Covers cases on assumption of obligations of a purchased business and on the power of the president to call stockholder meetings

Cameron, William D.

English

UW Law Digital Commons (University of Washington)

Washington Law Review Volume 30 Number 2 Washington Case Law-1954 5-1-1955 Corporations William D. Cameron Follow this and additional works at: https://digitalcommons.law.uw.edu/wlr  Part of the Business Organizations Law Commons Recommended Citation William D. Cameron, Washington Case Law, Corporations, 30 Wash. L. Rev. & St. B.J. 109 (1955). Available at: https://digitalcommons.law.uw.edu/wlr/vol30/iss2/4 This Washington Case Law is brought to you for free and open access by the Law Reviews and Journals at UW Law Digital Commons. It has been accepted for inclusion in Washington Law Review by an authorized editor of UW Law Digital Commons. For more information, please contact cnyberg@uw.edu. WASHINGTON CASE LAW-1954has not as yet been answered. For instance, would a creditor, whoagreed to extend the time of payment, or to receive the payments ininstalments, or to accept a lesser sum in full satisfaction be estoppedif he changed his mind the following day? The case does not answerthese questions. An outright repudiation of the orthodox rule, whichwould make an accord binding from the time of execution, would bepreferable in the interest of certainty and finality of commercialtransactions.RicHARD W. BARTKECORPORATIONSAssumption of Obligations of Purchased Business-Prima FaciePresumption. If a partnership sells all of its assets to a corporation,does the corporation thereby become liable for the obligations of thepartnership? This question was one of several arising in Mig & LoggingSupply Co. v. West Tenino Lumber Co.' There the plaintiff brought anaction, in part, for payment of debts incurred by a partnership whichsold all of its assets to the defendant corporation. The court relied onthe rule that a corporation is not liable for the partnership obligationswhere no showing is made that it either expressly or impliedly assumedthem. Because of plaintiff's failure to make such an allegation, defend-ant's demurrer to this particular part of the complaint was sustained.By way of dictum the court indicated the same rule would applyhad the defendafit corporation been shown to be a mere change in thepartnership business structure. The dictum, it seems, overlooks the factthat such a showing would in and of itself imply that the corporationhad assumed the partnership debts. This was brought out in Jones v.Francis,2 Northwest Perfection Tire Co. v. Perfection 'Tire Corp.' andSeattle I;zvesters' Syndicate v. West Dependable Stores.4 In eachcase a new corporation, in substance merely the continuation of an oldcorporation, was held liable for the latter's debts. In Bowyer v. BossTweed-Clipper Gold Mines' the court quoted Fletcher, Cyclopedia ofCorporations, with approval, as follows:The general rule, which is well settled is that where one company sellsor otherwise transfers all its assets to another company, the latter is not144 Wn2d 102, 265 P2d 807 (1954). See also Contracts at page 93.2 70 Wash. 676, 127 Pac. 307 (1912).3 125 Wash. 84, 215 P.2d 360 (1925).4 177 Wash. 125, 30 P2d 956 (1934).5 195 Wash. 25, 79 P.2d 713 (1938).1955]WASHINGTON LAW REVIEWliable for the debts and liabilities of the transferor. . . .To render itliable there must be an agreement, express or implied, to assume the othercompany's debts and obligations; or the circumstances must warrant afinding that .. . the purchasing company was a mere continuation ofthe selling company.6While these cases do not concern corporations created to succeed tothe assets and business of a partnership, the situation is analogous, andit would seem that liability should follow to the new corporationwhether its predecessor was a partnership or a corporation. In Fletcher,Cyclopedia of Corporations,' the better rule is said to be that a corpora-tion is presumed to have assumed the partnership debts and is primafacie liable therefor where no consideration has been paid for thepartnership assets, other than issuance of stock in the corporation, andwhere the corporation has no other property or assets than those soacquired. The case of Stowell v. Garden City News Corp.' exemplifiesthe rule. There a corporation was formed by and consisted of membersof a partnership whose business and property were conveyed and trans-ferred to the corporation in return for capital stock of the latter. Thecorporation, which continued the business of the partnership, was pre-sumed to have assumed the partnership debts and was prima facieliable therefore.As recognized by the court in the West Tenino case, a corporationmay be held to have impliedly assumed the obligations of its predeces-sor. The question, then, becomes one as to the sufficiency of the estab-lished facts and circumstances to raise the implication or presumptionthat the corporation assumed the partnership debts and obligations. Afew decisions seemingly can be construed to state that a corporation,which upon its organization succeeds to the business and property of apartnership, is presumed to be a mere continuation of the latter andthereby chargeable with its liabilities.9 The dictum in the West Teninocase seems to indicate a willingness to go to the opposite extreme. Thatis, the court seems reluctant to allow an inference of liability for thedebts of a partnership where the defendant corporation is shown to bea mere change in the partnership business structure. The court wouldnot be alone if it so held." One view is that since the consideration for6 15 FLETCHER, CYCLOPEDIA OF CORPORATIONS 139, § 7122 (1938).7 15 Id. 406, § 4014.8 143 Kan. 840, 57 P2d 12 (1936).Reed Bros. Co. v. First National Bank of Weeping Water, 46 Neb. 168, 64 N.W.701 (1895) ; Austin v. Tecumseh National Bank, 49 Neb. 412, 68 N.W. 628 (1896).10 See Taylor Lumber Co. v. Clark Lumber Co., 33 Ga. App. 815, 127 S.E. 905(1925) ("A corporation which lawfully acquires all the property of a partnership does[MAYWASHINGTON CASE LAW-1954the transfer of the partnership business is stock in the new corporation,the transaction is not one in fraud of creditors, because the partnerscontinue liable as before, and with presumably as much property asbefore. In effect, the shares of stock represent the property put into thecorporation and are available to the partnership creditors."This latter view does not follow what, as set forth herein, is deemedto be the better rule. Neither is it analogous to the view taken in theWashington cases concerning assumption of liabilities when a corpora-tion succeeds to the business and assets of another corporation. How-ever, as indicated by the small number of Washington cases on thesubject of assumption of liabilities of a purchased business, the questionremains open, and the West Tenino dictum should not preclude a futureadoption of the rule creating an inference of liability in the new corpor-ation for the old partnership debts when the former is merely a changein the latter's business structure.Power of President to Call Meeting of Stockholders. State Bank ofWilbur v. Wilbur Mission Church'2 was an interpleader action by abank to determine title to church funds deposited with the clerk ofcourt. In determining which of two groups was entitled to certain cor-porate offices, and thus who was ,entitled to the corporate funds, theSupreme Court held that the president of a corporation generally hasno power to call a meeting of the stockholders or members, unlessbylaws or a resolution of the board of directors or trustees make it hisduty to do so. Such a rule was said to be as equally applicable to re-ligious organizations as to corporations organized for profit.This rule is so generally accepted that few cases raise the issue.'Both Knoll v. Levert" and Dusenbury v. Looker, cited by the courtnot thereby become responsible for the partnership debts, though the corporation hasthe same name as the partnership, and the persons who constituted the partnershipown the entire capital stock of the corporation, and the business of the partnership hasbeen merged into that of the corporation"). Universal Pictures Corporation v. RayDavidge's Film Laboratory, 7 Cal. App.2d 366, 45 P2d 1028 (1935) ; Dickson-CarrollCo. v. U.S. Fidelity & G. Co., 58 Ga. 540, 199 S.E. 322 (1938) ("The debts have tobe assumed in a manner recognized by law").11 McLellan v. Detroit File Works, 56 Mich. 579, 23 N.W. 321 (1885); Nat'l Bankv. Hollingsworth, 135 N.C. 566, 47 S.E. 618 (1904).22 44 Wn2d 80, 265 P2d 821 (1954). See also Equity at page 142.1s 5 FLETCHER, CYcLoPFDIA or CoRpoRArioNs 7, § 1997 (1938) ("The power andduty of calling meetings is, in the absence of any statute or bylaw, in the directors."At page 8: "Meetings of religious corporations are called according to their constitu-tions and bylaws, if there is no statute upon the matter, the Stock Corporation Lawsbeing not generally applicable"). See Uzzell v. McClelland, 65 Colo. 324, 176 Pac. 304(1918).14 136 La. 241, 66 So. 949 (1914).15110 Mich. 58, 67 N.W. 986 (1896).19551WVASHINGTON LAW REVIEWas authority for the rule, avoid the issue, since, according to the termsof the corporate charters in those proceedings, the power to call ameeting of the stockholders was expressly vested in the board of direc-tors. However, the president and secretary of a church were held to bewithout authority to issue a call in a Louisiana case16 preceding theKnoll decision.The Wilbur case illustrates the hazard of incorporating under RCW24.08.010 et seq., a short, inadequate, and antiquated chapter relatingto educational, religious, benevolent, or charitable societies. If theWilbur Mission Church had been incorporated under RCW 24.04.010et seq., relating to nonprofit, nonstock corporations, the conflict wouldprobably have been averted by the requirement that the members ofthe corporation must meet and adopt bylaws before transacting anybusiness. The time, place, and manner of calling and conducting meet-ings heads the list of suggested bylaw provisions under RCW 24.04.070.Also, RCW 24.16.010 et seq., relating to associations for mutual bene-fit and educational, charitable, etc., purposes, would have been a betterchoice under which to incorporate than the one employed. Among otherprovisions the statute provides for adoption of bylaws and delineatesthe authority of trustees. Both RCW 24.04 and 24.16 are broad inscope, and yet lend a degree of guidance to incorporators and a partialframework from which the corporation may function. This cannot besaid of RCW 24.08.WiLLiAM D. CAMERONCorporations May Do Business Under Assumed Names. Seattle Association of CreditMen v. Green, 145 Wash. Dec. 128, 273 P2d 513 (1954), was an action by the assigneefor benefit of all creditors of an insolvent corporation against certain specific creditorsof the corporation to recover a preferential payment. The Supreme Court held theUniform Business Corporation Act, (adopted 1933, RCW Title 23), does not precludea corporation from doing business under an assumed name. Funds of the insolventcorporation, paid within four months of the corporation's assignment for benefit ofcreditors by means of a check drawn under an assumed name used in transactingbusiness with a creditor, could be recovered by the assignee under RCW 23.48.030.CREDITORS' RIGHTSMechanics' Liens-Time for Filing of Claim. The filing of mechan-ics' liens is governed in Washington by a statute which, in the partpertinent to this inquiry, reads as follows:No lien created by this chapter shall exist and no action to enforce the16 State ex rel. Bellamore v. Rombotis, 120 La. 150, 45 So. 43 (1907).[MAY

Corporations

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Corporations

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