W. H. McElwain Co. v. Primavera

180 A.D. 288, 167 N.Y.S. 815, 1917 N.Y. App. Div. LEXIS 9392

• Court: Appellate Division of the Supreme Court of the State of New York
• Decided: November 23, 1917
• Status: Published

Opinions

Clarke, P. J.:

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 of such possessor corporation, and in its name, but without prejudice to any liabilities of such other corporation or the rights of any creditor thereof.” It seems to me that under this statute nothing is lost by a merger; that the company formed by the merger stands in the place of those merged, and any right which belonged to them can be asserted by it — “ it shall acquire and become, and be possessed of all the estate, property, rights, privileges and franchises of such other corporation, * * * without change or diminution.”

In Matter of Bergdorf (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 provide that the merger of the Morton Company transferred to the Guaranty Company the right, privilege or interest, if any, which the designation of it as an executor originated, and thereby entitled the latter to the executorship, thus it was that the testator intended. In reading the sections we do not regard the intention of the testator, but that of the Legislature. Their language is broadly and conspicuously comprehensive. The merger transferred to the Guaranty Company ‘ all and singular the rights, franchises and interests of ’ the Morton Company ‘ in and to every species of property, real, personal and mixed, and things in action thereunto belonging ’ and empowered the Guaranty Company to ‘ hold and enjoy the same and all rights of property, franchises and interests in the same manner and to the same extent ’ as the Morton Company would if it ‘ should have continued to retain the title and transact the business of ’ the Morton Company. 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 Morton Company under an unmerged existence should inure to the Guaranty Company. Nothing appertaining to the Morton Company was to be lost, forfeited or destroyed. The designation of the Morton Company as an executor created a privilege or an interest in the estate of the testator appertaining to that company * * *.

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 will, the Guaranty Company was designated as an executor and as such is entitled to receive the letters testamentary.”

In City National Bank of Poughkeepsie v. Phelps (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

* is that State banks may avail themselves of its privileges and subject themselves to its liabilities, without abandoning their corporate existence, without any change in the organization, officers, stockholders, or property, and without interruption of their pending business or contracts. All property and rights which they had before organizing as National banks are continued to be vested in them under their new status. Great inconveniences might result if this saving of their existing assets did not include pending executory contracts, and pending guarantees, as well as vested rights of property. Although, in form, their property and rights as State banks purport to be transferred to them in their new status of National banks, yet in substance there is no actual transfer from one body to another, but a continuation of the same body, under a changed jurisdiction. As between it and those who have contracted with it, it retains its identity, notwithstanding its acceptance of the privilege of organizing under the National Banking Act.”

That case was cited in Michigan Insurance Bank v. Eldred (143 U. S. 293, 300) and the Bergdorf Case (supra), and quoted from and followed in People v. Backus (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

was the same bank for which the defendants became bound. There were not two banks in succession, but all the time one bank. Its charter was amended so as to extend its existence; and in the original National Banking Act (§ 67)* it was provided that Congress could, at any time, ‘ amend, alter or repeal this act A It would certainly be a very inconvenient rule to hold that all the contracts of sureties to the bank, and of sureties by the bank to other persons, should be destroyed by every material change or alteration in its charter. The contract was entered into by the sureties with knowledge of this law, and it became a part of their contract as if they had stipulated that the changes or alterations might be made.” In Bank of Long Island v. Young (101 App. Div. 88) the plaintiff was a domestic banking corporation. On January 1, 1903, under and pursuant to the Banking Law (Gen. Laws, chap. 37 [Laws of 1892, chap. 689], §§ 34-38, added by Laws of 1895, chap. 382, as amd. by Laws of 1900, chap. 199), the Bank of Jamaica became and was merged in the plaintiff. In November, 1900, the defendant in writing guaranteed and promised to be answerable to the Bank of Jamaica for the payment of loans which it might thereafter make to the National Cooperage Company to the extent of $10,000 and to William R. Cole & Co. to the extent of $5,000. On the faith of said guaranty the Bank of Jamaica loaned the said National Cooperage Company and said firm of William R. Cole & Co. $15,000. Said sums became due on July 1, 1903, after the merger, and being unpaid, this action was brought against defendant as guarantor. The court said: “ ‘Dealing with the original banking corporation, the defendant subjected himself to the possibility of merger and the enforcement of the contract by the new corporation, which is new so far as the defendant is concerned in name only.' The provisions of section 37 of the Banking Law * * * regulating the transfer and the vesting of property in a case where merger occurs, are very broad. The Legislature did not contemplate that the property of one bank merged in another should vest in the corporation in which the merger takes place by operation of any assignment, or that such transfer should be attended with the usual rules of law in respect to assignments. The scheme is that the corporation which is merged with another should lose its identity only so far as its separate existence is concerned, and that it should be swallowed up in the other and become an integral part thereof, carrying into the corporation which survived all its rights, powers, liabilities and assets, except the indicia and attributes of a corporate body, distinct from -that into which it is' merged. * * * So-far as the relations of this defendant with the plaintiff are concerned in this transaction, they are by virtue of the statute the same as though for the purpose of determining the obligations of the defendant upon his guaranty, the Bank of Jamaica had existed a separate and distinct corporation, managed and operated by the officers and directors of the plaintiff. Such was clearly the intention of the Legislature in the enactments in relation to mergers, even though the language of section 37 of the Banking Law may, as the appellant here claims, be insufficient to vest title in the cause of action sued upon, by assignment, by reason of some subtle intricacies of the law of assignment.”

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.