a proper order of court as by the creditor in his own proper name and right.1

§ 720. When creditor entitled to an injunction.—The right of a creditor of a corporation to an injunction to restrain wrongful acts of its agents or others rests upon a different basis from that of shareholders. As between shareholders, no actions will lie at law except in certain special cases provided by statute.

But creditors are always entitled to a judgment and the ordinary judicial means for enforcing it upon the maturity of their claims. But they are not entitled to an injunction against a corporation or its agents except in a very strong case. To entitle them to any extraordinary remedy it must appear that the ordinary remedies at law are inadequate, and that without the specific relief asked for, they would suffer irreparable loss. When these facts are made clearly to appear a court of equity will administer whatever remedies the exigencies of the case demand; and will enjoin the act complained of or appoint a receiver to wind up the company's affairs, in short make such orders as justice to all the parties warrants.2

§ 721. Equities between creditors of consolidating companies. Authority to consolidate whether derived from the statute or from the constating instruments, cannot extend so as to deprive creditors of a consolidating corporation of any part of the securities upon which they have given it credit. Nor can a corporation consol

1 Alexander v. Relfe. 74 Mo. 495.

2 In Fisk v. Un. Pac. Ry. Co., 10 Blatchf. 518, an injunction was granted at the suit of a creditor to restrain it from taking any proceedings for its own dissolution or for the appointment of a receiver of its effects, or making further distribution thereof among its stockholders or any other persons. See also, Irons v. Mfrs. Nat. B'k, 6 Biss. 301; Conro v. Gray, 4 How. Pr. 166; Innes v. Lansing, 7 Paige Ch. 583; see also Whitcomb v. Fowle, 7 Abb. N. C. 295.

idating with one whose creditors are less fully secured than its own, give the creditors of that corporation equal claim on the combined assets of both companies. The creditors of both corporations would only have a right to follow the assets of the corporation with which they respectively contracted into the hands of the new corporation and a creditor of either would have a preference over a creditor of the other against the assets of the company indebted to him before the consolidation.

But after the new corporation is formed debts contracted by it, stand upon an equal footing and no preference can be given to creditors of either of the original corporations who have accepted the new in lieu of the corporation with which he contracted. Nor can any preference be given to creditors of former corporations, who have accepted the resulting corporation as their debtor over subsequent creditors of the latter. The consolidated company has the right to contract new debts, it being organized in legal contemplation for the purpose of carrying on the business of the former corporations with an amended constitution. The equitable claim of a creditor of a corporation upon its assets, can only be enforced in case of its insolvency and this rule applies as well after consolidation with another company, as before.1

Creditors may consent that the succeeding corporation be substituted for the original as debtor, but all who do not so consent may require that the property of the latter be separately preserved, as a trust fund and applied in liquidation of their claims. To hold otherwise, would often place creditors at the mercy of reckless adventurers and furnish opportunities for the

1 Infra, §§ 782, 783.

grossest frauds. Persons might, for instance, be induced to invest their money in the bonds of a railroad or manufacturing institution and after all the bonds had been floated, the incorporators might obtain an amendment of their charter authorizing them to embark the funds obtained in mining or other speculative and hazardous ventures in which the security of the bondholders would run great risk of loss without any corresponding benefit.

To prevent this would present as urgent and just a case for the interference of a court of equity as where the capital to which the creditors look for security is about to be withdrawn, or wilfully and fraudulently diminished.

§ 722. A new contract necessary. Before a consolidated or succeeding corporation can acquire any right to use or control the capital of an original corporation, it must discharge the debts of the latter or obtain the consent of its creditors to a novation of the one for the other as debtor.

Some form of recognition of the substituted debtors as such, or of assent to the new arrangement must be shown in order to divest a creditor of his right to payment out of the assets of the dissolving, re-organizing, or consolidating company.'

§ 723. What constitutes novation. What amounts to a consent to novation in such cases is a question of fact

1 In re Manchester, etc., Assur., etc., Ass'n, L. A. 9 Eq. 643, 649; Bruffett v. Gt. West. R. R. Co., 25 Ill. 354, 357; Stedman v. Am. Mut. Life Ins. Co., 45 Conn. 377; People v. Mut. Life Ins. Co., 92 N. Y. 105; Relfe v. Columbia Life Ins. Co., 10 Mo. App. 150, 168; In re Family Endowment Soc., L. R. 5 Ch. 132, 133; Griffith's Case, L. R. 6 Ch. 374; In re India, etc., Ass'n Co., L. R. 7 Ch. 651; Lindley on Partnership (4th Ed.) 463, 464. Compare In re National Provincial L. Ass'n Sov., L. R. 9 Eq. 306.

for a jury: but there must be some positive act of recognition by the creditor of the new or succeeding corporation to the rights of the old in the original contract, and some equally positive acceptance by the new corporation of the responsibilities of debtor.1

In order to constitute a novation it must be tripartite -the creditor the original, and the new debtor must all be parties to it.

This rule applies as well in the case of a consolidation of several corporations as to an alteration or succession of one to the affairs of another.

The creditors of none of the former corporations can be compelled against their wishes to give up their equitable lien upon the capital of their original debtor and take their chances in one which is the outgrowth of it, or of it and others, however much more favorable the terms or greater the security offered.2

§ 724. Rights of creditors may be nominally altered.-The alterations in the charter of a corporation which would entitle creditors to subject the funds of the original to the equitable lien must be such as substantially changes the condition of the capital invested, or the powers of the management or the objects of the corporate enterprise.

The creditors cannot object to a merely nominal alteration of their rights.

1 The holder of a policy in a life insurance company who being directed so to do simply paid premiums to a company which succeeded another which issued the policy, was held not estopped from denying that he had accepted the new company in lieu of the original; and that an ineffectual attempt to transfer his rights to the new company did not deprive him of the right on winding up the company, to rank as a creditor of the company with which his contract was originally made. In re Manchester, etc., Assur. Ass'n, L. R. 9 Eq. 648.

2 New Jersey Midland Ry. Co. v. Strait, 35 N. J. Law, 322; Hamilton Mut. Ins. Co. v. Hobart, 2 Gray, 543.

A mere formal change as of the name of the corporation, or even an alteration of the charter which does not diminish the capital or graft into it new powers would not constitute any ground for complaint. The law looks at the actual effect of the transaction rather than to the form. Creditors could not object to an alteration which did not deprive them of a substantial right or diminish their security though it virtually amounted to the formation of a new corporation and substituted a new debtor.

$ 725. What amounts to the formation of a new corporation.--No definite rules can be laid down by which to test the effect of an alteration upon the rights of creditors or to decide whether it would have any effect.

The question can only be determined by reference to the particular charter or articles of association and laws. under which the corporation was formed.

"To ascertain whether a charter creates a new corporation or merely continues the existence of the old one, we must look to its terms and give them a construction consistent with the legislative intent and the intent of the incorporators." 1

Upon a consolidation or reorganization it is plain that the new company does not succeed to the franchises of being a corporation which the members of the original corporations possessed. It is true, they acquire by force of the statute under which the consolidation is effected, all the other rights and powers, privileges and immunities which were possessed by the corporations whose property is transferred, but that by no means makes the corporation the same.

By filing the certificate in compliance with the

1 Bellow's v. Hallowell, etc., B'k, 2 Mason, 44, per Justice STORY.