of the will, neither create the executor nor confer title or power upon him. * * * Tpe testator in making the will and appointing the executors was and remained throughout the following years of his life subject to the relevant existing statutes. The right to make a testamentary disposition of property is not an inherent right; nor is it a right guaranteed by the fundamental law. Its exercise to any extent depends entirely upon the consent of the Legislature as expressed in their enactments. * * * A testator intends and must be deemed to intend the results which the operation of those rules produce. They affect the testamentary disposition and provisions as though embodied in the will; and in case the cited sections of the Banking Law
It existed, although in an incomplete, imperfect and dependent condition, from the making of the will and at, the time the merger of the Morton Company was consummated. Ignorance on the part of the Morton Company of its existence did not affect it. Through it that company would have been an executor and entitled to the letters testamentary if it had ‘ continued to retain the title and transact the business of such corporation.’ The merger transferred it to the Guaranty Company and in effect substituted that company for the Morton Company. The Guaranty Company was entitled to hold and enjoy it even as would the Morton Company under an unmerged existence. By virtue of the statute, effective as a part of the
In City National Bank of Poughkeepsie v. Phelps (86 N.Y. 484" court="NY" date_filed="1881-10-25" href="https://app.midpage.ai/document/city-natl-bank-of-poughkeepsie-v--phelps-3600695?utm_source=webapp" opinion_id="3600695">86 N. Y. 484; 97 id. 44) a continuing guaranty dated February 15,1861, had been given to the City Bank of Poughkeepsie: “ We hold ourselves responsible for the payment of any sum not to exceed five thousand dollars ($5,000) Mr. C. H. Woodruff may require of your bank for legitimate business purposes.” The City Bank was organized as a State bank August 30, 1860. It was converted into the City National Bank in June, 1865. A note for $2,000 had been discounted for Woodruff by the City National Bank July 26, 1869, after the reorganization, which had been reduced by payments and renewed from time to time down to January 17, 1876, when the last renewal was given for $1,400, payable four months after date. The point raised was that the City National Bank could not hold the defendant upon the obligation to the City Bank; that the plaintiff was a distinct corporation from the State City Bank; that they are separate parties, and that the obligation of a surety to one party may not be availed of by another party. Judge Rapalló, writing for a unanimous court, affirming a judgment for the plaintiff, said: “The general scheme of the National Banking Act
That case was cited in Michigan Insurance Bank v. Eldred (143 U.S. 293" court="SCOTUS" date_filed="1892-02-29" href="https://app.midpage.ai/document/michigan-insurance-bank-v-eldred-93268?utm_source=webapp" opinion_id="93268">143 U. S. 293, 300) and the Bergdorf Case (supra), and quoted from and followed in People v. Backus (117 N.Y. 196" court="NY" date_filed="1889-11-26" href="https://app.midpage.ai/document/people-v--backus-3590815?utm_source=webapp" opinion_id="3590815">117 N. Y. 196). That case was an action against defendants as guarantors that the National Bank of Auburn would fully perform its contracts to the People to pay over on demand all moneys of the State deposited with it by the agent and warden of Auburn Prison. The bank was incorporated under the National Bank Act of 1863 (12 U. S. Stat. at Large, 665, 666, chap. 58, § 5 et seq.), and by its articles of association it was provided that it should continue until February 25, 1883. By the act of Congress passed July 12, 1882 (22 U. S. Stat. at Large, 162, chap. 290) National banks were authorized to extend their corporate existence, and in January, 1883, such proceedings were taken under that act as to extend the charter of the bank and its corporate existence until February 24, 1903. By section 4 of the act it is provided that “ any association so extending the period of its succession shall continue to enjoy all the rights and privileges and immunities granted and shall continue to be subject to all the duties, liabilities and restrictions imposed by the Revised Statutes of the United States and other acts having reference to National banking associations, and it shall continue to be, in all respects, the identical association it was before the extension of its period of succession.” (22 U. S. Stat. at Large, 163, § 4.) The action was for moneys deposited with the bank after 1883, and down to 1888, it having become insolvent. When,the guaranty was executed the existence of the bank was limited to the year 1883, and hence liability for moneys deposited with it was limited to that period. But the limitation was extended by act of Congress for twenty years further, of course without the consent of the guarantor. Nevertheless, Judge Earl, writing for a unanimous court, said: “ Here a new corporation was not formed, but there was a mere prolongation of the existence of the same corporation whose corporate identity was not changed or lost. The bank which defaulted
In my opinion the foregoing cases completely answer the arguments contained in the dissenting opinion. The defendant gave his guaranty to a corporation charged with the knowledge that the law permitted the merger of that corporation with another, and the vesting in the merged corporation of all the “ estate, property, rights, privileges and franchises ” belonging to its component parts. There was no assignment of the guaranty, none was made, none was required by law. By the merger it belongs to the merged corporation and is effectual.
The determination of the Appellate Term should be reversed, with costs and disbursements in this court and at the Appellate Term to the appellant, and the judgment of the Municipal Court reversed and a new trial ordered, with costs in that court to abide the event.
Smith and Shearn, JJ., concurred; Scott, J., dissented.
See 13 U. S. Stat. at Large, 99, 100, chap. 106, § 5 et seq.; Id. 112, § 44; U. S. R. S. § 5133 et seq.; Id. § 5154.— [Rep.
12 U. S. Stat. at Large, 682, § 65; 13 id. 118, § 64.— [Rep.
Concurrence Opinion
Defendant gave to Morse & Rogers, a corporation, a continuing guaranty that one Henry would pay for any goods
The merger took place under section 15 of the Stock Corporation Law (Consol. Laws, chap. 59; Laws of 1909, chap. 61), which provides that the corporation into which a merger is effected shall thereafter “ acquire and become, and be possessed of all the estate, property, rights, privileges and franchises of such other corporation, and they shall vest in and be held and enjoyed by it as fully and entirely and without change or diminution as the same were before held and enjoyed by such other corporation.” At the time of the giving of the guaranty this section was in force, and the guaranty must, therefore, be considered to have been given in contemplation of a possible merger of the corporation.
The language of the section is very broad and comprehensive, and the construction put upon it by the courts is a liberal one. It has been held that in case of a merger there is no question of dissolution, termination or break, but a continuance as an integral part of a whole, with the ownership in the whole of all and every right and privilege possessed by the part. (Matter of Bergdorf, 149 A.D. 529" court="N.Y. App. Div." date_filed="1912-03-08" href="https://app.midpage.ai/document/in-re-proving-the-last-will--testament-of-bergdorf-5223530?utm_source=webapp" opinion_id="5223530">149 App. Div. 529; affd., 206 N.Y. 309" court="NY" date_filed="1912-10-15" href="https://app.midpage.ai/document/in-re-proving-the-will-of-bergdorf-3582994?utm_source=webapp" opinion_id="3582994">206 N. Y. 309.) In that case it was held that where a corporation was appointed trustee under a will and, prior to the death of the testator, merged into another corporation, the latter became entitled on the testator’s death to act as trustee, the court saying it was not the intent of the testator that governed, but that of the Legislature, and (referring to section 15 of the Stock Corporation Law) holding: “ This language means not only that every right, privilege, interest or asset of conceivable value or benefit then held by the Morton Company (except the right to be a corporation) should pass into and be absorbed by the Guaranty Company, but also that every right, privilege, interest or asset of conceivable value or benefit then existing which would inure to the
There was no personal equation in so far as the original corporation was concerned, since its entire directorate and management might be changed without affecting the guaranty. Its entire capital stock might have changed hands and the policies of the company have been materially altered, so that a reliance on the discretion and prudence of the person extending the credit could not, as suggested in the dissenting opinion, have been a material consideration in making the contract of guaranty. The principle seems no different from that involved in the case of a fidelity bond for the performance of services, in which class of cases it is held that the bond inures to the benefit of the corporation in which a merger has been effected. (Lee v. Atlantic Coast Line R. Co., 150 Fed. Rep. 775, 787; Miller v. Lancaster, 45 Tenn. 514" court="Tenn." date_filed="1868-04-15" href="https://app.midpage.ai/document/miller-v-lancaster-7652466?utm_source=webapp" opinion_id="7652466">45 Tenn. 514; Pennsylvania & N. R. R. Co. v. Harkins, 149 Penn. St. 121.) There would seem to be just as much reason for claiming a reliance on the discretion and prudence of the particular employer as of the person extending the credit.
The case of Bennett v. Draper (139 N.Y. 266" court="NY" date_filed="1893-10-03" href="https://app.midpage.ai/document/bennett-v--draper-3606593?utm_source=webapp" opinion_id="3606593">139 N. Y. 266), cited in the dissenting opinion as an authority against the continuing of the guaranty after the merger, was a case where the guaranty was given to a copartnership. One of the members of this copartnership died, causing a dissolution, and a new partnership was formed. It was held that the guaranty did not survive the dissolution and hence did not inure to the benefit of the new firm. That case is distinguishable from the case at bar upon two grounds: First, the death of a partner dissolves the partnership as matter of law, of which the obligor presumably had knowledge. Secondly, the contract of a surety with a copartnership has presumably a personal element, resting in the confidence of the surety in the judgment and discretion of the partnership. This was recognized as a controlling factor in the case cited, and in the opinion it is said: “ Her obligation is limited to loans made by the firm, which it may be presumed she knew, and with which alone she had contractual relations.” A contract of a surety with a corporation, however, can have no personal element, as before stated, because of the liability
The precise question here has apparently not heretofore been before the courts. It would seem, however, to have been the intention of the Legislature that nothing should be lost by the merger of corporations, and applying the liberal construction given by the courts in analogous cases involving this section, I am of the opinion that the order of the Appellate Term and judgment of the Municipal Court should be reversed and a new trial granted.
Clarke, P. J., and Shearn, J., concurred.
Dissenting Opinion
On January 14, 1910, the defendant executed and delivered a written guaranty to the corporation of Morse & Rogers, whereby he guaranteed “ the payment at maturity of any and all purchases from and after the date thereof, made by or in the name of H. Henry.” It was expressly agreed that the guaranty was to be a continuing one, covering all future purchases of goods until notice of revocation. Notice of sale, delivery of goods, non-payment at maturity, extensions and indulgences were waived.
The corporation of Morse & Rogers sold goods to the said H. Henry until March, 1913, when it became merged with the plaintiff, also a corporation. Plaintiff continued to sell goods to said H. Henry until May, 1915, when he failed to pay for the goods purchased and a judgment was recovered against him which remains unpaid. Plaintiff sues upon the above-described guaranty, and the question involved is whether such guaranty survived the merger of Morse & Rogers with plaintiff and may be enforced by the latter.
The merger took place under section 15 of the Stock Cor
There has been much discussion of the effect of a merger of corporations, and a distinction has frequently been drawn between a merger and a consolidation. (See Matter of Bergdorf, 149 A.D. 529" court="N.Y. App. Div." date_filed="1912-03-08" href="https://app.midpage.ai/document/in-re-proving-the-last-will--testament-of-bergdorf-5223530?utm_source=webapp" opinion_id="5223530">149 App. Div. 529, 532, and cases there cited.) In the view which I take of the question under consideration it is not necessary to pursue that discussion. Certainly the language of the statute quoted above is as strong as could have been devised to effect a devolution or transfer to the resultant corporation of all property and rights of every description capable of transference from one corporation or person to another. But there are certain things which even the Legislature may not do by any language however strong. It may not make a contract for an individual, and may not extend the operation of a contract beyond the fair intendment of the individual who made it and who is to be bound by it. Hence it cannot by statute work the assignment or transference of a contract which is in its nature unassignable. The contract of guaranty has generally been considered to be such a contract. It- has always been held to be strictissimi
So, also, in Bennett v. Draper (139 N.Y. 266" court="NY" date_filed="1893-10-03" href="https://app.midpage.ai/document/bennett-v--draper-3606593?utm_source=webapp" opinion_id="3606593">139 N. Y. 266) the action was upon a guaranty given by the defendant to guarantee the firm of H. C. Bennett & Co. the repayment of any moneys, up to a certain sum, advanced by that firm to the copartnership of John H. Draper & Co. Hiram C. Bennett, one of the members of the obligee firm died, but the business was continued under the same firm name, and with partners having the same individual names. It was held that the guaranty did not survive the change in the firm and that the new firm could not recover upon it for advances made to Draper & Co., upon the ground that the contract of guaranty was incapable of assignment without the consent of the guarantor. It is quite clear that the contract here sued upon could not have been assigned by Morse & Rogers to the plaintiff corporation, and I am of the opinion that it was equally incapable of transference by act of the Legislature. I can find nothing to the contrary in Matter of Bergdorf (206
In City National Bank of Poughkeepsie v. Phelps (97 N. Y.
There are expressions in Bank of Long Island v. Young (101 App. Div. 88) which are favorable to the contention of the plaintiff here, but they were not essential to the decision of the case, which went on another ground.
There is a certain class of cases, in which what may be termed fidelity bonds are given, to which a different rule might well be applied. Such was Pennsylvania & N. R. R. Co. v. Harkins (149 Penn. St. 121). That case involved a bond given to insure the faithful performance by a railroad employee of his services as such, and it was held that the benefit of the bond extended to the corporation with which the original employer was merged. In that case it could make no possible difference to the insurer in whose employ the insured was, providing the duties to be performed by him were not materially altered or his responsibilities increased. But where the guaranty is of credit it is of material importance to the guarantor not only to whom the credit is extended, but also by whom it is to be extended, for as already said he is entitled to rely upon the discretion and prudence of the person whom he selects as the one to extend the credit.
Upon principle I am of the opinion that the merger of Morse & Bogers with plaintiff did not operate to transfer or extend defendant’s obligation to plaintiff so as to cover
It follows that the determination of the Appellate Term should be affirmed, with costs.
Determination reversed, with costs in this court and in the Appellate Term to the appellant; judgment of Municipal Court reversed and new trial ordered, with costs in that court to abide event.