*2356 Petitioner held to be liable as a transferee of the Fairlawn Sand & Gravel Co.
*655 Respondent determined deficiencies in taxes, and penalties, against the Fairlawn Sand & Gravel Co., as follows:
| Year | Tax | Penalty |
| 1921 | $257.20 | $64.30 |
| 1922 | 1,831.87 | 476.72 |
These amounts he proposed to assess against the petitioner under section 280 of the Revenue Act of 1926.
Petitioner alleges, (a) that it is not a transferree of the property of the Fairlawn Co., and (b) that depreciation allowed is inadequate. Counsel for petitioner, in his brief, abandons the allegations as to depreciation.
FINDINGS OF FACT.
The Fairlawn Sand & Gravel Co., now dissolved, was until some time in 1924 a corporation engaged in the quarrying and sale of sand and gravel. The sole stockholders in that company were Ferdinand Coirin, Rene Coirin, and George J. Weber.
On July 2, 1924, the three stockholders of the Fairlawn Co. entered into an agreement with one Horace V. Bruce, whereby the three stockholders agreed to dissolve the Fairlawn Co. and to*2357 organize *656 the Concrete Industries, Inc., the petitioner herein. The three stockholders acting as trustees in dissolution were to have the assets of the Fairlawn Co. vested in them and they were then to be transferred to the petitioner, in exchange for which the latter company was to issue its total capital stock of the total value of $400,000 to the Fairlawn Co. stockholders, and was also to issue to said stockholders mortgage bonds in the total amount of $400,000 in proportion to their stockholdings.
The petitioner was organized under the laws of New Jersey in August, 1924. By resolution of petitioner's stockholders dated August 28, 1924, its directors were authorized to acquire the Fairlawn Co.'s property in accordance with the agreement of July 2, 1924. By deed executed on September 1, 1924, petitioner acquired the physical properties of the Fairlawn Co. The caption of the deed reads:
Fairlawn Sand and Gravel Company, by Ferdinand Coirin, Rene Coirin, and George J. Weber, directors and trustees, and Ferdinand Coirin, Rene Coirin, and George J. Weber to Concrete Industries, Incorporated.
The tangible assets acquired by petitioner from the Fairlawn Co. were*2358 as follows:
| Item | Value |
| Land | $14,216.64 |
| No. 1 bin | 41,175.29 |
| No. 2 bin | 20,587.65 |
| Crane No. 1 | 5,000.00 |
| Conveyors | 5,000.00 |
| Trucks and Ford | $39,000.00 |
| Garage building | 2,000.00 |
| Office and store building | 2,500.00 |
| Office furniture | 500.00 |
The petitioner did not acquire the Fairlawn Co.'s cash, accounts receivable, or property insurance, which items amounted to $26,572.10, and it did not assume the Fairlawn Co.'s notes and accounts payable, aggregating $74,115.43.
In December, 1924, one Mortimer Inglis acquired from Rene Coirin and George J. Weber, their rights to and interest in the stock and bonds to be issued by the petitioner, paying therefor to Coirin and Weber the total sum of $110,000. Weber and Rene Coirin retired from the petitioner as of December 24, 1924. About the same time Horce V. Burce acquired from Inglis, without consideration, a part of the latter's stock. Stock certificates were not issued as contemplated by the agreement of July 2, 1924. The first certificates were issued in January, 1925, as follows:
| Shares | |
| No. 1 - Mortimer Inglis | 1,777 7/9 |
| No. 2 - Horace V. Bruce | 1,339 3/9 |
| No. 3 - Ferdinand Coirin | 888 8/9 |
*2359 The $400,000 bonds which the contract of July 2, 1924, provided for were never issued by petitioner. Petitioner, did, however, execute *657 on January 21, 1925, a purchase money mortgage in the amount of $300,000 in favor of Inglis and Ferdinand Coirin, the former's share thereof being in the face amount of $174,000. The mortgage was subsequently foreclosed.
Petitioner actually took possession of the properties acquired from the Fairlawn Co. on January 22, 1925.
The Fairlawn Sand & Gravel Co. did not file income-tax returns for the years 1921, 1922, and 1924. When Inglis learned of this fact he caused returns to be prepared and filed in May, 1925.
By letter dated February 24, 1927, the respondent notified petitioner that he proposed to assess against it the sum of $2,630.09, constituting its liability as transferee of the assets of the Fairlawn Sand & Gravel Co.
OPINION.
ARUNDELL: The facts in this case are substantially similar to those in . There, as here, the new company (the transferee) acquired the assets of the old company for stock. There, the stock of the new company went directly to the*2360 stockholders of the old. Here, the contract provided that the stock of the new company was to go to the stockholders of the old company, but the actual issuance of certificates was delayed until two of the three old stockholders had sold their interests, whereupon the certificates were issued directly to the purchaser of such interests. This delay, however, is of no moment, for when the property of the old company was conveyed to the new, which was accomplished by deed of September 1, 1924, the old stockholders became entitled to the stock and were, as a matter of law, stockholders in the new company. This follows from the well established rule that the issue and delivery of certificates is not necessary to constitute one a stockholder. See and cases there cited. This view of the transaction is supported by the fact that when Inglis came to buy into the petitioner corporation he did so by purchasing from Weber and Rene Coirin and not from the corporation.
Now as to the mortgage, that part of the program outlined in the agreement of July 2, 1924, which called for the issue of $400,000 of mortgage bonds was not carried out. It*2361 was not until after the assets of the Fairlawn Co. were conveyed to the petitioner that any mortgage was executed, and it was in an amount $100,000 less than originally contemplated and did not run to the persons who under the original plan were to receive the bonds. In view of these facts we think that the mortgage has no bearing on the case. But even if it is a material element, it would not change the result, as will be apparent from the discussion which follows.
*658 Among the authorities quoted in the Woodley Petroleum case, supra, is , in part as follows:
Here was a corporation engaged in a profitable business, and owning and possessing property valued at $92,000, exclusive of its franchise. It owed debts confessedly amounting to more or less than the value of its property. It ceases to transact business. Its stockholders organized themselves into another corporation, and all the property is transferred from the old to the new. It matters not that the stockholders in the two companies may not be precisely identical. We are not prepared to say that it*2362 would make any difference if the members of the new company were none of them interested in the old. The thing which we pronounce unconscionable is an arrangement by which one corporation takes from another all its property, deprives it of the means of paying its debts, enables it to dissolve its corporate existence and place itself practically beyond the reach of creditors, and this without assuming its liabilities. The fact here, however, appears to be that the owners of the two corporations are substantially identical, and hence there is a still stronger case in equity.
Also, ; , reading in part:
There is abundant authority likewise for the proposition that where one corporation, for its own stock and bonds, purchases all the assets of another, without provision for the debts of the latter, the transaction is out of the ordinary course of business, and the very circumstances of the case imply full knowledge on the part of the purchasing corporation of all facts necessary to charge the property in its hands with the debts of the selling corporation. Thomp. Corp. § 6547; 10*2363 Cyc. 1267; ; .
The reason underlying these holdings appears in the Jennings, Neff & Co. case in the following language:
Creditors of the old corporation cannot be required to look alone to the stock and bonds which were substituted for the real, tangible assets of that corporation. The value of securities so substituted is more or less problematical, and creditors should not be forced to surrender their claim against available, visible assets, and transfer such claim to new securities. Their remedy cannot thus be hindered and impaired for the benefit of stockholders.
In the present case the Fairlawn Sand & Gravel Co. parted with all of its "real, tangible assets" and under the above decisions the respondent can look to the transferee for satisfaction of his claim to the extent of the value of the property transferred.
In our consideration of *2364 , cited by petitioner, we found that cases where the transfer of corporate assets was questioned by creditors fell into three general classes. We found that the facts in the Fostoria case brought it within that class of which ; , *659 is illustrative and in which the court said:
It is equally well settled that when a sale is a bona fide transaction, and the selling corporation receives money to pay its debts, or property that may be subjected for the payment of its debts and liabilities, equal to a payment of a fair value of the property conveyed by it, the purchasing corporation will not in the absence of a contract obligation or active fraud of some substantial character be held responsible for the debts or liabilities of the selling corporation.
Obviously, the present case does not come within this quotation, for there the selling company, the Fairlawn Sand & Gravel Co., received nothing out of the transaction with which to discharge its liabilities. This case rather comes within the first of the three general*2365 classes of cases considered, in which the consideration for the transfer is paid to the stockholders of the transferor corporation and the transferor is left without assets to satisfy its creditors. As to these cases we said:
The courts have uniformly held the purchasing corporation liable to creditors of the selling corporation, to the extent of the value of the property received, the sale being in fraud of creditors and the purchaser being a party to such fraud through his knowledge that the result of the transaction must necessarily leave such creditors with no assets from which to satisfy their claims.
Petitioner contends that under the corporation laws of New Jersey the trustees in dissolution and the beneficiaries, the existing stockholders, were the persons liable for the payment of the corporate liabilities. Section 54 of the Corporation Acts, Compiled Statutes of New Jersey, provides that "upon the dissolution in any manner of any corporation, the directors shall be trustees thereof," with numerous powers, including those of settling its affairs, collecting debts, and selling property "for cash, or partly on credit, or take mortgages and bonds for part of the purchase*2366 property * * *." The difficulty with attempting to apply this provision of the corporation law to the present case is that we do not know whether the Fairlawn Co. was in dissolution at the time its assets were sold. Minutes of stockholders' and directors' meetings of petitioner dated August 28, 1924, recite that the Fairlawn Co. had been dissolved, and yet that company joined in the deed of September 1, 1924. But even if section 54 of the New Jersey statute is applicable, there is nothing in it that would relieve the petitioner of liability under the rules above stated. It may be, as in the Woodley Petroleum case, supra, that when the trustees became stockholders in the purchasing corporation some liability attached to them, but that question is not before us.
*660 It follows from what we have said that petitioner is liable, as a transferee of the Fairlawn Sand & Gravel Co., for the deficiencies determined against that company.
Reviewed by the Board.
Decision will be entered for the respondent.